Determinants of Repayment Performance of Group and Individual Lending in Microfinance: A Case Study in the Upper West Region of Ghana

Abstract

The study was carried out in the Upper West Region of Ghana. The main objective of the study was to compare the repayment performance of group clients and individual clients of microfinance institutions in order to bring to light factors that determine repayment performance in groups and individual credit beneficiaries. Two financial institutions namely WACCU and SRB were involved in the study. Finding showed that individual lending yielded a better repayment performance than group lending. This outcome was attributed to the fact that most individual clients as compared to group clients presented collateral before loans were given out and a large proportion of group members were relatives. Finding also suggests that the mobilization of savings by MFIs improves repayments in both group and individual lending. Client’s access to loans from other FIs did not have any effect on repayment. However access to future and bigger loans enhanced repayment. In addition access to future and bigger loans served as the lead motivator for repayment in both lending methodologies. Regular repayment and visits in a form of monitoring enhances repayment. The ability of a group to self-select each other and the rejection of someone from the group as a measure of screening improves repayments. The study also showed that social ties in form of mediation and borrowing to make timely payments did not affect repayment. However a large proportion of relatives in groups lower repayment performance.