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“Giordano Dell’Amore Microfinance Best Practices Award” 2009 - The experiences of the finalists.Published by Giordano Dell’Amore Foundation in the framework of the Project “Giordano Dell’Amore Microfinance Best Practices Award”.

Editor Francesca AgnelloProject Coordinator Maria Cristina NegroDesign www.manolibera.itEditorial Assistance Elizabeth Cook, Valentina Morretta

Materials developed on the basis of information provided by the finalist institutions. The institutions also revised the texts and tables before publication.Photographs related to the experiences supplied by the finalist institutions.

Special thanks to the members of the Award Committee and Consulta Tecnica of Giordano Dell’Amore Foundation.

Fondazione Giordano Dell’AmoreVia Monte di Pietà, 1220121 Milan, ItalyPhone +39 02 32168401www.fgda.org Milan, Italy

© Giordano Dell’Amore Foundation, 2009

ContentsForeword, by Federico Manzoni ........................................................................5

Introduction...........................................................................................................7

International Award ...................................................................................13Apoyo Integral ..............................................................................................................14Cooperativa de Ahorro y Credito Jardin Azuayo .................................................18Fundacion Pro Vivienda Social .................................................................................22K-Rep Fedha Services Limited Limited & Financial Service Associations ..........26Tamweelcom.................................................................................................................30

International Award – Special Mentions .............................35EDPYME Alternativa ...................................................................................................36Etimos .............................................................................................................................38Pro Mujer .......................................................................................................................40

Europe Award ..................................................................................................43ACAF ...............................................................................................................................44Adie .................................................................................................................................48FAER IFN SA .................................................................................................................52Fejér Enterprise Agency .............................................................................................56PerMicro SpA ...............................................................................................................60

Italy Award..........................................................................................................65ATAS onlus ....................................................................................................................66Diakonia Onlus Association ......................................................................................70MAG Verona .................................................................................................................74micro.Bo .........................................................................................................................78PerMicro SpA ...............................................................................................................82

Acronyms & Abbreviations ................................................................87

5

The book we are presenting here is a collection of the sum-maries of the experiences that an international committee has judged to be the best among the candidates for the “Giordano Dell’Amore Microfinance Best Practices Award”. The Giordano Dell’Amore Foundation believes that this book will be useful to all those involved in microfinance by offering them examples of good practice.It is different from the many scientifically valuable books that the Foundation has published over its forty year history, books that are still referred to today following their publication in digital format on the Foundation’s website.We believe, however, that by offering successful examples of micro-financing activities we are helping both those involved as well as the general public.This book is part of the activities of the Foundation which sees itself as a centre, both in Italy and abroad, for the collection and exchange of knowledge about international trends, problems and excellence in microfinance. It acts as a system generator, allowing those that work in the field to benefit from the know-ledge it has gained, and acting as a training and unifying body.With specific reference to Italy, the Foundation is firmly con-vinced of the need for national workers to grow in terms of numbers and professionalism and therefore promotes and actively participates in initiatives aimed at strengthening the sector by offering training courses which give workers the chance to reflect upon and share their experiences. It is an opportunity to learn about and discuss this important tool for fighting against financial exclusion.Indeed, the Foundation’s approach has always been that of promoting microfinance in the broadest of activities aimed at development by offering financial products and services to those whose economic and social circumstances makes it dif-ficult to have access to the traditional financial services sector. It is an activity which, as the most interesting examples illu-strate, both in Europe and throughout the world, goes hand in hand with assistance and social intermediation. One of the main obstacles to socio-economic development in communities and to reducing poverty is increasingly identified

Foreword

as the inability to access credit and other financial services.The importance of microfinance as a development tool has been confirmed in the last ten years and has been formalised by the United Nations which declared 2005 as “international microcredit year”.What was once known as “alternative” finance to those who were economically and socially excluded, is increasingly tur-ning into a structured and inclusive financial system in many countries in the southern hemisphere. Microfinance institu-tions intervene and in many cases serve a larger number of clients than the traditional financial institutions.According to the 2009 “State of the Microcredit Summit Cam-paign Report”, at the end of 2007 there were 3,352 microcredit institutions throughout the world with more than 154 million clients, 86% of whom were women. Many institutions are de-veloping innovative products, created on an ad hoc basis, and get their ideas from the experience of informal finance.The focus of attention is moving away from company micro-credit, an essential tool for guaranteeing the right to economic initiative, towards the need to offer a full and broad range of financial services such as housing microfinance, micro-leasing, mobile banking, micro-insurance etc.; in particular, the impor-tance of offering deposit services has also been determined, not only to meet the needs of potential clients excluded from the formal sector but also to ensure the expansion of the pro-vision of microcredit itself, regardless of access to the various types of external financing.These innovative tendencies, already underway in many countries in the southern hemisphere, are now being pro-posed again in advanced economies where those excluded from the traditional financing system are only a minority of the population. In European countries, particularly in Italy, microfinance is still at an embryonic stage but it is constan-tly growing and evolving; indeed there are still very few significant experiences especially in terms of the efficien-cy of the services offered and of the impact on the target population; but, as is evident from the projects presented here, innovative strength and intelligence are at work, re-

Foreword

6

Giordano Dell’Amore Microfinance Best Practices Award 2009 - The experiences of the finalists

presenting interesting possibilities for the future. The main obstacles in advanced countries originate from the lack of legislation on the subject and from the difficulties of the institutions in reaching operative and financial sustaina-bility. This is partly due to maximum limits of applicable interest rates which are often not sufficient to cover the higher costs of a complex and laborious activity like micro-finance services. Great progress has been made in recent years and a lot more still has to be done until this tool can genuinely improve the economic and social conditions of the “excluded”.

The introduction of the “best practices in microfinance” award by the Giordano Dell’Amore Foundation is placed in this framework for three purposes:

To raise awareness of the Italian population about the ■

importance of microfinance as a tool that aims to assist the economic initiative of those excluded from the tradi-tional financial system;To encourage thought, in-depth analysis and a sharing of ■

experiences among those working in the sector thereby supporting growth and professionalization that take into account themes such as innovation, sustainability and the social impact of microfinance assistance;To enhance and publicize the best microfinance expe- ■

riences that are able to combine innovation and sustai-nability, while rewarding the ability to systematize the main characteristics of the model used in order to allow it to be repeated.

In this first edition of the award, the Foundation hopes to draw attention to three main aspects that were used as cri-teria for candidate assessment:

The innovative character of the experiences; ■

The mechanisms needed to guarantee the sustainability ■

of the microfinance services; Objectives reached and results obtained. ■

Three awards of €50,000 each have been established that will go towards setting up an endowment fund in order to create further projects or to expand projects already under-way. These are:

an ‘Italy Award’ for institutions which offer microfinance ■

services in Italy;an ‘International Award’ for institutions which offer mi- ■

crofinance services outside the European Union;a ‘Europe Award’ created in association with the Euro- ■

pean Microfinance Network for microfinance institutions working in Europe.

We are particularly pleased that this initiative has been so well received by microfinance companies throughout the world who have joined in large numbers and by the Europe-an Microfinance Network which decided to collaborate with the Foundation in establishing the ‘Europe Award’.Finally, we would like to give special thanks to the many people who believe in this new proposal of the Foundation; the Cariplo Foundation in particular which has supported it, the members of the Award Committee and of the Technical Council that have devoted so much of their time in helping us.This book illustrates the work of many men and women that share our ideal: giving excluded populations from all over the world a chance to have access to economic initiatives so that through their work they can improve their own and their families’ living conditions.

Federico Manzoni President Giordano Dell’Amore Foundation

7

The Giordano Dell’Amore Microfinance Best Practices Awards have the aim of selecting the most interesting microfinance experiences at international and European level as well as in Italy. For the ‘Europe Award’ the Foundation worked in asso-ciation with the European Microfinance Network to organise this award jointly. The three areas targeted by the Giordano Dell’Amore Microfinance Best Practices Awards have microfi-nance sectors that differ in their characteristics and that have to address different emerging challenges and innovations.

‘International Award’ In the developing world, the microfinance sector has greatly evolved and a wave of microfinance initiatives has introduced a lot of innovation into the sector. Microfinance in developing countries has its roots in informal saving and credit systems and from these in the 1970s pioneering organizations starter shaping the modern industry of microfinance. From the many ground-breaking institutions which began experimenting with loans to people in need, some have grown into large and esta-blished financial enterprises. The microfinance sector has seen a consistent move towards a financial systems approach, where microfinance institutions (MFIs) are seen as viable business en-terprises that can be self-sustaining and profitable. Consequen-tly, several big commercial banks have entered the sector either directly, by opening specialised microfinance units, or indirectly as commercial investors in the sector. In terms of technology, MFIs have been introducing a multitude of tools (such as mobile banking, the use of Palm Pilots, etc,) that are shaping microfinan-ce services and enabling MFIs to serve their customers better, to manage their own resources more efficiently, and to extend the benefits of microfinance to a larger percentage of people. Poor people need access to a variety of financial products in order to build wealth and improve living conditions.

An important innovation of the last five years is the provi-sion of other financial services such as needs-appropriate

Introduction

credit, savings, insurance, pension and money transfer ser-vices. Another trend in the sector has been to replicate and adapt current good practices both in terms of methodolo-gies, products and approaches. Microfinance products and services have been modified according to customers’ needs and expectations. Another important trend in the microfi-nance sector is the “back to its roots” drive that is gradually emerging with a stronger focus on providing appropriate and affordable service delivery to poor people, explicitly including the poorest of the poor. There is increased awa-reness of the social impact of microfinance practices and in taking the extra step to reach the millions of poor people currently considered beyond reach.

While the achievements of the microfinance industry have been great, it is important to fully recognise their limitations and challenges. Despite significant progress, particularly in the last decade, the majority of poor and rural low income households still remain without any access to formal finan-ce. Even those who do have access are under-served in terms of both quantity and quality of service. In most cases micro-credit products could be substantially improved so as to be more useful to the poor and more relevant to the needs of rural populations. Sometimes there is a degree of mismatch between the credit products offered by the suppliers and tho-se demanded and needed by a majority of potential clients. However, outreach expansion is only advantageous if this in-creased level of activity is sustainable. MFI need to manage simultaneously the problems of outreach (reaching the poor both in terms of numbers and degree of poverty), and financial sustainability (meeting operating and financial costs over the long term). Microfinance institutions also need to respond to poor people’s new needs, such as the need for basic services (water, sanitation, etc.), to diversify financial services offered and to develop new products beyond microcredit.

In order to address the current limitations and challenges of the microfinance industry in developing countries, it is necessary to focus on innovation.

Introduction

8

Giordano Dell’Amore Microfinance Best Practices Award 2009 - The experiences of the finalists

The finalists of the International Award have each addressed a particular weakness of the sector with creativity and intel-ligence. On the one hand, Apoyo Integral presents its hou-sing loan product which is a particularly needed service in El Salvador and which Apoyo Integral has modified according to low income households’ needs for housing construction and improvement. The Cooperativa de Ahorro y Credi-to Jardin Azuayo, on the other hand, is an example of a successful cooperative model in the delivery of microfinance services with strong governance based on members’ involve-ment. This Ecuadorian institution stands out for its efficient operations and its sustainable provision of financial services to remote and financially excluded rural populations. Fun-dacion Pro Vivienda Social has introduced and applied an innovative self-sustaining financial mechanism to help the poor gain sustained access to community infrastructure in-vestments such as gas, water supply and sanitation services in Argentina. K-Rep’s Fedha Services with its Financial Service Associations (FSAs) providing tiny loans at low cost and a potentially sustainable solution for rural environments in Kenya, presents an innovative approach to improving the village banking methodology. Tamweelcom, on the other hand, has positively evolved towards more integrated finan-cial products which combine loans to non-financial services. Its provision of sustainable financial services to micro entre-preneurs in Jordan contributes to the growing microfinance sector in the Middle East.

‘Europe Award’In Europe there is growing appreciation of the need to sup-port microcredit but still little consideration is paid to micro-finance. Microcredit is seen as a policy instrument for sup-porting employment creation, fighting social exclusion and supporting the development of self-employment and micro-enterprise within the Lisbon strategy. The European Union is currently formulating new recommendations to define

one or more legislative proposals to support the sector. An example of European supported projects is JASMINE (Joint Action to support microfinance institutions in Europe) to sup-port non-bank microfinance institutions of member states. Its main functions concern the provision of technical assi-stance, identification of best practices, the research for new forms of financing and the improvement of the regulatory framework for MFIs and enterprise development. In general, however, microfinance trends differ greatly in Eastern and Western European countries.

In Western Europe the existence of a dense and competent banking system has determined a rather more limited grow-th of the microfinance industry which remains a fairly recent phenomenon in the region. Financial exclusion is mainly concentrated among those suffering from poverty and social marginalisation and microfinance is mainly perceived as a substitute for welfare support and a tool for social cohesion and to reintegrate disadvantaged people into society.

The context in which MFIs operate is increasingly challen-ging with high labour and operational costs, a regulatory framework that penalises the sector with its limitations on interest rates applied and legal restrictions, and having a clientele which is, in the majority of cases, limited to the more disadvantaged and marginalised segments of society, such as immigrants, people living in deprived rural areas, people with precarious work situations, and single mothers. In this context the challenge of MFIs and microfinance pro-grammes is to identify a business model able to enhance their outreach and at the same time see them progress to-wards financial sustainability.

In Central and Eastern Europe microfinance is represented by vibrant and developed institutions. With the banking sector that is less developed and sometimes unable to respond to emerging needs, microfinance has proved capable of filling the gap by providing transitional support for people needing to enhance their own livelihood.

9

Introduction

There are, however, open challenges and issues to be addres-sed. Most countries are seeing a rapidly changing economic, financial and banking sector with gradual entry in the EU, and MFIs need to envision their operations in this fluctuating con-text and be able to adapt to the possible future scenarios.

The choice of the finalists for the ‘Europe Award’ reflects the complex context in which MFIs operate in Europe. In Western Europe ACAF (Association for Self Financed Communities) was selected for its innovative group methodology providing financial services as a key step for newly arrived, low income immigrants, aiming for full citizenship, and a tool to build social networks in Spain. Adie (Association pour le droit à l’ini-tiative économique), the most consolidated MFI in Europe, introduced a microinsurance product for entrepreneurs in Fran-ce, an innovative financial product for its targeted clients. The newly established PerMicro in Italy provides an interesting model with private funding partners and a clear strategic vision aiming to attain sustainability. In Eastern Europe, on the other hand, two institutions have been selected. One, FAER IFN SA: (Societatea de Finantare Ru-rala), is a well established institution, which reached sustai-nability a few years ago and which presents for the award its excellent integrated credit approach in Romania able to reach rural populations with a sustainable methodology. FEA (Fejér Enterprise Agency), the other shortlisted East European insti-tution, presented its internet-based microfinance management system developed for the Hungarian microfinance institutions which is also adaptable to other European countries.

‘Italy Award’The economic sector in Italy is characterised by the massive presence of micro-enterprises. Due to the specific needs of small enterprises, which play such a relevant role in the eco-nomy of the country, banks’ and non-banking financial institu-tions’ supply of small loans1 is huge.

However, there is significant scope for the development of a microfinance market, devoted to micro start-ups, characteri-sed by riskier and poorer information based business models.

Nowadays microcredit in Italy is a very small market. While the majority (70%) of Italian banks have developed micro-credit products and services, their incidence on the overall amount of banks’ revenues is less than 1%. The microfinance non banking sector, nevertheless, consists of a number of actors, which greatly differ in nature, size, objectives and operational approach. The market is therefore highly fragmented, with several single programmes (around 80, according to recent estimates), which are very limited in size and geographical area. Most of these programmes involve public bodies, whose intervention is not always ef-fective in terms of methodologies adopted and efficient in terms of costs and development of the financial leverage. Therefore, Italian MFIs are affected by severe diseconomies of scale, which impair the sustainability of their microfinan-ce operations. Moreover many Italian microfinance providers do not have a clear long term strategy in terms of growth, sustainability and operational strengthening.

There is therefore a strong need for innovation in the way mi-crofinance programmes guarantee their loans and for setting up efficient record-tracking tools able to improve the confiden-ce of financial operators by showing the past performance of borrowers. Covering operational costs is another major chal-lenge. It would be important to identify efficient ways of gene-rating resources to cover non-financial services (i.e. business development services, tutoring etc.), which are a key compo-nent of most of the European microfinance models. Probably the best way to reach this crucial goal is by improving the coo-peration among actors (banks, MFIs, non-profit organisations) and the integration of resources (public and private).This seems to be the best way to achieve the provision of a range of different microfinance products tailored to the needs of particular client groups such as immigrants and unemplo-

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Giordano Dell’Amore Microfinance Best Practices Award 2009 - The experiences of the finalists | International Award

yed people, which can help them challenge inequalities in the market and in the community. As for the context in which these institutions and program-mes operate, the absence of a specific legal framework for microfinance in Italy seems to hinder the growth of the most dynamic MFIs. The international award committee noted some difficulties in receiving financial performance data from some of the Italian microfinance providers which is a symptom of the weakness of the sector.

Among the five finalist institutions for the ‘Italy Award’ we can find ATAS Onlus (Associazione Trentina Accoglien-za Stranieri Onlus) that was selected for its integrated pro-gramme designed and shaped to adequately fulfil the needs of immigrants and help them overcome economic and social exclusion. Diakonia Association was selected for its capil-lary network and its focus on small loans and tutoring and ac-companying services and has been able to reach, through its operational model, a relatively large number of beneficiaries. Mag Verona proposes a cooperative model for providing mi-crofinance services and highlights its strong territorial rooting and long history and experience in ethical finance. micro.Bo uses various microfinance methodologies and new social len-ding products in cooperation with local municipalities, and has played a major advocacy role in the sector. PerMicro (also shortlisted for the ‘Europe Award’) with its focus on in-stitutional sustainability and private funding approach brings needed much innovation in the sector.

