How do self help groups help borrowers to overcome the problem
of lack of collateral? Explain with an example.
Answers
Explanation:
Self-help group is able to solve collateral problem. Members can take small loans from the group itself to meet their needs without any collateral. ... The group is responsible for the repayment of the loan. Any case of non-repayment of loan by any one member is followed up seriously by other members in the group.
ABSENCE of collateral is the major problem which prevents the poor from getting loan from formal sector loans.
Self-help group is able to solve collateral problem.
Members can take small loans from the group itself to meet their needs without any collateral.
The Group charges interest on their loans but this is less than what the money lenders charge.
Most of the decisions regarding savings and loan activities are taken by the group members. The group decides as regards the loans to be granted the purpose amount, interest to be charged, repayment schedule etc.
The group is responsible for the repayment of the loan.
Any case of non-repayment of loan by any one member is followed up seriously by other members in the group.
Because of this mentioned features, banks are willing to lend to the poor women when organised in SHGs, even though they have no collateral as such.
Groups meets regularly and provides a platform to discuss and act on variety of social issues.
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