JLG full form in banking is Joint Liability Group. It refers to a group of individuals, typically from the same community, who come together to take a loan from a financial institution. The members of a JLG jointly guarantee the repayment of the loan, thus reducing the risk for the lender, especially in the case of small loans for individuals in rural or underserved areas.
How JLG Works?
A JLG usually consists of 5 to 10 members who share a common interest or activity, such as farming or small businesses. The group collectively takes responsibility for the loan repayment. If one member defaults, the remaining members are responsible for covering the payment. This collective responsibility helps mitigate risk for the lender and ensures that individuals who might not otherwise qualify for loans can access financial resources.
Benefits of JLG
- Access to Credit: JLGs enable individuals without formal credit histories to secure loans by relying on the group’s collective liability.
- Financial Inclusion: The JLG model is particularly beneficial in rural and semi-urban areas, where access to formal banking services is limited.
- Improved Loan Repayment: The joint responsibility and group dynamics motivate members to ensure timely loan repayment.
Eligibility Criteria for JLGs
- Community-Based: The group should ideally consist of individuals from similar socio-economic backgrounds.
- Activity-Based: JLGs often form around common economic activities, such as agriculture, handicrafts, or small businesses.
- Repayment Capacity: The group’s collective repayment ability is considered when approving the loan.