Microfinance has come a long way in the last one decade. It has witnessed exemplary growth, astronomical valuation, venture capital funding, mission drift, excessive lending followed by the anticipated crisis. We researched the underlying reasons of the crisis and arrived at the conclusion that the joint liability system was counter-productive for the larger sized loans in higher loan cycles. This led to coercive behaviour by the group members, sometimes aided & abetted by MFI field staff, and secondly, this was one of the key reasons for high customer drop-out rates. Based on our past 6 years of experience, Ujjivan decided to take the road less travelled by our peers.  

We decided to pilot "My Loan".

"My Loan" is an adaptation of the Grameen-II model of 2001. The fundamental pillar of the Grameen model – social pressure through group guarantee, turned out to be a huge burden on customers. Our study of distressed customers in higher loan cycles revealed that it is the group which creates tremendous pressure on a defaulting member. This is because it is very difficult for the group to take on the additional burden of servicing loans of defaulting members when the loan sizes are large. This creates tension within the group, aggressive behaviour, and humiliation in front of society for the defaulter. This sometimes leads the defaulting customers to take recourse to drastic measures such as suicides.

To address this issue, in our initiative ‘My Loan’, group guarantee is limited only to the group ensuring that member customers attend centre meetings. The financial liability of default customers is not borne by other group members. Customers are responsible for their own repayments while the group ensures that all members are present at the repayment centre meetings. The group has limited responsibility to help in case of absconding customers & deliberate defaulters.

The pilot was kicked off in 4 branches in urban and semi-urban Bangalore and is in the process of being launched in an additional 12 branches around the country. The response so far, is encouraging. We are offering this product to customers in the 3rd loan cycle and above.  

The “My Loan” initiative is an important intervention in ‘graduating’ our clients to individual borrowing. Our customers at Maddur and Magadi Road branches (in Bangalore) who have availed of the loan under this model are extremely delighted as there is no peer pressure to repay on behalf of others and as it also actively involves their family members. (The spouse is required to guarantee the loan, though not mandatory.) The customer’s family can now take an informed decision about their borrowing limits in accordance with their earning capacity. We estimate that this initiative will also curtail bad practices of sub-lending and multiple borrowings.

Post-pilot phase, we plan to roll out this initiative to all our branches which have customers in the 3rd loan cycle and above.