Interest Rate Dynamics in Informal Lending Groups: Welfare Implications for Small-Scale Farmers in Eastern Equatorial

Informal savings and lending groups occupy a critical space between household subsistence, market participation, and formal finance in rural South Sudan. This article examines interest rate dynamics in Community Group Saving and Lending (CGSL) mechanisms and assesses their welfare implications for small-scale farmers in Eastern Equatoria, with Magwi County treated as the focal empirical site. The analysis draws on a mixed-methods doctoral dataset collected across Eastern Equatoria, Jonglei, and Lakes States during 2022-2025, including 81 valid survey responses from a target of 85 respondents and qualitative interviews with key participants. Because the original instrument did not record nominal interest rates or annual percentage rates for every lending group, the article analyses interest-rate dynamics through related indicators: perceived affordability of group credit, the role of credit access in technology investment, reluctance of formal institutions to serve rural areas, scarcity of working capital, group lending preferences, and the welfare consequences of borrowing. Results show that Eastern Equatoria respondents strongly perceived rural finance as beneficial to agricultural productivity (mean = 4.61), recognised that productivity increases depend on investment (mean = 4.54), and agreed that group-based lending provides affordable credit to small-scale farmers (mean = 4.00). However, they also reported scarcity of working capital (mean = 4.75) and institutional reluctance to serve rural areas (mean = 4.04), indicating a tension between credit usefulness and credit adequacy. Logistic regression results further indicated that access to credit significantly increased the likelihood of investment in modern agricultural technologies (beta = 1.9459, p = 0.026). The article argues that group interest can function as thrift when recycled into member dividends and group capital, but it can become a welfare threat when repayment pressure, fees, and short loan cycles exceed farm cash-flow capacity. The findings support a policy approach that protects the flexibility of informal lending groups while strengthening financial literacy, transparent pricing, savings protection, and linkages to appropriately designed rural finance.