Group vs. Individual?

[Guest]

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[waywardcats]

Hi luckyjudy and  to Kiva Friends!

I don't really know if the group sizes have changed that drastically, but I do think we do see more groups on Kiva than we did in the past. However, it is somewhat deceptive because the change has more to do with the way the Field Partners choose to post their loans than any real changes in the practices on the ground.  In other words, most microfinance institutions work on a group model of some sort, but you might not know that from the way loans are posted to Kiva.

The change I think you are seeing is a change in posting habits from the Kiva Field Partners.  For example Tujijenge Tanzania Ltd which is a relatively new FP (25 months on Kiva) seems to be posting very large groups now, but if you look at all their loans there were a lot of individual loans early on and the group loans posted got larger and larger over time.  But if you look for example at this loan to Sofia Tesha the description reads:

Sofia belongs to the group Songambele (Swahili for “going forward”), which consists of 21 other members who keep each other accountable and insure one another in paying back their loans.

So this Field Partner has always worked with large groups, they just chose to post the loans individually at one time, where now they post the group instead.  There may be a number of thing behind this, but I am guessing that the bottom line is that it is easier for them to write up 1 loan for a 21 member group than 21 individual profiles for the same group.  If their posting limits have increased, which is very likely, they can post a larger dollar amount on Kiva each month, doing that by posting group loans is much less time intensive for them.

Other Field partners, for example GHAPE do still post their loans with individual profiles even though the entrepreneur is a member of a group.  The same with Asociación Arariwa, see for example  Cornelia.  This is also a pretty new Field Partner (15 months) and so you may see them begin to post in groups as their funding limits go up.

So now that I've gone completely off your topic, let me get back to your question.  I think it's a valid concern to mention to Kiva that you have difficulty connecting personally to the larger group loans, though I can tell you what their answer will be.  That is essentially that Kiva is a marketplace.  The Field Partners will learn over time what works and what does not and will adjust their posting habits.  A number of people don't agree with this point of view, but for now your best option is to join the loans that speak to you and leave the others.  If loans continue  to expire Kiva believes that will send a message to the Field Partners to improve their postings to appeal to more lenders.

Again welcome!

-Kerry-

[waywardcats]

This new Kiva Fellows blog post list some reasons to consider loaning to groups which I don't think have been considered here before.

Why you should support group loans on Kiva by Sheethal Shobowale, KF10, Bolivia

I recommend reading the whole post, but here are a few of the reasons for choosing group loans that she lists.

Here are some reasons why group loans work well in microfinance -

    * Allows MFIs to go deeper into poverty – Group borrowers are often poorer than individual borrowers.  Since the only collateral required of them is a mutual guarantee, group loans allow clients without assets – like appliances, vehicles, or property titles – to access credit. Group loans give MFIs the ability to offer credit to what would otherwise be considered much riskier, collateral-less borrowers.  Very poor clients need support in ways that group mechanisms provide, and live in areas where the cost of mitigating risks without group mechanisms would be nonviable. Group mechanisms include a lot of costs that in rural areas are not really considered (people don’t value their time because the opportunity cost is low), but where monetary costs such as significantly higher interest rates or physical collateral (rather than social collateral) would prevent people form accessing credit.

  * MFI Efficiency – With group loans, one loan officer can serve multiple people at the same time, which helps keep MFI costs down.  Since loan values are small, the fixed costs of doing business are high compared to the interest earned from the loans.  Group loans help MFIs like Asociación Arariwa or Emprender who work with the village banking methodology to be sustainability, especially when they have to travel far distances to visit clients.

  * Adverse selection before disbursement - In other words, how to select the right clients. Since people know their neighbors (though see criticisms below), reliable clients are able to select other reliable clients much more cheaply than MFIs are. If they might end up paying for somebody’s irresponsibility, then they make sure they pick responsible people to borrow with. Groups are formed according to risk levels and the groups assume the risk rather than the MFI.

  * Ex-ante moral hazard – in other words, the risk of people using the money for activities other than those reported to the MFI. Groups ideally monitor the businesses that are chosen so that they don’t end up paying for somebody else’s business failure.


  * Ex-post moral hazard – in other words, the risk of people making profits and then claiming that they can’t pay because they did not make the profits. Group members know if their neighbors are making money and make sure they cough up the money if the alternative is paying themselves.

