How It Is Practised

Is there really a "glass ceiling" for women microfinance clients? Where MFIs serve female clients through group-lending methodologies, how much do we really know how these services meet their needs? After all, as their businesses grow and their lives changes, clients' needs for services also change. Many MFIs offer individual loans in addition to group loans - but are these really designed for clients that started out in group programmes? Kuhn-Fraioli notes that "most MFIs that offer both individual and group loans find that the percentage of women in their individual lending programmes is much lower than in group programmes. Further, few poor women in group programmes are graduating to individual programmes and larger loans, suggesting a need to look more closely at how MFIs can support women's business development." For example, a study of the Sinapi Aba Trust (SAT) in Ghana revealed a number of barriers to graduation to individual loans. First, solidarity group clients cited insufficient capital and lack of assets as the primary constraints to business growth. Second, small loan sizes didn't allow them to make lump sum investments - and SAT's rules even prohibited them from using their loans to buy needed business assets. These findings were supported by an earlier impact assessment, which showed that very few clients acquired assets during their time with SAT. To address these problems, MFIs need to design services that protect and promote women's livelihoods in a way which builds their assets, knowledge and skills needed to grow their businesses, and provide appropriate support for their changing needs every step of the way. In doing so, MFIs need to understand how gender roles shape women's business opportunities and decisions, and ensure that the services and training provided opens up new opportunities for them. Synthesised from: Kuhn-Fraioli, L.; "Chipping away at the glass ceiling: Identifying and overcoming obstacles to business expansion for women"

All three institutions are widely perceived as successful judged by the primary performance criteria of outreach and self-sufficiency, and all have excellent information available about their activities. However, while prominent examples, these are not the only successful RFIs. Several other promising rural financial programmes have emerged during recent years. Summary of main features: •

Favourable macroeconomic, agricultural and rural policies

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Adequate investment in the physical and social rural infrastructure (BAAC, BRI)

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High degree of management autonomy in the formation of operational policies

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Staff policies that stress training, accountability and reward through monetary incentives and promotion.

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Innovative, low-cost distribution systems and mobile banking

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Innovative and flexible loan terms and conditions.

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Close monitoring of loan performance; high collection rates and low arrears

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Domestic savings mobilization as a growing source of funds, resulting in diminishing or eliminating the need for donor funds

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Positive and often relatively high on-lending rates

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Control over administrative expenses.

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Advanced management information systems (MIS) which facilitate effective planning, control and timely monitoring of loan repayment

Bank for Agriculture and Agricultural Cooperatives (BAAC), Thailand BAAC was founded in 1966 with the primary objective of stimulating agriculture by extending financial services to the agricultural sector. It replaced the Bank for Cooperatives whose funding was limited and whose lending activities were restricted to agricultural cooperatives only. BAAC operates as a state-owned bank under the supervision of the Ministry of Finance and is restricted to lending for agricultural-related activities only. BAAC enjoys privileges aimed at stimulating lending to agriculture. For example, BAAC is exempt from certain taxes (including income tax) and from reserve requirements on deposits. The Bank of Thailand requires that commercial banks invest at least 20 percent of their deposits in agriculture, either directly or through BAAC. Banks have opted mostly for the latter, providing BAAC with access to a large and consistent source of funds while the administrative costs associated with mobilizing and servicing these deposits were borne by these banks and not by BAAC. With regard to setting its operational and financial policies, BAAC generally enjoys substantial autonomy. BAAC's efforts have been directed mainly at the low to medium-income range. This strategy has been supported by a progressive interest rate policy and cross subsidization, with higher interest rates being charged on larger loans, ceilings on loan amounts, and lending to small farmers without traditional collateral through joint liability groups. At first, BAAC lent mostly through large agricultural cooperatives, but repayment problems led BAAC to significantly increase its lending directly to individual farmers.

The Village Banks (BRI-UD) of Bank Rakyat Indonesia (BRI)

Real GDP growth in Indonesia has averaged 6.8 percent during 1990-1994. This growth has resulted in an increase in demand for credit which contributed to the rapid growth and success of the Village Bank programme of BRI. BRI is a state-owned bank which ran a programme of directed subsidized credit for rice farmers until 1983. The Unit Desa (BRI-UD) or Village Bank, was established in 1984 as a separate profit center within BRI, under a General Manager who reports directly to the BRI Board of Directors. BRI-UD consists of a nationwide network of small village banks. The founding objectives of BRI-UD were to replace directed agricultural credit with broad-based credit to the rural population involved in any type of economic in any type of economic activity; to replace subsidized credit with positive on-lending rates with spreads sufficient to cover all financial and operational intermediate costs; and to provide a full range of financial services (savings as well as credit) to clients. All these objectives were achieved only a few years after the programme's inception, and BRI-UD's phenomenal success in savings mobilization became its distinguishing achievement. Various other financial institutions including the Badan Kredit Kecamatan (BKK) which targets the extremely poor rural population are operating along similar guidelines in the Indonesian rural lower-income market.

