The Role of Social Capital in Group Lending as a Strategy to Reduce Non-Performing Loans in the Grameen Bank Business Model: A Case Study of PT Amartha Mikro Fintek in Banten

As the pioneer of microfinance, Grameen Bank is renowned for its group lending strategy in disbursing microcredit to impoverished women in rural areas. This model leverages social capital—often referred to as social collateral—to mitigate credit risk and improve loan repayment rates. According to Besley (1995), while this strategy offers significant benefits, it also entails potential drawbacks. This study aims to examine the role of social capital in group lending as a strategic approach to reducing non-performing loans (NPLs) within the Grameen Bank business model. The research focuses on a case study of borrowers from PT Amartha Mikro Fintek in the Banten region, which applies a joint-liability scheme rooted in social capital principles, wherein group members mutually guarantee each other’s loans. The study is motivated by the notably high NPL rate in Banten, accounting for 67% of the region’s active loan portfolio. The research adopts a qualitative case study approach, employing in-depth interviews and direct observation of 15 respondents, including 3 managerial staff members of Amartha as well as 12 Amartha’s borrower group leaders to gather rich, contextual data. The findings indicate that social capital elements—such as trust, shared norms, and social networks—play a critical role in promoting repayment discipline and mitigating credit risk. However, the study also identifies weaknesses in the mechanism, particularly related to the enforcement of social sanctions and the borrowers’ low financial literacy. This research contributes to the broader discourse on community-based microcredit risk management and offers policy implications for strengthening microfinance institutions in Indonesia.