1. Objectives
2. Which Organizations Can Benefit?
3. Methodology

(1) Objectives

This guide has been designed to help users to:

Reach truly substantial numbers of rural and urban poor, especially women. Loans are uncollateralized and do not require land titles, or other guarantees, thus ensuring that the poor participate;

Provide a step-by-step approach to enterprise development starting with very small loans which allow a business to make productive investments quickly. Loans progress in steps to several hundred dollars;

Produce impressive results in terms of generating new income, which borrowers typically invest in improved nutrition, better housing, education and health care, especially in instances where loans are directed to women;

Achieve a consistently high loan repayment rate of at least 95 per cent and more typically, 98 per cent. Continued access to credit depends on all members of the credit group being up to date on their payments. Group support and pressure ensure high loan repayment;

Pay for costs within a few years if an adequate interest rate is charged;

Become a powerful tool to free the poor from high interest rates charged by professional money lenders.

(2) Which Organizations Can Benefit?

The MicroStart Guide has been designed as a means to help a broad range of community-based organizations, as well as financial and other institutions interested in developing microfinance services. These organizations may be existing or new and may range from a women's village association to a hospital to a for-profit bank.

(3) Methodology

SOLIDARITY GROUP MODEL

This guide is based on the solidarity group model, in which five to fifteen individuals pursue their own microenterprise activities and provide joint guarantees for each person's loan. While there are many cases in the microfinance field of successful lending to individuals, we have opted for group lending the most common approach for start-ups.

The purpose of the Credit Group is to guarantee loans, promote problem-solving among members, and create solidarity within the group. Groups also promote joint marketing and production among members and help develop leadership and management skills.

It is fundamental to this methodology that groups be self- selecting. Access to credit for any member in the credit group depends on all members being current. No member may receive additional loans until the group resolves payment problems. A clear delegation of responsibility places tasks primarily on the shoulders of those who will personally bear the consequences- the group members. The rewards are high for good performance and the costs are immediate for poor performance.

Groups meet to approve loans, ensure loans are repaid on time, and offer advice and support to members in the group. This guide advocates that the frequency of such meetings varies depending on the circumstances.

MICRO-LOANS

Initial loans for each member of a credit group are very small ($50 is common) and are usually to be repaid over four months. Subsequent loans progress in steps to a maximum of $300 to $500. All members of the group may be eligible for a loan at the same time. Receiving the next size loan is contingent upon paying the previous loan in full.

INTEREST RATES

The project's long-term financial sustainability depends on charging an interest rate which.. (a) covers operational costs (including the cost of loan defaults); and (b) covers the cost of capital including interest on borrowed capital and the cost of inflation on owned capital. Successful microfinance operations worldwide charge higher than market rates.