Ensuring Loan Repayment

Calmeadow, a Canadian non-profit specializing in microfinance, operates two loan funds in Canada and offers international consulting services for microcredit programs. In this section, Barbara Calvin discusses how CALMEADOW helped the Get Ahead Foundation in South Africa pull out of their repayment crisis.

The Get Ahead Foundation introduced their solidarity group lending program in South Africa in 1987. For three years the program worked well. But, by 1990, due to senior management turnover, the group-lending methodology began to erode…. In early 1991 their main donor, USAID, began to put pressure on them to grow. Since they were not reaching the outreach objectives of the donor agreement, the new Director of Operations began to push growth and told the branches, “Disperse, disperse.” Because the methodology had already eroded, this was not good quality loan growth. By the end of the year, they had grown from 3,000 clients to 8,000 clients, but many of the new clients were now going into arrears. Early in 1992, the message was changed to, “Stop, no more disbursements. Collect. Collect.” So you can imagine what happened.

By 1993, 70 percent of the portfolio was in arrears, and they needed to make a provision for 50 percent of the portfolio…. By the end of the year they were left with only 1,800 quality, active clients. At that time they asked Calmeadow to help them to turn around the situation. When we first visited, they had just hired a new senior management team, and this was very important because the new team was open to new approaches. We began our work by making an important assumption, and that was that the repayment problems were due to management and not to clients or the environment.

We also assumed that either the clients do not value the product-they do not value ongoing access to the loans because the client service is bad; or they do value the product, but the organization is not effectively communicating in their policies that repayment is important. Somehow the delinquency management is weak. They are not enforcing repayment. To really understand what happened we took three steps. We interviewed staff at all levels, conducted client research, and firmly documented all the policies and procedures. And, indeed, we found what we expected.