FINCA South Africa: Fighting Poverty Through Microenterprise Finance

1
FINCASouth AfricaFighting PovertyThrough
Microenterprise Finance

• July 2002

2
Microfinance in South Africa

• Very few NGO lenders (mainly in rural areas)
• Large volumes of credit being provided through
  the cash loans industry
• primarily for salaried workers
• loans recovered through payroll garnishes or
  preferential debit order systems
• MFI sector gap the self-employed poor

3
Product Design Considerations

• Higher levels of household income and household
  debt than in other African countries

• High degree of client mobility, and long
  distances which separate clients residence and
  place of business

• Low levels of social cohesion, especially in
  urban areas

• Lack of a traditional authority structure to
  enforce loan agreements

4
Product Design Objectives

• reach the target market
• (low-income women)
• effectively deal with credit risk
• maximize client satisfaction
• achieve social impact

5
Product Design Considerations

• TARGETING
• Direct Marketing to street traders and home-based
  business women
• Loan product suited to their cash needs and
  credit profile

• CREDIT RISK
• Application of an appropriate, group-based
  lending model
• Establish a link between borrowing and saving

• CLIENT SATISFACTION
• Tailor loan terms and timing to INDIVIDUAL needs
  (not group)

6
Group Lending Product

• SEP Self Employment Partnership

• Group of 5 20 self-selected members

• 4 formation sessions, culminating in signing of
  Partnership Agreement

• Loan disbursements approved by group

7
Selection Criteria

• Women only

• Must have an existing business for at least 6
  months

• 20 percent collateral deposit (GIF)

• Willingness to pledge solidarity guarantee.

8
Loan Terms

• First loan maximum R2,000

• 2 month loan in first cycle, longer with each
  successive cycle

• 6 percent interest monthly (flat)

• No hidden fees or charges.

9
Key Features of a SEP

• SEP Self-Employment Partnership
• 8 to 20 self-selected members, who assume joint
  and several liability. SEP approves and recovers
  all loans from its members.
• Member accounts (loans and savings) are tracked
  individually at FINCA

• minimize SEP paperwork and meeting time

• allow for customized treatment of individual
  clients within the same group (loan terms)

10
Individual Lending Product

• Must have a bank account and history of sound
  financial performance

• Must pledge collateral to 125 of loan value,
  including 20 cash.

• Monthly repayment.

• 2 6 month loans

11
Individual Lending Product

• Clean credit record

• Home and business inspection.

• CURRENTLY IN PILOT PHASE

• Preference given to women and former group
  lending clients.

12
Cash Collateral Mechanisms

• Group Investment Fund
• 20 percent of loan requested, paid up front
• held as group security against outstanding loans

• Personal Investment Fund

• voluntary weekly payments

• collateral for future increased loans

13
PIF and GIF Interest Rates
14
Risk Management Features

• Initial loan terms of 2 months, flexible
  thereafter

• Link borrowing to savings

• Sequential disbursements maintain repayment
  pressure within the group

• Weekly monitoring of portfolio by SEP, CO and
  District Supervisor

15
Client Satisfaction

• SEP allows for customized treatment of individual
  clients (loan eligibility, timing of loan
  disbursement, loan terms, interest rates, etc.)
• Effective tracking of loan and savings balances
  by individual enhances security and confidence in
  the system. Decreased risk of loss due to fraud.
• Small group size is appropriate to a
  less-traditional microcredit clientele

16
FY 2001 Results

• Total Clients Recruited
• loans and savings
• savings only

• Total loans disbursed
• total recovered
• oustanding portfolio

• Total Cash Collateral Mobilized
• GIF
• PIF

17
FY 2002 Goals

• Total Clients Recruited
• loans and savings
• savings only

• Total loans disbursed
• total recovered
• oustanding portfolio

• Total Savings Mobilized
• GIF
• PIF

18
(No Transcript)