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Summary of main recommendations - Impact Study of the Zakoura Microcredit Program

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In preparing the recommendations, we shall try take into account not only the results of the client surveys, on the basis of each of the five tools used, but also the ground reality of the ZMC program. In other words, the aim is to take into account what is desirable while bearing in mind what is actually feasible. Past experience in the framework of work with MFIs participating in the Micro-Start program has shown us that optimum results are obtained when an MFI tries to make its procedures more flexible, in response to clients’ concerns (for example, reducing transaction costs resulting from excess traveling), without calling into question any of the mechanisms that guarantee the program’s durability. Making a distinction between what is “negotiable” and what is “non negotiable” is in the interest of MFIs themselves.

For the same reason, we shall not take up any of the client’s wishes that are likely to undermine ZMC’s success. For example, a reduction in the number of members in a solidarity group or even permission to set up groups with members from the same family.

On the other hand, we shall include the requests that we felt were relevant and would increase client membership (satisfaction), without increasing ZMC’s costs or endangering the program’s functioning (repayment rate quality).

In other areas, we have taken up clients’ requests and have tried to reformulate or adapt them as best possible in order to make procedures more flexible, without calling into question the basis of the ZMC program. For example, with regard to the extension of the grace period, a request that has been made at several occasions (as can be seen in the results obtained by all the tools) and which is supported by a fairly convincing argument by the clients, we would like to propose the following:

For new clients (1st loan cycle): The grace period should not be extended, since it is very important that the contact be maintained in order to ensure continuity, proximity and “presence” for these clients, as at this stage we do not know how disciplined they are with regard to honoring their commitment to pay their installments within the specified time. On the other hand, we suggest that the amount of the first installment be reduced in order to respond at least partially to their constraints. They very rightly want to use the profits they earn from their enterprise to repay the loan, instead of using a part of the loan itself to do so.

For longer-term clients in the program – those who have had a chance “to prove themselves” during preceding loan cycles - we believe that it would be more justified to increase the grace period to 3 to 4 weeks from the present 15 days. This can also be easily understood because the size of their loans is much greater, thereby taking their installments higher. An extension of the grace period in their case would enable them to begin reimbursing the loan only once their enterprise is running well enough, with the help of the loans granted. They feel that repaying the loan from the product of their sales is not the right thing to do and that it would be far better to pay from the profits generated. In some borderline cases, a part of the loan is frozen in order to be able to meet their installments.

We have observed that loans are sometimes used to parry external crises. However, such usage has not, properly speaking, been provided for in the terms and conditions of the contract between Zakoura and its clients. The use of loans for such reasons is completely non-productive, although it may sometimes prove useful. It would be far better if clients had access to a proper insurance system rather than being forced to misuse the ZMC program to fill the gap. In the discussion and conclusions drawn from the application of Tool no. 4 (Client Satisfaction Survey), we have brought up the request of clients to have access to a savings service.

We have also given the example of clients who use the loans to pay for medical examinations. In fact, such a situation is quite “understandable” and not all that rare in most micro-finance programs. However, we believe that it is the right time to recommend to ZMC (while waiting for a savings or insurance system to be set up) that loan officers take the help of solidarity groups in order to “assess” the use of loans for such purposes, which are not “in conformity with the initial rationale” of the ZMC program.

The interviews also revealed cases where clients wanted to avail of certain opportunities and used loans to purchase food items since it was more cost-efficient to do so during a particular period as the prices were lower (for example, during the cereal harvesting season). In such a situation, they often chose to postpone investing in their enterprise – in order to “make full use of the opportunities that presented themselves”.

Hence, we could recommend the following, in particular:

To better assess projects and their ground reality before granting loans

To involve solidarity group members more in the process so that they could monitor each other better (giving them a true sense of responsibility)

To ensure a more rigorous follow-up so as to remain in closer touch with clients once loans are granted and to avoid granting fresh loans to clients who do not stand by their commitments as far as investing in their enterprise is concerned, even if they do repay their loans on time.

In both the cases, the number of clients per loan officer may not increase at the desired pace and may even have a negative effect on their bonuses. Hence, qualitative criteria should be introduced upstream for the grant of bonuses to Zakoura staff at various levels (loan officers, supervisors, etc.).

Some of the participants in the group discussions felt that for clients who had reached the 5th loan cycle or beyond, loans should be personalized. In fact, they felt that by the time they reach this stage, clients have already “proved” themselves, loan amounts are higher and the installment mechanism needs to be personalized (adapted to their activity).

In this regard, we recommend that ZMC look favorably at such an option for clients who reach an advanced loan cycle stage, if they have proved themselves as far as their sincerity and regularity in repayments is concerned. However, in that case, it would be essential to consolidate project assessments before granting loans and to ensure a thorough follow-up in the field.

With the diversification of products (the changeover to individual loans for long-term clients), the responsibilities of loan officers would increase considerably - in project assessment, follow-up and consultancy once the loan is granted. In several microfinance programs, these tasks, where the loan officer plays the role of a solidarity group, are often entrusted to “senior loan officers”.

With regard to installment payments, it appears that the clients manage

to adapt to weekly repayments. They seem to constitute a viable repayment level and clients seem satisfied with the loan period insofar as it enables them to repeat the loan fairly quickly.