Grameen Bank Grameen Bank (GB) was started as an experimental project in 1976 by Prof. M. Yunus in the village of Jobra. The project was financed by a commercial bank, and was personally guaranteed by Prof. Yunus. In 1983, GB was established as a specialized financial institution under the Grameen Bank Ordinance. The Grameen Bank is not subjected to the Banking Companies Ordinance or to any other law related to financial institutions in Bangladesh nor is it subject to interest rate ceilings. It has been partially insulated from other government policies. Today, the GB is 92 percent owned by its members, the remaining is owned by the government. Its main goal has always ben to improve the conditions of the rural poor by providing them with access to credit, savings facilities, and some nonfinancial social programmes. Since its focus is on the lowest social strata, the income level of its clientele is lower than that of BAAC and BRIUD. Because of the low incomes and lack of access to traditional collateral, lending is done exclusively through joint liability groups, tied to compulsory savings. GB has achieved phenomenal success with this approach, that has generated replication in many countries. More information on Grameen Bank can be found elsewhere on the Informal Credit Homepage

Short Takes

Examples of good practices from all over. In Africa: •

A women's club formed and operated a revolving loan fund. None of the officers of the club had any special training for her job. The treasurer, for example, had a primary school education. But she had not studied accounting. They had the books set up by an accountant. The treasurer keeps a careful record of the group's loans and payments. And the accountant reviews their books every month.

On a Pacific Island: •

In one community, women started small and expanded their business. They saved their money as a group. They then brought a truck and started selling transportation services, in an area where there was no service at all. BAsed on their success, they are buying more trucks to lease to others as a first step. As a second step, they are starting to transport fuel as an extra service, and sell it to their customers.

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One women's group explored the possibility of having the local bank in each district handle the application procedures for its funds. They wanted to encourage the villagers' knowledge of, and trust in, the local bank.

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The organizers of one large loan programme know their group very well. They know, for example, that almost all the women borrowers cannot read or write. They know that they are from 20 to 40 years old, have several children, and that some are sole family supporters. Regarding their businesses, they know that the women have nowhere else to meet their needs for funds to buy tools and raw materials and to fix up their selling stalls. They can therefore tailor their programmes to meet the women's needs.

In Africa:

In Asia:

In Asia, Africa and Latin America: •

Groups with funds find illiteracy common among their members. So they develop useful approaches. One uses picture books to explain the local fund, and how it works. Another issues special identification cards to each members, with her picture in it. When a woman signs for a loan, she puts "X" and her card number. A third fund has the literate women keeping the accounts of the fund, while those who cannot read hold the cash. They all know their groups and make best use of their situations.

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Attempts to organize two businesses, one group and the other individual, emphasized the importance of economic and social conditions to one african group. Some of the lessons they learnt:

In Africa:

1. Always select a product or service with strong local demand. 2. Put the chosen product or service to a careful and long test of continuing sales. 3. Use every available agency or individual resource, without creating permanent dependence on them. 4. Keep the project design simple, especially in the early stages. 5. Use paid staff to do careful organizing, or else it will not get done. 6. Build on the long-standing traditions of women in forming clubs in the course of forming a new one. In the Pacific: •

The organizers of a fund reported that organizing and developing group businesses took 60% of their staff time. So they shifted to working with small family businesses only. This turned out to be a very good thing for them. They could help many more businesses than before.

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A group business turned out to be the best solution, because it overcame many problems the smaller individual businesses had. Several women had been making rice noodles in their homes, but faced problems of hygiene, high demand and low quality. The thirty women re-organized into a large production unit, and gained much better control over production and marketing.

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A rural home improvement extension agent got the idea of a cattle project among 16 women. She started by visiting all the women monthly. Soon they had their own monthly meeting. While the rural agent still attended, the leadership had shifted to the women themselves.

In Asia:

In Asia:

In the Pacific: •

One woman, a real leader, started by going from house-to-house each evening, her way lighted by a lantern, since there was no electricity in her village. She knew she was being laughed at, at first. But she was rewarded by the unity of the group that formed over time, and their business activity.

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A revolving loan fund there set a very broad long-term goal: improve the well being of low-income people in 60 villages. Short-term, they planed to work with groups of women in helping them finance and manage their business projects.

In Africa:

In Latin America: •

A loan fund set as one of its long-term goals that the sponsor organization would run the revolving fund for three years. But, during that time, group members would be trained to take over. Long-term, within three years, the village women will assume management of the fund.

In the Caribbean:

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A group of fund managers there feel strongly that limiting project selection to a narrow group of businesses was essential to their success. Why? They said that the very fact of bringing people who have been outside the banking system into a credit system requires time and attention to much detail.

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Experience from one fund in Africa is helpful. There, a government agency sponsor undertook to establish a revolving fund women. While things worked out, they now know that formation of the fund required much more time and technical knowledge than they had at first anticipated. In short, they had underestimated the commitment necessary and overestimated its ability, especially in procedural details for setting up the loan system.

