Economic Management and Social Policy j NI\ONAL 3,4,V ; i g;,' Findings occasionally reports on development initiatives not assisted by the World Bank This article is one such effort. The views expressed here do not necessarily reflect the views of the World Bank WORLD BA N K Group, the Govemment of Zambia, other donors or Credit Management Services Limiteds. °XX>OX Zambia's Credit Management DON A Services: micro-credit schemes for women entrepreneurs Credit Management Services Lim- regularly and successfully. Initial ited (CMS) was established in 1992 orientation and training is a pre- as a subsidiary of Molver and Com- requisite to qualify for loans. A .1 1 pany, a Zambian accounting com- participatory approach is used in pany.* It provides lending services the training process to ensure IRMW through four schemes: the Mpong- full comprehension by members. we Smallholder Marketing Fund, Initially, the loan amount is dis- the Mpongwe "Women's Bank," tributed among two members of the Kabwe Smallholder Develop- the cell, chosen by members of the ment Project Agricultural Market- cell without the involvement of the ing Revolving Fund, and the Lua- credit officer. This first set of pula Province Livelihood and Food recipients would usually not Security Revolving Credit Fund. include the cell leader, who must This Action Research best prac- wait until all other members of the tice study focuses on micro-credit group have been served, before schemes for women entrepre- taking her loan. The loan process neurs.** is simple. After selection of the w W recipients, they are presented to The Lending Methodology the club for endorsement. They then complete loan application CMS lends to members of exist- forms issued by the credit officer, ing women's clubs. These clubs after which the loans are distrib- are divided into cells of five mem- uted. Loans are repayable in full, bers. Each cell is requested to after four months, in a single mobilize savings from members, instalment. New loans can there- based upon which members are after be given to other cell mem- given twice the amount they have bers. Four months after the first saved as a loan. The savings is two members have received their held as security. CMS is able to loans, two other persons are provide loans of up to 500,000 selected using the same process. Zambian Kwacha (about US$ After a further four months, the 250). A club can apply for a loan last person (leader of the cell) after the initial savings has been receives her loan. accumulated, and members have No detailed loan appraisal attended orientation meetings process is required. The econom- ic activity assessment and char- CMS, as a registered non-bank million for the Luapula Province acter reference verification con- financial institution, is not per- Livelihood and Food Security ducted by the club and credit offi- mitted by the Banking and Finan- Revolving Credit Fund. cer are adequate for loan cial Services Act of 1994, to take By March 31, 1996, the major approval. The head office manage- direct deposits from the public. sources of funds for CMS were ment approves applications dur- However, through its lending revolving funds from EU ing field visits, usually undertak- methodology which requires the (ZK4.240 billion accounting for en every four months. After loan prospective borrowers to save 50 83 percent), and FINNIDA (K750 approval, borrowers sign their percent of the loan amount, it million accounting for 15 per- individual loan agreements. A indirectly mobilises group sav- cent). Internally generated funds, loan guarantee forn is signed by ings through the women's clubs. mainly from interest income and all members of the cell jointly Savers are paid interest, current- fees, amounted to ZK93.4 million with the elected leaders of the ly at 45 percent per annum. With accounted for the remaining 2 club, and then the cash is dis- inflation at 35 percent, this repre- percent. This heavy dependency bursed without further delay. sents a positive real interest rate on grants is further reflected by a The loan procedure ensures that of 10 percent per annum, as com- high subsidy dependence index there is peer pressure on the bor- pared to a market real interest of 100 percent. However, operat- rowers to repay their loans on rates of minus 6.6 percent. The ing costs are low, and at the cor- time. If the first set of borrowers nominal interest charged by CMS porate level, fees and commis- do not repay, the rest of the group on loans is 60 percent, which is sions collected from the various would not be eligible for loans. the same as the market rate. Nor- programs are sufficient to cover The group leader, who is usually mally, savers are not allowed to operating costs. CMS has there- the most influential person among withdraw either the interest or fore attained operational sustain- them, has to wait for the others to the principal as long as they ability but not financial sustain- borrow and repay before receiving remain members of the club. ability. her loan. This minimizes any Recently, consideration for with- manipulation of the group by the drawal of interest income has Outreach and Impact leader and also sustains pressure been given to clients who have for the others to repay. opted to save without borrowing. CMS operates micro-credit CMS The responsibility for loan operates micro-credit schemes repayment first rests with the Sources of Funds and for 306 women in the rural areas individual member of a cell, then Operating Costs of Mpongwe, Kashiba, and Miputu the five members of a cell, and - all rural areas in the Copper- eventually the whole group (club). Since its establishment, CMS has belt Province. In Luapula Each cell member is equally gained donor confidence and sub- Province, CMS is operating a responsible for a defaulter or par- sequently benefited from consid- women's micro-credit scheme for ticipant who fails to repay. If the erable donor goodwill. At its 423 borrowers in five locations: cell fails to repay, the club would inception in 1992, CMS received a Mwense, Nchelenge, Samfya, be required to repay the remain- sum of ZK40 million from the EU Mansa and Kawambwa. ing balance. Eventually, if a loan for on-lending to traders supply- Observations indicate that the is not repaid, then the whole ing agricultural inputs. This fund loans have created a significant group (club), not just the cell, is was increased to ZK60 million in impact in terms of employment barred from receiving new loans. 