A Microenterprise Training Guide 

for Peace Corps Volunteers

MODULE 

2 

Microfinance 

Methods 

Traditional

Artisans and 

Entrepreneurs

A Microenterprise Training Guide for Peace Corps Volunteers 

MODULE 2 

MICROFINANCE METHODS 

Why do you as a Peace Corps Volunteer (PCV) need to know about financial 

services for the poor? Because you decided to spend two years of your life as a 

development worker helping people help themselves, including the “poorest of

the poor.” The experience of development agencies shows that when the poor 

have cash to purchase productive assets they can increase their incomes and 

break the poverty cycle. By the time you complete this module you should have

the knowledge, skills, and attitudes to: 

• Explain why the lives of the poor would improve if they had access to 

nonexploitative credit and savings services. 

• Describe three nonformal traditional methods used by the poor to acquire 

financial services and why none of these adequately satisfy the families’

needs for financial services. 

• Identify the lessons learned from nonformal traditional financing methods, 

which led to the development of today’s microfinance institutions (MFIs). 

State how these lessons were incorporated into MFIs. 

• Describe for someone unfamiliar with financial institutions the different

MFIs offering financial services to the poor: commercial banks, Latin

American solidarity groups, Grameen Bank, village banks, savings and loan

associations, and credit unions.

• Express an opinion as to how Volunteers can best contribute to the 

development of your host country in the area of microfinance. 

FINANCIAL SERVICES 

In this module we first look at local families’ credit and savings habits and the 

role banks play in providing services. Second, we uncover the types of financial 

services that allow the poor to access these services. Third, we familiarize you

with the traditional providers of credit or savings: moneylenders, middlemen, 

and Rotating Savings and Credit Associations (RoSCAs). Finally, we show how

lessons learned from these traditional providers of financial services have

influenced the design of today’s MFIs. 

What financial services do families want? One size of financial services does not 

fit all! Banks and credit unions tailor different financial products to fit different

customers. What types of financial services did you use in the United States—a 

checking and/or savings account; credit or debit cards; student loans; loans to 

buy a car, a house, or start a business; wire transfers; or cashier’s checks? You

have doubtless used some or all of these. How did you feel when you applied for 

a loan? Nervous? Were the application forms long and complicated? 

Module 2: Microfinance Methods Page 41 
A Microenterprise Training Guide for Peace Corps Volunteers 

ACTIVITY 2:1 

FAMILY FINANCIAL HABITS

Talking about money is a sensitive issue. When talking with your host family, 

other friends in the community, or trainers, ask questions in an appreciative, nonthreatening way. Keep it general. Ask, “What do most people do?” not “What do

you do?” Explain that you are trying to learn what financial services people in

the country use, and what characteristics of these services they like and do not 

like. 

If language is a problem, you will need to be creative. Possibilities include

getting the questions translated into the local language, finding someone to

interpret for you, or inviting host family members to share this information

during a language class.

• Do most families in the community save? Where do they put their savings: 

in the bank, in hard assets such as jewelry or houses, or in a safe hiding 

place (under the mattress)? If savings are put in the bank, what interest rates

are paid on the savings?

• Do most families in the community borrow money? Why do they usually

borrow? From whom do they borrow: banks, moneylenders, middlemen, or 

family? What interest rates are common? Do they have to secure a loan with

collateral?

• How are family financial decisions made? What type of decisions do men

make? Women? What decisions are made jointly?

Information gathered through this activity will be more comprehensive if you 

share and compare what you have learned with fellow trainees. 

Module 2: Microfinance Methods Page 42 
A Microenterprise Training Guide for Peace Corps Volunteers 

Who provides formal financial services? Banks are the institutions people 

normally associate with financial services. Competition forces banks to offer 

services their customers want at competitive prices. However, in a number of

countries there is little or no competition, and banks may or may not meet the 

financial needs of community members. To learn about local banks visit a bank,

talk with a banker, observe who the customers are, and learn about the bank’s

financial products and services. 

Module 2: Microfinance Methods Page 43 
A Microenterprise Training Guide for Peace Corps Volunteers 

ACTIVITY 2:2 

BANK VISIT

A visit to a local bank is a chance to learn about what formal financial services

are available, at what price, and who uses these services. You may want to 

organize a group of trainees/Volunteers and invite a language teacher to

accompany you. Find out about local banking services by asking the following

questions appreciatively:

• What are the bank’s strengths; what about the bank does the staff point to 

with pride?

• What services does the bank offer?

• What is the minimum amount needed to open a savings account?

• What interest rates do savings accounts pay, and what interest rates are 

charged for loans?

• Who are the bank’s borrowers (men or women, age, income level), why do 

they borrow, and who are their customers?

• Must the borrower have collateral to secure a loan?

• How long does it take to process a loan?

How do the services the bank offers match with the services families in your

community use and would like to have? Does it seem the bank is doing a good 

job of serving the financial needs of the community? If not, why not?

Module 2: Microfinance Methods Page 44 
A Microenterprise Training Guide for Peace Corps Volunteers 

Poor families need financial services, too. Check the characteristics of

financial services you feel would be desirable for a customer who is poor and 

possibly illiterate. 

___ Low minimum deposits

___ Available in the neighborhood 

___ Small loans

___ Market-based interest rates

___ Managed by local people 

___ Quick loans

___ No collateral requirements

___ Savings kept in a safe place 

___ No minimum balances

___ Reasonable fees

___ Rules sensitive to the special needs of women

Did you check them all? Good! The poor want and need safe places to keep their 

savings, quick loans at market interest rates, and a financial institution managed

by local people they trust and who trust them. 

Even as we enter the 21st century, the majority of poor families and individuals

on our planet have no readily available affordable financial services. In many

rural areas banks, savings and loan associations, and credit unions are 

nonexistent. The formal financial institutions that do exist do not consider the 

poor creditworthy, because the poor lack collateral to secure loans. This is

especially true of women, who in a number of countries own no property or fixed 

assets due to legal restraints or cultural norms. 

Savings accounts also are problematic; the savings of poor people are of little 

interest to banks. Transaction costs decrease the profitability of small accounts. 

Minimum balance requirements, complicated procedures to open accounts or 

withdraw savings, and a lack of trust discourage the poor from putting their 

money in banks. Illiteracy is another barrier to accessing formal financial 

institutions. It is impossible to fill out a savings or loan document if you cannot 

read or write. Again, women are impacted disproportionately; their illiteracy rate 

greatly exceeds the rate for men. 

The habit of saving and building a safe, easily available financial cushion to

soften the blow of life’s unexpected emergencies is thought to be of even greater

value to the poor in improving their economic condition than access to credit. 

Module 2: Microfinance Methods Page 45 
A Microenterprise Training Guide for Peace Corps Volunteers 

Savings tend to be valued more by women than men; a primary concern of

women is the security and welfare of their children.

Savings:

• Provide families with the ability to survive economic crises. 

• Encourage people to look beyond daily or weekly income cycles and think

about how to use money for long-term goals.

• Allow for risk taking. With even a minimal increase in security, a poor 

woman can think about diversifying some of her activities to generate 

income. 

• When managed by a group, become a vehicle for bringing women together

to talk about both personal and community issues. 

• Give people some control over their lives. 

• Enhance the welfare of children. Women’s income is most often spent on

improving the lives of their children. The sense of security derived from

having some savings is passed on to the children.

TRADITIONAL INFORMAL FINANCIAL SERVICES

Historically the poor have relied on informal sources such as Rotating Savings

and Credit Associations (RoSCAs), moneylenders, and middlemen to try and 

meet their financial needs. These sources suffer serious limitations in their ability

to provide viable financial alternatives for the poor. 

Moneylenders are where the poor traditionally go when they have no other 

options. Moneylenders charge high interest rates; over 100 percent annual

interest is not uncommon even in countries with mild inflation. However, loans 

from a moneylender have certain desirable features: they are granted on the spot 

(no long wait for credit approval and loan processing), the borrower’s reputation

in the community is more important than collateral, and the moneylender is 

conveniently located right in the borrower’s hometown. But, after the principal 

and a large amount of interest are repaid, the borrower may be no better off, and 

possibly worse off, than before taking out the loan. 

Rotating Savings and Credit Associations are, next to the moneylender, the 

most prevalent type of informal finance source around the world. RoSCAs

existed in China 1,500 years ago. (Jeff Ash, president and founder of Working

Capital, in a lecture given to participants of the Microenterprise Institute, New

Hampshire College, June 1999.) People form a RoSCA by inviting individuals

they trust to join. The group decides how often and where they will meet, how

much will be collected at the meetings (the group is self-managed). Each time 

the RoSCA meets, every member contributes a small set amount of money. Then

the group decides who will receive the total amount collected, usually one 

member. When every group member has received funds from the group one 

time, the cycle is complete. The group dissolves and may freshly reorganize. 

Module 2: Microfinance Methods Page 46 
A Microenterprise Training Guide for Peace Corps Volunteers 

As an example, seven market women choose to contribute $1 to their RoSCA

fund every Monday morning, forming a pot of $7, which one woman receives at 

the end of the week. Over the course of seven weeks each woman receives one 

pot of $7 and also contributes $7 to the pot at the rate of $1 per week. The first

people to receive the pot are, in essence, receiving interest-free loans from the 

other members. The last members to receive the pot are no better off financially

than if they had simply saved up their own money on a weekly basis. 

Benefits of being a RoSCA member go beyond establishing a pattern of regular

savings and receiving a lump sum of money. The group discusses problems and 

offers each other advice and mutual support. Unlike moneylenders, RoSCAs

charge no high interest, but the amount of capital that can be collected by this

process is limited. It may not be sufficient to start or expand a small incomegenerating activity—a microenterprise. 

In many countries, RoSCAs have turned into permanent, nonrotating credit

associations with their own loan funds. Most have stayed informal, but some

have adopted the legal status of a cooperative society.

RoSCAs go by different names in different countries. RoSCAs, like

moneylenders, provide funds locally with no complicated procedures, and 

membership in a RoSCA is by invitation from the group. RoSCA members 

depend on and trust each other to put money “in the pot” at every meeting. A

member who takes his or her share of the funds but fails to contribute throughout

a cycle experiences peer pressure and develops a reputation in the community

for being unreliable.

Middlemen make loans for the purchase of raw materials, or they sell the raw

materials, sometimes at inflated prices, to poor producers. The producers are 

then obligated to repay the loans or cost of raw materials by turning over their 

products to the middlemen at submarket rates. It is not unusual for middlemen to

have a monopolistic hold over small producers, particularly in agriculture. 

Interest rates on a loan from a middleman are also extremely high. 

