Microfinance Beyond Group Lending

Microlending is growing in Eastern Europe, Russia and China as a flexible means of widening access to financial services, both to help alleviate poverty and to encourage private‐sector activity. We describe mechanisms that allow these programmes to successfully penetrate new segments of credit markets. These features include direct monitoring, regular repayment schedules, and the use of non‐refinancing threats. These mechanisms allow the programmes to generate high repayment rates from low‐income borrowers without requiring collateral and without using group lending contracts that feature joint liability.