We strongly believe that the fifteen selected institutions advance the microfinance good practices frontier by pre-senting methodologies, approaches and products which transform traditional practices and introduce valuable ele-ments for the economic and social development of their microfinance clients.

Selection Criteria In short-listing candidates, the international award commit-tee applied a number of criteria that together characterise outstanding microfinance performance. The selection process was anchored by five criteria against which all candidates were evaluated. The 3 most important criteria are:

1. Innovation: the candidate has transformed traditional practice through an innovative product, service, appro-ach, or a more rigorous application of known technolo-gies and ideas.

2. Sustainability: the organisation is achieving some degree of financial self-sustainability through revenues or is enga-ged in setting up methodologies and systems; strategies which will help the institution attain sustainability.

3. Direct social impact: the candidate implements the initia-tive directly with poor or marginalised beneficiaries. The impact manifests itself in quantifiable results.

The international award committee also considered the fol-lowing criteria:

4. Replicability: the initiative can be adapted to other regions in the world to solve similar problems.

5. Quality of Proposal: the candidate’s proposal presents the information needed to fully assess the initiative.

1 Small loans are defined as being under € 25,000.

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13

For the International Award, 43 institutions submitted their pre-registration forms, but only 40 institutions actually submitted their proposal by the 31st of January 2009. The proposals described microfinance experiences in 30 countries all over the world, giving a rich and interesting snapshot of micro-finance diversity.

The majority of the proposals received (45%) described microfinance innova-tions in the Latin America & Caribbean region and (35%) in Africa, while the remaining proposals originated in Asia (13%), Central Asian Republics (5%) and in the Middle East (3%).

Candidates presented various types of innovative microfinance experiences. Most microfinance institutions presented their whole institution, others presen-ted one of their microfinance products, and others presented a model or a par-ticular approach to doing microfinance. Each proposal was read in all its parts, and the main information was summarised in the Summary Forms that follow.

After having read, analysed and discussed each single proposal, the Award Committee selected five finalist candidates that have ventured where others feared to tread. The finalist institutions are:

Apoyo Integral ■ for its effective housing loan product in El Salvador;Cooperativa de Ahorro y Credito Jardin Azuay ■ o for its fast growing and highly efficient microfinance cooperative in Ecuador;Fundacion Pro Vivienda Social ■ for its extremely innovative financial pro-ducts for the provision of basic housing services in Argentina;K_Rep Fedha Services Limited ■ for a highly innovative approach in mana-ging the Financial Services Associations network in Kenya, Tamweelcom ■ for an excellent microfinance institution in Jordan.

The choice of the five finalists among the 40 proposed experiences was ex-tremely difficult. There were many interesting experiences to choose from; for this reason the award committee grants a Special Mention to an additional three institutions:

EDPyME ■ Alternativa for its popular “daily repayment” loan product for micro-vendors;Etimos ■ for an effective microfinance intervention in a post-emergency situation;Pro Mujer ■ for an excellent integrated microfinance approach.

International Award

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Apoyo IntegralProject Name Technical assistance for housing construction, environment and microfinance

Type of organization: .................................. Non-bank financial institutionLocation: ...................................................................................... El SalvadorNo. of Clients: .......................................................................................37,233Founded in: ...............................................................................................2002Mf products offered: .......................................................Loans, insurancesPortfolio: ......................................................................................€ 42,458,028 Av. Loan size: ........................................................................................€ 2,475 % of portfolio to women: .........................................................................71%

Initiative Presented for the AwardApoyo Integral presents one of its loan products which integrates a “loan plus technical assistance” service for the construction and im-provement of family and community housing.

www.fusai.org.sv

15

Apoyo Integral

Institutional Profile

HistoryFUSAI (Fundacion Salvadorena de Apoyo Integral), the institution that created Apoyo Integral and that currently is one of its main shareholders, is an NGO created in 1993 by the United Nations High Commission for Refugees (UNHCR) with the aim of supporting the repatriation process of Salvadoran people who emigrated as a consequence of the armed conflict. In 1992 FUSAI created a Credit Program which focused both on housing for low income families and on microcredit for production activities. Later on this programme was converted into Apoyo Integral (Apoyo). During its initial years of activity Apoyo maintained a strong link with Accion International, a well known international agency dedicated to microfinance and that recently became a relevant investor of Apoyo, which offered intensive technical assistance to the newborn institution. Apoyo focused on strengthening its managerial model and employed highly experienced staff from the banking sector. Since 2004 Apoyo has been growing steadily and has seen its portfolio triple, setting it firmly in its market niche. Currently Apoyo is planning its conversion into a Non-Banking Financial Intermediary, regulated by the Superintendence of the Financial System, which will enable it to offer saving deposits to its clients.

As seen above, Apoyo’s housing loan product dates back to its initial years of activity. Since 1992 FUSAI has backed the credit activity which, for more than 10 years, assisted more than 25,000 households with the procedures necessary to legalize their land property titles. Approxi-mately 5,600 houses were built (family houses with basic services), including 1,718 community houses with basic services and 226 houses reconstructed on the same clients’ property. Basic community services (toilets, water) were realized for 12,995 households; 40 communities, com-prising 7,516 households, were relocated. These activities were realized thanks to government

and international subsidies and FUSAI’s funding from international aid. In the last 6 years, how-ever, Apoyo has continued the housing supporting service aimed at people who do not have any lodg-ing or have access to poor quality lodging, through funding from the national and international finan-cial system.

Structure Apoyo is currently the largest non-bank micro-finance institution in El Salvador. In less than 5 years it has achieved a portfolio of € 44,000,000 and 37,233 active clients. Apoyo covers the whole geographical area of El Salvador with its 25 branches (18 agencies and 7 service points). At the moment Apoyo has 312 employees 134 of whom are credit officers.

Governance structure Apoyo’s major authority is the Board of Shareholders, represented by the Board of Directors formed by 10 shareholder directors. The Board of Directors meets once a month to monitor the institution’s activity and progress. The organisational structure consists of three managerial units (Operations, Finance, and Marketing), supported by the General Management and its staff (IT, Human Resources, Administration, Legal Office, Risks, Credits).

Other page, Apoyo’s clients contributing to building their houses.

Below, bananas microvendor.

Above, people transporting housing construc-tion material.

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Target Clients and Operational Area The target clients of Apoyo are entrepreneurs and independent workers, with or without insufficient collateral, with limited access to the traditional banking system and with at least one year’s entre-preneurial activity. The majority of Apoyo’s clients (59%) are the vulnerable poor, with 35% poor and 7% extremely poor. 18% are illiterate. According to government statistics (2007) housing is a huge problem in El Salvador, with 31% of houses lacking basic services (access to water, lighting, water treatment) and adequate quality standards (appropriate roofs, walls, floors). This is where Apoyo intervenes, with its “loan plus technical assistance” product, offering a loan and free technical as-sistance on construction techniques. Apoyo’s clients are mainly urban (68%).

Products and Services Apoyo offers loans, life and debt insurance. Products are mainly aimed at entrepreneurs and farmers. Other financial products are currently being finalised, such as insurance for damages, unemployment insurance, health insurance and others.

The project proposed for the Award is a “loan plus technical assistance” product for the construction and improvement of family and community housing, and improvements (basic services such as water and sani-tation) to existing houses. The loan amounts are a minimum of €383 up to €3,830, with a repayment period of seven years at an average rate of 16.98%. Technical assistance is free of charge and focuses on matters such as the assessment of construction budgets, giving technical advice on the ventilation and lighting of constructions. Technical assistance given ensures safety and health standards of the construction and also regards legal matters (registration of property). The methodology uses a step-by-step approach.

Example of the process: (i) Clients with similar characteristics group together (i.e. families living in the same area, without any registered property, with an income, committed to helping each other with the housing construction). (ii) Information is offered about conditions and processes to access the housing product. Each client is evaluated on his credit-worthiness and is asked to pay an initial sum. (iii) Construction starts. Clients participate as groups in the construction activity. All families contribute to the housing construction work as “unqualified workers” in support of a private con-struction enterprise. At the same time loan officers ensure that clients repay monthly instalments on time. The loan amounts and repayment schedule are designed to fit the client’s needs and ability to repay. (iv) Qualified technical assistance by experts supports construction work. Property titles on the constructed property are obtained so that they can be used as a loan guarantee. On some occasions international and national funding is used to decrease the cost of the community’s basic services.

Above on the left, vaccination of poultries

Above on the right, people contributing to the excavation of the foundations of their houses

17

Apoyo Integral

Innovation The housing loan and technical assistance offered by Apoyo takes into account clients’ characteristics (low repayment ability, non-traditional collateral, uncertain land property rights, income from the informal sector, un-willingness to incur big debts) and gaps in the housing sector in El Salvador (technical assist-ance is specific about what is lacking in terms of services offered to the poor for the construc-tion of houses and basic services). Apoyo uses a methodology that includes:

offering a sustainable financial instrument ■■

that helps families relocate, enhance the quality of their houses, construct basic serv-ices to decrease environmental and human vulnerability.

that clients pay small amounts frequently, ■■

and can aim at a completed construction ac-tivity even if undertaken in stages.

offering a low cost service which guarantees ■■

that the investment will fulfil, in construction terms, minimum security, stability and dura-tion standards.

The product has a strong impact on the lives of the clients and increases client loyalty by of-fering free professional technical assistance. According to Apoyo, no other institution offers a product with such a high impact on people’s lives, health and the environment.

Sustainability Sustainability is central to Apoyo’s methodolo-gy and mission. The loan product is designed to be sustainable. The cost of technical assistance related to the housing loan is 3% of the aver-age housing loan. The total operative margins of Apoyo for its housing credit activity is 6.96%. Therefore the housing credit activity is able to cover the housing technical assistance.

Impact Apoyo based its microfinance activity on a study carried out with the support of Accion International. In relation to the housing loan product, the study assessed the client’s hous-ing characteristics (property, type of housing and construction characteristics). Based on this information the institution reinforced its hous-ing construction product to adequately fulfil the client’s repayment capacity, the need for assist-ance in assessing budget estimates, better use of the loan in terms of house ventilation, light-ing and location of the construction and thus a higher positive impact on clients’ lives.

The housing loan product accounts for 30% of Apoyo’s portfolio. The current housing loan port-folio is €11,450,000 (March 2009). Through this service, many clients become first time home owners. In 2003, when this product started be-ing offered together with technical assistance, 192 loans were disbursed. Only five years later, in 2008, 1,554 housing loans were disbursed. The impact on the clients’ quality of life is good and entails better housing quality and attention to health and security matters. The impact on health is high and includes improved water and sanitation. The positive health impact is easily perceived and an assessment proves that there are now fewer skin diseases due to hygiene problems, and fewer chronic diseases. The envi-ronmental impact is also considered good.

Selection criteria

Financial Achievements1, 2

Dec 06 Dec 07 Dec 08

Portfolio at Risk (PAR30)

3.14% 2.88% 4.59%

Write-off Ratio 1.38% 1.15% 1.83%

Portfolio Yield 36.0% 34.17% 32.01%

Debt to Equity Ratio

4.44% 5.61% 5.54%

Operating Expense Ratio

18.62% 16.36% 14.32%

Cost per Borrower € 106 € 121 € 1393

Staff Productivity

122 123 119

Return on Equity 19.7%* 19.4%* 21.9%*

Return on Assets 3.6%* 3.2%* 3.3%*

Operational Self-Sufficiency

129.46% 131.23% 122.96%

* Adjusted

Outreach Achievements


Active Loans 26,856 32,779 37,233

Active Housing Loans

4,386 4,562 4,612

% of Total Loans 16% 14% 12%

Average Loan Size

€ 1,451 € 2,061 € 2,475

Portfolio € 20,072,550 € 31,826,478 € 42,458,028

Housing Portfolio € 6,368,153 € 9,405,274 € 11,417,764

% of Portfolio 32% 30% 27%

No. of Branches 20 23 25

Staff 221 267 312

Credit Officers 98 113 134

1 Financial Achievements regard the whole institution 2 1 EUR = 1.33952 USD3 Increase in costs is mainly due to regulatory processes

18


Cooperativa de Ahorro y Credito Jardin AzuayoProject Name Organisational model to develop social participation and enhance social capital

Type of organization: ................................................................. Credit UnionLocation: ............................................................................................EcuadorNo. of Clients: ..................128,000 members including 54,000 borrowersFounded in: ...............................................................................................1996Mf products offered: .......Loans, savings, loan insurance, fund transferPortfolio: ......................................................................................€ 74,000,000 Av. Loan size: ........................................................................................€ 3,212 % of women clients: ................................................................................53%

Initiative Presented for the AwardThe Cooperativa de Ahorro y Credito Jardin Azuayo presents itself and all its activities.

www.jardinazuayo.fin.ec

19

Cooperativa de Ahorro y Credito Jardin Azuayo


HistoryThe Cooperativa de Ahorro y Credito Jardin Azuayo (the Cooperative) is the second largest credit union in Ecuador. It was born in a period of crisis that followed a natural hydrological disaster (La Josefina in 1993) and one of the deepest financial crises of Ecuador’s history (1998-2000). The Coop-erative aimed at capturing local and international savings (savings coming from emigrated workers)

and, with the support of the CECCA1 foundation, offers credit support to enhance its members’ working conditions. The Cooperative works in the Ecuadorian region (El Austro) with the highest vol-ume of remittances in the country. The majority of its members (58%) have an emigrated relative either in the United States (80%), Spain (17%), or Canada and Italy (3%).

Structure The Cooperative currently runs 27 branch offices in the provinces of Azuay, Cañar, Loja, El Oro and Morona Santiago and has a central coordinating office in Cuenca. The Cooperative has 170 employ-ees 54 of whom are credit officers. The Coopera-tive operates only with its members who currently amount to 128,000 people.

Governance structure The Cooperative’s governance structure is highly decentral-ised and boasts maximum member participation compared to international credit unions2. Its governance structure is one of the main strengths of this institution.Each Cooperative branch office covers a canton and has staff members and directors. The staff consists of a coordinator, outreach worker, loan officers and tellers. Directors form the administration, supervision, social affairs and credit commit-tees. The president of the office is a member of the Adminis-trative Council. The 27 offices are grouped into five “cantons” coordinated by a canton coordinator. The canton activities and op-erational areas are coordinated by the cooperative manager, who is assisted by support units that handle secretarial tasks, internal auditing and material resources. Each branch office also has its own Local Assembly made up of all its members. The Local Assembly elects its local directors every oth-er year and meets regularly each semester to monitor the Coopera-

tive’s activity. All local directors of a “canton” make up the Junta Directiva which elects its president and the four “canton commissions” (administration, supervision, social affairs and credit). Each of these elected presidents takes part in the Consultative Committee. Each Junta Directiva also elects its delegates who sit on the General Assembly of Representatives which, in turns, nominates the Ad-ministrative Council that is part of the Consultative Council. The Administrative Council nominates

Other page, Cooperative’s members meeting, Saraguro

Below, a Cooperative’s branch, Valle

Above, Cooperative’s clients

1 Centre of Azuayo Farmers’ Education and Empowerment 2 “Comparative Study of Member-Owned Institutions

Offering Financial Services in Remote Rural Areas – Cooperative De Ahorro Y Credito “Jardin Azuayo”,

Ecuador”, the Ford Foundation, April 2007.

20


the President and the Manager of the Cooperative. Basically, members form a parallel structure that complements the Cooperative’s staff structure. This complex structure allows local people to be represented among the directors, and to take part in the cooperative’s everyday operations, which enables the institution to achieve:

high efficiency in its operations (operative costs are low, members per staff are high (see table ■■

below) making it one of the most efficient credit institutions in Latin America.

low delinquency rates: local credit committees who have a direct and personal knowledge of the ■■

members enable the institution to have a low delinquency rate (PAR30 is 3% and decreasing)

high level of participation and a feeling of “belonging”.■■

Target Clients and Operational Area The Cooperative works in the Ecuadorian region (El Austro) and 48% of its members work in the rural sector.

Products and Services The Cooperative offers a broad range of products such as loans (ordinary working capital loans, emergency loans, housing), sav-ings products (fixed term saving accounts, programmed sav-ings, remittances), loan insurance, and fund transfer services. Products are designed to respond to the financial needs of its members. Members can utilize services such as: (i) use of mo-bile phones to consult loan officers on their account balances, repayments, to receive late payment notifications, transfer of funds to the account, and to receive invitations to the Cooperative’s meetings. (ii) special mobile phone payment schemes, and (iii) loans to pay off a debt incurred to cover costs related to emigration.

Sources of FundingThe primary funding source consists of members’ savings that represent more than 95% of its total assets.

Below, people at the counter, Paute

21

Cooperativa de Ahorro y Credito Jardin Azuayo

Innovation The real strength of the Cooperative Jardin Azuayo is the institutional commitment to the social development of its members, organisa-tions and communities in which all members firmly believe, from its President and Director, down to each single member. This is the key fac-tor which enables the institution to run a highly efficient financial activity including its govern-ance and financial risk. Other innovations presented are:

its decentralised governance, operational ■■

and administrative structure which places members in the central governance unit of the institution. This enables the Institution to operate in remote areas, while maintaining appropriate control and management

social capital: high levels of cohesion, partic-■■

ipation, and confidence is the main asset of the institution. This is reflected in the man-agement, which is committed to institutional development. Training is offered to manage-ment on local development and strength-ening of the cooperative. High decisional power of local branches with a central entity ensures efficiency. Credit approval procedure and the MIS are decentralised.

