The impact of group lending on repayment of loan among microfinance institution in Tanzania: a case study of entrepreneur financial centre (EFC)

Group lending approach has become one of the most viable ways of helping the poor to get loans both from donor community and the microfinance institution on the developing societies but huge amount of capital in these MFIs has been reported as the bad debts. 100 individual were used to collect data, 40 from MFI, 40 group borrowers and 20 individual borrowers. The data was obtained by using questionnaires and the information collected was analyzed by using Statistical Packages for Social Science (SPSS). The findings indicate that group characteristics, repayment factors and management factors influence the loan repayment among group borrowers in MFIs in Tanzania. These factors explain the variation in loan repayment by 50.50% as measured by the coefficient of determination the findings gave a highlight to the Microfinance Institution to encourage the group borrowing in the country. The study recommends for the MFIs in Tanzania to widen the scope of group lending approach and minimizing the individual lending, so as to capture the benefits of group lending and minimizing the default risks. The study also recommends for the individual borrowers to be in groups so that they can go as a group and get loans. Since the groups have performed better in repaying the loan in contrast to individual borrowers, it will be easier to secure loans by the use of groups compared to individuals. Microfinance Institutions (MFIs) are the financial institutions which provide wide range of financial services to the low income earners and poor marginalized societies. MFIs have become popular in developing countries and most of them have employed group lending approach in loan services. The study looks at the impact of group lending on loan repayment among Microfinance Institutions in Tanzania.