Module 2: Microfinance Methods Page 47 
A Microenterprise Training Guide for Peace Corps Volunteers 

ACTIVITY 2:3 

ROTATING SAVINGS AND CREDIT ASSOCIATIONS

This activity is designed to determine: 

• Are RoSCA-like groups known in your community. If so, what are they

called and how do they work? 

• What about moneylenders? Where and how do they operate? What interest

rate do they charge? 

• Do middlemen advance money for crops, securing the crops at submarket 

prices? 

Who do you know that might have the answers to these questions?

Form a RoSCA. Invite those you trust to join a RoSCA to learn how RoSCAs

work. At your first meeting you will need to decide: (1) how often and where 

you will meet; (2) how much money each member will contribute; (3) how it will 

be determined who gets the pot of money at the first meeting, the second, the 

third, and so on. 

After a savings cycle has been completed (every member of the RoSCA has

received the pot of money one time), think about: 

• What benefit was the RoSCA to you? Would the answer be different if you

were poor?

• How did you feel if you were the first, or not the first, to receive the pot of

money? Did the selection process seem fair?

• Did all members pay on time? If not, what did the group do?

• Did you enjoy the social aspect of RoSCA membership? Why or why not?

Module 2: Microfinance Methods Page 48 
A Microenterprise Training Guide for Peace Corps Volunteers 

MICROFINANCING METHODOLOGIES 

Over the past two decades, development agencies, governments, and even

private donors have experimented with a variety of methods to provide the poor 

with cash to establish microenterprises. This is because in areas as distant as

Southeast Asia and Latin America people have realized that microenterprise 

works. 

Indeed, microenterprises are the only income option for many underprivileged

and undereducated families. When there are no jobs or jobs for which they are 

not qualified, poor working people have no other option but to start their own

business. These businesses are small microenterprises. It is surprising when one 

business grows to employ more than just family members. But, most important,

there are many success stories of these businesses generating enough income to

more than meet the family’s basic needs.

Starting or growing a business without money is nearly impossible. Businesses 

need raw materials and the workers need tools. Development workers observed 

how small amounts of cash allow the poor to acquire these assets, increase their 

productivity, and improve their economic well-being. About 20 years ago, a few

innovators designed and piloted new financing methodologies. Today these 

methodologies are bringing microfinance services to hundreds of thousands of

low-income individuals and families. 

The most successful financing methodologies built on lessons learned from the 

traditional financing sources of the poor: moneylenders, middlemen, and 

RoSCAs. 

From moneylenders innovators learned:

• Easy, quick, local access to credit is important. 

• The poor have the ability to pay high interest rates. 

From middlemen they learned: 

• For poor farmers, borrowing and repayment is tied to the timing of crops. 

• The poor often borrow to finance income-generating activities.

From RoSCAs they learned: 

• The poor can save small amounts on a regular basis.

• Groups function best if they select their own members. 

• Members are free to leave the group only at the end of a cycle. 

• Peer pressure works to enforce agreements made by the group. 

• People enjoy and benefit from group support and joint problem solving.

• The poor are capable of self-managing their groups. 

Module 2: Microfinance Methods Page 49 
A Microenterprise Training Guide for Peace Corps Volunteers 

* * * * * * * * * 

A LEARNING MOMENT

To increase the probability of success and sustainability,

design new projects based on what has worked traditionally in 

the culture. 

Below, discussed in general terms, are the most common 

varieties of the new breed of microfinance methodologies. Of

all existing credit and savings programs, no two are identical in 

methodology, even those sponsored by the same 

organization. This is in fact appropriate, because the specifics 

of a program’s methodology should be chosen to match the 

target group and local operating environment. Remember, 

“one size does not fit all!” 

* * * * * * * * * 

In 1997, the U.S. Agency for International Development (USAID) provided 

$85,106,000 in funding for microfinancing activities to 221 indigenous NGOs, 

103 private volunteer organizations, and 79 credit unions. (Reaching Down and 

Scaling Up: Meeting the Microenterprise Development Challenge. USAID. 

Washington, DC. 1997. p. 27.) Many other development organizations, 

including the World Bank and United Nations, realize the value of

microenterprise creation and fund microfinance projects.

Individual lending is the oldest form of microlending and most closely

approximates traditional commercial bank lending. Developers of individual 

lending programs attempt to modify bank methods to better meet the needs of

low-income borrowers and at the same time allow banks to earn a reasonable 

profit and be assured default rates are kept under control. This is not an easy

task. 

The general strategy to reach the underprivileged is to relax loan requirements

for the poor. Still, somehow these loans must be secured, either by the 

borrower’s collateral and/or by cosigners, or they are disbursed to groups, where 

members of the group guarantee the repayment of each other’s loans. To further 

reduce the risk of default, loan officers investigate the creditworthiness of the 

borrower and the soundness of the operating business or business plan. These 

procedures take time. Often several weeks lapse between loan application and 

disbursement of money.

Advantages include loan amounts and repayment schedules tailored to the 

specific needs of the business. Typical loan amounts range from $100 up to

$3,000, and loan periods from three months to over one year. Customized loans

Module 2: Microfinance Methods Page 50 
A Microenterprise Training Guide for Peace Corps Volunteers 

have a price, however. The transaction cost is high, and costs are passed on to 

the borrowers. Individual loans are effective in supporting small businesses, but

not in serving the “poorest of the poor.” Procedures are too complicated, the 

waiting time for the loan to be processed is too long, and collateral or a cosigner 

often is not available. Clients are more often male than female. 

Latin American solidarity groups consist of four to seven members. Groups

self-select members and guarantee each other’s loans. A new cycle of loans

cannot be started until all loans taken out by group members have been repaid. 

Initial loans are small, in the neighborhood of $50, and repayment is required in

two to three months. When members repay their loan on time their credit limit 

for the next loan is increased by about 20 percent, up to a maximum of about 

$300. Interest rates are normally higher than commercial banks, but lower than

moneylenders.

Clients are usually required to deposit regular savings if they want to be part of

the group; savings cannot be withdrawn until the member leaves the group.

Savings serve as a compensating balance, guaranteeing a portion of the loan. 

The microfinance institution gets loan capital from grants or loans from

development or commercial organizations. The goal of the microfinance 

institution is to reach sustainability. If the microfinance institution is not 

sustainable, its clients will again be without financial services. To achieve

sustainability they must earn enough profit from their group lending activities to

repay any loans and build up their own lending fund. Therefore, interest rates 

plus any client fees must be set to cover operating costs, repayment of any loans

plus inflation, and an extra amount to develop a self-sustaining loan fund. To

generate the needed profit, costs must be kept low. Transaction costs are 

minimized because: 

• The mutual guarantee of members’ loans reduces the time that loan officers

need to spend reviewing individual loans. 

• Loan repayment rates are high, usually more than 95 percent, reducing time 

spent in follow-up on unpaid loans. 

• Procedures are standardized. Loans can only be taken out in standard 

amounts (example $50, $60, $72, etc., up to a maximum of about $300); all

group members borrow at the same time and repay on a set schedule, 

perhaps weekly at group meetings. 

• Simple procedures, flat interest rates, and equal loan payments keep 

bookkeeping costs low. Example: A $100 loan at five percent per month

interest to be repaid in eight weekly payments will have weekly payments of

$13.75. ($100 principal + 2 months x $5 per month interest = $110. $110/ 8 

weeks = $13.75 per week.) 

• Group members help each other with their businesses, solve problems

jointly, sometimes make loan payments for members who are having

Module 2: Microfinance Methods Page 51 
A Microenterprise Training Guide for Peace Corps Volunteers 

especially difficult times, and exert peer pressure to collect loans and 

interest. 

Initially, most of the clients were female urban market vendors who used the 

loans for working capital. Today, the Latin American solidarity groups are also

found in rural areas, and still clients are mostly women. Microfinance institutions

prefer to lend to women—their loan repayment rate is higher, and they use 

almost all of their profits for the welfare of their children. 

Advantages: Loans are quick, no collateral is required, savings are part of the 

program, and clients build their capacity to manage money by starting with small 

loans and gradually increasing the amounts. Disadvantages: There is no

flexibility of the timing of the loan, group members all borrow and repay their 

loans at the same time, and savings can only be removed if a member leaves the 

group. 

In Kazakhstan, VOCA (a U.S.-based private, nonprofit international 

development organization) worked with a national women’s NGO to form a 

successful microfinance institution based on the solidarity-group methodology.

Loans are higher than in developing countries, $200 to $1,000, because of the 

cost of living. The clients are both men and women, and most start their own

shops. The NGO had to go to the expense and effort of registering the 

microfinance institution as a bank. Kazakhstan laws prohibit anyone but a bank

from collecting savings. Volunteers were involved in training the solidarity

group on forming a group, working together, and techniques for group decision

making.

Did you find that RoSCAs and the Latin American solidarity groups have some

common characteristics? 

The Grameen Bank is, without doubt, the most widely known microfinance 

institution in the world. Grameen-style lending programs form small, fivemember self-selected solidarity lending groups that are then incorporated into 

village “centers” composed of up to eight of these lending groups. These centers 

are then grouped into regional branch offices. Thus, the institution is built “from

the ground up,” with clients or members assuming responsibility for much of the 

management of financial services. Over 94 percent of clients are women, and 

loans are used for income-generating activities. Loans are repaid over one year 

with weekly payments. In 1983, the Bangladesh government licensed Grameen

as a bank.

Groups are self-selected and manage themselves, making decisions as to which

members receive loans. New groups must meet and save for a minimum of four

to eight weeks before group members become eligible for their first loan. New

borrowers initially receive small loan amounts, payable over periods of up to 12

months. When clients have established a good repayment history, loan amounts

are increased. Loans range from $50 to $300. Members are required to save a 

percentage of their loan (generally five percent) over the loan repayment term

Module 2: Microfinance Methods Page 52 
A Microenterprise Training Guide for Peace Corps Volunteers 

through regular weekly installments. When members leave the group, they

receive their portion of accumulated savings. 

Members’ savings and some fees are kept in the village. These funds can be lent

to members or used to form special “emergency funds,” managed by the village

centers to assist members in need. 

Program staff (loan officers) have fewer responsibilities than in the Latin

American model. They are responsible for forming new groups and explaining 

how the Grameen Bank functions; keeping the program running smoothly;

dispensing payments; recording loans, savings, and payments; and collecting

money for safekeeping. Solidarity group members are the decision makers. 

Advantages and disadvantages are the same as the Latin American model, with

the addition of two advantages: (1) The “emergency fund” for members in need; 

and (2) groups have more autonomy in decision making, giving them some

control over their finances. 

* * * * * * * * * 

A LEARNING MOMENT

Repaying loans gives people dignity and confidence. 

Accepting donations makes people feel dependent. Taking a 

loan, running a small business, repaying the loan, and taking 

another loan: it is a cycle that gives borrowers a strength they

could never get from a handout. 