Sustainability The institution has sustainability at the core of its agenda. It has a strategic plan (2009 – 2013) to ensure future sustainability. The Cooperative is able to maintain its sustainability due to its main strengths: firstly, its institutional struc-ture, a decentralised cooperative organization, which has achieved high member’s motivation enabling the institution to run a highly efficient financial activity while maintaining appropri-ate control and management; and, secondly, an efficient administrative structure with high technical and financial capacity (MIS, modern methodologies and processes).

Impact A survey on 3,000 of the Cooperative’s members shows that:

there is high satisfaction of members regard-■■

ing the Cooperative’s reliability and security,

80% of members believe that the Coop-■■

erative has contributed greatly to their enhanced quality of life and that of the area where they live, and

78% of members are satisfied with the Co-■■

operative’s services. Training on cooperative strengthening for all members has increased the members’ “feeling of belonging” to the Cooperative. The Coop-erative is an important actor in the development process of the regions where it works and has served to create collaboration with the public and private sectors.

Selection criteria

Financial Achievements1

Dec 06 Dec 07 Sep 08


4.1% 3.7% 3%

Write-off Ratio 0.1% 0.1% 0.1%



5.8% 5.9% 5.8%


4.9% 4.5% 4,8%

Cost per Borrower na na na

Staff Productivity

179 178 178

Return on Equity 2.1% 5% 5,5%

Return on Assets 0.3% 0.7% 0,8%


106.4% 112.1% 110,8%



Active Borrowers 21.308 25.498 31.216

Growth Rate 20% 18%

Active Savers 58.371 73.428 82.498

Growth Rate 26% 12%

Average Disb.Loans

€ 2.950 € 2.900 € 3.170

Outst. Portfolio € 38.381.601 € 49.819.318 € 69.946.322

Growth Rate 55.5% 29.8% 40.4%

Branches 27

Staff 119 143 183

Credit Officers 48 52 411 1 EUR = 1.35574 USD

22


Fundacion Pro Vivienda SocialProject Name Operating models for the provision of infrastructural services and housing improvements in low income suburbs

Type of organization: ...............................................................................NGOLocation: .........................................................................................ArgentinaNo. of Clients: ......... Housing loans: 578. Gas trust funds: approx. 1,588Founded in: ...............................................................................................1992Mf products offered: ................. Group loans and trust funds repaymentPortfolio: ....................Housing loan: € 67,115, Gas trust funds: € 828,943Av. Loan size: .......................Housing loans: € 207, Gas trust funds: € 585 % of women clients: ........Housing loans: 50.3%, Gas trust funds: 56.4%

Initiative Presented for the AwardFundacion Pro Vivienda Social (FPVS) presents its programmes in the second belt of Gran Buenos Aires. It uses microcredit to support hous-ing improvements for low income families through the formation of solidarity groups. Its also delivers basic services, such as connecting households of poor suburbs to the natural gas and water pipelines, through innovative microfinance approaches.

www.fpvs.org

23

Fundacion Pro Vivienda Social


HistoryPVS is a non profit organisation founded in 1992 by a group of businessmen committed to the values of solidarity and social responsibility. The aim of FPVS is to contribute to poverty reduction by supporting low income families in improving their home and living conditions. FPVS promotes social programmess oriented to housing improvement and to the development of basic infrastructures in poor areas of Gran Buenos Aires, covering potentially 2 million people. FPVS works with local community organisations and aims to transfer and replicate the operating models which it develops and applies. Up to now more than 73,000 housing improvements have been accomplished, 79,000m of gas pipelines have been built, and 2,800 housing installations have been created. As a consequence of this activity four “neighbour-hood committees” were born and one of them changed its status into a public services cooperative.

Structure FPVS has 3 offices, 11 employees for the mi-crocredit and gas programme, 7 of whom are credit officers. FPVS carries out its programmes in the second belt of the Gran Buenos Aires in the Moreno, José C. Paz, San Miguel, Malvi-nas Argentinas, Merlo and General Rodriguez Counties.

Governance structureThe organisational structure of FPVS com-prises a Board of Directors, the Executive Board, an Operations Management Unit which is responsible for the programme ac-tivities of “Solidarios” and the gasification programme, a Planning Management Unit su-pervises three areas: institutional relations, research and development, systematisation and monitoring, and an Administration Unit.

Target Clients and Operational AreaPoor neighbourhoods in the suburbs of Buenos Aires. Targeted clients are those that work in the informal sector and live without basic services such as a functioning sewage system, running water, pipeline gas. 40% of FPVS’s clients live below the poverty line.

Products and Services Since 1995, FPVS has granted housing loans (“Solidarios” programme) with the aim of improving the house where the client’s family lives. Each group member through the formation of Solidarity Groups (4 families per group) is jointly responsible for the payment of the loan granted to all mem-bers. Since its beginning, more then 8,000 families have participated in this programme. Loan size ranges from €147 to €525 per person and loans are repayable in 6 to 12 months.

Natural pipeline gas programme: FPVS supports the creation of “Neighbourhood Organisations” (which includes neighbours and local entities such as educational, community promotion, and reli-

Other page, beneficiaries of the project “Un-ión por los Vecinos”

Below, pipeline gas opening ceremony

24


gious organisations) of the area targeted. Neighbourhood Organisations mobilise in order to collect signatures from at least 70% of the families in the area. Long-term investors are found in order to create a Solidar-ity Trust Fund and start construction of the gas network connecting the area, and the houses. Construction is undertaken and neighbours repay, in small monthly instalments, the initial investment for up to 10 years. Resident families are able to repay the monthly instalments with the money saved from using pipeline gas instead of gas bottles since bottled gas is eight times more expensive then pipeline gas. Other key actors are Gas Natural BAN S.A. (company in charge of gas dis-tribution in the area), ENARGAS (National Gas Regulation Agency), FONCAP S.A. (governmental organisation, whose objective is the promotion of micro-enterprises in poor social sectors, investor).

Description of the Solidarity Trust ModelThe extension of the domestic gas network in a specific neighbourhood (Cuartel V was the first area targeted) is funded through a Solidarity Trust Fund, a legal instrument that allows for resources to be used for a set purpose. The Trust determines the roles and duties, as well as the rights and obliga-tions, of each of the actors. Through this mechanism, FPVS is the Trust administrator, the neighbours are the Trust beneficiaries, and the investors are those establishing the Trust. FPVS manages the trust fund (the first one named “Fideicomiso Redes Solidarias”) and commits to supervising the progress of the implementation of the work to enhance the distribution of natural gas and internal installations. FPVS is also responsible for ensuring that the works are adequately financed and for the repayment of funds. The Trust beneficiaries subscribe by signing an agreement where they commit to pay for the works by dividing the cost proportionately among all of the neighbours. These people will have the right to use the natural gas network as long as they comply with the signed agreement.

The water programme (“goodbye bucket” programme): aims at the development and construc-tion of clean sewage and sanitation systems for low income households. The programme will have started by June 2009.The Observatory for Low Income Suburban Development: in cooperation with the Torcuato Di Tella University, the Observatory disseminates information regarding the areas where FPVS works.

On the left, housing improvements

Below, neighbourhood organisation meeting: capacity building session

25

Fundacion Pro Vivienda Social

Innovation FPVS runs four programmes in the low income outskirts of Buenos Aires. The housing improve-ment programme (group loans of max €112, at 20% repayable in 6 months) was the first in Ar-gentina since most MFIs were offering only pro-ductive loans. Natural pipeline gas programme: innovative financial system to implement public works through community participation1. The model is based on the formation of a Trust Fund to ensure transparency in the use of resources. Three trust funds are active at the moment and a fourth one is starting soon. Poor families repay (with repayment period up to 10 years) the pub-lic investment with the money saved from using pipeline gas instead of gas bottles. Once the loan is repaid, families have a constant positive effect through the savings (cost of living falls by about 7%), an increase in the house value, and the formation of an organisational structure which can be used for the delivery of other projects (it was used to involve the private sector in other projects like the water programme). The water programme is based on a cooperation of FPVS with a private construction enterprise (FERRUM) for the development of modules for the improve-ment of kitchens and sanitation systems for low income households. It is innovative as it creates products (such as building modules that can help 40 blocks have access to water) that are adapted to low income families and can be constructed by the families themselves. It also created a new actor: a service enterprise for low income households. The Observatory for Low Income Suburban Development: the Observatory devel-oped appropriate indicators, created a baseline and monitored the impact of FPVS’s activities. The innovation is that this information has been useful in empowering low income people as they learn about their strengths and achievements. The information is also developing a transferable model of operation.

Sustainability The housing improvement programme is a profit making activity which works in a financially and economically sustainable environment and of-fers quality and competitively priced services. The activity is expanding its portfolio due to an alliance with a local bank.Natural pipeline gas programme: the initial capital for the infrastructure investment is given by investors, then neighbours pay back the loan with the money they are already saving on gas. Sustain-ability of the programme is based on the following: (i) pipeline gas is 4 to 8 times cheaper then liquid gas (in bottles or other containers), (ii) the use of a Trust Fund to ensure transparent use of funds, (iii) creation of social capital through the participation of neighbours in organisations (Neighbourhood Organisation), and (iv) investment repayment en-sured through an agreement with the national gas company, Gas Natural BAN, which collects monthly gas bills. The water programme has the aim of being replicated in other locations. The FPVS plans to initiate it in areas where the microcredit or the gas programme have already been active in order to benefit from the social capital already created. The FPVS’s experience and the information gained from the Observatory (on client needs) suggest that it would become sustainable in the short period (as the other programmes have done) and that it could be replicated elsewhere in the long period.

Impact Housing improvement programme: 8,300 fami-lies have benefited. The next aim is to create a Credit Union. The pipeline gas programme: 3,000 families connected to pipeline gas and another 10,000 with the next Trust Funds. The impact of this programme reached different levels: environ-mental (reduction of emissions), social (created a neighbourhood organisation capable of realising other services, empowerment, health improve-ment measured with a 30% reduction in respira-tory illnesses, quality of life improvement), urban (receipt of payment for connection to gas pipeline is a first step for the formalisation of a property title), and economic (equivalent of 7% of family income is saved and there is a10% increase in the value of houses in the area). There are also other more long term impacts that are expected (trans-ferability of the programme, etc.). Water programme: this programme is not yet ac-tive. The Observatory has undertaken two studies per year since 2006 through long questionnaires. A lot of information has been collected. Priorities of low income families have been identified in many sectors (employment, health, etc.). The expectation is that this information will enable private-public partnerships to fulfill the needs of low income fami-lies living in the outskirts of Buenos Aires.

Selection criteria

Financial Achievements of the “Solidarios” Programmme2



2.8 2.7 2.6

Staff Productivity(borrower)

54 67 72

Outreach Achievements of the “Solidarios” Programme


Active Clients 217 403 578

Cumulative Loans 7,701 7,918 8,227

Av. Loan Size € 469 € 190 € 207

Outst. Portfolio € 12,956 € 39,035 € 67,115

Disbursed € 28,618 € 77,839 € 45,163


Staff 4 6 8


Financial Achievements of the Gasification Trust Funds



3.5 5.8 7.0

Staff Productivity(borrower)

360 402 529

Outreach Achievements of the Gasification Trust Funds


Active Clients 1,081 1,205 1,588

Cumulative Loans 2,353 2,506 2,884

Av. Loan Size € 299 € 491 € 585

Outst. Portfolio € 458,617 € 515,783 € 828,943

Disbursed € 704,476 € 75,078 € 221,270


Staff 3 3 3


1 A commercial bank and the IADB are planning to join the programme and finance US$ 6,000,000 in order to create

10,000 beneficiaries in the next 4 years 2 1 EUR = 4.98822 ARS

26


K-Rep Fedha Services Limited & Financial Service AssociationsProject Name Financial Services Association (FSA) model in deepening financial access services in arid and semi-arid rural Kenya

Financial Service AssociationsType of organization: ............ Rural grass-root member based financial institutionsLocation: ............................................................................................................ KenyaNo. of Clients: ....................... 96,000 active shareholders, 26,000 active borrowers, ............................................................................................... 39,600 savers (52 FSAs)Founded in: ........................................................................................................... 1997Mf products offered: ........................Group and individual loans, savings accounts,................................................................................................fixed deposit accountsPortfolio: .....................................................................................€ 5,059,000 (52 FSAs)Av. Loan size: ....................................................................................................... € 143 % of women clients: ....................................................................................Over 60%

Initiative Presented for the AwardK-Rep Fedha Services Limited (KFS) is presenting its technical assistance ma-nagement model for Financial Service Associations (FSAs). FSAs are rural grass-root member based financial institutions that provide credit, savings and money transfer services to their members. The model is similar to village banks or other types of decentralised financial institutions with local owner-ship of the share capital. Since 2006 KFS has been implementing a model for the commercialisation of the FSA network within Kenya using a management contract arrangement. FSA managers are grouped under the KFS and are paid on a fee-for-service basis and provide management services and super-vision to the FSAs.

www.k-rep.org

27

K-Rep Fedha Services Limited & Financial Service Associations


History K-Rep was founded in 1984 as an intermediary organisation providing grants to other NGOs for on-lending to small and micro-enterprises. Gradually K-Rep reduced its involvement with NGOs and eventually ceased wholesale lending and concentrated on retail and direct lending. K-Rep activi-ties were distinctly categorised into two divisions: a financial and non financial divisions. Today the financial division is known as K-Rep Bank Limited, the first microfinance bank in Kenya. The non-

financial services divisions are now: K-Rep Develop-ment Agency, the research and development arm, K-Rep Advisory Services Limited, the consulting and business development arm, and K-Rep Fedha Serv-ices Ltd, offering management services to Financial Services Associations (FSA).

K-Rep Development Agency (KDA) started promot-ing the FSA concept in 1997. With support from a number of development partners, it has since estab-lished 77 FSAs in five of the eight provinces of the country. In order to achieve the full potential in the entire FSA network, KDA created a company that is wholly devoted to provision of management and technical services to the FSA. K-Rep Fedha Services Limited (KFS) was incorporated in May 2006 with KDA being the only shareholder. KFS has a commer-cial focus as this is a prerequisite for ensuring that both viability and sustainability are achieved.

Structure FSA: There are 77 FSAs. Currently KFS is managing 52 of the 77 FSAs in six regions (Makueni -13 FSAs; Kitui - 10 FSAs; West-ern Kenya - 8 FSAs; Lower Coast-11 FSAs; Bomet- 4 FSAs and Taita Taveta - 6 FSAs). These 52 FSAs reach 96,132 shareholders including 27,712 new clients/shareholders as of September 2008. The FSAs vary in size with membership ranging from 700 to 3,500 shareholders. KFS: KFS has a total of 68 staff 7 of whom are in the head office, 6 regional managers, 49 FSA managers, 4 assistant FSA managers, and 2 internal compliance officers.

Governance Structure FSA: each FSA is governed by a team of 5 which form the board of direc-tors elected by shareholders. The five include a chairperson and 4 board members. The skills and competencies are derived from occupations such as entrepreneurs, farmers and retired civil servants within the communities. KFS: KFS has 6 board members drawn from the following: two from the mother company KDA, two FSA representatives, one from K-Rep Bank and the KFS Chief Executive Officer. The skills and competencies of the board

Below, KFS training session

Above, Financial Service Association office in Butula

28


members include; microfinance specialists, financial specialists, bankers and community advocacy. KFS also has a legal secretary to oversee legal issues.

Target Clients and Operational Area The primary objective in establishing the FSA model in Kenya was to significantly boost the frontier of sustainable financial service provision in remote geographical areas where mainstream micro-finance institutions and commercial banks were not operating. FSAs are therefore focusing on areas charac-terised by low population densities, high incidences of poverty and poor infrastructure.

Products and Services FSAs offer various products and services which include loans such as market-day loans, business loans, asset–financing loans, social development loans, education loans, emergency loan, agricul-tural loan, saving products and money transfer.

KFS, through the management contract arrangement, provides management services and supervision to the FSAs. The key services offered to the FSAs by KFS include:

Strategic planning and Business planning ■■

Financial Management ■■

Business Development ■■

Operations Management ■■

Management of Information Systems ■■

Advocacy and Capacity Building■■

Below, Financial Service Association’s Clients

29

K-Rep Fedha Services Limited & Financial Service Associations

Innovation FSAs were originally conceived as user-owned, financed and managed institutions requiring minimal outside intervention apart from training and an initial period of oversight. It had been as-sumed that following the initial support the FSAs would become self-reliant. However, in common with many member managed organisations, the FSAs suffered from poor management and weak governance. The managers were drawn from the membership and lacked the basic capacity and ex-perience to manage a financial institution. There was often no clear separation of responsibilities between management, governance and ownership and this frequently led to problems. The threat of the survival of all the FSAs due to weak manage-ment and governance led to doubts about whether if left alone, the FSAs could survive. Since 2006 KFS has been implementing a model for the com-mercialisation of the FSA network within Kenya using a management contract arrangement. The innovative element of this model lies in the idea of preserving the cost based advantage of FSAs in rural areas by finding low cost solutions to provid-ing effective support to individual FSAs. Through the management contract based approach, KFS provides a manager to individual FSAs, on a fee-for-service basis.

The management contract between KFS and each FSA is an agreement which states that KFS will recruit and pay for the FSA Manager and deliver training for the FSA staff regarding strategic and business planning, financial management, busi-ness development, operations management MIS, advocacy and capacity building. Training needs are assessed on a quarterly and yearly basis. For example, the management contract arrangement between KFS and the Malava FSA signed in Octo-ber 2008 indicates that KFS will be supporting the FSA for the above mentioned tasks and Malava FSA will pay KFS € 47 per month, plus 15% of in-come generated from loans, savings and money transfers, 0.5% of income generated from fixed deposits, and 5% of other income.

