Group Lending vs Individual Lending: Choosing the Right Microfinance Solution
For many small entrepreneurs, farmers, and self-employed individuals across India, the right loan can be the difference between a business idea that stays on paper and one that transforms into reality. Over the last two decades, microfinance has emerged as one of the most effective tools for financial inclusion, bringing formal credit to people who were previously excluded from the banking system.
Small Finance Banks (SFBs) like Ujjivan have played a central role in this shift, designing products that are accessible, affordable, and suited to the realities of rural and semi-urban life. But while the idea of microfinance sounds simple, the way it’s delivered can vary significantly. Two models dominate the landscape that is group lending and individual lending, each with its own strengths, limitations, and ideal use cases.
The question for a borrower is straightforward: Which one is right for me? The answer depends on where you are in your financial journey, what you need the loan for, and how comfortable you are with the repayment structure.
Related Posts
Group Lending — Strength in Numbers
Group lending, often delivered through the Joint Liability Group (JLG) model, brings together 5–10 borrowers from the same community. While the loan amount is given to each member individually, the group collectively guarantees repayment. The concept is simple: when people know each other and meet regularly, they are more likely to repay on time.
Why it works
- First step into formal credit: Many rural households have little or no documented credit history. Group loans bypass this barrier by using social collateral instead of physical collateral.
- Peer accountability: Regular meetings and group pressure maintain high repayment discipline.
- Lower operational costs: Disbursing and collecting in groups reduces travel and transaction costs for the bank, which translates into faster processing for the borrower.
For example, Ujjivan SFB’s Group Loan offers amounts from Rs. 5,000 to Rs. 1 lakh, with minimal documentation and no collateral required. Designed primarily for women entrepreneurs, small traders, and rural households, these loans help fund activities like petty trade, agriculture, and small-scale services, often the first step to building a stable income.
Limitations to note
Group lending works best when all members are financially disciplined. If one member defaults, it can strain relationships and even affect others’ repayment schedules. Loan sizes are also smaller and less flexible compared to individual loans.
Individual Lending — Tailored Credit for Growth
Individual lending is exactly what it sounds like: a loan assessed, approved, and disbursed to one person, based on their repayment capacity and (where applicable) credit history.
Why it works
- Larger ticket sizes: Perfect for expansion, asset purchase, or significant business investment.
- Customised terms: Flexibility in loan amount, tenure, and repayment schedule.
- Privacy and independence: No group oversight or shared liability.
Through its Micro Individual Loans, Ujjivan SFB provides financing for business growth, livestock purchase, agriculture needs, and home improvement. Borrowers who have already established a repayment record often through earlier group loans can access higher amounts and even opt for top-up loans to meet additional needs without starting the process from scratch.
Limitations to note
Without the buffer of group accountability, individual loans rely heavily on the borrower’s financial discipline. The application process can also require more documentation and assessment, especially for higher amounts.
How to Choose — A Borrower’s Checklist
| Factor | Group Lending (JLG) | Individual Lending |
| Credit History | Ideal for first-time borrowers with no formal records | Better for borrowers with repayment track record |
| Loan Size | Rs. 5,000 – Rs. 1 lakh | Higher amounts, often above Rs. 1 lakh |
| Collateral | None | May require documents or security for higher loans |
| Repayment | Group meetings and collective guarantee | Direct repayment to bank |
| Purpose | Starting livelihoods, small inventory, petty trade | Business expansion, asset purchase, home upgrades |
The Graduation Path — Best of Both Worlds
For many borrowers, the right answer is not choosing one over the other but moving from one to the next. A graduation path works like this:
- Start with a Group Loan to establish a repayment record.
- Use that record to qualify for a Micro Individual Loan with a larger amount and flexible terms.
This approach not only provides the right level of support at each stage but also builds the borrower’s confidence in managing credit independently.
Ujjivan SFB supports this progression by offering both group and individual microfinance products under one roof, making the transition smooth and familiar.
Final Thoughts
For a first-time borrower, the collective safety net of group lending can be a steady introduction to formal credit. For an experienced borrower, individual lending opens doors to higher-value opportunities and customised terms. With both options available, Ujjivan Small Finance Bank helps customers choose the model that fits today and makes it easy to switch when tomorrow’s needs change.