The Best Model for Micro-lending: Self-help Group or Joint Liability Group?

Abstract

Ideological schisms in Indian micro-finance have often been interpreted at the level of practice through the adoption of different delivery models including the community empowering Self-Help Group (SHG) model and the financially efficient Joint Liability Group (JLG) model. While the SHG is a saving-led slow growth model and unique to India, JLG is a credit-led fast growth model, loosely based on the Grameen model of Bangladesh. The article describes the two models and strives to develop a comparison between them along several parameters. The paper argues that both models have their advantages depending upon external factors like competition, homogeneity within population, among other factors. Both models live up to their optimum promise when in alignment with organisational features like culture and its strength, leadership etc. Country like India is often afflicted by duality of external factors ranging from socially driven and stratified social structures in rural areas to the financially-driven urban poor population. It is this duality that necessitates the existence of both the models, matching to the diversity of target population and characteristics of the implementing microfinance organisation.