Microfinance: An Overview of Essential Elements


Credit Institutions must make sure loans get paid back full and on time.

Those are the exact words of Professor Yunus, the Founder of Grameen Bank. And, these are the same words that will make or break your ventures on microfinancing that is why I want to take this as continuation of our series on microfinance.

Maintain Strict Credit Discipline

Yes, that is our battlecry. It is in this aspect that provisions of micro loans could win the fight against poverty. No other else.

To ensure that this is true in microfinance, all MFIs must create and maintain a culture of Strict Credit Discipline between and among its members/clients. Each and all (just to emphasize that no part is excluded) methodologies or programs should have built in checks and procedures towards inculcating credit discipline among the poor.

The core of microfinance is CREDIT DISCIPLINE. Nada. If you know other than that of Credit Discipline, drop it here. I am willing to learn from you.

Other essential elements such as Loan Monitoring, Management Information System, Client Targeting, Area Selection Process, etc feed into CREDIT DISCIPLINE.

Healthy Loan Portfolio and ultimately, Financial Self-Sufficiency cannot be attained without credit discipline.

In Microfinance, There are No Shortcuts

The first part of our series gives you a broader approach on microfinance. Today, we are digging deeper into specifics on how to become successful in changing and saving lives through provisions of micro credits.

I assumed that it is but proper to caution you that there are no shortcuts if your want to be successful in every endeavor you’ll make.

In this series, I am prodding you to make no shortcuts but instead, begin to instill self-discipline and adhere to the essential elements of microfinance system.

Here are the topics we will cover in this series:

  1. Effective Client Targeting
  2. Quality Group Formation
  3. Continuous Client Motivation
  4. Close Loan Monitoring
  5. Efficient Management Information System
  6. Application of Credit Discipline

Applications of Credit Discipline

As you can see, I will try to make some practical examples in maintaining credit discipline in microfinance based on group lending but we will also have some experiences on individual lending approach as we progress.

From time to time or every after each post, I will have a question for you to answer.

I designed this to evaluate your program and determine your design’s strengths and weaknesses against credit discipline.

I am also glad if some of you could give sound recommendations to improve organizational cultures that are focused on credit discipline.

You may start it now and flood the comments section.

Thank you and so long…


Florentino

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