1993 and its use expanded to generation and strengthened This mechanism creates two lev- include crop marketing. In 1994, businesses. They have had a pos- els of peer pressure and has CMS received ZK40 million from itive impact on the incomes of resulted in high repayment rates the EU to manage as a revolving clients and have improved their of about 98 percent. fund for the Mpongwe "Women's standard of living. Some clients Bank." In 1995, CMS was appoint- are reported to have diversified ed by FINNIDA to manage ZK750 their businesses as a result of the loans. Elizabeth Lusambo * Use of existing institu- with women clients has been belongs to a cell formed in 1996. tions: CMS has successfully good, and high loan repay- She is now on her third loan, the built on informal financial ment rates of around 98 per- first for ZK100,000, the second systems already being used cent have been sustained over for ZK115,000 and the present by micro-entrepreneurs the period. one for ZK305,000. From buying through existing women's groceries and selling them in her clubs. This has made it easier * The value of strict con- husband's store, she has diversi- for clients to accept the tract enforcement: Strict fied into baking bread and rolls, methodology. contract enforcement, super- has bought a sewing machine and vised by a staff lawyer, has hired a tailor. * Transparent MIS: CMS has enhanced loan recovery rates. The CMS clientsi knowledge an elaborate MIS that regarding the benefits of savings includes loan transaction * Critical minimum loan is high. This is attributable to documentation, in which size: Loan sizes have to be CMS training, and the informal clients actively participate. above a certain critical level to savings and credit associations to This openness has inspired achieve a positive change in which the women belong. The confidence and trust at all lev- the status of recipients. program's compulsory 50 percent els, resulting in the observed savings requirement is not high loan repayment rate of unusual for these women, who 98 percent. * The initial task was to man- are already used to rotating sav- age a European Union (EU)-fund- ings and credit arrangements. * Regular club meetings: ed project in Mpongwe: the Crop Individual savings are reported to The weekly club meetings Input Supply Lending Project, have increased by as much as 250 enhance group solidarity and which involved lending to small- percent. One woman interviewed is an underlying factor in the scale farmers. In 1994, CMS was had saved over ZK600,000 success of the solidarity requested to manage a second (US$300), quite a feat for a rural group lending methodology. project: the Mpongwe Communi- woman in a country with GDP per ty Development Women Empow- capita of about US$350. The CMS management has over erment Project. This involved a the three-year period of imple- savings and credit scheme based Innovations and Lessons mentation of its microfinance on a modified rotating savings Learned programs learned the following and credit model, and marked the lessons. beginning of CMS' involvement in The success of CMS is to a large micro-finance. extent attributable to its innova- * High potential for rural tive approach to micro-credit savings: CMS has been able ** The Mpongwe Smallholder delivery. The innovative tech- to mobilise substantial sav- Marketing Fund was started in niques which CMS has used ings from poor rural entrepre- 1992 and lends to small and include the following. neurs. medium enterprises involved in input supply distribution to Portfolio diversification: * Close supervision im- smallholder farms. The Mpongwe A diversified program portfo- proves performance: "Women's Bank" was taken over lio across various aspects of Active involvement in credit from the Mpongwe Community agricultural finance and monitoring by senior head Development Project in 1994, and enterprise development has office staff has improved port- lends to groups of women. The enabled CMS to achieve and folio performance. Kabwe Smallholder Development maintain profitability at a Project Agricultural Marketing time when some programs * Women are a lower credit Revolving Fund was initiated in were operating at a loss. risk: The CMS experience 1995 and lends to small and medium enterprises engaged in crop marketing activities in Kabwe district. The Luapula Province Livelihood and Food Security Revolving Credit Fund was taken over from FINNIDA in 1995 and lends to individual entrepreneurs, including farm- ers, fishermen and women who ss organize themselves into clubs. i in Findings would also be of interest to: The overall objective of the Action Name Research program is to strengthen local rural and microfinance institu- tions that providefinancial services to Institution the poor, through distilling and dis- seminating innovative techniques, and supporting networks of microfi- Address nance institutions. This study is one such effort at distilling best practice and sharing it widely within and beyond national boundaries. The original document was prepared by David T. Musona and Dorcas M. Mbozi, 1998. This summary was pre- pared by Alexander Amuah. For a copy of thefull document send a mes- - sage to: Shimwaayi Muntemba, smuntemba@worldbank.org, tel. no. - (202) 458-7370 or Alexander K Amuah, aamuah@worldbank.org, tel. no. (202) 458-7548.Letr,cmes,adruet rpuiafn taar not availabe at: th Worl000000000000000000d000 B0j ankBook00s00Mntore shul bei'H Editor, Findings Washi ngnD.C. 20433 t:E-mail: pmohanf@wrlbnk.org0 :0 $S000i : :00; # :0j-