Success and Constraints of Group Lending Programs:Evidence from the Working of Micro-Credit Institutions in Odisha

There has been rapid growth of microcredit institutions in Odisha since the last few years. But these institutions are beset with a number of problems including deterioration in the quality of groups and rising number of defaulters, thereby contributing to institutional unsustainability of groups as well as weakening the services rendered by these groups. This paper analyzes the salient features of group lending programs based on joint liability contract that are operating in low income areas. It highlights how they help the lender in shifting the monitoring and enforcement costs to the borrowers. The borrowers by contrast, monitor each other’s activities in which loan is utilized, repayment pattern of loans and exert pressure on delinquent members and/or help the needy members through reciprocal action. The embedded relationship among the members helps in maintaining group solidarity, repayment of loan, and enforcement of contracts.