In Africa:

In Latin America: •

A voluntary organization found a sponsor for a loan program. They put together an advisory board of government and private people to assist. That way, they could draw on many resources, of many organizations.

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Out of her own personal commitment, a prominent businesswoman worked with a group of women slum dwellers over a long time. The group knew what it wanted. She helped them to say it, and to plan the action. And since she was connected to the local banks and businesses, she was able to help them draw on the larger pool of resources and talent in the town.

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One program states a very clear policy on management and technical assistance. They say: after a period of three years of assistance, the women entrepreneur shall be required to pay for all assistance given to her.

In Asia:

In Africa:

In Latin America: •

One fund has an extensive training program for fund directors and managers, as well as group members. They use case studies and coursework to learn accounting, budget control, control of defaults, how to use borrowed money, financial planning, promotional methods, human relations etc.

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One group says that any woman who has at least ten customers in her business can become a group member and apply for a loan.

In Asia:

In Latin America: •

One group defines its membership to include women who have been in business at least one year; women between 21 and 60 years of age; women who are members of a solidarity group; and only women who have a reference from a person in the community who is not already a member of the credit group.

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One programme which is flourishing now required long preparation by its organizers. Led by an extremely devoted woman, they held many meetings. They

In Asia:

had a real plan and a strategy. They knew the neighbourhood women already had many contacts through trade union membership. They could identify possible leaders in each area. They were familiar with the economic activities of the women. And they had a good sense of their credit needs. While many explanations and meetings were required, the organizers had real possibilities to assist women. In Asia: •

"The crowing of a hen not only will cause the fall of a home, but it will ruin the whole village ... " (old saying). Thus felt the village elders in one town about the women's organizing efforts. The women made an opportunity to explain their efforts to the village during a happy feast day. And they managed to change the minds of those doubted their work. Now they have applause rather than ridicule.

In Latin America: •

The Loan Review Committee of one cooperative is composed of three members of the co-op, and they rotate them regularly. Their advice: A good credit committee studies each request well. They put aside decisions on requests that involve arguments, and they never give credit for an amount bigger than the member is able to pay back.

In Latin America: •

In order to apply for a loan, the club women have to receive training relate d to their project. They then develop loan proposals which are reviewed according to the fund's lending criteria. Once a loan is made, government field coordinators provide regular support.

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In one effective program, the whole group reviews every loan application. And the group leader must agree to guarantee the loan being proposed. This program finances no new businesses.

In Asia:

In Latin America •

Several funds use the system of group guarantee for loans. One person is made responsible for collecting payments and delivering them weekly to the fund. Since everybody guarantees everyone else'S loan, there is good reason to pay.

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One very effective fund, with a a high level of group participation, developed its own approach to meeting costs. They decided that each member should pay a small entrance fee and monthly subscription. They use the money to cover part of their rent payments and all travel expenses.

In Asia:

In the Pacific: •

In Africa:

One fund has been experimenting with ways of reducing its expenses. Rather than using paid staff to check loans, they are using community volunteer leaders to help out.

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One fund set up procedures for immediate deposit of funds received in their local Development and Savings Bank.

In Latin America: •

A fund there reports that the entire application process for a first loan for a borrower requires an average of three weeks. If that loan is repaid successfully, further loan requests take only one or two weeks, because then they know the borrower and her credit situation and habits.

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One fund developed real techniques for learning from experience. Finding that many borrowers were falling behind in their payments, they started analyzing their delinquent loans regularly. They discovered that their terms were unrealistic generally for their borrowers. The women simply could not save enough from payment-to-payment, to meet the schedules. They adapted flexibly by changing the terms. But they continue to examine what they have done, to try to do better.

In Africa:

In Latin America: •

As group members learned to use credit from a fund, they also learned how to control the cash flow in their own businesses. Result: the businesses started to grow - their capacity to use credit properly also increased, as did their business abilities.

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Women's initiative is everything! It should be demonstrated in a project before lending. In one goat-raising project, several women put their small savings towards raising a herd. One member of the group, trained in animal husbandry, kept the herd. A local veterinarian assisted with advice. And the local market proved to be good. The women worked out all the details and sold the goats. When the time came to expand, they sought out fund money for that.

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To check on loans, one large fund maintains a Recovery Section, with a team of field workers. They follow up on loans to make sure that the money is spent in the way the owner said she would use it.

In Africa:

In Asia:

In Latin America: •

One programme hires collectors with cars to travel on a weekly basis to pick up payments. They pay them 1% of the total collections. In another case, the excellent lending and repayment record of one programme stems from the fact that all the group's officers and leaders are also group members. They are very aware of the credit needs and problems of their members. And they are highly motivated to push for repayment, as needed.

Abstracted from: "A guide to community revolving loan funds" Voluntary Fund for the UNDecade for Women