At the beginning of the microfinance movement, the thought of how to secure the credit was paramount. With the poor being the focus, it was quite natural that a collateral as a pledge against any loan would be hard to come by. The concept of joint liability group was thought of as a solution that could address the issue of loan without conventional concept of collateral. The logic behind it was quite ingeniously simple.

Within a small locality neighbours are known to each other. Each one knows the others’ credit and trustworthiness. So if a group is formed by a set of neighbours and together they bear the risk of default by any member the problem of credit risk would be largely addressed by the group taking up the liability jointly. Should any member default, the group would take up the liability of repaying the defaulter’s debt. Hence it is dubbed as the Joint Liability Group or JLG.

However, the process couldn’t be an automatic one. Given the low level of literacy and corresponding low level of financial awareness, the process involved a direct engagement of staff representing the microfinance institutions. The group members needed to be taught ways of managing the credit they are accessing and its efficient deployment. This of course involves an intensely detailed engagement between the credit institutions and the group.

The logic worked and the system, as we can see, is thriving. However, with the changing times the need for products focused on individual requirements is being felt more pressingly every day. The JLG logic requires acceptance by the group concerned of an individual member’s loan requirement and also the purpose for which the loan is being taken.

With the growing opportunities, requirement spectrum of the customers is also exponentially getting wide. In the initial days, within a group, the deployment purpose of the credit used to be almost homogeneous. Therefore, acceptance of a member’s need by the others within the group was not a challenge. Now, however, it is as various members have varied deployment purposes that may not be acceptable as a liability risk by the group concerned. There is also another factor that is looming large. Within the same group some members perform better than others in terms of entrepreneurial ability. As a result their fund requirement to sustain their next stage of growth is often found to be beyond both the ability and willingness of the group to bear the liability involved in the demand for funds made by the member concerned.

The changing characteristics as discussed above are leading to a rising demand for individual loans from the microfinance institutions. Unless these demands are met the members will not be able to convert their initial success into a sustainable one. This would call for a new and different approach in microfinance.