Design and Sustainability Issues of Rural Credit and Savings Programs: Findings From Malawi

This brief presents analysis and findings that are the results of research that the International Food Policy Research Institute (IFPRI) undertook on the practice and performance of joint liability group lending in Malawi.

The research provides evidence on the extent to which peer selection, peer monitoring and peer pressure are taking place in the credit groups affiliated to the Malawi Rural Finance Company (MRFC), and their impact on the joint liability on loan repayment.

The study presents the following findings and policy implications:

• The relative value that borrowers attach to access to future credit motivates them to repay their loans and that of defaulters in their groups;
• The influence that extension workers, credit assistants and village authorities have on the formation and composition of the groups limits peer selection in MRFC credit groups;
• The non-pecuniary social cost limits peer monitoring in MRFC groups;
• The monitoring activities of extension workers are very important for the effective functioning and performance of MRFC credit groups.

The brief concludes that:

• The prominence that joint liability enjoys in explaining high repayment rates does not hold up universally;
• Microfinance institutions can operate successfully and achieve high loan recovery rates if:
  • They develop lending technologies that cultivate borrowers' expectations for higher and continuous access to credit;
  • Establish an effective screening and monitoring system using their field staff.