Peer group lending programs, also known as solidarity group programs (SGP”s), are a widely applied and successful model for microenterprise finance in the developing world. The SGP concept evolved during the 1970″s as an adaptation of the traditional model for rotating savings and credit associations, which are common in the developing world; it was initially described in a 1981 study and more fully documented in a 1986 publication. SGP”s, which are conducted by NGO”s, have these characteristics: (1) three to ten microentrepreneurs join together to receive access to credit and related services; (2) loan repayment is guaranteed by group members collectively, and access to subsequent loans depends upon successful repayment by all group members; and (3) loans are appropriate to borrower needs in size, purpose, and terms. The first two sections of this report introduce SGP”s and discuss their theoretical underpinnings and common structural features. The third section describes experiences with SGP”s in Latin America, Asia, and Africa, giving special attention to programs conducted by ACCION International in Bolivia, Colombia, and Guatemala, and by the Grameen Bank in Bangladesh. The fourth section describes innovations in SGP”s, such as the addition of a variety of financial and business services and self-help opportunities for program participants. Section five compares and contrasts the SGP approach with the development finance institution approach, and discusses some of the principal criticisms of SGP”s. A final section sums up the many positive facets of the SGP: low default rates, operational efficiency, and success in introducing innovations are among the reasons the SGP model is likely to become increasingly important in microenterprise finance.