KFS is among the few institutions offering man-agement and financial technical services in sparsely populated, rural areas in Kenya. The only other institutions that offer similar services to KFS (although their offer is highly specialised) are the Kenya Tea Development Agency and a few others giving technical support to ASCAs. Possible real competitors are KFS staff and the FSA Board.

Sustainability FSAs: Financial sustainability of FSAs is guar-anteed by using PEARLS ratios1 for monitoring financial stability, and by using other criteria which include: (i) how much income an FSA gen-erates from its operations compared to the costs that they incur in order to carry out the activities, (ii) whether there is growth in shareholders’ in-vestment (i.e. how much dividend it is generated for the shareholders), (iii) whether the lives of the people the FSAs serve are changing positively in financial terms, and (iv) whether the FSAs are being responsible in the way they offer services in terms of ensuring that the customer is not’ robbed’ of his livelihood by being in debt.

KFS: KFS is run as a profit making company. KFS recognises that the FSA system alone cannot guar-antee the sustainability of KFS. Operational sus-tainability of KFS is 51% and KFS considers it pos-sible to become fully sustainable by 2009. Currently KFS funding sources include FSD (Financial Sector Deepening Trust) Kenya and the European Union.

Impact Significant improvements in performance were produced in FSAs managed under this arrange-ment. While most individual FSAs under the management arrangement are profitable and have significantly improved portfolio quality, the next challenge is to achieve sustainability at the level of the FSA network.

Selection criteria

Financial Achievements2 3

Dec 07 Sep 08


15% 15%

Write-off Ratio:

Portfolio Yield 21% 18%


96% 97%


29% 67%

Cost per Borrower:

€ 7,58 € 51,30

Staff Productivity

305 345

Return on Equity 37% 22%

Return on Assets 10% 7%


191% 151%



Active Clients 44.184 69.450 96.027

Active Borrowers

12.590 18.649 25.819

Active Savers 26.016 19.701 39.556

Average Disb.Loans

€ 121 € 117 € 143

Portfolio € 1,465,000 € 2,945,000 € 5,059,000

No. of FSAs 43 46 51

Staff 154 228 278


Note: The figures for the year 2006 were not presented as this was the initial period when KFS started managing the FSAs.

1 PEARLS is a financial performance monitoring system. PEARLS stands for: Protection, Effective Financial

Structure, Asset Quality, Rates of Return and Costs, Liquidity, and Signs of Growth.

2 The figures relate to the 52 FSAs supported by KFS under the management contract arrangement.3 EUR = 105.271 KES

30


TamweelcomProject Name Micro- Finance Institution (MFI)

Type of organization: ...Non-bank financial institution (limited liability company)Location: ......................................................................................................JordanNo. of Clients: ...............................................................................................39,259Founded in: ...................................................................................................... 1999Mf products offered: ................................................Loans (group and individual)Portfolio: ...............................................................................................€ 11,000,000Av. Loan size: ...................................................................................................€ 484 % of portfolio to women: .............................................................................. 95.5%

Initiative Presented for the AwardTamweelcom presents itself and all its operations. Its focus is on microfi-nance for micro and small entrepreneurs. Tamweelcom offers financial and non financial services and is the largest microfinance provider in Jordan.

www.tamweelcom.org

31

Tamweelcom


History Tamweelcom, formerly known as Jordan Micro Credit Company, was created in 1999 by the Noor Al-Hussein Foundation and received 1.7 million USD of start-up funding from the USAID/AMIR programme.

Structure Tamweelcom has a network of 15 branches in urban and semi-urban areas. Each branch consists of a branch manager, a branch administration assistant and loan officers. Tamweelcom has 141 employ-ees 73 of whom are in the operation department.

Governance Structure The Noor Al-Hussein Foundation holds 100% of the shares of the insti-tution and appoints the Board members. Tamweelcom is not allowed to distribute dividends to shareholders. The Board takes decisions based on complete portfolio and performance information, provided by the Management team. The Management team is made up of a chief executive officer, a chief operational officer, a financial manager, a human resource and administration manager, a marketing manager and an IT manager.

Target Clients and Operational Area Tamweelcom’s target clients are poor producers, low income people and its activity is mainly in urban areas. Tamweelcoms branches serve the entire Amman region and governorates of north and northwest (Zarqa, Irbid, Madaba Russaifh, ,Balaqa ) and the south (Aqaba and Karak) of Jordan. The branches cover the most important economic cities in the country.

Products and Services Tamweelcome offers a range of financial and non-financial services. Financial services offered are:

Group loans, exclusively offered to joint-liability groups of 2 to 7 ■■

women and do not require collateral. Loan sizes vary between 200 and 600 JD1.

Amal loans (Hope loans), offered to women and men, ranging from ■■

300 to 1,200 JD and averaging 400 JD. The loan term varies from 10 to 12 months. Clients must have a guarantor.

Pioneer loans, offered to men and women entrepreneurs, with licensed commercial projects, and ■■

require collateral (varies depending on loan size) as well as guarantors. Loan sizes range from 1,200 to 25,000 JD, averaging 3,000 JDs. The loan term varies from 4 to 24 months.

On the other page, Souk Ayyadi: microentre-preneurs participating to an open bazar

Below, marketing client’s products in a perma-nent showroom

1 1 JOD = 1.05240 EUR

32


Seasonal loans, provided to women and do not re-■■

quire collateral. The loan amounts range from 120 to 150 JD. The term is 6 months.

Vocational loans, offered to vocational train-■■

ing graduates to support start up and existing projects. Loan sizes range from 300 to 3,000 JD. The loan term varies from 4 to 24 months.

Progress loans, provided to SMEs using indi-■■

vidual lending methodology. Loan sizes range from 1,500 to 5,000 JD. The loan term varies from 4 to 24 months.

Non-financial services include the “Busi-ness-to-Business Linkages”, school educa-tional grants, loan insurance, training serv-ices on marketing and technical skills, and the Souk Ayyadi marketing programme.

Below, women microentrepreneurs

Above, the Scholarship Grant Scheme

33

Tamweelcom

Innovation The innovation introduced by Tamweelcom in Jordan lies in providing high quality financial services for poor producers and low income people, and effective non-financial support for micro and small enterprises. Since 2007 Tamweelcom has offered its integrated micro-finance approach (named “Value Chain Serv-ices”) which combine financial support with non-financial support. Its Scholarship Grant Scheme offers 1,000 grants annually to children of successful cli-ents. Tamweelcom’s training services provide free training to its clients in cooperation with NGO partners for marketing and technical skills. Training is offered by specialised professional and vocational centres before financial support is provided. The Souk Ayyadi programme started in mid-2007 as one of the pioneering marketing pro-grammes that Tamweelcom made available in order to support micro-entrepreneurs. Souk Ayyadi Services include organisation of ba-zaars and permanent showrooms. Souk Ayyadi has opened channels of direct communication between Tamweelcom’s clients and buyers. It has also helped them build their marketing capabilities and develop the standard of their products. Tamweelcom also participates in other ini-tiatives such as the ILO programme to enhance working standards, and the programme for as-sessment and the social performance audit for microfinance companies in the Arab world.

Sustainability Tamweelcom’s portfolio quality has remained excellent in the past few years with its PAR 30 averaging 0.4% in 2008. All marketing costs (including the Souk Ayyadi programme) are allocated to the head office’s overall costs and these costs are then allocat-ed to branches based on the value of the ac-tive portfolio per branch. Other non-financial initiatives provided by Tamweelcom (scholar-ship grants, trainings) are funded by grants and donations.

Impact Tamweelcom’s integrated methodology (finan-cial plus non-financial services) builds trust be-tween the company and its micro entrepreneur clients; the institution boasts high client reten-tion rates. Based on a survey carried out by the company, client micro entrepreneurs perceive that Tamweelcom’s training and financial sup-port leads to increases in profits. Training also in-creases professionalism of client entrepreneurs. There is widespread interest in the products. Educational grants are given to the most crea-tive clients.




0.04% 0.24% 0,36%

Write-off Ratio: 0.1% 0.0 0,2%



1.37% 1.89% 1.98%


19.2% 18.2% 18%

Cost per Borrower:

€ 65.5 € 56 € 52

Staff Productivity

479 561 539

Return on Equity 13.1% 16.5% 26.1%

Return on Assets 6.2% 6.2% 8,3%


134% 131% 140%

* Adjusted



Active Clients 17,727 31,407 39,352

Average Disb.Loans

€ 542 € 414 € 484

Outst. Portfolio € 6,111,782 € 8,683,674 € 10,991,731


Staff 79 120 161


Selection criteria

2 1 EUR = 0.950210 JOD

35

Three applicants, EDPYME Alternativa, Etimos, and Pro Mujer, have been awarded a Special Mention in recognition of the admirable quality of their projects and of the major contributions they have made, through their work, to the improvement of their clients’ life conditions.

In particular, EDPYME Alternativa was awarded a special mention for its mi-crofinance “daily repayment loan” product, Etimos for its post-emergency mi-crofinance support approach, while Pro Mujer for its integrated microfinance intervention model. A Special Mention does not entitle the candidates to any monetary reward, but the Foundation wishes to express in this publication its strong appreciation for the work done by the institutions mentioned. Hereafter we present a brief summary of the activity of these microfinance institutions that constitute, in our judgement, an exemplary model of best practices.

International AwardSpecial Mentions

36

Giordano Dell’Amore Microfinance Best Practices Award 2009 - The experiences of the finalists | International Award - Special Mentions

The InstitutionMission and Values: EDPYME is a non-bank financial institution whose mission is to develop financial products and services designed for low income micro-entrepreneurs.Established in: 2001 as the outcome of the “Programme of financing and technical assistance for small and micro enterprises” funded by Inter-American Development BankType of Organisation: Non bank financial institution (not allowed to col-lect savings)Geographical Area of Operation: Perú Funding Sources: Main shareholders are “Cámara de Comercio y Pro-ducción” of Lambayeque (48%) and “Cooperativa de Ahorro y Crédito Abaco” (48%).

The Product PresentedDaily Repayment Loan namely “Credito Diario” EDPYME started to offer its Daily Repayment Loan product in two mar-kets (“Buenos Aires” and “Nazareth”) located in low income areas in the old urban centre of Chiclayo district (Lambayeque region) with a considerable positive response from micro-vendors. The “Daily Repay-ment Loan” product is designed to reduce informal financial lending in wholesale markets which frequently charge monthly interest rates of up to 20%. The Daily Repayment Loan process considers traded goods as the only collateral. Loan disbursement and instalment col-lection are provided directly at the entrepreneur’s workplace. 44% of EDPYME’s clients have a Daily Repayment Loan.

Launching of the product: 2004Portfolio: Total EDPYME Portfolio € 10,659,953.941 - 77% of the portfolio is is dedicated to the Daily Repayment product Average loan disbursed: € 386 [min €49 to max €3,705 according to the repayment possibilities of each client] Monthly real interest rate: 6.5%

Target Population: Low- income micro-entrepreneurs that:

trade with rapid turnover products (in particular fresh products such as ■■

meat, fish vegetables and fruits) buying wholesale and selling retail in

markets and other shared selling centres;

deal with passenger transport (small buses, taxis etc.).■■

Number of Clients: There are 7,473 Daily Repayment loan clients 68% of whom are women (19,907 EDPYME total clients) in 2008.

Usually clients have the possibility to access loans amounting to less than €741 with only a signature. To obtain higher amounts they must have a solid collateral such as their own home or a third-party guarantee.

Credit Evaluation: is based on stream-lined procedures but with an analy-sis of the chosen business. Each credit officer can analyse his own portfolio daily and has the ability to analyse each business activity. The credit evalua-tion process lasts from a minimum of 21 days to a maximum of 180 days.

Disbursement Period: Once approved, the loan is disbursed within 24 hours.

Staff involved: credit managers, chief of credit, credit supervisors, agen-cy administrator, credit officer, credit assistant and daily credit collector. This is a work- intensive scheme, human resources work in teams with ef-fective and efficient coordination. Promotion of this loan product is based on intensive and selective promotion activity.

Daily Collecting System: each client is assigned a collection agent who collects repayments daily in the market place on working days, from Mon-day to Friday. Each collector has approximately 300 clients and moves around the market with a guard to collect daily repayments. He collects an average of €2,098 per day thanks to the concentration of the micro ven-dors in the same workplace. The purpose is to monitor clients’ business activities daily in order to avoid situations of repayment delay.

1 Exchange Rate applied: 1 EUR = 4,04743 /S Perú Nuevos Soles

EDPYME Alternativa Entidad de Desarollo para la Pequeña y Micro Empresawww.alternativa.com.pe

special mention

37

EDPYME Alternativa – Entidad de Desarollo para la Pequeña y Micro Empresa

Special MentionThe Daily Repayment Loan of EDPYME is a worthy example of a good quality microfinance product. The Credit evaluation and disbursement are based on slim and fast procedures; minimum paper docu-mentation and collaterals are required by the institution. Personalized client attention and the steady supervision of the performance level of the business financed are extremely important. Daily visits to clients’ businesses are paid in order to avoid situations of repayment delay. Par30 for the product is 4.86%. With this methodology it is possible to renew a loan 3 or 4 times per year. Concentration of clients in the same workplace makes this procedure possible with low operational costs. Further-more, the possibility to obtain a product loan easily and fast favours the approach of micro vendors to formal finance; otherwise they would turn to local moneylenders who would definitely charge higher interest rates.

Poultry microvendor

special mention

38


The InstitutionMission and Values: Etimos’s mission is to promote and support microfi-nance programmes, consortiums, productive cooperatives and small busi-ness initiatives in developing countries. Etimos works and collaborates with more than 260 organisations located all over the world.Established in: 1989 (formerly Ctm-Mag)Type of Organisation: socially responsible investor organised in the form of international consortium – second tier microfinance InstitutionGeographical Areas of Operation: Latin America, Africa, East Europe, AsiaFinancial Products Offered: Etimos collects savings in Europe and in-vests in developing countries financing microfinance institutions, coopera-tives of producers linked to fair trade markets and social organisations. Main Products/Services Offered by Financed Institutions: micro-credit, savings management, pre-financing, production support, micro-leasing, technical assistance and business training.

The Project“Intervention guidelines to support microfinance activities in Sri Lanka for post-tsunami recovery”

With this project Etimos acted in the post-tsunami context to support the Sri Lankan microfinance sector affected by the tsunami (in particular in the districts of Trincomalee, Batticaloa, Ampara, Hambantota, Matara, Galle and Kalutara) and to set up a post-emergency programme. The project’s main goal was to help the microfinance institutions directly and indirectly affected and to provide their borrowers with financial support to restart income generating activities and livelihoods. The purpose was to enhance the social and economic context and relationships in the long term. The approach was focused not only on immediate use of humanitarian aid funds, but focusing on the ability to transform these financial flows into real business opportunities, supporting the local MFIs.

The project started in April 2005 and because of the positive outcome of the programme, a second phase was implemented in 2007, with the aim of promoting and supporting specific sectors of the local economy, such as fishing, handicrafts, trade and agriculture.

Project Budget: €5.000.000 funded by the Italian Civil Protection De-partment (Protezione Civile)

Number of MFIs benefitted: 10 MFIs including NGOs, development banks, cooperatives, like: Sanasa Development Bank, Seeds, Uva Devel-opment Bank, Agro Microfinance, Lak Jaya, Sewa Finance, Women’s De-velopment Federation, Uva development Bank, Agromart Foundation.Number of final beneficiaries: 6,840 borrowers and more than 8,000 men and women attending microfinance capacity building programmes.

The programme was implemented in two main steps: firstly a short-term response to re-establish pre-tsunami operating capacity of MFIs and sec-ondly, the enhancement of MFI’s long-term sustainability. From the begin-ning Etimos chose to adapt the financial and technical products offered to the microfinance institutions’ specific needs in the post emergency context.The intervention focused on three specific tools: Contribution to MFIs’ share capital: its aim was to provide funds to the MFIs to restore the operative conditions and to strengthen their as-sets. The capitalisation line allowed the damaged loan portfolio to be re-scheduled or for new loans to be given to the people. Additional capital invested by Etimos allowed the MFIs to increase the equity ratio and to get more funds from the lenders.Loans to MFIs: in local currency, interest rate 7%, duration 3-4 years, 6 months instalments, no collateral required. This intervention sustained the economic recovery and helped the micro-entrepreneurs affected by the tsunami (both directly and indirectly) to restart the business affected/damaged or to start new business initiatives.Capacity building activities: capacity building was provided to the MFIs’ beneficiaries and staff to strengthen their capacities and abilities. Software was given to some MFIs to implement their capacity for manag-ing portfolio and accountancy; staff training was provided on the use of software.

From 2005 to 2007, MFIs received €4,260,000 in capitalisation lines, credit facilities and funds for capacity building. From the total funds, €2,000,000 were allocated for credit. The funds provided by Etimos and the interest accrued on loans, once repaid by MFIs, were channelled into a revolving fund available for the Sri Lankan MFIs’ future lending activity.In 2007 Etimos and the Italian Civil Protection Department started a new phase of the project in Sri Lanka focusing on small local producers and commercialisation of local products through fair trade markets.

ETIMOS www.etimos.it

special mention

39

ETIMOS

Special MentionThis project demonstrates the importance of effective, transparent and ethical use of emergency funds in post-emergency situations. It also shows how microfinance can be considered a powerful tool even in the reconstruction period immediately following an emergency situation. Etimos’s support to increase capitalisation of MFIs, in addition to loans and capacity building, is a great example of a flexible approach towards the needs of MFIs. In this model the close collaboration of Etimos with the Sri Lankan Ministry of Finance is also admirable as is the high level of cooperation and coordination with many other partner institutions in the area.