* * * * * * * * * 

Village banking (VB) was developed by FINCA, a U.S. NGO, through its work

in Central America. It is probably the most commonly practiced communitymanaged loan fund methodology. A village bank is generally comprised of 30 to 

50 members, mostly women. Bank members elect a management committee,

which approves loans, collects savings and loan payments, and does most of the 

bookkeeping. (CARE Savings and Credit Sourcebook, Charles Waterfield and

Ann Duval, CARE, New York, 1996 p. 110.) 

The bank is financed through internal mobilization of members’ funds (managed

through an internal account), as well as through loans provided by the lending 

institution (managed through an external account). The external account is 

funded by a loan made to the village bank at commercial interest rates. The term

of this loan is usually 10 to 12 months. All village bank members are responsible 

for repaying the village bank’s loan and interest on that loan. Over time, the 

internal account, which is comprised of members’ savings, share capital, and 

accumulated interest, is expected to grow large enough to replace the external 

Module 2: Microfinance Methods Page 53 
A Microenterprise Training Guide for Peace Corps Volunteers 

account. An important objective of this methodology is that within a three-year 

period each village bank will be independent financially and in the 

administration of the bank. 

This approach has been successful in reaching the rural poor, especially those 

who operate or want to operate income-generating activities. Village banks

charge market interest rates. Initial loans are in the range of $50. 

The field agent, commonly called a promoter, is responsible for helping

communities start new village banks and for regularly visiting existing village

banks. The field agent brings cash for loans and takes excess cash for 

safekeeping in a commercial bank, verifies the village bank records, and helps 

resolve problems, but does not approve individual loans. Some internal fund

money is left with the village bank’s managing committee for emergency loans 

to members. 

Over each loan cycle members are typically required to save an amount equal to 

at least 20 percent of their loan. The goal is for members to save as much as

$300 in three years. Savings are a strong component of the village banking

methodology.

Village banking is theoretically more efficient than the Grameen model or Latin

America solidarity groups because the field agent can serve larger numbers of

clients. The clients do almost all the work of providing financial services, and

they normally do a good job. All transactions are transparent; money is

exchanged with the management committee present. Default rates on loans are 

low because the management committee knows the reputation of the loan

applicant and if their idea for use of the loan will work under local operating

conditions. 

An added advantage of village banks and similar participatory financial service 

methodologies is the experience members gain through the process of electing a

management committee and managing their own funds. These activities build

social capital (the bonds of interpersonal trust and reciprocity that facilitate 

collective action). An increase in the social capital available in a community can

be a powerful force in a community. It enables people to work together to

achieve community goals.

The final activity in this module will give you a chance to understand more about 

village banks by attending an organizational meeting for a village bank group as 

you play the Learning Game. 

Module 2: Microfinance Methods Page 54 
A Microenterprise Training Guide for Peace Corps Volunteers 

An NGO’s Story

Catholic Relief Services/Senegal (CRS/SN) provides a good

example of village banking (VB) program methodology. In that 

program, membership is based on self-selection, and the number of

members in each village bank depends on the capacity of their 

management committee. CRS/SN suggests that between 35 and 75

members are an efficient and workable number. Members design and 

approve their own bylaws and elect a management committee 

comprised of a president, a secretary, and a treasurer. Within each VB, 

members divide into smaller solidarity groups of six to 10 members.

The concept of solidarity is enforced in the program. If one member 

fails to repay her or his loan, the solidarity group is responsible for 

repaying the loan. If one group fails to repay its loan, all members of

that VB are held responsible. And, if one VB fails to repay its loan from

the NGO, all other VBs are held responsible for repaying the loan. No

new loans are made until the previous loan has been completely repaid. 

Each VB member receives an initial loan of $30 to $40 from the 

external account (the loan fund provided by CRS) to invest in incomegenerating activities. At the end of a four-to-six-month cycle, members 

reimburse the entire loan principal and the 15 percent interest rate in

one bullet (balloon) payment. The interest is divided between the 

counterpart organization to cover its administrative costs and the village

bank to cover recurrent costs and increase its internal account fund. To

qualify for subsequent loans, members are required to save a minimum

of 20 percent of the external loan amount. Individual loan amounts can

increase each new cycle by the amount of that member’s accumulated 

savings during the previous cycle, thus encouraging members to deposit

additional voluntary savings. Members’ monthly savings, interest 

payments, and various fee incomes constitute the internal account fund. 

The VB is the sole owner of the internal account fund. Each month, the 

VB disburses loans amounting to the entire value of its internal account. 

These loans are made to members of the VB or the counterpart 

organization who are not members of the village bank. The internal 

account loans are on a monthly basis at 5 to 10 percent interest. The 

interest rate is higher for internal account loans, thus encouraging

members to use the external account. 

Module 2: Microfinance Methods Page 55 
A Microenterprise Training Guide for Peace Corps Volunteers 

Credit unions (CUs) rely totally on the savings and fees paid by their members 

to build a loan fund. They are financially independent from their creation.

Community-based CUs often consist of 30 to 100 members.

A field agent assists in the formation of the group and provides technical 

assistance. CUs set their own terms and conditions for loans to be made to

individual members. The amount of a member’s loan is often determined by the 

amount the individual has saved. CUs may use members’ savings to secure a

loan or may require some form of collateral to guarantee loans. The collateral 

might be a small household asset, a bicycle, or a goat. However, like Latin

American solidarity groups, the Grameen Bank, and village banks, CUs rely

primarily on their knowledge of the individual member and local operating

environment to make sound loan approval decisions. The loan committee may

advise the lender to revise his or her business idea before a loan is granted. 

When there are a number of CUs in an area they sometimes join together in a 

formal or informal federation. They do cross-financing and training. Ultimately,

it is possible to unite a number of regional federations into a national federation. 

The major disadvantage of these institutions is that members must save for a 

considerable amount of time before loans are made. A second disadvantage is in

the governance of CUs. The board of directors consists of members only. They

are elected by the membership; each CU member has one vote, no matter how

large his or her savings account. The Board may be made up of individuals who 

are popular but lack the skills and experience to oversee the CU. The major 

advantage is the independence members have in organizing the CU to meet their 

financial service requirements. Each CU is autonomous. 

The chart in the appendix to Module 2 summarizes the general principles of

microfinance lending methodologies. The principles of clients, loan approval, 

loan characteristics, guarantees, savings, and group characteristics are presented 

for individual lending, Latin American solidarity groups, the Grameen Bank,

village banking, and credit unions. 

ORGANIZATIONS INVOLVED IN MICROFINANCE

The MFIs that implement group-lending methodologies such as the Latin

American solidarity groups, Grameen Bank, and village banks are usually

indigenous NGOs or a division of an NGO. Some MFIs are registered as forprofit businesses. Credit unions are normally registered as financial institutions

and have to comply with the regulatory requirements. Complying with regulatory

requirements is an additional cost for an MFI. In a number of countries an

organization can make loans, but it cannot collect savings unless it is a regulated

financial institution. A regulatory system assures the safety of the savings. 

Governments and private development organizations in European Union 

countries, Japan, and the United States (such U.S. development organizations as

CARE, Catholic Relief, Freedom from Hunger, Save the Children, and World

Module 2: Microfinance Methods Page 56 
A Microenterprise Training Guide for Peace Corps Volunteers 

Relief) are actively involved in supplying funds and technical support for MFIs

in developing and redeveloping countries. ). Most do so by partnering with

indigenous NGOs. The international partner supplies the initial loan fund, 

microfinance methodology, and technical training. The NGO modifies the 

methodology to fit the local situation, is accountable for the loan fund, and 

employs field agents (loan officers) who work with the village groups. The NGO 

is the MFI, or the MFI is operated by the NGO responsible for the day-to-day

operations and working to become self-sustainable. 

In some African, Latin and South American, Asian, Central Asian, and 

Caribbean countries, Volunteers work with MFIs or local NGOs that operate 

them. These Volunteers assist the organizations in improving their operations, 

planning for sustainability, and delivering business training.

Module 2: Microfinance Methods Page 57 
A Microenterprise Training Guide for Peace Corps Volunteers 

ACTIVITY 2:4

THE LEARNING GAME

The modified version of the Learning Game is a three-hour simulation of key

events in the promotion, organization, training, and implementation of a credit 

association (a modification of the village banking methodology). The game

includes role playing and stories. It is an enjoyable way to learn how grouplending microfinance works. Invite some host country friends to join you in the 

game. The number of participants in the game can range from 15 to about 30. 

Although the game is written in English, it would enrich the learning experience

to do the role plays and stories in the local language that you are learning. If

there is a microfinance institution near your training site, involve some of its 

staff as presenters in the game, and perhaps modify the game to fit their 

microfinance methodology.

Module 2: Microfinance Methods Page 58 
A Microenterprise Training Guide for Peace Corps Volunteers 

KEY TERMS

Key terms are defined as they are used in the module. A space is provided to

write the local language translation of the word or phrase. Work with your

language instructors to determine the best translation and build your technical

vocabulary as you study this module.

Collateral is property or other assets used to guarantee the repayment of a loan. 

Simple interest is the cost for the use of money calculated on the full amount of

the loan over the entire outstanding period of the loan. For example, if $100 is

loaned for 12 months at 12 percent annual interest, with equal payments made to

repay the loan plus interest each month, the simple interest is $12 ($100 [loan

amount] x .12 [12 percent interest rate] = $12 interest). Each equal monthly

payment would by $9.33 ($112 [loan amount + interest] / 12 [number of months

of loan] = $9.33). 

Financial services include providing both credit and savings products.

Social capital is the interpersonal trust and reciprocity that facilitate collective 

action. 

* * * * * * * * * 

Module 2: Microfinance Methods Page 59 
A Microenterprise Training Guide for Peace Corps Volunteers 

RESOURCES 

These resources are available through the Peace Corps Information Collection 

and Exchange (ICE). The citations are presented as they appear in The Whole 

ICE Catalog. 

An Institutional Guide for Enterprise Development Organizations. Elaine

Edgcomb and James Cawley, Editors. (The Seep Network.) 1993. 299 

pp. (ICE No. SB161) 

A guidebook prepared by members of the Small Enterprise Education

and Promotion (SEEP) Network’s Institutional Development Working

Group to help private development organizations plan and implement

small enterprise development programs. Deals particularly with the 

objectives of sustainability, institutional development, and expansion,

addressing the questions that organizations need to consider at each

stage of a program’s development. A tools section contains a variety of

formats, sample documents, question guides, and other materials to help

in the various planning and implementation processes, e.g., creating

boards of directors, hiring staff, arranging contracts, and establishing 

credit mechanisms. Also includes a bibliography and glossary. 

