The Collection Methodologies in Group Lending

by Anant Jayant Natu, Sunil Bhat, Ravi Kant and TVS Ravi Kumar
Dec 14, 2011
1 min

This Note compares the three most commonly practiced instalment collection methods in group lending and concludes that MFIs will have to devise ways to ensure continuity in their interface with clients.

Instalment collection extends for the entire duration of loan cycle (which is usually a year) and occurs at regular frequency (usually every week). This makes collections the single most critical driver of costs. This Note describes and compares the three most commonly practiced instalment collection methods in group lending. It then highlights that MFIs now have the opportunity to partner with banks as their banking correspondents (BC) and that this provides unprecedented opportunities to make instalment collection more efficient and client-responsive.

However, in conclusion it notes that whichever collection mechanism is used, MFIs will have to devise ways to ensure continuity in their interface with clients. Banking is based on trust and thus technology can never replace the person-to-person contact.