Fishermen in SriLanka

special mention

40


The InstitutionMission and Values: Pro Mujer is a non-profit international women’s development organisation whose mission is to provide Latin America’s poorest women with the means to build livelihoods for themselves and futures for their families through financial services, business training and healthcare support.Established in: 1990Type of Organisation: International Microfinance Institution (MFI) and Women’s Development OrganisationGeographical Areas of Operation: Bolivia, Nicaragua, Peru, Mexico, Argentina – Headquarters in USA

The Intervention Model“An integrated approach to microfinance in Latin America”

Target PopulationLow-income women excluded from the opportunity to develop the skills necessary to compete in the labour market of the formal sector, and who have limited access to financial services from banks and private funds.

Financial products offeredMicrocredit to solidarity groups (20 to 30 women “Communal Bank”): clients receive working capital loans ranging from US$50 to US$1,500 with a term of 4 to 6 months. Clients meet to receive and repay loans at the “neighbourhood centres” located near clients’ homes and busi-nesses. The women elect a president, a secretary and a treasurer to run the meeting and form a credit committee to approve loan applications. These positions rotate so that each woman has the opportunity to take on a leadership role;Specialised Loan Products: such as “Premium Loans” (loans of up to US$1,800 to successful clients) – “Seasonal Loans” (on peak seasons for business) – “Housing Loans” –“Rural Client Loans”– “Youth Loans” (age 14 to 23) and “Short term credit needs”;Saving Services: Pro Mujer communal banks collect savings from individ-ual members and deposit the money in a group savings account managed by a regulated bank. Clients are required to save 10-20% of their loans as a buffer against emergencies. To date, clients have saved US$18 million.

Number of Clients: 222, 287 Portfolio1: € 38,147,758Average Loan Size: € 200PAR30: 0.92% Note: data 2008, average of the 5 countries (Bolivia, Nicaragua, Peru, Mexico, Argentina)

Non- financial products/services offeredBusiness Training: Before and after loan disbursements, clients receive business training that addresses all the different aspects of running a suc-cessful business. Women gain confidence in themselves as they apply the skills to their businesses. They also receive advice, support and encour-agement from loan officers and other women in their solidarity groups.Health Care and Education: Pro Mujer runs clinics and partners with local health care organisations, providing such services as PAP smears, dental exams, family planning and preventive care. At loan repayment meetings, Pro Mujer health educators meet with clients to teach them about best health practices. Empowerment Training: Many women face domestic violence, do not know their basic human rights and lack the confidence they need to suc-ceed as micro-entrepreneurs. Pro Mujer provides its clients with empow-erment training to ensure that clients are better prepared physically and emotionally to improve their lives and those of their children.

Funding SourcesPro Mujer helps to finance its programmes through its “Loan Fund” es-tablished in 2001 to provide needed capital to its growing network of microfinance institutions. Today the fund has assets of US$25,000,000, approximately 15% of which is funded by equity and 85% by loans from investors. Through the fund, Pro Mujer helps to finance the expansion ef-forts of members of the network; provides loan guarantees by working with a US bank to secure standby letters of credit that allow members of the network to obtain local currency loans; and helps members of its net-work to cover temporary liquidity gaps by supplying short-term financing.

1 1 EUR = 1.34018 USD

www.promujer.org

special mention

PRO MUJER

41

PRO MUJER

Luz Maria’s history

Luz Maria Huaman did not have an easy life. She travelled day and night sell-ing crafts to try and support her family. However, she could not make enough money to cover basic household expenses and send her children to school. She longed for an opportunity to earn more money, but she was not eligible for a loan from a traditional bank. As she said, “A bank does not give loans easily; they ask you for many papers, guarantors and a property title.”

Luz Maria then heard about Pro Mujer from a friend. She immediately became a member and received her first loan of US$100. The credit and business training she received from Pro Mujer eventually allowed her to stop travelling and remain close to her family. She opened a local grocery store and earned enough money to meet her family’s needs. Luz Maria appreciates the differences between Pro Mujer and traditional lending institutions. “The requirements of Pro Mujer are simple, and they give us the ability to have credit, even some of the poorest women.”

With the savings she accumulated through Pro Mujer, Luz Maria was able to build a second floor on her house and improve her family’s living condi-tions. She was also able to send all of her children to school, two of whom are now in college studying Nursing and Systems Engineering. What Luz Maria values most about Pro Mujer is the health care and education she receives. She has learned how to prevent cervical cancer, get regular pap exams, practise good nutrition, and more.

Luz Maria has recently received her 13th loan. Through Pro Mujer, she has improved her family’s life, enhanced her self-esteem and entered into a community of other hard-working women who support each other and ensure each other’s success. “Pro Mujer taught us that women deserve respect, and we can work… before women were marginalised; but now, women work and we have earned respect from men. I thank Pro Mujer because it has opened our eyes and allowed us to see our full potential.”

Special MentionThe model proposed by Pro Mujer is an excellent example of an inte-grated approach to microfinance. Pro Mujer offers financial and non-financial services designed to help women achieve economic sustain-ability, develop self-confidence and self-esteem, practise group and leadership skills, and access the resources and services they need to become more effective individuals, family members, income earners and community members.

With this intervention women have the possibility to gain confidence as they successfully borrow and repay their loans, set up savings accounts, and become more aware of their own potential and abilities. After obtaining their loans, clients receive ongoing training in business skills, allowing them to continuously explore how to improve their businesses.

Pro Mujer has been operating for almost twenty years in Latin America, always to the benefit of the disadvantaged sectors of the population, and has achieved outstanding results in terms of impact and socio-economic inclusion with par-

ticular emphasis on women’s empowerment.The Andean Chairwoman and Cashier

special mention

42

Giordano Dell’Amore Microfinance Best Practices Award 2009 - The experiences of the finalists | Europe Award

43

The Europe Award was launched by the Giordano Dell’Amore Foundation in collaboration with the European Microfinance Network (EMN). EMN is the leading microfinance network in the European Union with 74 mem-bers from 22 countries. Created in 2003, it has developed a real expertise in the sector and helped in strengthening the actors, participating in the improvement of the regulatory framework for microfinance in Europe, sharing information and developing research.14 institutions submitted their pre-registration forms, but only 12 institutions actually submitted their proposal by 8th February 2009. The proposals described microfinance experiences in 7 countries in the European Union and EFTA/EEA States, namely Spain (3), France (2), Italy (2), Romania (2), Hungary (1), Albania (1), England, and Ukraine (1).

The majority of the proposals received presented their whole institution and their overall activities. The proposals mainly targeted the unemployed and fo-cused on economic support to microentrepreneurs or to employment creation. Three proposals focused only on a particular microfinance product or activity.

After having read, analysed and discussed each single proposal, the Award Committee selected five finalists. The committee believes that each of the five selected experiences offers an interesting approach and idea which could be transferable to similar realities. The five finalist institutions are:

ACAF ■ for its innovative approach using Self Financed Communities in Spain;Adie ■ for piloting its microinsurance product for entrepreneurs in France;FAER ■ for its excellent rural based integrated credit approach in Romania;FEA ■ for its creative internet-based microfinance management system in Hungary;PerMicro ■ for its efficient newly established microfinance institution in Italy.

Europe Award

44


ACAF: Association for Self Financed CommunitiesProject Name Self financed communities (SFCs): an innovative self-finance solution for low income people

Type of organization: .......................................................................................NGOLocation: ........................................................................................................SpainNo. of Clients: ........................................... 431 members with 305 loans (2007)Founded in: ...................................................................................................... 2004Mf products offered: .............................................SFCs offer loans and sharesPortfolio: .......................................................................................€ 132,000 (2007)Av. Loan size: .......................................................................................€ 460 (2007) % of women clients: ........................................................................................45%

Initiative Presented for the AwardACAF supports the creation of SFCs among poor people (mainly immi-grants) and gives them technical assistance until they can operate au-tonomously. SFCs follow the “village bank” methodology: 10-40 members, self-managed, where members are owners and customers.

www.comunidadescaf.org

45

ACAF: Association for Self Financed Communities


History The Association for Self Financed Communities (ACAF) is an NGO founded in 2004 aiming to contrib-ute to local community development through the creation of SFCs. SFCs consist of 10 to 40 members and provide self-managed services for their communities like credit and microinsurance.

Structure ACAF works mainly in Catalonia and in 4 years has created 22 SFCs with more than 1,000 indirect beneficiaries. ACAF has 4 staff members and 3 volunteers in addition to the members of the Board of Directors.

Governance StructureACAF has a Board of Directors consisting of 4 members and an Executive Team with 5 members who decide the strategy for the whole programme. However, most decisions are taken within each SFC. The SFCs also have a Board of Directors of 5 members, who take all the decisions concerning their own group.

Target Clients and Operational Area ACAF’s target population is low income people, mostly immigrants. ACAF works in Catalonia where 19% of the population can be regarded as living below the poverty

line, or at a moderate level of poverty, mean-ing their income is less than 60% of the aver-age income in the territory. Already 1 million immigrants, almost 15% of the population, are present in Catalonia which places it first in Spain for the number of foreigners. ACAF also expanded to Madrid and Senegal through its franchising activity1 and plans to expand into other cities in Spain.

Products and Services ACAF supports SFCs by creating and training the elected Board of Directors, follows up on SFC’s activity, runs annual audits, offers serv-ices such as an emergency fund, a life microin-surance, helps SFC members in job searching and with legal labour assistance. ACAF also works with other organizations in order to benefit its SFC members (i.e. Funadacio’ Caixa Catalunya accepts members of AFCs in their credit programme, a Public Hospital offers family therapy to ACAF’s members, etc.). AFCs offer business loans, emergency loans, and their shares as saving products.

On the other page, SFC Dade Leñol: women from Senegal living close to Barcelona

Below, SFC Muñal: group of Senegalese men

Balow, SFC JCEB: the first SFC that includes mainly Spanish people

1 ACAF’s franchises the SFC model for free to pre selected non- profit organisations. Once the model is implemented, the new SFCs become part of ACAF’s network and the franchiser is in charge of its own self-sustainability. The same franchising system is applied nationally (Madrid) and internationally (Senegal).

46


Funding Sources funded by private and public partners such as Ashoka, Fundacio’ Caixa Catalunya, Levi Strauss Foun-dation and others such as Fundacion Roviralta and Fons Catala’ de Cooperatcio’ al Desenvolupment. Loans disbursed by the SFCs come from SFC’s own funds.

SFC Honducat: One of the first groups which includes mainly people from Honduras.

47

ACAF: Association for Self Financed Communities

Innovation ACAF analysed its target client needs. Since immigrants are ACAF’s main target client, it analysed the needs and constraints faced by immigrants and found that:

there is a big problem with integration of ■■

immigrants and one of the main exclusion areas is credit.

credit needs for immigrants are mainly for ■■

small size loans (€100 to € 1,000) for income generating activities (i.e. buying flowers to sell them ) but also for common needs (such as paying a doctor, etc)

immigrants need to save and do not have ap-■■

propriate savings products which are flexible and do not require legal documents

there is a big problem of integration also ■■

highlighted by the fact that 25% of people in prison are immigrants.

ACAF presents its “village bank” approach which is an innovative methodology in the European context. Immigrants are given finan-cial education, easy and quick access to small loans, opening the doors to full citizenship. The SFCs formed show that poor immigrant people are self-bankable. Social integration is enhanced through SCFs. In addition, SFCs are bridging elements to more formal microfinance; small SFC loans are a way to later access larger loans for which it is necessary to have a credit and savings history (i.e. Foundacio’ Caixa Cat-alunya). Other initiatives are undertaken by the SFCs (i.e. emergency funds, taking SFCs to their country of origin, etc.).

Sustainability SFCs are self sustaining as they use members’ shares funding for on-lending. However the model involves ACAF’s activity which, in the last few years, has been funded by private and public partners and based on volunteers. ACAF faces three main challenges: the need to expand the number of SFCs, training new SFC promoters, and the need for new funding to guarantee ACAF’s sustainability. Strategies to overcome these challenges are: ACAF pro-viding consultants for the SFC methodology to social networks, the creation of a training and certificate for SFC promoters, funding ACAF by involving the public sector (40%), private companies (40%), and SFC’s member payment for TA offered (20%). The proposal indicates expected results of expansion for 2009-2014 in Catalonia, Spain, and Europe.

Impact The main impact of SCFs is that of creating social cohesion and social inclusion thus enhancing im-migrants’ progress towards full citizenship. So-cial integration is enhanced through SCFs. SFCs create useful social networks, a sense of owner-ship, responsibility and self-confidence.



N. of SFC 15 24 na

N. of SFC in Catalonia

15 18 na

N. of SFC in Madrid

0 3 na

N. of SFC in Senegal

0 3 na

N. of SFC Members

210 431 na

Active Loans 300 305 na

Average Loan Size

€ 300 € 460 na

Portfolio € 81,000 € 132,000 na

Staff 1.5 1.75 na

Selection criteria

48


Adie: Association pour le droit à l’initiative économique.Project Name Experimentation for a programme of micro-insurance

Type of organization: .......................................................................................NGOLocation: ...................................................................................................... France No. of Clients: ...............................................................................................22.000Founded in: ...................................................................................................... 1998Mf products offered: .........................................................Loans, microinsurancePortfolio: ...............................................................................................€ 38,980,000Av. Loan size: ................................................................................................€ 2,804 % of women clients: ........................................................................................36%

Initiative Presented for the AwardAdie is presenting a pilot project on the introduction of a micro insurance product targeting its micro entrepreneur clients in four regions in France.

www.adie.org

49

Adie: Association pour le droit à l’initiative économique.


History Adie was founded in 1988 by three volunteers with no start-up capital, inspired by the Grameen Bank of Bangladesh. In 2005 Adie was recognised by the public authorities as a “National Public Service Institution”. From its initial years of activity Adie set itself a three-part mission: financing vulnerable people, coaching them, and adapting the legal framework to remove obstacles to the development of microenterprises and microcredit. Adie uses microfinance to create wide access to credit, particularly for financially excluded poor people and communities. Adie has regularly expanded its activity with a rate of growth of 30% per year. Adie is the largest microfinance provider in France with 22,000 active clients, mainly micro entrepreneurs

Structure Adie has 369 staff members working in 18 regional offices, 131 sub-offices and 400 ‘stand-by points’ throughout the French territory and overseas. In addition, more than 1,000 volunteers sup-port Adie entrepreneurs.

Target Clients and Operational Area Adie targets particularly financially excluded poor people and communities. Targeted clients are those that are excluded from the banking system, have low turnover and lack access both to bank credit and to insurance adapted to their activity. The association provides approximately 85% of its loans to new businesses and 15% to existing enterprises. Of Adie’s clients, 43% receive a low-income governance allowance, 43% are unemployed and 14% are low income workers.

Products and Services Adie provides loans, microinsurance products, and pre and post loan business support during the whole period of reim-bursement of the loan. Micro insurance for low income entrepreneurs: two insurance companies (AXA and Macif) and Adie have been cooperating in designing Adie’s micro insurance product. Each institution worked within its field of competence: insurance companies were responsible for designing the product and holding casu-alty risk, while Adie shared its knowledge of clients, and of-fered loans to clients to help them pay for the premium during the first year. An agreement was signed between the three institutions.

The micro-insurance product was specially designed in order to facilitate access to insurance for vulnerable populations, with a view to simplifying insurance contracts and pricing. This product is directed towards Adie’s micro entrepreneurs who are excluded from the banking system, have low turnover and lack access both to bank credit and to insurance adapted

On the other page, client microentrepreneur: hat vendor

Below, client microentrepreneur: stylist

50


to their activity. Three different micro insurance contracts are offered. These are for (i) micro en-trepreneurs with a specific business location, (ii) those working from home, and (iii) vehicles and transported merchandise and construction.

Funding Sources In 2007 Aide was able to cover 23% of its operational and financial costs, which included its two lines of activity, the credit and the business development services which are offered for free to the clients. The remaining costs were covered by subsidies and donations.1

1 “Adie: 20 years of microcredit in France. The knowledge gained through Adie’s experience”, Adie, August 2008.

51

Adie: Association pour le droit à l’initiative économique.

Financial Achievements of Adie



19% 17% 11%

Write-off Ratio: 2,97% 2,55% 2,58%

Portfolio Yield na na na


77% 99% 117%


94% 90% 97%

Cost per Borrower:

€ 700 € 720€ € 730

Staff Productivi-ty (€ disbursed per year and per loan officer)

€ 114,844 € 159,425 € 166,947

Return on Equity -27% -27% -31%

Return on Assets -32% -28% -28%


15% 24% 26%

Outreach Achievements of Adie


Active Borrowers 15,103 18,031 22,097

Growth rate 13% 19% 23%

Average Loan Size

€ 2,594 € 2,751 € 2,804

Outst. Portfolio € 24,085,417 € 31,243,819 € 38,980,674

Growth rate 9% 30% 25%

Branches 119 131 149

Staff 335 369 432

Credit Officers 171 170 195Innovation A survey was undertaken on 600 entrepre-neurs to assess insurance needs and found that one quarter of them started a business activity without insurance coverage. Another indication was that 60% of micro entrepre-neurs that started a business with an insur-ance coverage, dropped out. The study also analysed the reasons for the lack of insurance coverage among micro entrepreneurs and Adie used these to design an appropriate insurance product. Adie worked in cooperation with two insurance companies to design an appropri-ate insurance scheme for low income entre-preneurs. Adie plans to transfer this model to another five regions in France.

Sustainability Lessons learnt from the pilot scheme regarding sustainability: the insurance companies calcu-lated that the product would be sustainable with a minimum of 4,500 active clients. Adie has been affected by the insurance product in two ways: (i) it improved its credit risk (its cli-ents are insured), (ii) additional time spent by credit officer with the client to offer the new micro insurance product. Based on planned growth strategies, sustainability of this product for the insurance companies would be reached by the end of 2009, while for Adie, by 2010.

