Diagnosing Financial Stress in Group Methodology
MicroSave's India Focus Note No. 39 presents findings from a study it conducted with Grameen Koota (GK). The study examined GKs group lending methodology from a different perspective, examining the financial stress levels of the kendras (centers).
The group methodology is currently under scrutiny in India, with many stakeholders alleging that it is causing financial stress to women clients. There have been instances in the south of India where groups refused en masse to repay. The objective of the GK study was to identify the financial stress of Kendra members, reasons for this stress, indicators for measuring it, and strategies for mitigating it. The study revealed that financial stress is caused by:
- Delinquency-related stress factors;
- Lifecycle event-related stress factors;
- Seasonality-related stress factors.
The study identified delinquent payments and defaults, drop-outs, and the groups behavior as indicators for measuring financial stress. Kendras that manage financial stress best are those that anticipate these events in advance. Importantly, many of the largest sources of financial stress are within the control of kendras and their leaders. Hence, MFIs should attempt to facilitate kendra empowerment, decision-making, and action.
