Microfinance

“Farmers got organized so quickly to respond to this innovative program … Within no time, they had formed their groups, attended the required farm management and marketing training, paid the membership fees, and had all necessary documentation ready. Surprisingly, most also already had the 10% required savings.”

- Dorothy Masinde, Program Manager, Center for Sustainable Rural Livelihoods, in Africa

Microfinance is an exciting new area for CSRL. Funded by a donor's grant, CSRL has been able to provide small loans to rural Ugandans enabling them to participate more effectively and profitably in the markets, strengthening their access to social, human and financial assets, and increasing their ability to cope with and recover in times of crisis. Most rural farmers have never had access to credit; of those that have been able to access credit, received it from friends or relatives, or through a group.

In order to apply for a loan, applicants had to form groups of 5 community members and possess savings equaling ten percent of the loan amount. The groups ensure unity among the members and allow them to guarantee one another. All members of the credit groups were required to attend training sessions that taught leadership skills, rules governing the credit group, how to save and why it is important, how to make a business plan, how to apply for a loan, and how to appraise their fellow group members.

The ten percent savings as well as an additional 2,000/= each month of the loan is required of each borrower and is not eligible for withdrawal until the loan has been paid back in full and the borrower does not intend to apply for a new loan. All loans are disburst with a flat 3% per month interest rate.

The distributed loans vary in amount from US$35 to US$140. By late 2007, six farmers groups consisting of 28 farmers had applied for and received credit. Initial activities indicate that the program is going well.

CSRL Program Activities 2007

Objectives:
  1. Assist farmers ready for markets to access capital to produce demanded quantities
  2. Train farmers, especially women, in business plan development, technology (or animal) maintenance and operation, product marketing, and business management
  3. Enable farmers to purchase appropriate farming inputs and technologies

Approach:
  1. Train and support farmers assisted by VEDCO who have achieved food security and are now marketing some of their produce
  2. Strengthen capabilities of five-member groups to establish a constitution, establish leadership positions, and register with local authorities
  3. Provide training on credit, business plan, and farming as a business to enable group members access and manage loans
  4. Disburse loans and collect repayments

Resources:
  • Primary — VEDCO's Assistant Project Officer-Microfinance, Loans Committee, VEDCO's other Assistant Project Officers
  • Secondary — ISU staff and faculty

Activities:
  • 2007 — Market research (understand financial environment and identify characteristics, and financial service needs/preferences of potential clients)
  • — Group formation
  • — Training (rules, leadership skills, saving, business plan development, loan application, appraising fellow group members)
  • — Loan disbursement (initial saving required is 10% of loan value, repayment within 8 months, interest fixed at 3% per month on a flat rate)

Outcomes:
  • 2007 — Six five-member credit and savings groups formed and trained
  • — Loans worth UGX 6,045,000 ($3,500) disbursed to 28 group members
  • — Loan recipients invested in activities indicated in loan application

Lessons Learned:
  1. Loans only for agriculture trade, not production for home consumption
  2. Loan applicants must have other sources of income to be able to service the loan

Challenges & Questions:
  1. Farmers in credit groups are accustomed to raising financial complaints to any VEDCO & Questions officer; advice rendered sometimes contradicts what credit officer teaches
  2. If/when additional money becomes available, we could consider two more groups from Namasagali to balance the number of credit groups in both sub-counties and also to reconsider those who were not able to raise a group of five members
  3. Introduction of insurance on the loans so that the relatives to farmers are relieved from the burden of paying up the loans given to their people in case of deaths
  4. Demand for loans greatly exceeds available funds

Programs like this one make it possible for individuals to access credit who otherwise would not be able to through traditional methods. Please help CSRL continue to do this life changing work by contributing your interest or expertise, or by making a gift.