It must be pointed out that some clients wish that Zakoura would introduce some flexibility in repayment (rescheduling of payments) for extraordinary circumstances, in case of a very adverse economic situation or in case of illness. We think that such a strategy calls for an objective assessment of the condition of the clients concerned and the involvement of the solidarity group’s members, so that they can judge the real situation of the clients and bring their solidarity into play.

Many of the clients felt that prior consultation and agreement was necessary before deciding on timings for repayment and training meetings, so as to avoid disrupting their professional activities as far as possible. For example, some prefer the afternoon.

We feel that it would be appropriate for Zakoura to examine these options more deeply, by questioning a large number of clients, to take into account their diverse activities and locations (regions), before making any arrangements.

The physical conditions for the meetings need to be improved - several women would like to have benches or chairs in order to avoid problems caused by the cold weather when they are seated on the floor.

An oft-quoted demand has been reiterated in the interviews held while implementing the quantitative and qualitative tools – regarding an increase in the loan rate. We believe that by targeting poor working better, Zakoura will be able to avoid increasing the amount of the 1st loan, without losing out to the competition. As far as prospecting for clients is concerned, more efforts need to be made, in order to reach the poorest. The system of bonuses for loan officers could include a gratuity to those that grant low initial loans, with a moderate and gradual increase in the amount. This would ensure that Zakoura’s mission would be better fulfilled, along with a higher retention rate.

The survey results also show that an additional educational input is required to explain the following to the clients:

Under what conditions their loan amount would increase from one cycle to another

For what reasons the loan is repeated without increasing the amount and why the amount is sometimes reduced.

For the first loan cycles, a 6-month period seems very suitable. For advanced loan cycles, according to the activities concerned and the pace of business, adapting the installments seems appropriate.

In the case of clients whose business is dynamic in nature, they prefer to retain the 6-month period even with higher loan amounts, as otherwise, the period before a fresh loan can be obtained would be extended. For enterprise activities with a longer turnaround period, it would seem that 9-month cycles for loans above DH 3000 and one-year cycles for DH 5000 loans are far more appropriate, according to the women. In our view, ZMC may consider these complaints favorably.

Discussions (in the focus groups) have revealed the need for an individual savings service.

The same applies to a "security fund" representing collective savings to meet the needs of Zakoura’s clients in times of difficulty.

We believe that ZMC could examine these requirements and define the optimum indicators for meeting the need for an individual and collective savings service.

With regard to individual savings, it would be necessary to make the concerned supervisory authorities aware of these requirements for an amendment to present laws. The option for individual savings could be reserved for microfinance institutions that have proved themselves through: i) good governance, ii) efficient management leading to financial viability, and iii) transparency in transmission of information.

The analysis of the survey results shows that the needs and complaints expressed were extremely diverse. The heterogeneity of ZMC’s clientele could, however, be circumvented by adapting loan amount more to the real absorption and repayment capacities of clients, for those in advanced cycles.

This leads us to recommend that ZMC should strengthen its detailed client information and targeting system. In order to improve the retention rate, it would therefore have to:

Target clients better; ensure that their business activity profiles are of the kind that would comply with the procedures that ZMC has established and that they are in harmony with its mission and its strategy to work durably;

Adapt these procedures, without harming its viability (on this point, refer to the detailed discussion of the results of the focus group meetings - Section II, Chapter IV).

The recommendations resulting from interviews with outgoing clients, aimed at learning how the program could be improved, coincide with the principal grievances mentioned above. Thus, 30.5% of them were in favor of an increase in the loan amount and 28.7% emphasized an extension of the repayment period. In Chapter IV, Section II, we have shown that the women need explanations that are more detailed. Thanks to the group dynamics within the focus groups, the women explained to their colleagues that with an extension of the repayment periods, the amount of time they would have to wait before being able to apply for a fresh loan would increase (later cycles). On learning this, the women went back on their proposal and declared that weekly repayments over 23 weeks would be satisfactory.

Corresponding to the proportion of women leaving the program because of group-related problems, 14% proposed that loans should no longer be granted collectively, but individually. The idea does deserve to be examined in greater detail for older clients, with higher loan levels (See Chapter IV, Section II).

It may be noted that the proportion of dropouts suggesting the reduction or removal of interest rates is no higher than 4.3 %. This observation is fully consistent with the fact that very few clients noticed the reduction in interest rates applied in the months preceding the survey. The idea is also consistent with the observations that are commonly made in the field of microfinance. The problem target groups face is not related to the cost of financial services, but to the access to credit. The cost of credit from other sources is often exorbitant.

These observations, based on interviews with outgoing clients, also confirm the results of the quantitative and qualitative surveys with ongoing clients; for clients in the higher loan cycles, those who have proved their reliability and regularity in repayment, ZMC should consider offering more adapted services – in terms of loan amounts, repayment indicators, guarantees, etc.

In conclusion, we would like to point out that the recommendations given here must be taken in their context. In the body of this report, we have linked the recommendations to comments made in client surveys. The reasoning behind the recommendations is, thus, further substantiated.

Micro-Start Program: Local Technical Services Provider-

Impact Study of the Zakoura Microcredit Program


(December 2000)

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