Our Money, Our Movement: Building a Poor People’s Credit Union. Alana 

Albee and Nandasiri Gamage. (IT Publications, Ltd.) 1996. 46 pp. (ICE 

No. SB199) 

[Distribution to Peace Corps In-Country Resource Centers Only] 

Describes in detail the working of credit and saving mechanisms used

by the Women’s Credit Union in Sri Lanka. Illustrates how financial 

services can be controlled and managed by the poor, instead of being

delivered to them. Describes how people’s efforts can shift economic 

views of development to include cultural and social aspects.

Internet: 

www.mip.org

www.UNICEF.org — Good resource especially if looking at statistics

worldwide on economics. 

Other Materials:

Village Banking–The State of the Practice, Candace Nelson, Barbara 

McNelly, Kathleen Stack, and Lawrence Yanovitch. UNIFEM 1996. 

* * * * * * * * *

Module 2: Microfinance Methods Page 60 
A Microenterprise Training Guide for Peace Corps Volunteers 

TRAINER’S NOTES 

MODULE 2 

MICROFINANCE METHODS 

Overview: 

In this module we look at the financial habits of local families, and we learn

about the financial services the local banks provide. We provide a historical 

perspective of financial services with visits to the world of traditional 

moneylenders, middlemen, and Rotating Savings and Credit Associations

(RoSCAs). At each stop trainees increase their understanding of the customers

and suppliers of financial services in their country of service. 

Readers are encouraged to discover for themselves the credit and savings habits

of local families and what financial services local banks provide. The module 

also examines traditional financial services providers and how learnings about 

the poor people’s traditional credit and savings habits and ability to pay were 

used to design today’s MFIs. The Learning Game offers a chance to be an active 

participant in a microfinance activity. 

Time: 

Reading 1 hour

Activities 4 hours 

 The Learning Game 3 hours 

Materials: 

Copy of the Learning Game and handouts called for in the game’s instructions. 

Articles on the nation’s banking system and/or local MFIs would supplement 

trainees’ observations. 

Preparation: 

• Schedule times within the training for trainees to take field trips to banks. 

The amount of time will depend on local logistics. 

• Enlist the help of language instructors for those activities where language

may be a barrier. 

• Work with one of the trainees (a trainee who enjoys theatrics is a good 

choice) to organize and lead the Learning Game. 

Continued

Module 2: Microfinance Methods TRAINER’S NOTES — Page 61 
A Microenterprise Training Guide for Peace Corps Volunteers 

Trainer’s Notes, continued

• Spend at least one hour, after reading the text and completing the activities, 

discussing with trainees their mastery of learning objectives and processing

module learnings.

• There are social and cultural considerations when interacting with

community members. Before beginning the activity brief trainees and

community members on expected behavior and cultural norms. This

increases the comfort level for everyone.. If host family members or local 

friends are invited to a language class or other training session, what social

courtesies should be extended? Should you offer tea, coffee, or sweets

before or after the discussion? What are expectations as to greetings and 

introductions? If you visit a family or business to gather information, should

you take a small gift? What gift is appropriate? 

Debriefing the experience and processing the learnings: 

Experience is only the first step in the experiential learning cycle. Reflection,

generalization, and application follow experience. Don’t stop the training before

completing all four steps. Allow adequate time and opportunity for reflection,

generalization, and applying the learnings to the trainee’s Peace Corps Service. 

In debriefing the module and processing the learnings, remember the trainees are 

responsible for their own learning. It is to be expected that trainees will have

different interests and approaches to acquiring information. Two reasonable 

individuals can see the same thing and disagree about what they saw, how it 

should be interpreted, and/or the applicability of the information. 

A skilled trainer adds value by providing an emotionally safe environment where 

participants can reflect on what they have observed; explore their feelings; and 

consider how learnings can be used during their Peace Corps service. Trainers

are a learning resource. They may be able to fill in information gaps, correct 

inaccurate impressions, and illustrate how the national laws, economy, and

culture affect what trainees have observed. 

Before completing the module check with trainees to determine if they feel the 

learning objectives were accomplished. If not, what additional information or

activities do they require to achieve the objectives?

Module 2: Microfinance Methods TRAINER’S NOTES — Page 62 
A Microenterprise Training Guide for Peace Corps Volunteers 

TRAINER’S NOTES 

ACTIVITY 2:1

FAMILY FINANCIAL SERVICE

Overview: 

This activity is designed to teach trainees how families in the local community

use financial services. 

Time: 

To collect information: 1 hour (approx.) 

To discuss results: 30 minutes

Materials: 

None. 

Preparation: 

Work out a plan with trainees, given their language capabilities, to gather

information on local families’ credit and savings patterns and financial service 

requirements. It might be useful to have language teachers’ help prepare 

questions in the local language with spaces where host families could write 

answers. 

Debriefing the experience and processing the learnings: 

Financial services should (1) meet the consumer’s needs, (2) be readily

available, and (3) be reasonably priced. Do the financial services available in the 

host community meet these criteria?

Module 2: Microfinance Methods TRAINER’S NOTES — Page 63 
A Microenterprise Training Guide for Peace Corps Volunteers 

TRAINER’S NOTES 

ACTIVITY 2:2

BANK VISIT

Overview:

This activity is designed to teach trainees about the financial services offered by

formal financial institutions. 

Time: 2 hours 

Materials: 

None. 

Preparation: 

Trainees should set up bank visits on their own. However, they may need your

assistance in identifying which banks to approach and what approach is

culturally acceptable—a written request, a phone call, or a request on behalf of

the trainee by a community member. Before they visit the bank, trainees should 

be coached on culturally correct conduct for business meetings. 

Debriefing the experience and processing the learnings: 

What were the surprises, if any? What customers were observed in the bank

(businesspeople, men, women, and/or people who did not appear to be well off)?

Are the bank’s location and hours convenient? Did the customer service seem

friendly? 

Module 2: Microfinance Methods TRAINER’S NOTES — Page 64 
A Microenterprise Training Guide for Peace Corps Volunteers 

TRAINER’S NOTES 

ACTIVITY 2:3

ROTATING SAVINGS AND CREDIT ASSOCIATIONS

Overview:

The goals of this activity are twofold: first, to learn about local RoSCA and

moneylender activity; and second, to experience group dynamics of a RoSCA.

Time: 3 hours 

Materials: 

None. 

Preparation: 

If you do not have knowledge of moneylenders and middlemen practices in the 

local community, investigate this before conducting the activity. 

Debriefing the experience and processing the learnings: 

A local trainer can add value to this activity by assessing if the information

gathered reflects reality. There is a “learning moment” following this activity to

discuss with trainees how their RoSCA group made decisions and broaden the 

discussion to include group decision-making techniques. Introduction of

decision-making tools such as multiple voting or decision matrix may be

desirable. 

Module 2: Microfinance Methods TRAINER’S NOTES — Page 65 
A Microenterprise Training Guide for Peace Corps Volunteers 

TRAINER’S NOTES 

ACTIVITY 2:4

A LEARNING GAME

Identify a trainee/Volunteer who will organize and facilitate the Learning Game

for other trainees/Volunteers and invited host country nationals. Talk with the 

language instructors in advance to enlist their help in working with the

trainees/Volunteers to do the Learning Game in the local language. 

Module 2: Microfinance Methods TRAINER’S NOTES — Page 66 
A Microenterprise Training Guide for Peace Corps Volunteers 

Module 2: Appendix GENERAL PRINCIPLES OF THE LENDING METHODOLOGIES Principles Individual Lending Latin American 

Solidarity Groups 

Grameen Bank Village Banking C

Clients Individual businesses Microenterprise owners Microenterprise 

owners 

Groups are clients G

Loan Approval • Based on careful viability 

analysis 

• Based on minimal viability analysis 

• Group involved in loan appraisal 

• Group loans processed by agent • Individual loans analyzed by group 

• b

Loan Characteristics 

• Loans adapted to client needs 

• Limited range of loan conditions • Quick processing of follow-up loans 

• Limited range of loan conditions • Rotating access to credit • Various types of loans 

• Group loan is aggregate of individual loans • Loans disbursed in cycles • Rigid loan conditions 

• a

Guarantees • Collateral and/or 

cosigners 

• Mutual guarantee of all loans 

• Mutual guarantee of all loans • Emergency fund 

• Peer pressure from group • No guarantees on individual loans 

• l

Savings • Not essential • Often key to 

methodology 

• Key part of methodology 

• Essential part of methodology 

• pm

Group Characteristics 

• None • Self-selected small 

groups 

• Self-selected small groups 

• Formation of federations of groups 

• Required attendance at weekly meetings 

• Democratic control • Administratively selfsufficient • Independence • Autonomy in member selection • Regular meetings 

• • s• • s• • o
A Microenterprise Training Guide for Peace Corps Volunteers 

Module 2: Appendix 
A Microenterprise Training Guide 

for Peace Corps Volunteers

MODULE 

3 

Operating a 

Microfinance 

Institution 

Business 

Centers 

Supporting 

Entrepreneurs

A Microenterprise Training Guide for Peace Corps Volunteers 

MODULE 3 

OPERATING A MICROFINANCE 

INSTITUTION 

A VOLUNTEER’S STORY 

A Unique Microfinance Institute: The Cultural Bank

In the West African village of Fombori in northern Mali, 100 miles

south of the city of Timbuktu, some women’s idea of a local museum

to preserve their culture and attract tourists evolved into the Culture

Bank of Fombori with the assistance of a Peace Corps small business

Volunteer. The sustainable Culture Bank didn’t happen overnight—it

took three years, one failure, and a revitalized plan. The original

concept of the cultural museum charging admission to tourists and 

selling craft items in a museum shop was abandoned because of lack 

of tourists. The women found it was necessary to involve the whole 

village, including the village council and the youth, before the project

became successful. The museum’s board of governance now

represents men and women, young and old. Thinking changed from

“how can the museum attract outsiders” to “how can the museum

serve local residents.” What evolved was a unique organization. 

The Culture Bank is an entirely new type of institution that combines 

a village bank with a village museum. The Culture Bank enables

local inhabitants to use their culturally and historically important

objects as collateral for small business loans. In this way, the cultural

assets of the community are transformed into economic assets, and a 

real incentive for conservation of cultural heritage is created. The 

objects are researched and organized into a collection that is

displayed in the Culture Bank’s galleries and used as a tool to

facilitate community education and development programs. The 

interest accumulated from bank loans provides income for the 

Culture Bank’s operation, allowing it to become self-sustaining. 

The Culture Bank is also designed to play an educational role in the 

community by using its income to finance a program of cultural and 

development activities, such as literacy programs, concerts, theater, 

and artisans workshops. The large covered porch provides a meeting 

place for storytelling festivals and wrestling matches. There are 

activities for all. Women have participated in soap-making classes

and men in woodcarving classes. All of these activities equip the 

community with the knowledge and skills to orchestrate its own 

community development. 

