B. Designing adequate microfinance products and services
Collateral Requirements
How to adapt them to the reality of poor rural households, taking into account their livelihood assets? (e.g. include cows, cowsheds, agricultural equipment, cars, etc and relax criteria for guarantors to reflect the reality of the farming population).
Given the difficulty of poor rural people to have access to collateral, most NGO MFIs that serve the rural poor have developed uncollateralized lines of credit based on group solidarity. The pressure to repay in this case is not linked to a material belonging, but rather to peer pressure, given that if a group members defaults, the entire group is liable. Groups may be set up by the NGO itself, as in the case of FINCA's village banking, or in partnership with other local institutions. Groups are usually already strongly linked by family, work or neighbourhood ties, depending on the local context.
Some MFIs have experimented with different sources of collateral as a way of deepening their outreach to the poor. The Microfinance Bank of Georgia for example, has offered "gold pawn loans". These loans allow clients to use jewelry as collateral, rather than conventional collateral.
1. Forster F., Greene S., Pytkowska J., The State of Microfinance in CEE and the NIS, The Microfinance Centre (MFC), Warsaw, Poland, 2003.
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