FCC's Community Group-Lending: Relieving the Constraint Placed on the Institution's Poverty Alleviation Impact by Program Design Weakness
Isen, Jeffrey A.
- Submitted in partial fulfillment of the degree Master of Arts in Law and Diplomacy at the Fletcher School of Law and Diplomacy. Abstract: Fundo de Cràdito Comunitário (FCC) is one of the largest microfinance providers in Mozambique, serving more clients than any other institution in the nation. About 85% of its client portfolio is engaged in their community group-lending program. Unfortunately, ... read moremany intra-group delinquencies are occurring, leaving clients to select between one of two costly coping strategies. First, many non-delinquent clients have to use profits or savings to cover the repayments of delinquent group members; this necessarily constrains the net benefit that they are able to realize from borrowing, and may produce a net cost. Second, other non-delinquent clients, in order to avoid ensuring this cost, have resorted to forcefully confiscating the personal possessions of delinquent group members in order to cover their repayment. This leaves the latter clients worse off for having borrowed credits from FCC. This thesis provides two possible explanations for the sub-optimal performance of FCC's poverty alleviation impact. First, in light of the careful examination of the necessary components that any group-lending scheme must possess, the study argues that FCC's community borrowing group structure is not always conducive to the effective exploitation of necessary group-lending mechanisms (informational advantage, peer-monitoring/pressure, and informal insurance). This inhibits clients' ability to mitigate the costs of borrower delinquency. Second, relying on data gathered during a market research campaign, it is argued that the loan terms are proving to be too onerous for borrowers, causing delinquencies that force other clients to adopt costly coping strategies. Policy reform recommendation are then offered to assist FCC overcome these impact constraining difficulties.read less