Design Features for ensuring high repayment rates on loans
and enabling poor people to access credit

Design Feature Intended Effect
Access Methods Means of ensuring that relatively well-off people fo not crowd out others' access to loans
Maximun income/assets Direct exclusion of better-off through eg. land-holding ceiling
Small loan size Loans are small enough that the better-off are not interested in them.
Regular meetings Indirect exclusion of better-off through eg. compulsary attendance at weekly meetings or contribution of physical labour to which the wealthy will not agree.
Screening techniques Mechanisms for screening out bad borrowers and projects
Market interest rates Encourage loan taking on basis of prospective returns not to capture subsidies
Self-selected Prospective members are asked to form groups themselves and hence screen in favour of those they belive will repay; they will also screen proposed loan use.
Character reference Alternatively local officials or power structures may be used to approve loan applications
Incetives to repay Mechanisms for giving borrowers who have no collateral incentives to repay, or failing this, forcing them to repay
Incentive supervision Rregular meetings with extension staff in or near the homes
Peer group monitoring Repayment is made in public in front of the group with consequent loss of face if payment is not made
Borrower incentives For example, rebates of interest on loans repaid early.
Agency staff incentives Agency staff may receive financial bonuses directly related to the repayment performance of their clients
Progressive lending Borrowers are able to gain repeated access to loans if they repay and these may also increase in size.
Compulsary lending A small amount contributed regularly into a group savings fund provides insurance or collateral for the loans of all group members.

Adapted from Hume and Mosely (1996), Finance Against Poverty, 2 Volumes London: Routledge.
Quoted in Johson and Rogaly (1997) Microfinance and Poverty Reduction. London: Oxfam.

Hari Srinivas -
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