Definition
Joint Liability Group (JLG)
A Joint Liability Group is a small group of borrowers who collectively guarantee each other's microfinance loans, substituting peer pressure for collateral.
In the JLG model used widely by Indian MFIs, typically four to ten members, often women, jointly take responsibility for repayment. If one member defaults, the others are expected to cover, creating social collateral that supports lending without physical security.
The model expanded financial access dramatically but carries concentration and contagion risks, as seen in regional microfinance stress episodes. The RBI monitors over-leverage at the household level to prevent the multiple-lending problems that have periodically hit the sector.
Related terms
- Credit CostCredit cost is the provisioning a bank or NBFC books for bad and doubtful loans during a period, usually expressed as a percentage of average advances.
- Microfinance Institution (MFI)A Microfinance Institution provides small, collateral-free loans to low-income borrowers, typically women in groups, for income-generating activities.
- Self-Help Group (SHG)A Self-Help Group is a small, member-run savings and credit group, often of rural women, linked to banks for lending under the SHG-Bank Linkage Programme.
- Priority Sector Lending (PSL)Priority Sector Lending norms require banks to direct a minimum share of their credit to sectors such as agriculture, MSMEs and weaker sections.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.