[Jan & John]

I received a journal that gave me another reason for supporting groups on Kiva...

http://www.kiva.org/lend/135194

The Skylight Group is new to SMEP, and all fifteen members have requested their first loans of either Ksh 15,000 or Ksh 20,000...
The members of the Skylight group own a diverse set of businesses including a cereal shop,hardware store, restaurant, grocery, and clothing shop. In addition, some members transport water and buy/sell plots of land.We've included updates for the group members that were present at the time of meeting them for the journaling.

<snip listing of businesses>

Overall, the group is doing well, and they want to use their group setting to make boreholes to access groundwater in their area.

SMEP is a microfinance institution born out of an initiative of the National Council of Churches of Kenya (NCCK). It began as a feeding programme-to feed the Mathare slum dwellers in Nairobi, Kenya. NCCK realized that the poor needed to be self reliant and economically empowered and the feeding programme was transformed into a microcredit scheme. What started as a small project has grown into a microfinance institution that has a dream of providing many financial solutions to entrepreneurs. SMEP is transformation into a deposit taking microfinance institution.

these loans will not only transform individual lives... but will make a huge difference on a community level as well.
-jan-

[iampaul]

My preference is toward a blend of smaller groups and individuals, but I do loan to a few larger groups also.

But if you look for example at this loan to Sofia Tesha the description reads:

...

So this Field Partner has always worked with large groups, they just chose to post the loans individually at one time,

I saw some indication of this somewhere also, but I'm not sure whether it was the same Field Partner or another. This has me a bit concerned because it is another piece of information that is not being shared well with the people providing the funding for the loans. In essence, it is much the same thing as the practice of Default Coverage by MFIs to which some lenders objected and has since been discontinued - or has it? How do we know that the lenders in these cases have actually made the repayments and not the members of the group who are not revealed to us? How does this affect the delinquency and default stats being reported to us?

Here is one from the same FP who is currently repaying a loan "individually," Cesilia Luena, but who is listed as belonging to "Hondogo Group" whose other members and borrowing relationship are not revealed. This entrepreneur's page states that Default Protection is not covered. So if she does fail to repay her loan, are the other members of Hondogo Group still responsible for her share? Would those repayments still be made to the Kiva borrowers for her loan? Would her failure to pay be reported in the Field Partner's stats?

I would like to know more about this practice.

Paul

[David2051]

In essence, it is much the same thing as the practice of Default Coverage by MFIs to which some lenders objected and has since been discontinued - or has it?

I think it is unfortunate that some lenders objected so now all lenders live with a new policy.  In other cases, such as US loans or currency risk, Kiva is a market place where loans are transparent and lenders can choose loans with the features they want. 

In reality, the only change is that transparency has been reduced because MFI's are still motivated to keep their default rates low. Default protection is something that has always been built into the microlending model.  I wonder why the people who complain and seem to want to have defaults don't just give their money to a charity in the first place.

[PetraH]

Question: is there a community on KIVA that specifically funds group loans?

I don't really mind, personally, that I don't loan to an individual. Sure, the stories are nice, but for me that does not make the big difference. I like how I get to choose a country and a business-type... But that works for group loans as well.

With groups, I also like the idea that they get some support from one each other. People who are only just starting a business may get help from seasoned "professionals" here... People whose business is not thriving might get some valuable advice from other members of their team.
(One downside: I know group dynamics can also cause an exclusion of some of the people for stupid reasons like "I don't like him", and there's group pressure which can be bad, too... so groups aren't always a good thing).

I wonder if kiva lenders would like it more, if they were within a lender community that they like, and together fund a whole group of lenders. You would perhaps feel more close to this group, because you are in a group (community) yourself.
Although... of course there would be a lot of debate within the community about WHICH group to fund...

[RichardF]

Hi Patra! 

Try Kiva Bank. http://www.kivabank.org/

In the upper left-hand corner of the page, in the control box, pick "Limit to Groups >= 2". You then change adjust the bar below it to any other size group as well.

Here's the Kiva Friends discussion about Kiva Bank.
http://www.kivafriends.org/index.php/topic,4243.msg66091.html#msg66091

[alan]

Hi Petra!

I haven't seen a lending team for group loans, but it would be easy enough to start one. Why not? All you need is a name and a graphic. I would bet there would be some interested people who would join.

[PetraH]

I was considering that, but wanted some help to know for sure that it doesn't already exist... Thanks

[David2051]

I was considering that, but wanted some help to know for sure that it doesn't already exist... Thanks

It's kind of hard to search for since so many teams have Group in their names.  I haven't seen a team with that focus yet, but I think it's a worthy cause!  Be sure to let us know here if you do start one!