Impact Operations were launched in September 2007. 68 insurance contracts were signed in 2007 and 569 contracts in 2008. Monitoring of this pilot project is being undertaken (survey of cli-ent satisfaction in May 2008) but the experience is still too recent for its impact to be evaluated. However, impact indicators have been identified. 569 contracts have been done for 489 clients. 49 clients have submitted and been compensated their claims.

Financial Achievements of the micro insurance product

Dec 07 Dec 08


0% 11%

Write-off Ratio: 0% 0%

Portfolio Yield na na

Turn-over for Insurance Companies

€ 27,000 € 153,000

Outreach Achievements of the micro insurance programme

Dec 07 Dec 08

Active Micro Insurance Clients

58 588

New Micro Insurance Contracts

68 569

Cumulative Clients 58 547

Portfolio € 24,000 € 46,500

Average Loan Size

€ 530 € 358

National Coverage

10% 16%

Selection criteria

52


FAER IFN SA: Societatea de Finantare RuralaProject Name Sustainable development of poor farmers in the remote rural areas of Transylvania and Moldavia, through provision of micro-credit and technical assistance.

Type of organization: .................................. Non-Bank Financial Institution (registered as ................................................................................a shareholding commercial company)Location: .................................................................................................................Romania No. of Clients: ................................................................................................................. 575Founded in: .. 2006 (but a microfinance program since 1992 under the FAER Foundation)Mf products offered: ...................................................................................................LoansPortfolio: .............................................................................................................. € 2,923,210Av. Loan size: ..............................................................................................................€ 4,954 % of women clients: ......................................................................................................25%

Initiative Presented for the AwardFAER IFN SA, provides microcredit services to the rural population. The FAER Foun-dation (mother organisation) integrates the financial services with non-financial support to FAER IFN SA’s clients and implements community projects in the area where FAER IFN SA works.

www.faer.ro

53

FAER IFN SA: Societatea de Finantare Rurala


History FAER (Foundation for the Agricultural Promotion of Regional Development) was created in 1992 as a Non-Governmental Organisation by the Suisse International Cooperation and EPER/HEKS, the aid

agency of the Swiss Protestant Churches. The FAER Foundation aimes to support agricultural and rural development. Its credit programme, which later became FAER IFN SA, targeting ru-ral micro-entrepreneurs and small-size farms started in 1992. FAER IFN SA completely spun off from the FAER Foundation registering as a Microfinance Commercial Company in De-cember 2005. FAER IFN SA has now become a Non-Bank Financial Institution, complying with the new Microfinance law approved in 2006.

StructureFAER IFN SA has four branches operating in the counties of Mures, Bistrita and Suceava all located in the Transylvanian region. The institution has 11 employees 4 of whom are loan officers. Each branch office has a loan officer and, in half of them, an administra-tion assistant.

Governance Structure FAER IFN SA is a shareholding commercial company, with 99% of the shares owned by the FAER Foundation. FAER IFN SA has a Board of Directors composed of 5 members who meet once a month on a vol-untary basis. FAER IFN SA is centralised in terms of accounting and ad-ministrative functions, while the credit approval process has been partly decentralised.

Target Clients and Operational Area FAER IFN SA provides rural micro-entrepreneurs and small-size farms with long-term loans for working capital and fixed assets.

Products and Services FAER IFN SA provides individual agricultural, service, housing and non-agricultural loans. Products are flexible, simple and provided with a friendly customer-based approach. FAER IFN SA is mainly known for its excellent agri-culture loan product.

On the other page, client microentrepreneur: sheep milking.

Below, client microentrepreneur: milk producer

Above, client microentrepreneur : woman farmer

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Funding Sources Commercial sources, credit loans, convertible loan fund increases of the loan portfolio which are negotiated with investors in the microcredit sector. These include CoopEst, Oickocredit and the Eu-ropean Fund for Southeast Europe (EFSE).

Left, Client microentrepreneur: bee keeper

55




4.1% 1.7% 9,6%

Write-off Ratio: 0.4 0% 0%

Portfolio Yield 9.9% 13.2% 16,4%


5.5% 2.9% 3.5%


8.1% 8.3% 9,1%

Cost per Borrower (€)

890 1,043 1,373

Staff Productivity (borrower)

50 60 65

Loan Officer Productivity (borrower)

125 134 148

Return on Equity -1.4% 10.1% 15.3%

Return on Assets na 4,7% 0,3%


99% 130.8% 135%



Active Borrowers 498 535 575

Active Loans 498 541 590

Average Loan Size

€ 4,014 € 4,530 € 4,954

Portfolio € 1,848,741 € 2,464,062 € 2,923,210

Branches 3 4 4

Staff 10 9 11


Innovation FAER IFN SA contributes to sustainable develop-ment by achieving sustainability at three levels. Firstly, at the institutional level (sustainability of FAER IFN SA) by looking at its performance, internal processes, risk management policies, financial products, portfolio and marketing. Secondly, at the client level by achieving social, economic and environmentally sustainable de-velopment; and thirdly, at the community level through community projects to achieve social development. Three innovations were introduced by FAER IFN SA in 2007, (i) expanding its range of products, (ii) providing technical assistance to clients through the FAER Foundation (training and exhi-bition fairs and animal exhibitions for farmers), and (iii) the rehabilitation of social infrastructure such as primary schools in 6 villages every year and supporting the “home-care” projects1.

Sustainability In 2007 FAER IFN SA achieved operational self sustainability. In order to maintain institutional sustainability FAER IFN SA’s main challenges are: separating the governance structure of FAER IFN SA and its mother Foundation, enhancing cus-tomer relations, strengthening relationships with investors, donors and partners, and risk manage-ment. Exchange rate risk and loan portfolio dete-rioration are looked at closely. In order to maintain sustainability at community level FAER IFN SA involves partner communities from the initial stages of community interventions, and transfers village schools and home care serv-ices ownership to local authorities.

The mother-Foundation of FAER IFN SA provides FAER IFN SA’s clients with non-financial services such as training on farming, animal husbandry, organic farming, agro-tourism plus field visits, and participation in exhibitions. Non-financial services are mostly linked to the loans provided by FAER IFN SA. FAER Foundation’s annual budget relies exclusively on FAER IFN SA2 contributions. Community projects (such as village schools and home care services) are funded 50% by FAER Foundation and 50% by the communities. Impact

The impact of FAER IFN SA’s microfinance activ-ity on clients’ economic and social development is good. An impact study shows that: (i) microfi-nance had an impact on volume and quality of services provided through client’s working activ-ity and on the creation of new jobs, and (ii) after having accessed microfinance services, more people consider themselves prosperous, having very good living conditions, and fewer house-holds consider themselves in difficulty.

FAER IFN SA: Societatea de Finantare Rurala

Selection criteria

1 “Home-care” projects are accomplished in cooperation with specialised institutions in health-care and social assistance for old people : Filantropia Association – for Romanian orthodox community and Diakonia Association– reform Hungarian community. The FAER Foundation offers financial support for investments in infrastructure for these programmes.

2 FAER IFN SA obtained a loan of €1.25 million from the Foundation and pays back the relative contributions to the Foundation.

3 1 EUR = 4,2485 RON

56


FEA: Fejér Enterprise AgencyProject Name Internet based electronic microfinance and enterprise support activities.

Type of organization: ............................. Enterprise Development FoundationLocation: ..............................................................................................Hungary No. of Clients: ..............................................................................................248Founded in: ........................1991 (in 1992 became a Microfinance Institution)Mf products offered: ............................................................................... LoansPortfolio: ...........................................................................................€ 2,727,990Av. Loan size: ........................................................................................ € 17,933 % of women clients: .................................................................................. 39%

Initiative Presented for the AwardFejér Enterprise Agency is presenting an internet-based microfinance management system aimed at any microfinance institution in the Euro-pean Union. This system offers credit and assistance to SMEs through the internet.

www.fea.info.hu; www.rva.hu

57

FEA: Fejér Enterprise Agency


History Fejér Enterprise Agency (FEA) was established in 1991 with support from the Hungarian Government and the European Union Phare1 programme for SMEs in Fejér county. The mission of the foundation is to support enterprises in various ways, including the provision of assistance to start up and establish enterprises, to solve special problems of existing enterprises (i.e. growth related problems, access-ing sources, mediating business opportunities and supplier contacts, etc.), and the development of an appropriate regulatory framework. In the past 17 years FEA has carried out significant develop-ments in the improvement of the quality of microfinancing activities and enterprise development services. It has started several experimental microcredit programmes aimed at social and enterprise development which proved to be sustainable.

StructureFEA has 7 employees. It has 11 contracted sub-offices with 13 economic counsellors (who also deal with other activities in addition to microcrediting).

Governance Structure FEA is managed by an advisory board consisting of 13 people. The operative activities fall under the management of a Managing Director.

Target Clients and Operational Area FEA’s target group consists of business start-ups and operating, but inexperienced, mi-cro enterprises. FEA works in Székesfehérvár which lies about 60 km to the west of Budapest, and it is the centre of Fejér county and the Transdanubian region. FEA mainly operates in Fejér county (its contracted sub-office network is located in Fejér county), but it can also accept microcredit applications from outside the county.

Products and Services FEA’s most important activity is microfinancing, but FEA also deals with adult educa-tion, the elaboration of tenders, projects and studies on economic development. FEA has been providing microfinance services not as a unified activity but through separate programmes (see table below):

On the other page, on-line loan approval form

Below, on-line loan application form

1 Since 1994, the Programme of Community aid to the countries of Central and Eastern Europe (Phare) is the main financial instrument of the pre-accession strategy for the Central and Eastern European countries which have applied for membership of the European Union.

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FEA is presenting its internet-based microfinance management system. FEA has developed an Inter-net based electronic service providing functions such as on-line loan application, on-line loan assess-ment, and on-line enterprise development services (see below under “innovations”). Modules of the internet-based microcredit management system are used by 10 microfinance institutions in Hungary. The system provides electronic services for both the MFIs and their clients. FEA aims to expand the use of this internet-based technology at an international level with the support of the European Microfinance Network.

FEA’s microfinance programme2

31/03/2009Cumulative

Disbursement (€)Outstanding Portfolio

(€)No. of Active

Clients

National Microcredit Programme (started in1992 to January 2008)

9,401,042 682,705 80

Fehervar Microcredit Programme (started in 2000 and ongoing)

84,000 34,707 5

IBM Microcredit Programme (started in 2004 and ongoing)

2,598,853 622,888 70

Other Local Microcredit Programmes (started in 2000 and ongoing)

1,802,753 944,268 65

JEREMIE Microcredit Programme (started in 2008 and ongoing):

759,200 758,465 28

2 Exchange rate applied: EUR=250 HUF

59

FEA: Fejér Enterprise Agency

FEA Microfinance Outreach Achievements


Active Borrowers

89 69 66

No. of Active Loans

329 289 250

Average Loan Size

€ 11,320 € 16,445 € 17,933

Portfolio € 2,905,458 € 3,223,127 € 2,727,996

Sub-offices 7 7 11

Staff (excluding sub-offices)

10 10 9

Credit Officers (excluding sub-offices)

3 4 4

Innovation FEA has introduced several innovations in the microfinance practice in Hungary. Some of these innovations are: 1. The internet-based microfinance manage-ment system.On-line loan applications: microfinance regis-tered clients can apply for a loan by complet-ing an electronic form. Once the form is com-pleted and sent by internet, the programme coordinator is alerted (via SMS and/or email) and the internet-based decision making proc-ess (see below) starts. The same service is provided to book keepers and credit brokers who, if registered, can send an on-line loan application for their clients. On-line loan assessments: once the credit ap-plication has been received, the credit assess-ment process starts. The process goes through 4 phases: phase 1 – information sent online is considered during site visits where the credit officer validates the information and records observations electronically. Earlier credit infor-mation is also considered. Phase 2 – FEA credit experts record their opinion and give their ap-proval (or disapproval). Phase 3 – on the basis of collected material the FEA Censorship Com-mittee votes. Phase 4 – closing of assessment procedure. The remaining process uses the “classic” credit procedures.2. Internet based enterprise development serv-ices: registered users can access free on-line credit rating, company assessments, company database, setting up enterprise webpage, etc. 3. In its microfinance programmes FEA has in-troduced special flexible interest rates based on client repayment performance (i.e. normal interest rates are enhanced by 6% for clients with a 30-day payment delay, by 10% for cli-ents with a 60-day payment delay).4. Revolving microcredit product: this is a serv-ice FEA offers to microfinance providers. Client institutions encountering liquidity problems can ask FEA for temporary funding by paying a com-mission fee to FEA. This service can also be ac-cessed through the internet.

Sustainability FEA is funded by public funds (local and central Hungarian government) and income from its mi-crocredit programmes. In the past five years 52% of the income of FEA has come from the microfinancing activ-ity. Due to the deteriorating economic condi-tions in Hungary (the availability of alternative income sources has narrowed down), the im-portance of microfinancing has increased and in 2009 this income ratio might exceed 90%. In order to sustain the operation, FEA is striv-ing to involve as many microfinance donors as possible. It also makes an effort to increase its efficiency by optimising the number of op-erating staff and the organisational structure (thus optimising the proportion of internal and contracted workers). FEA also pays particular attention to credit approvals. MFIs using modules of FEA’s internet-based mi-crofinance management system pay a monthly maintenance fee to the software operator to maintain and update the system (€280 per month). FEA has provided the use of certain modules of the system to other enterprise de-velopment agencies and MFIs, free of charge.

Impact Modules of the internet-based microcredit management system are used by 10 Micro-finance Institutions in Hungary. The internet based enterprise development system will be introduced in September 2009 in the Econom-ics Courses at secondary and higher level edu-cation in Székesfehérvár.

Selection criteria

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PerMicro SpAProject Name PerMicro

Type of organization: .................................... Non-Bank Microcredit ProviderLocation: ..................................................................................................... Italy No. of Clients: ..............................................................................................169Founded in: .................................................................................................2007Mf products offered: ............................................................................... LoansPortfolio: ...........................................................................................€ 1,071,265Av. Loan size: ........... € 7,500 (loans to enterprises), € 5,700 (loans to families) % of women clients: ..............................................51% (loans to enterprises)

Initiative Presented for the AwardPerMicro provides loans to entrepreneurs together with Business De-velopment Services, and loans to families for financial emergencies. It started its lending activity in January 2008 and in March 2009 it had provided 169 loans. PerMicro assumes total credit risk thus introducing a new microfinance methodology in Italy.

Also shortilisted for the “Italy Award”

www.permicro.it

61


History PerMicro was established as a financial company in June 2007 in Turin. The inventor of the institu-tion is the current CEO. He wanted to create an institution which would provide loans and bear

total credit risk, which was then an innovative approach in the Italian microfinance sector. His idea was supported by two partners, Fondazi-one Paideia and Oltre Venture, and was later supported by UBI Bank and Fondazione Svi-luppo e Crescita - CRT.

Structure PerMicro has ten active branch offices. The in-stitution had 14 full time professional staff by the end of March 2009.

Governance Structure PerMicro’s president is an entrepreneur with broad experience in banking and con-sumer credit. The CEO is an expert in mi-cro-credit who has worked on micro-credit projects on behalf of Banca Etica, Mag 2 and Fondazione Paideia. PerMicro has or-ganised its functions in 4 units: a Product

Unit (including credit management), a Development Unit, an Administration and Control Unit, and a Marketing Unit.

Target Clients and Operational Area PerMicro provides loans for enterprises or families, and it is designed for people who do not have easy access to traditional bank credits. The loans are suitable for Italian or foreign citizens who wish to start or develop an activity, or for freelance workers or employees. PerMicro currently operates in Turin, Pescara, Cagliari, Rome, Genoa, Milan, Brescia, Vicenza, Rimini, and Bergamo.

Products and Services Individual loans for enterprises and families of up to € 15,000, with interest rates ranging from 9% to 12%. Loans for enterprises are aimed at start-ups or development of micro business activities. Loans are supported by free business development services for the client throughout the entire duration of the microcredit. Family loans are aimed at financial emergencies involving the home, health, work, or education and free complementary training services are offered on credit matters. Other products are being developed (investment loans, working capital loans, “recycling” loans1). In both cases only moral guarantees are required from the applicants’ as-sociations, parishes, cooperatives or communities.

On the other page, client’s shop

Below, outdoor vendor

Above, traditional food seller

1 The client has already borrowed from PerMicro and requests a second loan before having completed repayment of the first one.

PerMicro SpA

62


Funding Sources Main funding partners are two social organizations, Fondazione Paideia (a foundation operating in the area of social welfare) and Oltre Venture (the first Italian social venture capital company). New shareholders are an important banking group, UBI Bank, and a banking foundation, Fondazione Svi-luppo e Crescita - CRT.

Left, client’s tailoring shop

63

PerMicro SpA

Innovation The “3 in 1” operational model. The typical Ital-ian approach to microcredit is based on a trian-gular model where: (i) a volunteer organisation undertakes the analysis of loan applications, assesses client creditworthiness and tutors the client during loan application and repay-ment; (ii) a foundation establishes a guarantee fund to cover credit risk; and, (iii) a bank dis-burses loans and cooperates in the provision of microcredit services. PerMicro, unlike these programmes, runs the whole process by itself: collects applications, selects eligible ones, ver-ifies feasibility of project and creditworthiness of client, and assumes the whole credit risk. Network credit: to contain credit risk PerMi-cro operates in collaboration with “social” networks such as ethnic communities, devel-opment agencies, cooperatives and parishes. However only a “moral” guarantee is required from the applicants’ network. These networks act as a pre-selecting filter of clients based on their knowledge of clients’ reliability. In addi-tion they guarantee client follow-up during re-payment and start–up of activity. Team: PerMicro’s team is made up of full-time professionals. Standardised procedures: internal proce-dures are defined and standardised. Each branch office has a Branch Manual compris-ing modules and processes defined centrally. In addition the institution constantly moni-tors its operational efficiency (time elapsed for loan disbursement) effectiveness, results achieved, and social impact.Credit scoring and client management: PerMi-cro is in the process of creating a system of credit scoring and client management to be operationalised at branch level.