Module 3: Operating a Microfinance Institution Page 69 
A Microenterprise Training Guide for Peace Corps Volunteers 

The Culture Bank of Fombori began operations in 1997, and in a 

year and a half it doubled its initial $400 loan fund through its own 

activities, achieved more than a 95 percent reimbursement rate, and 

engaged hundreds of people in its program. People from Fombori

and the surrounding areas submitted more than 400 objects, such as

masks, sacred statues, clothing, weapons, jewelry, and household 

items, receiving in return loans of 5 to 40 dollars to begin small 

businesses. The objects were researched, documented, and organized 

into a community collection that is presently on display in Fombori. 

Four other Culture Banks have now been started in Mali, two with

the help of Peace Corps Volunteers. 

* * * * * * * * * 

These written materials are a guide for your Peace Corps technical training

journey. They suggest ways you can learn about microenterprises

(microbusinesses) and microfinance institutions (MFIs). When you have

questions about what you see or hear, don’t forget you have valuable resources

available. Discuss these questions with your technical trainer, language teachers,

other Peace Corps staff, or your host family. By the time you finish this module 

you should have the knowledge, skills and attitudes to: 

• List the common types of microbusinesses found in your host community

and describe the owners’ expectations for their businesses. 

• Explain how MFIs have adapted mass-marketing strategies to provide

savings and credit services to millions of low-income people. 

• Explain the importance of building institutional capacity and how links

between nongovernmental organizations (NGOs), government

organizations, and private businesses strengthen MFIs.

• Discuss, after observing an MFI organization, which microfinance 

methodology the organization uses. 

• Do a SWOT (strengths, weaknesses, opportunities, threats) analysis when

provided with information about an organization’s internal operations and

external environment. 

LOCAL MICROENTERPRISES 

As you traveled from the airport to your training site and explored your host

community, what did you observe about people and their jobs? Do most citizens

have formal jobs in factories, offices, or stores, or is there a significant amount

of informal business activity going on in the streets or markets? Do those who

work in the offices, factories, or stores appear to be better off and better 

educated than those working on the streets? Are there many people who don’t

Module 3: Operating a Microfinance Institution Page 70 
A Microenterprise Training Guide for Peace Corps Volunteers 

have jobs? Did you see any people working at nonagricultural jobs in rural

areas? 

Your firsthand observations will likely confirm the following:

• Becoming an employee is not an option for millions of poor people. 

• Jobs are not available locally, and there are poor people who cannot afford 

to move. 

• Illiteracy and lack of technical skills limit employability. 

• Women often face additional barriers to obtaining a job:

— Child care and domestic responsibilities. 

— Cultural norms in working outside the home or with men.

— Gender bias limits the types of jobs available for women.

When jobs are not available, self-employment is often the only option. This has 

resulted in millions of microenterprises being organized, most operated by one 

person or an owner and unpaid family members. These tiny informally organized 

businesses are everywhere. You see their owners vending on the streets, selling

fish in the market, engaged in simple agro-processing operations, handicraft

production, repair services, furniture making, or perhaps driving a taxi. 

Unfortunately, many of these businesses are not very profitable; they are 

undercapitalized and the owners may lack basic business skills. Owners of these 

struggling microenterprises and those who want to start a microbusiness are the 

target customers for microenterprise development projects. 

“Know your customers” is standard business advice. Therefore, in Activity 3:1 

you are encouraged to visit with microbusiness owners to learn how they operate 

their income-generating activities, and what challenges they face. 

Module 3: Operating a Microfinance Institution Page 71 
A Microenterprise Training Guide for Peace Corps Volunteers 

ACTIVITY 3.1 

GETTING TO KNOW MICROENTREPRENEURS

In this activity you will learn about microentrepreneurs and potential 

microentrepreneurs. The more you understand about the day-to-day operations

of microbusinesses and the challenges their owners face, the better prepared you

will be to assist them. 

Arrange to shadow a microenterprise owner for several hours during his or her

workday. You may already know a microbusiness in your host community you 

would like to learn more about; if not, ask your host family or a local friend to

introduce you to a microentrepreneur. 

During the shadowing experience, ask questions in an appreciative way and, if

culturally appropriate, offer to help with the work rather than standing back and

observing. Gather as much of the following information as is possible: 

1. What is the nature of the income-generating activity? _________________ 

2. How long has the owner been involved in this business? _______________ 

3. Is the business active throughout the whole year or only when the owner is

not involved in other activities? __________________________________ 

4. Does the microenterprise provide most of the family’s income? _________ 

5. What does the owner like about his or her business? 

 ____________________ 

6. How would the owner like to improve the business? _________________ 

7. Has the owner ever borrowed money for the business? _______________ 

8. If so, from whom? _____________________________________________ 

9. How did the owner learn to operate the business? (For example, was he or 

she taught by a mother, father, or friend; self-taught; or trained in a course?)

 ____________________________________________________________ 

10. What one change would make the business more profitable? (For example: a 

larger space to sell in, special equipment, more customers, or a vehicle to 

transport goods?)

 ____________________________________________________________ 

Continued

Module 3: Operating a Microfinance Institution Page 72 
A Microenterprise Training Guide for Peace Corps Volunteers 

Activity 3:1, continued 

Thank the microentrepreneur for his or her time. A small thank you gift may be

culturally appropriate. Ask your host family or language instructor if in doubt.

Pool the information you learned with that of other trainees to piece together a 

more complete understanding of microenterprise operations. 

• What did several of the businesses have in common? 

• What were some differences? 

• What did you learn that might be useful during your Peace Corps service in

helping to develop microenterprises? 

Module 3: Operating a Microfinance Institution Page 73 
A Microenterprise Training Guide for Peace Corps Volunteers 

MASS-MARKETING MICROFINANCIAL SERVICES 

When you first hear that microfinance institutions (MFIs) charge their 

clients higher fees than commercial banks, it seems unfair. Why wouldn’t an

organization whose mission is to help the poor charge a token or at least low

interest rates? The answer is MFIs must earn interest and/or fees equal to their 

operating costs plus the cost of capital and inflation, or they cannot remain in

business. If the MFI goes bankrupt it can no longer serve its customers.

It is unethical and inconsistent with an MFI’s mission—providing the poor

with financial services—to charge higher prices for financial services than 

are necessary because of bad management. Ineffective management results in

higher costs, which are passed along to clients. Ineffective management prevents

an MFI from providing ongoing savings and credit services for customers. 

MFIs fail, not because of a lack of customers or the customers’ inability to

repay their loans, but because of inadequate planning and management.

Most MFIs were started and are operated by those with social goals rather than

financial or business backgrounds. These caring individuals are committed to

improving the lives of those they serve, but often they lack the business skills to

run a financial institution. In a number of countries, Peace Corps business 

Volunteers have shared their business skills with MFIs and the customers of

MFIs. 

MFIs face a formidable challenge: to achieve massive scale, because the 

potential market is vast, while keeping customer costs low. Only when MFIs are 

well run do they have the capacity to reach larger and larger numbers of poor 

clients with quality financial services at a low cost on a sustainable basis. 

Although MFIs make micro-sized loans, the successful MFIs are not small 

businesses! A number of MFIs serve more than 20,000 clients each; two MFIs

serve almost 2 million clients each. In 1993, Grameen Bank had 1.6 million

members, while The Bank Rakyat Indicia had 1.9 million. Their loan portfolios 

were US $180 million and US $931 million, respectively. Banco Sol and Actuar 

Bogotá are newer programs, with 46,000 members (loans US $24.8 million) and 

37,000 members (loans US $8.2 million). The credit union system in Cameroon

had an active portfolio of US $21 million in 1991 and 20,000 loans. The Small 

Enterprise Foundation in South Africa started operations in 1991, and by the end 

of 1993 had nearly 2,000 clients and a loan portfolio of US $200,000. 

(Figures from What Makes Them Tick? Exploring the Anatomy of Major

Microenterprise Finance Organizations. Elisabeth Rhyne and Linda S. Rotblatt. 

ACCION International. 1994. p. 11.) 

What do these successful MFIs have in common? 

• High customer volume • Low cost of capital for their loan fund 

• Low operating costs • Efficient delivery systems. 

Module 3: Operating a Microfinance Institution Page 74 
A Microenterprise Training Guide for Peace Corps Volunteers 

ACTIVITY 3:2 

WHAT MAKES DISCOUNT MASS MARKETING

SUCCESSFUL? 

Chances are you have shopped at one of the large discount mass-marketing

stores in the United States. Reviewing the factors that contribute to the success

of these retailing giants will give you some ideas as to how an MFI can

successfully implement a mass-marketing strategy for savings and lending 

services. 

How many factors can you think of that contribute to the success of the discount

mass-marketing firms? 

________________________________________________________________ 

________________________________________________________________ 

________________________________________________________________ 

________________________________________________________________ 

________________________________________________________________ 

________________________________________________________________ 

When you finish, look at the list of factors that contribute to these businesses’

success at the back of the module. Did you think of some factors that are not on

that list? Of the factors you listed and the ones at the back of the module, check

those that are applicable to the mass marketing of microsaving and microlending

services. 

Module 3: Operating a Microfinance Institution Page 75 
A Microenterprise Training Guide for Peace Corps Volunteers 

MFIs’ ORGANIZATIONAL DEVELOPMENT 

There are core competencies, which are similar to those of a well-run for-profit 

business, that assure a well-run MFI. Strengthening these core competencies

builds the capacity of the MFI, enabling the organization to turn its ideas 

(mission, goals, and objectives) into action. The process of building an

organization’s capacity is called organizational development (or institutional 

development). 

Peace Corps Volunteers help MFIs improve operating efficiency by working

with management, staff, and the MFI’s board of directors. Before the end of this

module we will discuss each of the core competencies an MFI must develop to

achieve its mission. First, we look at the four key elements of organizational 

development.

Key Elements of Organizational Development

Process: Organizational development is not static; it is organic and evolving. It 

affects all facets of an organization and implies learning, adapting, and changing.

Capacity: Organizational development involves human resources as well as

organizational structure and systems. Both need to be strengthened in concert. 

Impact: Organizational impact is not a goal. It is a means to solve problems and 

improve capacity that will result in greater impact on the quality of people’s 

lives. 

Long-term: The ultimate goal of organizational development is to become a 

self-reliant organization that can sustain the flow of benefits and services to its 

members/clients over time. 

(Adapted from An Institutional Guide for Enterprise Development 

Organizations, Elaine Edgcomb and James Cawley, Editors. The Small 

Enterprise Education and Promotion Network (SEEP), New York, 1993. p. 10.) 

MFI Goals

1. Serves large 

numbers of the 

poor. 

2. Provides highquality financial 

services. 

3. Low costs.

Organizational

Development

The process of building

an organization’s 

capacity to enable it to

put ideas into action and

achieve the 

organization’s goals.

