Microfinance Innovation Center For Resources and Alternatives

The study of group lending in BPRs involved two financial institutions, namely Arta Kencana (AK) in Madiun and Kebo Mas (KM) in Gresik. Utilizing individual group lending clients as units of analysis, the study administered the BPR Group Lending Survey on a total of 211 group lending clients. In addition, BPR management, partners, community leaders, and both drop-out as well as active clients were interviewed for qualitative input.

The findings of the study revealed that the clients were satisfied with group lending products and that the product itself had a positive economic and social impact for the clients. The group lending products of both BPRs in the study provided financial access to the poor in the community

BPR KM and BPR AK utilize different approaches in implementing their group lending product. The village banking model of BPR AK with a larger number of clients contributes to the efficiency of the product. The ASA modification method of BPR KM emphasize the zero-tolerance approach that was found to contribute to a better product quality

The portfolio at risk of both group lending products was found to be much lower than the individual product of both BPRs. Group screening for client membership, the point of service which is brought closer to clients, and zero tolerance for delinquency approach are the three major contributing factors to better product quality of group lending when compared to individual lending.

In general, group lending clients are satisfied with the group lending products of BPRs. Non collateral, immediate loan process and ‘community friendly’ services, are identified to be among the factors that bring about satisfaction. The need for a higher ceiling on the loan amount is accommodated by the individual lending product of BPRs.

Product diversification that takes into consideration the occupational sectors and business characters of clients is found to be important in fulfilling the demand of the group lending market. Savings product of the group lending clients has a huge potential as being a major source of fund for BPRs and thus needs more promotion. BPRs need to consider a competitive but sustainable interest rate. Non-financial input positively added to the social impact of group lending activities.

Aside from being the point of service (for handling installment and savings), group meetings are important for monitoring purposes and it props up the efficiency of BPRs. The expanded role of group leaders in the financial management and monitoring of the group could also add to the efficiency offered by group lending.

Group lending products needs to emphasize on character in the process of loan analysis. Even though group lending methodology carry a distinct solidarity component in its implementation, the analysis of capacity, condition of economy and capital of individual clients, remain vital in maintaining healthy financial indicators of loan portfolio of BPRs. After the third year of group formation, careful attention has to be given to the groups as delinquency and drop outs tend to increase.

In this study, the profitability of the group lending products both in BPR KM and BPR AK was found to be lower when compared to the individual product. A review of product design and business planning based on proper market survey needs to be performed. In addition, business scale, product cost, and interest rate needs to be further examined.

The regulation of the Central Bank that is related to group lending is on Loan Loss Reserve (LLR) that only allows physical or liquid assets as subtraction factors on LLR. The capacity of BPRs to provide loans to a larger pool of clients through non-collateral group lending will be challenged if they are unable to maintain the quality of the loan portfolio.

Human resource is the main adjustment BPRs need to adopt when implementing group lending product, parallel to its contemporary individual lending products. Emphasis on careful recruitment, improved welfare, social benefit, rotational system and mentoring are important factors to enhance the efficiency and productivity of loan officers.

Group lending has positive impact on clients’ economic improvement. Most of the clients utilize their loan for business capital and they testify an increase of income. Economic upgrading added with the social benefit from group activities, are major impacts brought about by group lending activities in the community.