Sustainability Achieving self-sustainability is PerMicro’s main aim at the moment. Indexes of sustainability are shown and trends analysed. Projections show that operational self-sufficiency will be achieved within the fourth year of activity while financial self-sufficiency will be achieved by the fifth year. A growth strategy is described. Territo-rial development and standardised procedures, the offer of a wide range of other products and services (emergency loans, insurances, mort-gages, legal assistance services) are identified as strategies to achieve sustainability.

Impact Depth of outreach2 of PerMicro is calculated to be approximately 30%. In March 2009 PerMicro has provided 110 loans to families and 59 to enterprises. PerMicro developed an evaluation questionnaire for clients consisting of 45 ques-tions to be answered before and after the loan. This will be used to evaluate social impact. How-ever the experience is very recent and it is still too early to judge its impact.

Financial Achievements

Dec 08 Mar 09


2,7% 3,5%

Portfolio in Arrears

0.4% 0,4%

Write-off Ratio: 0 0

Staff Productivity

40 45


40.09%


Dec 08 Mar 09

Active Clients 122 169

Average Loan Size

€ 6.437,70 € 6.338,85

Portfolio € 785.400 € 1.071.265

No. of Branches 4 10

Staff 9 14

Selection criteria

2 Depth of Outreach = average loan size as a percentage of GNP per capita.

64

Giordano Dell’Amore Microfinance Best Practices Award 2009 - The experiences of the finalists | Italy Award

65

For the Italy Award, 13 institutions submitted their proposals. The proposals described microfinance experiences in 8 different Italian provinces.

The highly fragmented microfinance market in Italy is reflected in the pro-posals received, 31% of which were from cooperatives, 23% from gover-nment entities, 23% from MFIs and NGOs, 15% from foundations and 8% from other institutions.

The Award Committee selected five leading microfinance providers that stand out for their commitment and achievements:

ATAS ■ Onlus for its integrated programme to adequately fulfil the needs of immigrantsDiakonia Association ■ with its capillary network and its focus on small loans and tutoring servicesMag Verona ■ proposing a cooperative model for providing microfinancemicro.Bo ■ experimenting various microfinance methodologies and playing a major role in advocacy for the sectorPerMicro ■ (also shortlisted for the Europe Award) with its focus on institu-tional sustainability and private funding approach.

Italy Award

66


ATAS onlus: Associazione Trentina Accoglienza Stranieri OnlusProject Name Microcredit to foreign immigrants

Type of organization: ................................................................................. NGOLocation: .........................................................................................Trento, Italy No. of Clients: ...................................... 32 cumulatively since start of activityFounded in: ...............................1989 (in 2007 the microcredit project started)Mf products offered: ............................................................................... LoansPortfolio: .................€179,700 disbursed cumulatively since start of activitiesAv. Loan size: .......................................................................................... € 5,300 % of women clients: .................................................................................. 19%

Initiative Presented for the AwardATAS onlus (ATAS) is presenting its microfinance activities as part of its wider support to foreign immigrants living in the Province of Trento. Loans are disbursed by a cooperative bank (Rural Bank of Aldeno and Cadine), guaranteed by a guarantee fund. Clients are also supported with training and tutoring by ATAS.

www.atas.tn.it

67

ATAS onlus: Associazione Trentina Accoglienza Stranieri Onlus


HistoryATAS is today one of the most important non-profit organisations operating in the field of immigration in the region of Trento. It was created in 1989 and works towards fostering the knowledge and awareness among foreigners of their citizens’ rights and duties, and raising awareness among the local community about the positive potential of the phenomenon of migration. ATAS’s main activities’ are: social housing, counselling, training and credit. ATAS’s experimental microcredit project started in March 2007, in col-laboration with the Cassa Rurale di Aldeno e Cadine, the Foundation of Cassa di Risparmio di Trento e Roverto, and the Municipality of Trento (Comune di Trento). The microcredit project was initiated based on a study on immigrants in the Province of Trento which highlighted two issues: firstly, that immigrants mainly tend towards self employment when they go through a social promotion programme, and sec-ondly, that the main difficulty they face when starting a business, is lack of credit. The aim of the microcredit project is to promote socio-economic growth of people that have no ac-cess to credit and that want to develop an economic activity or to attend vocational training courses. A guarantee fund of € 80.000 euro was established by the Foundation of Cassa di Risparmio di Trento e Roverto at the Cassa Rurale di Aldeno e Cadine, an important cooperative bank in Trentino1. This fund has been increased by a contribution of the Rural Bank of Aldeno and Cadine, the Municipal-ity of Trento, and the Comprensorio della Valle dell’Adige. The guarantee fund reached €98.000 on December 31st, 2008 and was reduced to €83,700 because of 3 written off credits. The experimental phase of the project ended on December 31st 2008, and at present the project’s partners are re-examining the conditions and introducing changes in the initial agreements.

Structure ATAS has 4 branch offices in Trento, Rovereto, Cles and Tione, and employs of 22 staff 17 of whom are engaged in operational activities (including the credit activity), while 6 are engaged in administrative and organisational activities. Approximately eight to ten volunteers also work at ATAS, including Italian civil servants and interns. All the offices can give general information and receive credit requests. The applicant will then be called by one of the 8 social workers authorised to develop the application.

Governance Structure ATAS has four governing bodies (the Partners Assembly, the Board of Di-rectors, the Board of Auditors, and the Probiviri Council). ATAS’s opera-

tions are run by an organisational structure consisting of three managerial units (Communities and Territory, Services, Projects, and Cinformi) headed by a President and a General Coordinator.

Target Clients and Operational Area The project exclusively targets foreign people with regular residence permit, resi-dent in the Province of Trento (Provincia di Trento).

Products and Services Loans offered include (i) loans from €500 to €1,500 for training purposes or for the

On the other page, microentrepreneur’s shop

Below, client’s fast food activity

1 This system of cooperative banks covers more than 70% of the savings and credit in the Trentino province.

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development of small economic activities; (ii) loans from €1,500 to €5,000 for single immigrants who want to start and develop an economic activity; loans from €1,500 to €10,000 for immigrants who want to create or develop a cooperative or an enterprise. A fixed interest rate of 5.50% on an annual basis is applied and reviewed annually. The maximum loan period is 60 months.

Left, client’s retail activity

69

ATAS onlus: Associazione Trentina Accoglienza Stranieri Onlus

Innovation ATAS‘s intervention is innovative as it is the first microcredit project targeting foreign immi-grants in the Trentino Province. The relevance of the activity is supported by the fact that 7% of the population in the Province of Trento are foreign immigrants. The project’s aim is innova-tive as it is that of educating immigrants about responsible credit management, thus helping them to integrate socially, and reducing pos-sible intolerance episodes within the popula-tion. Through this project foreign immigrants become active citizens. During its initial guidance and listening phase ATAS’s staff identify any additional needs of the target population. For example, ATAS in-dentified the need of foreign immigrants to be oriented among relevant public and non-public social services, and transformed those needs into a publication “Guide for immigrant entre-preneurs in Trentino province” (2008).

Sustainability ATAS runs the microcredit activity through its social operators who help compile the loan applications, do the initial interviews, assess clients’ creditworthiness, pass the information to the bank, and then follow client repayment. The Rural Bank of Aldeno and Cadine holds the guarantee fund, does the financial and econom-ic evaluation of proposed loan applications, disburses loans, and compiles monthly financial reports. The guarantee fund holds a “level 2” leverage thus can guarantee up to € 167,431 of loans disbursed. One of the main aims of ATAS regarding its credit activity is that of progressing towards sustainability of the project. With the upcom-ing renegotiation of the agreement among partners, a number of initiatives to support and develop sustainability have been identified, for example:

requesting moral guarantors, ■■

need for closer business monitoring, ■■

increasing loan amounts, ■■

increasing interest rates, ■■

evaluating the idea of financing first those ■■

who have been in Italy longer (due to better understanding of the local context).

Two new projects will be introduced to increase sustainability: (i) a training course on financial viability and microcredit services, and (ii) in-creasing solidarity among immigrants to be used as a guarantee for future credit activities.

Impact ATAS aims to have an effective impact on its cli-ents as shown by the questionnaires and evalua-tions used to assess client satisfaction. In Febru-ary and December 2008 an evaluation of client satisfaction was undertaken and gave positive feedback both on ATAS and the disbursing bank. The project used questionnaires to study the target group and its needs. Ethnic specialisa-tion was noticed (i.e. East European immigrants tend to focus on construction activities, etc.). The majority of microcredit beneficiaries have been in Italy for a medium-long period of time. The majority of clients used loans for on-going businesses. Since project start, there were 38 applications for loans, 32 accepted, 4 rejected, 3 written off, and 1 totally repaid.


Dec 07 Dec 08

Active Borrowers

16 28

Average Loan Size

€ 4,600 € 5,300

Portfolio € 72,280 € 125,270

Disbursed € 73,200 € 149,700

Branches 7 bank+ 2 atas 8 bank + 2 atas

Staff 11 + 6 atas 12 + 8 atas

Volunteers 2 3

Selection criteria

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Diakonia Onlus AssociationProject Name “Social-Ethic Microcredit” Project

Type of organization: .................................................................................................NGOLocation: ......................................................................................................Vicenza, Italy No. of Clients: ................................................................................................. 138 in 2008Founded in: ...........................................................1998 (in 2006 the microcredit Project)Mf products offered: ...............................................................................................LoansPortfolio: .......€ 271,624 disbursed in 2008 (€ 650,757 cumulatively between 2006-2008)Av. Loan size: ..........................................................................................................€ 1,880 % of women clients: ............................................................................................... 41,7%

Initiative Presented for the AwardDiakonia Onlus Association (Diakonia Association) presents its microcredit project which started in January 2006. Diakonia Association has 12 Microfinan-ce Centres that offer assistance to people in need.

www.caritas.vicenza.it

71

Diakonia Onlus Association


History Diakonia Association is the operational arm of Caritas Diocesana Vicentina and operates in the Diocese of Vicenza where approximately 850,000 people live. The Association offers a wide range of support services for prisoners, immigrants, single mothers and other needy people, and works in collaboration with the local public social services. The Social-Ethic Microcredit Project was set up following an analysis, developed in 2002-2004, of the needs of the territory. The study indicated increasing new forms of poverty highlighted by an increased number of applica-tions for economic contributions from people who were actually able to return a small loan, but unable to access banking credit. A group of experts from different sectors (banking, experts in commercial law, consultants, etc.) defined the approach and in November 2005 the project was launched starting with the definition of the method, the first training course, the signature of a convention with 11 banks (increasing to 13 in 2008), and the signature of an agreement with the

first local authority. In January 2006 the first 7 microcredit counters (increasing to 11 in 2008 and 12 in 2009) opened. A guarantee fund was set up by Caritas, the BCC (Banche di Credito Cooperativo), the Municipality of Santorso, and private individuals with an initial amount of € 150,000 and now amounting to € 700,000.

Structure The 12 counters (Arzignano, Asiago, Bassano del Grappa, Dueville, Lonigo, Malo, Montec-chio Maggiore, Noventa Vicentina, Piazzola sul Brenta, San Bonifacio, Valdagno, and Vicenza) are run by one part time employee and 100 volunteers who, once trained, run the “listening” centres and the microcredit proc-ess. Loans can be disbursed through 120 bank counters.

Governance StructureDiakonia Association’s organisational structure is based on a Members’ Assembly, a Territorial Coun-cil, an Executive Board, a President, a Coordinator, and an Administrative Unit. Each single support service has a coordinator (usually a volunteer) supported by professionals.

Target Clients and Operational Area The Social-Ethic Microcredit Project targets people of the Diocese or of the province of Vicenza in temporary economic difficulty, with the purpose of alleviating and preventing situations of potential social exclusion, requiring the beneficiaries to be an active part of the process.

Products and Services The microfinance centres are “listening” centres; the focus is on listening to people’s needs, pro-posing personal projects to the clients (which may or may not include a loan), and assisting the

On the other page, credit committee

Below, volunteers’ training session

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client during the implementation of the personal project. Out of approximately 1,000 interviews with clients, 34% received a loan, while the others were introduced to more appropriate support services related to their needs. Loans cover overdue bills, health costs, housing costs, educational costs, and others. Loans are of a maximum amount of € 4,000, with a maximum repayment period of 60 months, given at fixed annual interest rate of 3.0%. Loans are disbursed by banks with which Diakonia Association has an agree-ment (13 banks). Loan disbursements are supported by a guarantee fund (€ 700,000) financed by banks and private donations through Caritas. The guarante fund totally covers any insolvent loans.

Funding Sources the microcredit project is funded by the Diocese of Vicenza, Caritas Diocesana Vicentina, the 13 BCCs (Banche di Credito Cooperativo) which Diakonia Association has an agreement with, 23 municipali-ties of the Vicenza Province, Fondazione Cariverona, various parishes and private individuals. Below, loan officers

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Diakonia Onlus Association

Innovation The core of the services offered, and also one of the innovative elements of this approach, is the creation of a personal relationship be-tween the applicant and the staff of the Dia-konia Association. Each applicant is attended and listened to by two volunteers throughout the implementation of a personal “path”. Each case is examined and evaluated together with all the volunteers working at the same micro-credit counter. The decision on whether to ap-ply for a loan or to direct the applicant towards other support services available (either public or through Caritas or other organisations form-ing part of the network) is taken by the whole group which is usually supported by a tutor who could follow up with the applicant during loan repayment. The project responds to the needs of immigrants and other disadvantaged people to be accompanied throughout the process.A second innovative element consists in the pe-riodic training offered to the Association’s staff. The 100 volunteers are mainly bank employees who receive basic training every year in addi-tion to their participation in monthly meetings. The Diakonia Association created a network among staff with different areas of expertise. The Social-Ethic Microcredit project refers to 3 levels of networking: the first level is with the other territorial counters created by Caritas. The second level deals with all the public so-cial services, and the third level is with other agencies, private firms and entities which can provide benefits for the applicant.

Sustainability The Diakonia Association bases its operations on one part time person and 100 volunteers. The 12 Microfinance Centres are rent-free as these are owned by the Parish or given for free by the local administration. Banks participate in the funding of the activity by paying their staff to be engaged in the activity part time. Local administrations contribute with free rent for some of the 12 Microfinance Centres run by the Diakonia Association, and with the staff (social assistants) collaborating with the Diakonia As-sociation in 23 local government units that offer microfinance services. The repayment rate was 85% in 2008. The written off ratio was 0% in 2006, 10% in 2007, and 12% in 2008.

Impact The aim of this microfinance project is to prevent worsening social exclusion of disadvantaged families. Its real impact is determined by the social inclusion effect of tutoring both immi-grant and Italian applicants throughout the sup-port process. The impact of this project can be measured by the substantial flow of people to the microcredit counters. In total, since January 2006, 1,005 people have requested assistance and 346 have received loans. The 12 microcredit counters are working twice a week for 2 hours per day. Training for staff continues to be offered and in 2008, 35 operators were trained. The need shown by this intervention has contributed to greater involvement of other institutions the result of which has been (i) the increase of the guarantee fund to € 700,000 euro, and (ii) the signing of agreements with 21 local govern-ments. The Diakonia Association is very active in networking with other institutions in order to enhance its professionalism.



Clients (cumulative)

101 208 346

Active Borrowers

95 152 208

Average Loan Size

€1,700 €1,800 €1,880

Portfolio €134,752 €212,926 €287,888

Disbursed (cumulative)

€169,063 € 210,071 € 271,624

Disbursed (cumulative since start of activity)

€169,063 €379,134 €650,758

Cumulative Applicants

322 239 444

Branches 7 7 11

Staff 1 1 1

Volunteers 75 75 100

Selection criteria

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MAG (Società Mutua per l’Autogestione) Verona

Project Name Relational and community microcredit

Type of organization: ......................................................................... Mutual Aid SocietyLocation: ....................................................................................................... Verona, Italy No. of Clients: ...................................................................10 (60 cumulative since 2005)Founded in: ............................................................1978 (2005 the microfinance activity)Mf products offered: ................................................Loans (business and social needs)Portfolio: ........€ 18,600 disbursed in 2008 (€210,000 disbursed cumulatively since 2005)Av. Loan size: ..........................................................................................................€ 1,860 % of women clients: ..................................................................................................50%

Initiative Presented for the AwardMagVerona is presenting its microcredit programme, which is one part of its many support activities to the non-profit sector.

www.magverona.it

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History MagVerona was founded in Verona in 1978 by men and women who firmly believed in an economy based on solidarity and on new forms of self managed businesses. From then on MagVerona col-lected savings from its members to fund new forms of cooperation; this is the same approach used by the other five Mags in Italy and other entities involved in ethical finance.In 1982 a branch of MagVerona (MagServizi) started its operations to support the creation and de-velopment self-managed businesses using their technical assistance services. In 2005 MagServizi opened its microcredit counter. Credit is provided to people who can present forms of guarantee based on personal relationships. A guarantee fund was created in 2008 with the contribution of a foundation and the Verona Municipality (Fondazione CariVerona and Assessorato al Bilancio del Comune di Verona). Two banks have signed an agreement with MagVerona to be the official disburs-ing banks.

Structure MagVerona’s microcredit activity is implemented through one microcredit counter with one salaried member of staff and 4 volunteers.

Governance Structure Below is a chart showing the organisational structure of Mag Verona.

