A reliable borrower has a lower utility equation than an unreliable borrower. M+L+DP < M+L+(0)Microcredit group lending practices aim to solve both of these problems that prevent poor borrowers from receiving credit through traditional methods. Individuals in the beneficiary community form groups among themselves and receive a loan collectively with the understanding that each member of the group is responsible for the debts of the other members. The fact that these groups are voluntary and consist of people living in the same community greatly reduces the risk of unreliable individuals receiving loans. ● Example 4: A group of 5 people is needed to receive a loan from a microlending organization of 100 usd. Each member has an incentive to join the group only if he knows and trusts each member because individual debt is calculated by (total debt)/(number of paying members) and if one person defaults, the debt of the other members increases by 25%. (100/5=20 e