Progressive Lending as a Dynamic Incentive Mechanism in Microfinance Groups:An Empirical Analysis

Microfinance through joint liability or group lending has received a lot of attention recently, both from policy makers as well as academicians. It is playing an important role in delivering financial services to the 'socially and economically excluded' poor, in general, and women, in particular. The group-lending works with various dynamic incentives. One such kind is principle of progressive lending and it plays a vital role in sustaining the groups for the persistent delivery of microfinance services to its members. In progressive lending, a typical borrower receives at first very small amounts, which increase with good repayment conduct or it is linking new, larger loans to past repayment. This paper explores possible theoretical and empirical relationship between progressive lending and its determinants in joint liability lending approach. The primary survey was conducted in 10 villages covering 106 SHGs and 318 members in Karnataka, India. The results indicate that the age, size, savings, repayment of the group have significant influences on the progressive lending.