Added Feb 10th 2008
"I was in Hyderabad to visit with one of the larger and more successful micro finance companies. Currently they provide loans to more than 300,000 Indians whose income is below the poverty level.
They have a very systematic approach to granting loans.
The first thing they do is get the people who need money to form “self-help” groups with a minimum of five members. This group is then educated for three hours on:
- understanding money- they make sure they can properly count money
- then they talk about what a loan is
- then discuss interest, how it is calculated and why it must be paid
- Then how they are all tied together to show that if you borrow an amount, it must be paid weekly- every week for 50 weeks.
- Then there is a test- if the group does not pass (each member must understand), the loans are not granted.
- Each member must show that in fact they can sign their name- there are no thumb prints in this financing system!
In the processing of a loan, for each member, the other four agree that they will be responsible for paying back the loan if the member has a problem. It is NOT a written promise, but a commitment to take on responsibility for each of the loans.
Once the loans are granted, then all the relevant information about the borrower is fed into the micro finance records at Head Office (with remote data entry by the local micro-finance representative). Insurance is then applied for – so that in the event of death before full repayment, the outstanding balance is then written off by the micro finance company and the deceased member’s family receive an advance of Rupees 1000 to help with burial expenses. Once the insurance claim is processed (first investigated by the local micro-finance rep, the balance of the insurance funds (after repayment of the Rupees 1000 advance) are paid out to the remaining family members.
To me, this micro-finance company is doing all the right things! Yes they are helping the family to become self sufficient, but they are also educating the borrowers in financial matters, and creating a common base of understanding and trust with their customers. They show that they truly care for the people they lend to, and in return they build a relationship of trust and respect. Needless to say, this group has more than 98% of all loans fully repaid."
From the ING Microfinance blog by David Hatton
Added Feb 10th 2008
Grameen Bank Replication: Lessons Learnt
* Small Loans:
Successful programmes offer small loans (usually less than $100) in the begining. Larger loans are given later after the women have developed the skills, discipline and committment needed for success
* Primarily Women:
Successful programmes make loans mostly to women, who are much more committed to using their loans for the benefit of their families, and generally have a stronger committment to repay their loans in order to qualify for larger loans in the future.
* Groups of Five:
Successful programmes insist that the women be organized into groups of five, with each person in the group committing to guarantee the loan payment of the other members in the group.
* Weekly Payments:
Successful programmes insist that payments be made on a weekly basis, thus helping to build discipline and consistency. Weekly payments on small loans over a period of 52 weeks also ensure that the payments required each week are small enough, that if one person in the group could not pay in a given week, the others would be able to make the payment for her.
* Lower Poor:
Successful programmes provide loans only to the very poorest of the poor. These women have no other alternatives, so they are much more committed to repaying their loans.
* Required Savings:
Successsful programmes require all borrowers to put some amount of money into a savings account each week that will earn interest. Establishing these savings accounts appears to strengthen the borrowers committment to the programme, but also helps to build their sense of dicsipline, self-esteem, and well-being.
* Interest Charged:
Successful programmes charge an appropriate level of interest, usually higher than what a bank might charge, but much less than what a money lender would charge: this is generally between 2-3 percent per month, just enough to pay salaries of the bank workers supervising the programme in their area.
* Banking Business:
Successful programmes generally hire people with a business or banking background to be village bank workers and the programme is perceived to be a banking programme, pure and simple, in which the borrowers are clients, not beneficiaries.
* High Committment to Training:
Successful programmes develop a strong committment to meet with the people every week on a regular schedule, to give training in literacy, health, and community development, in addition to training in accounting, marketing and enterpreneurial skills.
From: James B. Mayfield in "Choice Humanitarian", Fall 1998.
