The Role Of Group Guarantee In Enforcing Loan Recovery In Microfinances: A Case Study Of Milango Financial Services Limited

Abstract

The importance of an effective guarantee system cannot be understated. Ideally, with group guarantee, the group takes full responsibility of all loans advanced to the members. This joint liability should result in full recovery of such loans. However, cases of delinquency and default that spin out of control are at times observed. Such cases lead to liquidity problems in the microfinance institution and could eventually lead to failure of the enterprise. This research used a descriptive study which sought to find out how group guarantee had been applied in loan recovery in the selected microfinance institution. The study attempted to pool knowledge about the application of group liability, whether the clients were fully aware of its implications by the time loans are advanced to them and how group liability was enforced in loan recovery. Thirteen staff members and 137 clients participated in the study through responding to questionnaires. The study found that the group was weak and that only about two-thirds of the clients were trained before taking their first loans. As a result, clients were not well informed on what was expected of them when they borrowed loans from the institution. The study recommends that the groups be built up by proper training on group dynamics, group liability and its implications and on having a constitution that is followed by the group members.