method. Groups work best when all or at least some of the members know each other well. Groups review the first loans of fellow members carefully. If any member of the group is late when her/his loan is due, no other member of the group may receive a new loan. The following examples illustrate how group guarantees differ from program to program. Single level of guarantee. In many village banks and in some Grameen Replication centres, partners ask clients for only one level of guarantee. In these village banks, smaller solidarity groups of five to eight members may not exist at all, and the solidarity principle functions solely at the bank level. In contrast, in Grameen centres the essential loan guarantee is at the five-member solidarity group level. In yet other group-lending methodologies, only the small solidarity groups provide the loan guarantee, with no functional larger group envelope. Double levels of guarantee. In some village banks, credit officers form a larger group of 50 members and then also ask members to gather into smaller solidarity
STELLAR EXAMPLE The Group and the Village Bank n El Salvador, Enlace understands the economic rewards of engaging clients in all facets of the credit process. For example, Enlace clients are involved in the initial assessment of the economic activities of village bank members. Enlace has a very simple process where members of a village bank visit one another’s homes or places of business and verify the activity and all “collateral” that the client is pledging to the village bank. Members also learn to calculate, on a simple form, the cash flow of the new member to determine how much debt s/he can afford to repay.
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groups. The smaller group is the first line of guarantee. If a group member is late on a loan payment, the other members must come up with the payment. If they cannot, then the larger group must make good on the loan.
The Work of Groups Groups, be they small or large, often do more than simply underwrite the loans of fellow members. Group members become very involved in all levels of the lending process. If members know one another well, are committed to their economic activities, and trust and respect the credit officer, the group may be motivated to strengthen lending operations – from increased
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