A successful, sustainable

MFI capable of achieving its

goals has:

• Trained staff

• Adequate financing 

• Effective governance and 

management

• Policies and systems to

deliver and monitor quality

services and costs

Module 3: Operating a Microfinance Institution Page 76 
A Microenterprise Training Guide for Peace Corps Volunteers 

ACTIVITY 3:3 

MFI SITE VISIT 

Visit the sites of some local MFI operations. Find out what is working well. 

Remember to ask questions “appreciatively.” The problems will come out, but 

let them come out later. 

Why did the MFI start operations? ____________________________________ 

What are the strengths of the organization? ____________________________ 

What micro-finance services (savings and credit) does the organization offer?

________________________________________________________________ 

Who are the MFI’s clients? _________________________________________ 

How do they determine if their clients are poor? _________________________ 

What impact have the financial services had on the lives of clients—on the 

communities? ____________________________________________________ 

What interest rate does the MFI charge, what is the length of the loans, and what 

is the loan repayment rate? _____________________________________ 

What challenges does the MFI face and what are its opportunities?

________________________________________________________________ 

What is the MFI’s development psychology—what does it value most about its 

projects/programs? ____________________________________________ 

Module 3: Operating a Microfinance Institution Page 77 
A Microenterprise Training Guide for Peace Corps Volunteers 

A major organizational challenge for MFIs is balancing their dual mission—

social impact and financial sustainability. The Small Enterprise Education and

Promotion Network (SEEP) undertook an extensive study to learn what practices

contribute to the operations that enable MFIs to achieve their dual mission. In

1993, they published a framework for organizational development. This

framework and materials relating to the framework resulted from the promising

field practices of six development organizations (Pan American Development 

Foundation; Katalysis—North/South Development Partnerships; Opportunities

Industrialization Council, International; CARE, Inc.; Plan International; and

Opportunity International). 

MFIs operate under four different corporate structures: 

1. public (government), 

2. nonprofit (NGO), 

3. for-profit (private business), and 

4. cooperative (credit unions). 

Bank Rakyat Indonesia is a government institution and is publicly owned. NGOs 

offering financial services, while covering their costs, are the most common

corporate structure. There are two types of for-profit MFIs—commercial banks

and finance companies that move down market to serve the microenterprise 

sector and NGOs established as regulated financial institutions. In credit unions 

clients are the owners; excess profits, if any, are returned to the members of the 

credit union. Surprisingly, organizational development is similar for all four

corporate structures. 

The SEEP framework identifies four components of an institution: vision, 

capacity, resources, and links. Each of the four is discussed during three 

development stages of the organization: the development stage, the sustainability

stage, and the expansion stage. Here we will discuss only the components in the 

development stage. The sustainability and expansion stages are beyond the scope

of these materials introducing Volunteers to MFIs. 

Vision is the ability to articulate and foster commitment to the mission and the 

approaches an organization uses. It is important that vision grow out of, and 

respond to, how local people want to change their lives. The vision is often

articulated in a mission statement. A mission statement describes: whom the 

organization serves, what type of services they will receive, where the clients are 

located, and how they will be served. Part of the vision should indicate the 

desired level of impact. 

Module 3: Operating a Microfinance Institution Page 78 
A Microenterprise Training Guide for Peace Corps Volunteers 

Example of an MFI Mission Statement: 

Our mission is to improve the economic well-being of 30 percent of low-income

women and their families in the region of Zambuko. 

The Zambuko Village Bank provides, through solidarity groups, opportunities to 

accumulate savings and acquire microloans to start or expand individual or

cooperative businesses.

Capacity is the ability to turn thinking into action. Capacity requires an

organizational structure through which people can channel their energy and

creativity. 

Example of an MFI Organizational Structure 

BOARD OF DIRECTORS 

(Diversified 5–15 member board, 

including members with financial 

and technical expertise, women,

and clients)

EXECUTIVE DIRECTOR 

(Desirable qualities: commitment to

the organization; charisma; 

combination of social commitment 

and management skills; demanding

of excellence in themselves and 

others) 

Marketing

Supervisors and 

Field Agents

STAFF

Financial

Head Credit Officer and 

Accountant 

Support

Fundraising Officer

and other 

Support Staff

(Staff with appropriate training and clearly defined responsibilities.) 

CONSTITUENT ASSEMBLY (CLIENTS/CUSTOMERS)

(Represents group targeted in MFI’s mission statement) 

* * * * * * * * * 

Module 3: Operating a Microfinance Institution Page 79 
A Microenterprise Training Guide for Peace Corps Volunteers 

An MFI’s leadership is composed of the board of directors and the executive 

director. 

An active board of directors is important because the board: 

• Provides a locus for the vision of the organization;

• Develops and approves organizational policies and goals;

• Guides strategic planning;

• Ensures excellence among management and staff;

• Hires and terminates, if necessary, the executive director; 

• Oversees accountability of the organization funds; 

• Creates links to other key organizations;

• Raises funds and other resources, and 

• Provides legitimacy to the organization.

The executive director works with the board and implements the board’s

policies on a daily basis. 

An MFI needs systems and procedures to ensure that the structure operates

smoothly; that there is a timely flow of accurate and complete information; that 

staff and clients are treated fairly and justly. These include personnel policies,

management information systems, budgeting and accounting systems, and 

monitoring and evaluation systems.

An MFI’s methodology allows the organization to carry out its mission and

achieve its desired outcomes. An MFI’s methodology includes target population,

desired effect (jobs, income, goods or services produced), mode of organizing

clients (solidarity groups, credit unions, etc.), credit policies, services offered 

(savings, credit, business training), and a set of policies for providing services. 

A reminder related to MFI methodology: Experience shows that the poor are 

willing to pay high interest rates. What is most important to them are quick, easy

loans, available close to where they live (they often do not have access to 

transportation), and with no collateral required to secure the loan. 

Resource capacity targets both acquiring and managing MFI funds. For MFIs,

key factors include fundraising policies and practices, financial projections, cash

flow, and credit portfolio management. Internal controls, internal audits, and an

annual audit by a qualified accountant with financial institution experience are 

necessary to assure both donors and clients of the proper use of MFI funds.

MFIs need money to cover operating costs and for their loan fund. MFI field 

staff engage in hundreds of small transactions each week, as they collect savings 

and loan payments and fees, and disburse loans and savings withdrawals. Cash

flow management is critical. One way MFIs keep transaction costs low is by

keeping the accounting simple. 

Module 3: Operating a Microfinance Institution Page 80 
A Microenterprise Training Guide for Peace Corps Volunteers 

Keeping Accounting Simple

Loan interest is calculated using a flat interest rate: 

Amount of the loan x Interest rate x Length of loan = Total interest. 

If the loan in paid back in installments, the real (effective) interest rate 

may be almost double the stated interest rate. 

Sound financial management is critical. To keep client costs low, the cost of

capital must be minimized and excess funds invested to earn a high rate of return

while keeping the invested funds safe.

Links are productive relationships with a wide variety of organizations and 

agencies. Establishing links serves three important functions: strengthens 

organizational capacity, influences policy, and increases legitimacy of the MFI 

within a community. Links can include relationships with similar MFIs, 

commercial banks, government institutions, and networks of organizations with

similar interests. 

(The above information on organizational elements summarizes material found

on pages 11–16 of An Institutional Guide for Enterprise Development 

Organizations. Editors Elaine Edgcomb and James Cawley, The Small 

Enterprise Education and Promotion (SEEP) Network, New York, 1993.) 

* * * * * * * * * 

Each element represents a distinctive organizational capacity and involves an

integral set of roles, policies, procedures, and tasks that need to be accomplished 

in systematic and recurring ways. 

Competent organizations have a strong sense of mission, and their basic credit 

and savings services are complemented by other services as an outgrowth of

their vision. Their services are highly valued by clients and appear to make a 

significant difference in the lives of microentrepreneurs’ families. 

Geographically, MFIs often look something like a wheel, with the central office 

in the center and retail operations at the ends of the spokes (see the example on

the next page of an MFI with four retail outlets). The geographical distribution

of large MFIs reveals a simple pattern: a set of small retail outlets that do the 

frontline work, linked by a superstructure that provides higher-level services and

oversight to the retail outlets. A strong model for retail outlets is key to

successful expansion—growth comes from replication of standardized retail 

units. 

Module 3: Operating a Microfinance Institution Page 81 
A Microenterprise Training Guide for Peace Corps Volunteers 

Geographical Structure of a Small MFI

(Each retail outlet shows a few of the desirable characteristics of MFI retail 

outlets.) 

Financial services for the poor must be located close to clients, whose ability to 

spend time and money obtaining financial services is limited. Given the expense 

of making very small loans and taking in small savings deposits, it is essential for 

each retail outlet to be highly productive. MFIs hire as field workers young, (and

usually) secondary school graduates and train them in the field. Pay rates are 

relatively high compared with other jobs these young people could obtain.

Bonuses are common rewards for meeting goals. 

Module 3: Operating a Microfinance Institution Page 82 
A Microenterprise Training Guide for Peace Corps Volunteers 

MFIs must protect themselves against various forms of fraud—most MFIs

encounter fraud by employees at some point. A good internal control system

lowers the possibility of funds being misappropriated.

Well-run MFIs have some commonalities. These include strong and stable 

leadership (i.e., active boards, multitalented and committed executive directors, 

and senior managers able to take on increasing levels of responsibility). These 

institutions take a systematic approach to policymaking, vesting the 

responsibility in more than one person, and making policy changes through 

formal channels. Growth and innovation are carried out in a highly systematic 

fashion. The institutions move carefully through product identification, delivery

system design, and full implementation.

Looking at the elements of an MFI that have to run smoothly, it is obvious there 

are a variety of skills and talents the organization must acquire. Most likely the 

management and staff will not have all of these skills, especially in a small 

organization. There are several options for acquiring access to missing skills: 

• Hire a consultant(s). 

• Exchange or borrow personnel with/from another MFI or NGO on a shortterm basis. 

• Find a local volunteer willing to donate his or her time and talents. 

• Use the skills of a Peace Corps Volunteer 

As you were reading about organizational competencies, you may have thought,

“I know how to do that!” Do you know about accounting or finance? Can you

help staff learn to use computers or set up simple systems on the computer? Are 

you someone who is good at organizing and writing materials and could help 

with promotional materials or grant proposals? Are you good at networking? If

so, you could assist an MFI in developing cooperative relationships with other 

organizations and agencies—links. Are you a trainer who could help by

developing materials and training clients in very fundamental business 

management skills, health, or other areas? Are you good with people and could 

help by recruiting and training local volunteers or helping with board

development? MFIs have a big job to do in helping to reduce poverty and 

empowering people to change their lives. No doubt you can help in a number of

ways.

