Problem
solving in southern Africa
During
two weeks in September, the Lutheran World Federation (LWF)
held a microfinance workshop in Bulawayo, Zimbabwe. LWF
staff from Angola, Malawi, Mozambique, Swaziland, Zambia
and Zimbabwe attended as Nils Gunnar-Smith reports.
The workshop was a response to expressed needs in the region
and was designed to share information and build capacity
in the region.
The
workshop reminded itself that in southern Africa microfinance
is an important aspect of the economic sector due to increasing
poverty, unemployment, drought and poor economic performance.
The challenge is how to combat poverty when conventional
financial services do not meet the needs of the poor.
The
difficulties those who need financial services face include
unsuitable conditions imposed by conventional banks, distances
to these banks, and the mobilisation of resources.
However,
microfinance can bridge the gap between poverty and access
to credit, and therefore this sector is very important in
the region.
I
attended the workshop as a lecturer and participant, and
to represent the Church of Sweden, ECLOF Geneva (of which
I am a board member) and the World Service Department of
LWF, where I am a part-time Microfinance Co-ordinator.
It
was good to see LWF and ECLOF working together in Zimbabwe,
and it reminded me that all of us belong to the same family!
John
Banda, of ECLOF Zimbabwe, shared his experience of working
with microfinance loans. He said ECLOF Zimbabwe faced many
problems in administering its programs. Its work was labour
intensive yet the NEC’s structure was very lean. Microfinance,
he explained, takes a long time to become sustainable. At
the same time, ECLOF Zimbabwe no longer had grant capital
to subsidise its operational expenses.
Mr
Banda said that with one microcredit product they offered,
clients made their first three repayments but always had
problems in paying their last three instalments. Groups
formed by borrowers were not cohesive because they had been
formed only for the purposes of borrowing.
Mr
Banda said that ECLOF Zimbabwe’s officers spent much
of their time in dealing with disputes between members.
This made the office much busier and increased costs. At
the same time, income and portfolio quality did not improve.
Because
of these numerous problems, the board became impatient with
the microfinance product to the extent that they seriously
considered dropping it. Then, in 2000, ECLOF Zimbabwe recruited
two microcredit experts. They were involved in the training
of other officers and the microfinance product was re-launched
with new criteria:
- groups
are now sourced from churches and other solid social
clubs;
- minimum
group size has been reduced to three members;
- loans
are only given for existing micro-enterprises;
- loan
sizes have been increased to take care of inflation;
- the
loan repayment period is now strictly six months;
- repeat
clients are given priority.
Client
savings of 20% of the loan required are now managed by ECLOF
Zimbabwe and invested separately through unit trusts. At
the end of the financial year these savings can be used
for clearing arrears with the consent of the clients.
John
Banda added that the setting of sustainable interest rates
is crucial to the running of a microcredit program. Currently,
ECLOF Zimbabwe charges interest of 60% per loan cycle of
six months together with a one-off loan administration fee
of 5% of the loan required.
Mr
Banda aroused a very heated discussion when he added, “Those
who are depending on grant money for administrative costs
will sooner or later collapse!”
New
Horizons