Micro-businesses in Nigeria need funds to grow their operations. Although they find it difficult to access to loans from banks. Group loans in Nigeria are usually provided by microfinance banks to traders.
What is a group loan
The group loan is a form of rotating credit (Esusu/Ajo). A rotating credit scheme is where a group of individuals fill the role of an informal financial institution through repeated contributions and withdrawals to and from a common fund.
It is formed because accessing formal institutions is difficult due to their unavailability or because these institutions are unable to provide the appropriate service. The group loan reduces the risk to the lender which allows them to charge a lower interest rate than on a normal individual loan.
The transactions can vary in occurrences as often as daily to every six months, and recipients of funds are commonly chosen based on financial need or lottery. For example, six people may agree to give N10 to a fund every month for six months. Each month, a different member of the group collects the N50 contributed by the other five members and uses it for their business expenses or personal consumption. This arrangement allows people who can’t normally raise substantial capital to have periodic access to such funds.
Group Loan Features
- The group ranges from 3 – 10
- You won’t need collateral as long as you are in an existing group
- Loan repayment is flexible between 3 to 12 months
- The group members will act as guarantor to each other