Module 3: Operating a Microfinance Institution Page 83 
A Microenterprise Training Guide for Peace Corps Volunteers 

ACTIVITY 3:4 

SWOT ANALYSIS USING AN MFI CASE STUDY 

Identifying the strengths and weaknesses that are internal to an organization and 

the opportunities and threats in the organization’s external environment is a timetested tool to ensure a balanced look at both the positives and negatives internal 

and external to the organization. Examples include: 

Strength—an extremely competent executive director. 

Weakness—an inadequate accounting system. 

Opportunity—a large, underserved target group for your services. 

Threat—an inflation rate of 60 percent. 

SWOT analysis is a quick, easy way to communicate an overview of the 

organization and its operating environment. 

Below is a case study for Callow MFI. Organize your SWOT analysis as shown

below.

SWOT ANALYSIS

Callow MFI 

INSIDE THE ORGANIZATION OUTSIDE THE ORGANIZATION

Strengths Opportunities

1. 1.

2. 2.

. . . . . . . . . . 

Weaknesses Threats

1. 1.

2. 2.

. . . . . . . . . . 

You can do the SWOT analysis alone or in small groups. Either way, after you

have completed the SWOT analysis, compare and discuss your SWOT analysis

with others in your training group. Language instructors or Peace Corps staff

may provide insights into the local environment you were unaware of.

Continued 

Module 3: Operating a Microfinance Institution Page 84 
A Microenterprise Training Guide for Peace Corps Volunteers 

Activity 3:4, continued 

If you were asked to advise Callow’s board of directors on actions to be taken

following your SWOT analysis, what would be your advice?

The following Callow MFI case study is purely fictitious, but it draws on

situations observed in a number of MFIs. This case study has been prepared as a 

training tool to highlight certain organizational development issues faced by

MFIs. 

The case study provides the information you need to complete the strengths and 

weaknesses part of the SWOT analysis. You are to use conditions in your host 

country and local training area as the external environment for the Callow MFI. 

Callow MFI Case Study

Callow was incorporated in early 1990 as a not-for-profit charitable 

organization committed to supporting microenterprises in insert the name of 

your host country. Callow operates a solidarity group lending service, targeted 

at market vendors and other midsized microenterprises. In the early years

Callow also operated technical and business training activities. These were

wound down in 1994 to concentrate resources on the credit activities.

Callow’s board of directors is comprised of the founder and chairman, a 

Christian bishop, and three other individuals: a lawyer, a retired banker, and a 

mining company executive. The lawyer and the mining company executive travel 

extensively and are rarely able to attend the meetings.

Sixteen people, including the executive director, who has held that position for 

seven years, work in the head office. Staff turnover is low. Callow’s only office 

is in the capital city. Field agents sometimes must travel three hours to reach the 

head office from their most distant solidarity group. In the past, branch offices

have been considered, but the board fears a loss of centralized control.

The 100 field agents are committed to excellent client service and spend long 

hours on public transportation visiting groups, and filling out paperwork and 

taking it to the head office. All field agents have a minimum of two years of

college training, with either a business or a social sciences major. Field agents

are hired straight from college and given two months of training. Approximately 

one in five trainees does not pass/complete the training period; another one in

five does not complete their first six months of work. Twenty-five of the 39 loan 

officers are women. 

Continued 

Module 3: Operating a Microfinance Institution Page 85 
A Microenterprise Training Guide for Peace Corps Volunteers 

Activity 3:4, continued 

Field agents’ job descriptions are clearly written, and supervisors submit 

performance appraisals every six months. Supervisors are trained in how to 

provide effective feedback. Basic salary for field agents is $300 per month. They 

also receive an incentive payment, and they are paid quarterly, based on the 

total interest generated by their solidarity group member’s loans. 

First-time loans begin at $80 per group member and increase in increments of

no more than 30 percent per loan. First and second loans must be for a term of

four months; subsequent loans may be for four, six, or nine months. Loans are 

repaid either weekly or monthly, depending on the type of the borrower’s

business. Interest rates are set each January 1st at 20 percent over the country’s

inflation rate. Clients pay no other fees. The default rate is less than 3 percent.

About 20 percent of the members drop out of the group after one loan cycle. 

Only 30 percent of members remain at the end of three years. Field agents

constantly have to start new groups to keep their numbers up. Currently only 

women are allowed to join the solidarity groups.

Financial statements are produced and audited annually. The auditor is a 

longtime acquaintance of the managing director who provides his services at a 

highly reduced rate. Other clients of his auditing firm include three hospitals, an 

advertising firm, several law firms, and several retail establishments. 

No annual budgeting or longer-term financial forecasting has been done to

date; the board is concerned that not enough loan capital is in place to fund 

expected growth. The loan portfolio is expected to rise to $1.8 million in the next 

six months, a growth of half a million dollars, but only $236,000 of the expected 

growth has been secured from a single donor. Every workday extra cash is

deposited in the First National Bank of name of your host country. Only enough 

cash for the next day’s operations is kept in Callow’s safe. 

A Bad Debt Report is produced monthly. No Portfolio Aging Report is available, 

so it is difficult to calculate the true “risk” inherent in the portfolio at any point

in time. 

Possible recommendations for the MFI’s board of directors are found at the end 

of this module.

Module 3: Operating a Microfinance Institution Page 86 
A Microenterprise Training Guide for Peace Corps Volunteers 

KEY TERMS

Key terms are defined as they are used in the module. A space is provided to

write the local language translation of the word or phrase. We encourage you to

work with your language instructors to translate these terms into the local

language.

Default: A defaulted loan is a loan the MFI is quite certain will not be paid back

the borrower. 

Capital: The organization’s capital is the amount they have borrowed plus 

retained earnings plus any donated capital. 

Cost of capital: The amount an organization has to pay for the capital it has 

borrowed plus the amount it would have to pay for donated capital if it were 

borrowed at the current market rate of interest. 

Effective interest rate: Interest rate reflects all costs of the loan fees plus

interest paid only on the amount of the loan outstanding. The effective interest 

rate is sometimes called the “true” interest rate. 

Flat interest rate: The interest rate is fixed over the term of the loan. 

Institutional (also known as organizational) development: The process of

building the capacity of an institution or organization. 

Loan fund capital: The amount of capital the entity has that is to be used to

lend to borrowers. 

* * * * * * * * * 

Module 3: Operating a Microfinance Institution Page 87 
A Microenterprise Training Guide for Peace Corps Volunteers 

RESOURCES 

These resources are available through the Peace Corps Information Collection 

and Exchange (ICE). The citations are presented as they appear in The Whole 

ICE Catalog. 

An End to Debt: Operational Guidelines for Credit Projects. (UNIFEM.) 

1993. 104 pp. (ICE No. WD117) 

Provides guidelines to assist in establishing, managing, and supporting

successful credit projects for women microentrepreneurs. Also relevant

for microentrepreneurs in general. Clearly illustrates the stages of a 

successful credit program, from laying out the policies, to identifying a 

project, planning, implementing, and following up to assure its

sustainability. Written from an economic perspective, this project 

outline is helpful for organizing a credit program for women. A good 

guide for Volunteers working with women and credit, providing a

practical discussion of the issues and strategies involved. 

An Institutional Guide for Enterprise Development Organizations. Elaine

Edgcomb and James Cawley, Editors. (The SEEP Network.) 1993. 200 

pp. (ICE No. SB161) 

A guidebook prepared by members of the Small Enterprise Education

and Promotion (SEEP) Network’s Institutional Development Working

Group to assist private development organizations plan and implement

small enterprise development programs. Deals particularly with the 

objectives of sustainability, instructional development, and expansion,

addressing the questions that organizations need to consider at each

stage of a program’s development. A tools section contains a variety of

forms, sample documents, question guides, and other materials to help

in the various planning and implementation processes (e.g., creating

boards of directors, hiring staff, arranging contracts, and establishing 

credit mechanisms); also includes a bibliography and glossary. 

Banking Services for the Poor: Managing for Financial Success—An 

Expanded and Revised Guidebook for Microfinance Institutions.

Robert Peck Christen. (ACCION International.) 1997. 274 pp. (ICE 

No. SB201) 

Designed to help microfinance program administrators manage for

financial success and ensure the sustainability and outreach of their 

institutions. Focuses on the financial criteria and techniques that are 

most helpful to managers who want to improve their institution’s 

performance. Summarizes the four major challenges faced by

microfinance institutions, as well as the levels of cost recovery. 

Includes models for financial projections that accompany strategic 

financial plans.

Module 3: Operating a Microfinance Institution Page 88 
A Microenterprise Training Guide for Peace Corps Volunteers 

Juhudi: Credit Officer Training Manual. Kamau Kabbucho and Nanette

Magnani. (Kenya Rural Enterprise Programme.) 1993. 393 pp. (ICE 

No. SB176) 

[Distribution to Peace Corps In-Country Resource Centers Only] 

“Juhudi,” a Swahili word meaning determination, is the name given to a

program for providing small loans to microentrepreneurs in Kenya. 

This publication serves as a training manual for Juhudi credit officers,

and provides numerous tips and applications. Offers practical “how-to” 

information for Volunteers working in nongovernmental and voluntary

organizations that are trying to start or strengthen credit delivery

systems.

MicroStart: A Guide for Planning, Starting and Managing a Microfinance 

Programme. (UNDP.) 1997. 157 pp. (ICE No. SB200) 

Practical, clearly written book that lays out how to start a microfinance 

institution. Developed as a means to help organizations and individuals 

who wish to initiate or strengthen their microfinance programs. 

Compilation of materials useful for Volunteers who are assigned to help

nongovernmental organizations in dispensing credit.

An Operational Guide for Micro-Enterprise Projects. (ACCION 

International/The Calmeadow Foundation.) 1988. 98 pp. (ICE No. 

SB160) 

Based on the experience of organizations affiliated with ACCION 

International, this book provides a guide for planning and implementing

microenterprise assistance programs, focusing on three types of

assistance: credit, management training, and how small business

development can be supported through training and connections with

microloan funds. An excellent source for small business programming 

possibilities. 

Internet: 

www.mip.org 

* * * * * * * * * 

Module 3: Operating a Microfinance Institution Page 89 
A Microenterprise Training Guide for Peace Corps Volunteers 

ACTIVITY 3:2 Sample Responses 

FACTORS THAT CONTRIBUTE TO DISCOUNT MASSMARKETERS’ SUCCESS 

• Focused business plan.

• The firms know their customers and stock what the customers want. 

• Products are available when the customers want them, just-in-time inventory.

• Stores are open when customers have time to shop, 24 hours a day at some

stores.

• Stores hire local people, and store employees are encouraged to be active in

the community. 

• Although employee wages are low, the company may show employees are

valued through such means as referring to them as “associates” rather than

sales clerks.

