The better interest rate is a great idea, as there are many farmers in India and Pakistan that commit suicide because they got trapped into a cycle of debt that they cannot escape.

And I suspect that the better repayment rate has a lot to do with social pressure. The support groups are part rah rah team and part shame squad to guilt the delinquent into repaying the loans.

Microlending is better than what the locals have already (which are pretty much what we call "loan sharks" in the West). It isn't as good as the lending and financial industry that we have here, but it is an improvement, and in my opinion, a step in the correct direction.

Thats certainly a large part of it, but there are two other things that tend to help out:

1) If one person can't pay back, the rest of the group helps.

2) The promise of bigger loans in the future.

I agree with you about the interest rates.