Each person in a borrowing circle makes weekly repayments and contributes
a small amount to a mandatory savings plan, which also acts as insurance
for repayment of the loan. If one member of a borrowing circle is
unable to make a payment, the other members of the group are responsible.
Clients are charged interest rates in the order of 25% and are
expected to repay loans within 25 to 40 weeks, depending on the
amount borrowed. By North American standards, this interest rate
seems exorbitant, however, it reflects the cost of borrowing in
Kenya, where the inflation rate is near 10%. Programs with lower
interest rates are often not taken seriously by borrowers and have
difficulty attracting clients and receiving payments.
Clients who repay their loans are then able to further develop
their businesses through becoming eligible to borrow larger amounts.
Ultimately, once a track record and collateral have been established,
clients are able to utilize the standard banking system.
How successful is this approach?
Experience shows that these types of borrowing groups routinely
achieve a loan repayment rate of 95% or more. Recycled monies are
then loaned to new borrowers; also, successful borrowers are eligible
for additional, larger loans in order to further develop their business.
| How it Works
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