• Firms use technology to make systems more effective and cut costs. 

• Low overhead—stores not located in high-rent districts.

• Good marketing to let customers know the benefits of shopping at a discount

store with a wide variety of merchandise and convenient parking.

• Firms practice smart management of debt and equity financing to keep cost of

capital low.

• Firms practice long-range planning—they have a growth plan for where and

when new stores will be opened.

• Management is experienced in the business of mass retailing.

Module 3: Operating a Microfinance Institution Page 90 
A Microenterprise Training Guide for Peace Corps Volunteers 

ACTIVITY 3:4 Sample Responses 

POSSIBLE ITEMS TO INCLUDE IN THE STRENGTHS

AND WEAKNESSES PORTION OF THE SWOT

ANALYSIS

Strengths:

• MFI charges what appears to approximate a market rate of interest. 

• Low staff turnover.

• Good personal evaluations. 

• Pay incentives for field agents. 

• Ratio of head office staff to field staff looks reasonable. 

• Low default rate. 

• Financial statements are audited. 

• Most funds kept in bank where safe.

• Women are well represented in the field agent staff.

Weaknesses:

• We aren’t sure, but there may be no women on the board of directors.

• No client representation on the board. 

• Board seems small for this large an operation.

• Board attendance at meetings is low.

• Client defection rate seems high.

• Lack of long-term planning.

• Expected increase in demand for loan capital not fully funded. 

• Loan officers are spending a lot of their valuable time traveling to and from

the head office. 

• Though the auditor’s price is low, he may not be independent or have the

industry expertise needed to do a good job. 

Recommendations for the board: 

• Expand the board, include women; businesswomen would be a nice 

addition, as would a couple of clients and someone from another NGO’s 

management.

• Immediately work with the staff to start a long-term planning process;

evaluate if opening a branch office now would be a good option given the 

expected growth. 

Continued

Module 3: Operating a Microfinance Institution Page 91 
A Microenterprise Training Guide for Peace Corps Volunteers 

Activity 3:4, Sample Responses, continued

• Hire an independent auditor with experience auditing financial 

organizations.

• Survey clients who have left the solidarity groups to determine why they left

and then look for ways to modify the loan product to retain these clients. 

Module 3: Operating a Microfinance Institution Page 92 
A Microenterprise Training Guide for Peace Corps Volunteers 

TRAINER’S NOTES 

MODULE 3 

OPERATING A MICROFINANCE INSTITUTION

Overview: 

The goal of this module is to train participants to develop an understanding of

the MFIs’ potential customers. Next, the principles of MFI management are 

related to the readers’ experiences with U.S. mass retailers. The factors that 

contribute to a mass retailer’s success have much in common with factors that 

contribute to successful and sustainable MFIs. Finally, training participants take

a look at organizational development and building the organizational capacity

necessary to support microfinance programs. 

Time: 

Reading 1 hour

Activities 10 hours 

Materials: 

If international organizations such as CARE, World Relief, PLAN, etc., are 

operating microfinance institutions in the country, provide information on their 

methodology to the trainees. 

Preparation: 

Preparations for a field trip to an MFI may be necessary if one is not located 

near the training community where training participants can make the 

arrangements themselves.

Debriefing the experience and processing the learnings:

Important learnings in this module are the general organizational structure of an

MFI and monitoring operations to assure quality. By the end of the module, a 

participant should begin to visualize how his or her individual skills and talents 

might be used in microenterprise development activities to reduce poverty and

improve families’ standard of living.

Module 3: Operating a Microfinance Institution TRAINER’S NOTES — Page 93 
A Microenterprise Training Guide for Peace Corps Volunteers 

TRAINER’S NOTES 

ACTIVITY 3:1 

GETTING TO KNOW MICROENTREPRENEURS

Overview: 

This activity is designed to equip trainees with an understanding of how

microbusinesses operate before they begin working with these businesses or

organizations that assist in the development of the microenterprise sector. 

Time: 4 hours (approx.) 

Materials: 

Trainees will probably have questions concerning local microenterprise legal, 

tax, and licensing requirements. An effective way to gather this information

might be to ask one or two trainees who have a special interest in this area to 

gather the information. They could then summarize the information and present 

it to the rest of the trainees. 

Preparation: 

Make trainees aware of any cultural norms or local conditions before they spend

time with a microenterprise owner. Depending on the situation, the activity’s

questions may need to be translated into the local language and/or the trainees

should practice the vocabulary. If it is necessary for language teachers to

translate, trainees may need to be grouped during this activity. 

Debriefing the experience and processing the learnings: 

Expand the discussion of individual microenterprises to emphasize the role 

microenterprises play in delivering goods and services in the local economy:

1. What percentage of families in the community depend on microenterprise 

activity for their income? 

2. What percentage of the goods and services consumed in the community are 

provided by microenterprises? 

The changes that owners would make to improve profitability provide 

Volunteers and their Counterparts with clues as to how they can intervene to 

assist microentrepreneurs. 

What were other things trainees learned from the shadowing experience? How

do these learnings better prepare them for Peace Corps service? 

Module 3: Operating a Microfinance Institution TRAINER’S NOTES — Page 94 
A Microenterprise Training Guide for Peace Corps Volunteers 

TRAINER’S NOTES 

ACTIVITY 3:2 

WHAT MAKES DISCOUNT MASS MARKETERS 

SUCCESSFUL? 

Overview: 

This activity assists training participants in building an understanding of MFIs’

operations based on their past experiences with mass-marketing retailing in the 

United States. 

Time: 30 minutes

Materials: 

None in addition to those included in the module.

Preparation: 

None. 

Debriefing the experience and processing the learnings: 

A major lesson to be learned from this mass-marketing activity is that MFIs must 

operate like mass-marketing businesses if they are going to succeed in helping

ever-increasing numbers of poor families improve their economic well-being and 

family’s security. 

Suggested responses to the question concerning a discount mass-marketing 

firm’s success: 

• Focused business plan.

• Firms know their customers and stock what the customers want. 

• Products are available when the customers want them, just-in-time 

inventory.

• Stores are open when customers have time to shop, 24 hours a day at some

stores.

• Stores hire local people, and store employees are encouraged to be active in

the community. 

• Although employee wages are low, stores can make their employees feel

valued by referring to them as “associates” rather than sales clerks. 

Continued 

Module 3: Operating a Microfinance Institution TRAINER’S NOTES — Page 95 
A Microenterprise Training Guide for Peace Corps Volunteers 

Trainer’s Notes, Activity 3:2, continued 

• Firms use technology to make systems more effective and cut costs. 

• Low overhead—stores not located in high-rent districts.

• Good marketing to let customers know the benefits of shopping at the 

discount stores, low prices, wide variety of merchandise, and convenient 

parking.

• Firms are smart in the management of debt and equity financing to keep cost

of capital low.

• Firms engage in long-range planning—they have a growth plan for where

and when new stores will be opened.

• Their management is experienced in the business of mass retailing.

Module 3: Operating a Microfinance Institution TRAINER’S NOTES — Page 96 
A Microenterprise Training Guide for Peace Corps Volunteers 

TRAINER’S NOTES 

ACTIVITY 3:3

MFI SITE VISIT 

Overview: 

This activity provides training participants with an opportunity to observe an

MFI’s operations. 

Time: 3–4 hours

Materials: 

None in addition to those included in the module. 

Preparation: 

If trainees cannot arrange visits to an MFI themselves, arrange for field trips to

MFIs. Ideally, trainees should visit their offices and observe a field agent 

working with a group. You may want to divide participants into small groups to

visit different places and report to the other groups. 

Debriefing the experience and processing the learnings: 

Use your local knowledge to help ensure participants gather accurate 

information. The language instructors may need to become involved to act as

interpreters and provide cross-cultural insights. When you visit an MFI make

mental notes of which capacities the MFI is implementing well and which could

be improved. How would the improvement of the capacities you identify

contribute to the MFI’s ability to provide low-cost loans and make savings

programs available to large numbers of low-income people? 

The major learning from this activity is an understanding of how an MFI 

operates and who is involved in the process of issuing a loan or the acceptance 

of a saving deposit. 

Module 3: Operating a Microfinance Institution TRAINER’S NOTES — Page 97 
A Microenterprise Training Guide for Peace Corps Volunteers 

TRAINER’S NOTES 

ACTIVITY 3:4 

SWOT ANALYSIS

Overview: 

This activity is designed to acquaint or reacquaint trainees with SWOT analysis, 

a systematic approach that looks in a balanced way at the internal strengths and 

weaknesses and external opportunities and threats facing an MFI. 

Time: 1 hour

Materials: 

Description of SWOT analysis and case study included in the module. 

Preparation: 

Familiarize yourself with the case and be prepared to answer trainees’ questions

related to the opportunities and threats found in the host country. 

Debriefing the experience and processing the learnings: 

This is an opportunity for discussions with training participants about factors

affecting local economic conditions, which they may not have noticed. Focus on

effects of these factors on microenterprises as well as on the MFIs. 

Possible items to include as strengths and weaknesses in the SWOT

analysis: 

Strengths:

• MFI charges what appears to approximate a market rate of interest. 

• Low staff turnover.

• Good personal evaluations. 

• Pays incentives for field agents. 

• Ratio of head office staff to field staff looks reasonable. 

• Low default rate. 

• Financial statements are audited. 

• Most funds kept in bank where safe.

• Women are well represented in the field agent staff.

Continued 

Module 3: Operating a Microfinance Institution TRAINER’S NOTES — Page 98 
A Microenterprise Training Guide for Peace Corps Volunteers 

Trainer’s Notes, Activity 3:4, continued

Weaknesses:

• We aren’t sure, but there may be no women on the board of directors.

• No client representation on the board. 

• Board seems small for this large an operation.

• Board attendance at meetings is low.

• Client defection rate seems high.

• Lack of long-term planning.

• Expected increase in demand for loan capital not fully funded. 

• Loan officers are spending a lot of their valuable time traveling to and from

the head office. 

• Though the auditor’s price is low, he may not be independent or have the

industry expertise needed to do a good job. 

Recommendations for the board: 

• Expand the board, include women; businesswomen would be a nice 

addition, as would a couple of clients and someone from another NGO’s 

management.

• Immediately work with the staff to start a long-term planning process;

evaluate if opening a branch office now would be a good option given the 

expected growth. 

• Hire an independent auditor with experience auditing financial 

organizations.

• Survey clients who have left the solidarity groups to determine why they left

and then look for ways to modify the loan product to retain these clients. 

Module 3: Operating a Microfinance Institution TRAINER’S NOTES — Page 99 
A Microenterprise Training Guide for Peace Corps Volunteers 

Module 3: Operating a Microfinance Institution TRAINER’S NOTES — Page 100