Abstract:
The purpose of this study was to analyze the contributory factors to loan default in group lending in
Microfinance Institutions (MFIs) in Tanzania. Specifically, it sought to find out factors contributing
to loan default in group lending, to identify and assess the role played by peer pressure and group
solidarity in reducing loan default in group lending and to identify and examine strategies adopted by
MFIs to overcome loan default in group lending. The study was conducted at FINCA Tanzania. It
involved 103 respondents from clients, loan officers, supervisors and a branch manager. Respondents
were obtained through purposive, convenience and quota sampling techniques. Data were gathered
through questionnaires, observations, interviews and documentary review and were qualitatively and
quantitatively analyzed. The study revealed that major contributory factors to loan default in group
lending included: burden of other debts, poor business experience, poor knowledge of loan
management and poor coordination. It was revealed further from the study that measures taken in
groups to enforce loan repayment in group lending were rarely taken by group members. It was further
found out that peer pressure such as exclusion of defaulter members from the group, charging fine to
latecomer? and absentees in group meetings and application of social stigma to defaulters played role,
to a large extent, in reducing loan default in group lending. Strategies applied in MFIs to overcome
loan default such as pre-loan training to group members was ranked to be important, while frequent
visits to group members, provision of loan insurance and continuous training to group members were
ranked to be lesser important for the same. The study recommended for a review of loan repayment
period, procedures for loan approval, repayment capacity analysis and interest rate charged. Also, the
study calls for the government to speed up establishment of a credit reference bureau in order to reduce
loan default.
