A Group Loan is a type of financing offered to a group of individuals, typically in rural or underserved areas, who collectively apply for and guarantee the loan. This approach is often used in microfinance settings to provide access to credit for individuals who may not qualify for traditional loans due to lack of collateral or credit history. Group loans rely on mutual trust and accountability among members, fostering community development and financial inclusion.

Key Features of Group Loan:

• Joint Liability: All group members are collectively responsible for loan repayment. If one member defaults, others must cover the shortfall.
• Small Loan Amounts: Designed to meet the basic financial needs of group members, often for entrepreneurial or livelihood activities.
• Flexible Terms: Tailored to align with the group’s earning patterns and repayment capacity.
• No Collateral Required: Group dynamics and peer pressure act as informal guarantees.

Eligibility Criteria:

• A group typically consists of 5–20 members.
• Members must share a common purpose or goal (e.g., community projects, small businesses).
• Demonstrated mutual trust and willingness to co-guarantee.
• Proof of residence or a stable group structure.

Loan Amount and Tenure:

• Loan amounts are usually modest to meet working capital or small-scale business needs.
• Tenures are short to medium-term, ranging from 6 months to 3 years.

Interest Rates:

• Competitive rates, often lower than those of informal moneylenders.
• Subsidized rates may be available under government or NGO initiatives.
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Required Documentation:

• Group formation and membership records.
• Identification documents for all members (e.g., voter ID, Aadhar, etc.).
• Purpose or project plan for the loan.
• Bank account details for disbursement.