The Solidarity Group Experience Worldwide

Are solidarity groups successful in poverty outreach?

90 pages

The paper looks at the solidarity group experience world wide and argues that creating access to reasonably priced financial services has been identified as an effective strategy to promote informal-sector firms or microenterprise growth. Commonly referred to as solidarity group programs (SGPs), this approach is distinguished by the following characteristics:

Three to ten microentrepreneurs join together to receive access to credit and related services such as training and organisation building;
Group members collectively guarantee loan repayment, and access to subsequent loans is dependent on successful repayment by all group members;
Loans are appropriate to borrower needs in size, purpose, and terms.

The paper suggests that solidarity group methodology adapts elements of the traditional model of rotating savings and credit associations (ROSCAs), which are widespread in the developing world. The paper looks at the key features of effective credit delivery in solidarity group programs are:

Client population;
Group self-formation;
Decentralized operations;
Appropriate loan sizes and terms;
Interest rates and services fees;
Simple loan application and rapid review;
On-time repayment requirements;
Linking credit to savings and other financial services;
Training and organization building;
Borrowers and lender accountability and mutual respect.

The paper briefly looks at ACCION International affiliates that lends money to solidarity groups in ten Latin American countries and United States, The Grameen Bank in Asia and the widespread practices of ROSCAs, peer group lending programs in Africa.It states the following lessons learnt over the years from the solidarity group lending in development finance:

Providing working capital rather than term lending;
Conducting limited project analysis;
Targeting poor households, particularly women, with small loan amounts;
Providing strong repayment incentives rather than relying on the success of the business venture for repayment.

The paper further concludes that:

The solidarity group methodology has proved, during the past few years, to be dynamic and responsive to the development challenges it faced;
SGPs reconcile the competing pressures of serving the very poor, reaching large numbers, and operating in a self sustaining manner;
Moreover, these programs are building a sustainable basis for mutual accountability.