Target Clients and Operational AreaMag Verona’s microfinance activity targets its own members, but also anyone applying for credit through the institutions that are part of its territorial network, namely Acli, Arci, Ronda della Carita’, and social assistance operators of the Verona Municipality. Clients must operate in the Province of On the other page, Microcredit staff at work

FORMAL Organization chart of MAG Verona

MAG MUTUAL – Mutual Aid Society

General shareholders' meeting

Board of directors

Director Mag Mutua

Administrative Area

MAG SERVIZI - coop

Communication Area

General shareholders' meeting

Board of directors

Director MAG Servizi fund raising Group

Ethical Finance Area

SERVICES

MAG MUTUA TECHNICA SERVICES

MAG SERVIZI

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Verona and have the possibility of sharing the direct economic responsibility of a loan. Foreign clients must have a valid stay permit. Targeted clients are those who are in temporary economic difficulty or who want to start up a new business.

Products and Services Mag Verona offers a wide range of services: training for entrepreneurs wanting to be en-gaged in self-managed social enterprises, tutoring for starting self managed social enter-prises, legal, administrative, managerial, fiscal and labour consultancy, cultural activities on the social economy, and microcredit for micro-entrepreneurs and for social needs. With regard to its microcredit programme, MagVerona dis-burses loans through two partner banks (Banca di Credito Cooperativo della Valpolicella and Banca Popolare di Verona). Loans are either for business start ups (max €20,000), or for other needs (max €2,500 for expenses related to hous-ing, health, travelling, buying vehicles, etc.). A guarantee fund (€40,000) was created at the end of 2008. MagVerona supports clients by helping to create a “tutoring group” which supports the client and partly guarantees (50%) loan repayment. The remaining credit risk (max 50%) is born by the disbursing bank. The maximum loan period is 5 years (minimum 6 months). The annual interest rate applied is 7.9%. Clients must be able to present two people who act as guarantors for the loan.

Above, MAG servizi staff at work

Below, loan officer

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Innovation

MagVerona targets anyone resident in the Province of Verona who has the possibility of sharing the direct economic responsibility of a loan. The innovation is that, unlike other co-operatives, the beneficiary is not necessarily a member of MagVerona and its partners.Microfinance provision in Italy has mainly fo-cused on credit for businesses. In the case of MagVerona loans can be used either for busi-ness creation or for urgent social needs.In addition MagVerona’s clients need to involve others in co-sharing the economic responsibil-ity of a loan. This is an innovative approach to microfinance in Italy.MagVerona also has an Entrepreneurship Serv-ice Unit offering technical assistance to busi-ness start up and business development on a fee basis.MagVerona is developing new eco-friendly microcredit products such as (i) loans for those wanting to build solar panels for their houses and need to buy construction materials, and (ii) loans for those wanting to change their vehicle consumption from petrol to methane gas.

Sustainability Out of a total of 60 loans provided by MagVe-rona, approximately 60% are being repaid on time, 30% were restructured and have started to be repaid, 5% have requested support from the guarantors, 5% are insolvent.MagVerona receives annual contributions from the two partner banks (approximately €10,000 in total) which is a part of the revenue from the microcredit activity. MagVerona sustains itself by contracting out its technical assistance serv-ices to social enterprises (60%), with contribu-tions from public and private institutions for its training and cultural activity on the ground (35%), and with its membership fees (5%).

Impact Since its start up (2005) the microcredit pro-gramme has provided 60 loans. Approximately 10 loans have been totally repaid, 6 enterprises and 70 jobs have been created. Loans for “so-cial” needs have been used for housing, health, previous debts, trips home, housing in the country of origin.



Applicants (cumul.)

65 77 91

Active Borrowers

24 14 10

Average Loan Size

€ 2,950 € 4,754 € 1,860

Disbursed € 70,000 € 66,550 € 18,600

Branches 1 1 2

Staff 2 2 4

Credit Officers

0 0 0



Loans Regularly Repaid

€ 29,600 € 45,550 € 18,600

Restructured Loans

€ 25,550 € 17,520 0

Loans Repaid by Guarantors

€ 7,650 € 980 0

Loans Repaid by Guarantee Fund

0 € 8,000 € 2,500

Disbursed € 70,000 € 66,550 € 18,600

Selection criteria

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Associazione micro.BoProject Name Microcredit in Bologna from group lending to individual lending

Type of organization: ...........................................Association (non- profit organisation)Location: ..................................................................................................... Bologna, Italy No. of Clients: ............................................................................................................... 76Founded in: .................................................................................................................2004Mf products offered: ............. Loans (group loans until 2006, and individual enterprise ......................................................................................................and emergency loans)Portfolio: ............................................................................................................. € 244.898Av. Loan size: ..........................................................................................................€ 3,356 % of women clients: ..................................................................................................46%

Initiative Presented for the Awardmicro.Bo is presenting its evolution from a group lending to an individual lend-ing methodology. Based on an in-depth assessment of its clients and its experi-ence with groups, micro.Bo identifies an appropriate lending process tailored to the specific context in which micro.Bo operates.

www.micro.bo.it

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micro.Bo


History The process which led to the constitution of micro.Bo initiated a year before its establishment, in 2003. Following a series of initiatives promoted by the University of Bologna, in which Muhammad Yunus (founder of the Grameen Bank and winner of the Nobel Peace Prize 2006) was involved, a group consisting of students, professors and microfinance promoters from the civil society developed a microfinance project for Bologna. micro.Bo was established in September 2004 to provide micro-finance services in the province of Bologna. In February 2005 the credit activity was able to start thanks to the constitution of a guarantee fund in the Bank of Bologna funded by important Bolognese entrepreneurs. This enabled the Bank of Bologna to start disbursing loans in June 2005 to clients selected by the Association by appropriate microfinance criteria.

Structure micro.Bo has a staff team consisting of 5 professionals. In ad-dition micro.Bo is supported by volunteers and various civil so-ciety entities. The Association has its central office in Bologna and 4 branch offices in other local authorities (S. Giovanni in P., S. Giorgio, Budrio, Bologna S.Caterina).

Governance Structure micro.Bo has a President and an honorary President (Dr. Yunus), a seven member Board of Directors, a 3 member Vigilance Committee, and the General Assembly . The General Assembly elects the President and the Board of Directors every 3 years.

Target Clients and Operational Area Business loans target atypical workers, the unemployed, start-up entrepreneurs, micro-entrepreneurs who want to develop

their businesses and trainees. Emergency loans target people facing unex-pected expenses such as health care, furniture, legal / funeral expenses, deposits needed to rent an apartment.

Products and Services micro.Bo offers loans to entrepreneurs who want to start or develop an existing business. In addition free pre and post loan business assistance and tutoring is offered to borrowers. micro.Bo is also piloting products such as emergency loans. Loan characteristics are:

Enterprise loans: maximum loan size €7,000, fixed interest rate of 8%, maxi-■■

mum loan period of 48 months. Moral guarantee required from two friends or rela-tives.

Emergency loans (pilot phase): maximum loan size €3,000, fixed interest rate ■■

of 3.25%, maximum loan period of 48 months. Two guarantors are required, but the association does not evaluate their solvency.

On the other page, micro.Bo’s team

Below, client’s bakery shop

Below, Client’s jewellery exhibition

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micro.Bo piloted group lending from 2005 to 2006. Group lending consisted of the formation of soli-darity groups of 3 to 5 members, maximum loan size of €10,000 (first loan), fixed interest rate of 6%, maximum loan period of 36 months. The approval of each loan was based on the member’s entrepreneurial project. Loans were disbursed in sequence to all members of the group. Late or no reimbursement excluded other members from receiving a loan.

Funding Sources Presently micro.Bo is funded by two foundations (Fondazione del Monte, Fondazione Carisbo), and collaborates through a signed convention with some municipalities of the province of Bologna.

Left, traditional food seller

Below, micro.Bo’s president with clients

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micro.Bo

Innovation micro.Bo has been innovative in piloting the group lending methodology in Italy. However its performance has been poor and micro.Bo has documented its failure and the lessons learnt. One of the main lessons is that to have an ef-fective enterprise lending product, the main focus should be on the assessment of the po-tentiality of the entrepreneur.Business development services are coordi-nated by a “business supporter” whose role is to coordinate and develop tutoring in the pre and post lending period. micro.Bo has been in-novative in separating the position of “business supporter” from the loan officer position. The business supporter, who helps in shaping the project which is being proposed for financing, should not be the same person who evaluates the project. micro.Bo has developed an effective methodol-ogy with a quick disbursement process.

Sustainability micro.Bo recognises that its legal status, an as-sociation, is inadequate for the aim of achieving sustainability. Economically, micro.Bo is finan-cially reliant on fund raising. A possible way to increase sustainability is to request the public social service authorities for a contribution for clients who pass from the public social services to micro.Bo’s services as part of a “welfare” contribution.If micro.Bo were to change into a financial in-stitution, it would be able to achieve self sus-tainability by taking the following steps: firstly, by separating its lending from it business sup-port services in order to better identify its cost centres; secondly, it would need to increase its lending volumes by introducing other financial services, and by creating stronger relations with other institutions.

Impact micro.Bo describes the impact on the institution, originating from the change in lending methodol-ogy. At the end of the two-year pilot phase (2006-2007), a study was undertaken which highlighted the following:Clients: most of the clients during the pilot phase were foreigners (72%) and it was seen that 85% of foreign clients, who were mainly male, did not repay loans. In general, women were more reliable and 80% were repaying their loan on time (for the males the figure is 62%). However, the majority of successful businesses were started by men (62%).Enterprises: the study highlighted that enterprises with more credit need are existing ones, not the start ups. In addition start ups have less chance of surviving (54%) then existing ones (74%). Ital-ians seem to have a better chance of starting suc-cessful enterprises: the study shows that 62% of enterprises started by Italians are still active com-pared to foreign ones (35%).Credit methodology: enterprises financed through the individual lending methodology stand a better chance of surviving than one financed by a group lending methodology. Based on some of the above considerations, micro.Bo changed its lending methodology from group to individual in mid-2007. At the end of 2008 port-folio quality improved. The default rate for loans disbursed in 2008 is 0%. It is too early to make any analysis on impact as micro.Bo’s portfolio still holds 45% of group loans which have a PAR90 of 28% compared to individual lending which is 6%. Efficiency also has greatly improved although the cost of switching operational methodology has been high.



Active Clients

52 56 76

Average Loan Size

€ 6.160 € 4.740 € 3.356

Portfolio € 389.000 € 279.240 € 244.898

Disbursed (cum.)

€ 394.200 € 95.000 € 167.846

Branch Offices

1 2 4

Staff 5 5 5

Credit Officers

2 2 2




12.45% 9.59% 12.16%

Write-off Ratio 2.08% 14.92% 12.91%

Operating expense ratio

44.08% 35.78% 51.26%

Cost per Borrower

€2,160 €2,130 €1,667

Staff Producti-vity (borrowers)

10.4 11.2 15.2

Selection criteria

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Also shortilisted for the “Europe Award”

PerMicro SpAProject Name PerMicro

Type of organization: .................................... Non-Bank Microcredit ProviderLocation: ..................................................................................................... Italy No. of Clients: ..............................................................................................169Founded in: .................................................................................................2007Mf products offered: ............................................................................... LoansPortfolio: ...........................................................................................€ 1,071,265Av. Loan size: ........... € 7,500 (loans to enterprises), € 5,700 (loans to families) % of women clients: ..............................................51% (loans to enterprises)

Initiative Presented for the AwardPerMicro provides loans to entrepreneurs together with Business De-velopment Services, and loans to families for financial emergencies. It started its lending activity in January 2008 and in March 2009 it had provided 169 loans. PerMicro assumes total credit risk thus introducing a new microfinance methodology in Italy.

www.permicro.it

83


History PerMicro was established as a financial company in June 2007 in Turin. The inventor of the institu-tion is the current CEO. He wanted to create an institution which would provide loans and bear

total credit risk, which was then an innovative approach in the Italian microfinance sector. His idea was supported by two partners, Fondazi-one Paideia and Oltre Venture, and was later supported by UBI Bank and Fondazione Svi-luppo e Crescita - CRT.

Structure PerMicro has ten active branch offices. The in-stitution had 9 full time professional staff by the end of December 2008 (6 in Turin and 3 in the other branches).

Governance Structure PerMicro’s president is an entrepreneur with broad experience in banking and consumer credit. The CEO is an expert in micro-credit who has worked on micro-credit projects on behalf of Banca Etica, Mag 2 and Fondazione Paideia. PerMicro has organised its functions

in 4 units: a Product Unit (including credit management), a Development Unit, an Administration and Control Unit, and a Marketing Unit.

Target Clients and Operational Area PerMicro provides loans for enterprises or families, and it is designed for people who do not have easy access to traditional bank credits. The loans are suitable for Italian or foreign citizens who wish to start or develop an activity, or for freelance workers or employees. PerMicro currently operates in Turin, Pescara, Cagliari, Rome, Genoa, Milan, Brescia, Vicenza, Rimini, and Bergamo.

Products and Services Individual loans for enterprises and families of up to € 15,000, with interest rates ranging from 9% to 12%. Loans for enterprises are aimed at start-ups or development of micro business activities. Loans are supported by free business development services for the client throughout the entire duration of the microcredit. Family loans are aimed at financial emergencies involving the home, health, work, or education and free complementary training services are offered on credit matters. Other products are being developed (investment loans, working capital loans, “recycling” loans1). In both cases only moral guarantees are required from the applicants’ as-sociations, parishes, cooperatives or communities.

1 The client has already borrowed from PerMicro and requests a second loan before having completed repayment of the first one.

On the other page, client’s shop

Below, outdoor vendor

Above, traditional food seller

PerMicro SpA

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Funding Sources Main funding partners are two social organizations, Fondazione Paideia (a foundation operating in the area of social welfare) and Oltre Venture (the first Italian social venture capital company). New shareholders are an important banking group, UBI Bank, and a banking foundation, Fondazione Svi-luppo e Crescita - CRT.

Left, client’s tailoring shop

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PerMicro SpA

Innovation The “3 in 1” operational model. The typical Ital-ian approach to microcredit is based on a trian-gular model where: (i) a volunteer organisation undertakes the analysis of loan applications, assesses client creditworthiness and tutors the client during loan application and repay-ment; (ii) a foundation establishes a guarantee fund to cover credit risk; and, (iii) a bank dis-burses loans and cooperates in the provision of microcredit services. PerMicro, unlike these programmes, runs the whole process by itself: collects applications, selects eligible ones, ver-ifies feasibility of project and creditworthiness of client, and assumes the whole credit risk. Network credit: to contain credit risk PerMi-cro operates in collaboration with “social” networks such as ethnic communities, devel-opment agencies, cooperatives and parishes. However only a “moral” guarantee is required from the applicants’ network. These networks act as a pre-selecting filter of clients based on their knowledge of clients’ reliability. In addi-tion they guarantee client follow-up during re-payment and start–up of activity. Team: PerMicro’s team is made up of full-time professionals. Standardised procedures: internal proce-dures are defined and standardised. Each branch office has a Branch Manual compris-ing modules and processes defined centrally. In addition the institution constantly moni-tors its operational efficiency (time elapsed for loan disbursement) effectiveness, results achieved, and social impact.Credit scoring and client management: PerMi-cro is in the process of creating a system of credit scoring and client management to be operationalised at branch level.

Sustainability Achieving self-sustainability is PerMicro’s main aim at the moment. Indexes of sustainability are shown and trends analysed. Projections show that operational self-sufficiency will be achieved within the fourth year of activity while financial self-sufficiency will be achieved by the fifth year. A growth strategy is described. Territo-rial development and standardised procedures, the offer of a wide range of other products and services (emergency loans, insurances, mort-gages, legal assistance services) are identified as strategies to achieve sustainability.

Impact Depth of outreach2 of PerMicro is calculated to be approximately 30%. In 2008 PerMicro has provided 81 loans to families and 41 to enter-prises. PerMicro developed an evaluation ques-tionnaire for clients consisting of 45 questions to be answered before and after the loan. This will be used to evaluate social impact. However the experience is very recent and it is still too early to judge its impact.


Dec 08 Mar 09


2,7% 3,5%

Portfolio in Arrears

0.4% 0,4%

Write-off Ratio: 0 0

Staff Productivity

40 45


40.09%


Dec 08 Mar 09

Active Clients 122 169

Average Loan Size

€ 6.437,70 € 6.338,85

Portfolio € 785.400 € 1.071.265

No. of Branches 4 10

Staff 9 14

Selection criteria

2 Depth of Outreach = average loan size as a percentage of GNP per capita.

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ACAF Association for Self Financed CommunitiesAdie Association pour le droit à l’initiative économiqueASCAs Accumulating Savings and Credit AssociationsATAS Onlus Associazione Trentina Accoglienza Stranieri OnlusCEO Chief Executive OfficerEFSE European Fund for Southeast EuropeEFSE European Fund for South-East EuropeEFTA/EEA European Free Trade Association/European Economic AreaEMN European Microfinance NetworkEU European UnionFAER IFN SA Societatea de Finantare RuralaFEA Fejér Enterprise AgencyFSAs Financial Service Associations ILO International Labour OrganizationIT Information technologyJASMINE Joint Action to support microfinance institutions in EuropeKDA K-Rep Development AgencyKFS K-Rep Fedha Services LimitedMAG Società Mutua per l’AutogestioneMFIs Microfinance InstitutionsMIS Management Information SystemNGO Non-governmental OrganisationPhare Poland and Hungary Assistance for the Restructuring of the EconomySME Small and medium enterprisesUSAID United States Agency for International Development

Acronyms & Abbreviations

project coordinator maria cristina negro · microfinance best practices award”. editor francesca...

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