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The discovery of group lending opened up possibilities for micro finance, it showed how unconventional contracts can work where tried and conventional banking practices failed. Today group lending is just one element that makes microfinance different from the conventional banking. By adopting microfinance as a core component in their development programs, various governmental agencies, micro-finance institutions, banks and non-governmental organizations (NGOs) are reducing poverty and raising the status of women, youth and disadvantaged communities (Hossain, 2002). Group lending methodology has become famous among the Micro Finance Institutions that are targeting the low income earners. These are the people who are not able to provide convectional collaterals as a way of securing loans. This approach has become successful in most MFIs despite the challenges that are associated with this.
