Making microfinance meaningful – “the triple bottom line” approach in South Africa

Advocates of microfinance proclaim it as the most successful strategy for poverty alleviation. However, in reality the very poorest members of the microfinance group often drop out of the programmes. As most programmes put emphasis on the financial performance of the clients, the poorest members - who cannot afford to repay loans – get excluded. Microfinance organisations (MFOs) can help alleviate poverty only when their approach takes into account the social performance of their clients.

Research from the Institute of Development Studies describes the innovative work of Small Enterprise Foundation (SEF), an MFO working with rural women in the poverty-stricken Limpopo Province of South Africa. Adopting the group-based lending strategy of Bangladesh’s Grameen Bank, SEF is committed to a ‘triple bottom line’ in poverty alleviation – expanding services to include the very poor, enabling them to realise their potential and fostering financially self-sufficient micro-enterprises. The article explains how SEF has developed a poverty-focused culture using both impact and financial information to monitor and manage performance and to achieve its triple-bottom line objective. Two SEF facilitated programmes are described: the Microcredit Programme (MCP) and the Tshomisano Credit Programme (TCP).

Ninety eight per cent of SEF’s clients are female, typically street sellers of fruits and vegetables, new or used clothing, running small convenience shops or dressmaking. MCP focuses on existing, but generally marginal, micro-enterprises and provides them with loans. But, MCP failed to reach the very poor. Membership of better-off members served as an active deterrent for the very poor. The more fortunate were less likely to accept the risk of guaranteeing the re-payment of a poorer person’s loan.

In response, TCP was established to target the poorest women in each village. Using a participatory wealth ranking method, communities themselves identify the poorest members and those in greatest need of credit. As many potential TCP members doubt their ability to run a business SEF loan officers spend time boosting their confidence and explaining to them about the principles of a business. Constrained by limited resources from giving too much of their time, the loan officers stress the importance of experiential learning and facilitation. Members are encouraged to share experiences and learn from and motivate each other. Skills related to business planning, administration, problem solving and evaluation are exchanged between members with regular guidance from the loan officers thereby fostering the growth of the very poorest members.

The success of the approach however depends on some key features that have been incorporated into SEF’s impact management system:

• strong emphasis on the participation of field staff and clients in the entire process to enable them to assess and analyse their own progress
• indicators to analyse impact of the programme in terms of its operation, socio-economic profile of members and business performance of clients which also helps in alerting SEF staff and the self-help groups to problems such as default or drop-out
• linking social and financial performance for each group by monitoring both client attendance at meetings and savings, to provide an early warning of the difficulties before they manifest themselves as financial problems
• regular performance reports to determine incentive bonuses, to rank all loan offices and branch managers, to praise high performers and encourage or discipline others.

The SEF experience offers useful lessons to other MFOs that face similar challenges of keeping down costs, serving scattered rural populations and building high-quality management information systems. Key suggestions to be considered are:

• creation of an institutional culture of learning and improvement to meet client needs
• integration of impact-monitoring with daily activities
• encouraging loan officers to be effective communicators and managers
• monitoring loan officer performance against targets
• monitoring the impact of new policies and procedures.

Source(s):
‘Refining performance assessment systems to serve sustainability, poverty outreach and impact goals: the case of the Small Enterprise Foundation in South Africa’ by Kate Roper, IDS Bulletin, Vol 34 no 4, October 2003, pp 76-84 Full document.

Funded by: Small Enterprise Foundation

id21 Research Highlight: 17 June 2004

Further Information:
Kate Roper
Small Enterprise Foundation
PO Box 212
Tzaneen 0850
South Africa

Tel: 27-15-307-5837
Fax: 27-15-307-2977
Contact the contributor: kate@silvermist.com

Contact the contributor: sef@pixie.co.za

Small Enterprise Foundation, South Africa

Other related links:
'Poverty and gender: the limits of microfinance'

'Self-help groups in India: Taking microfinance beyond just money'

'Microfinance: a weapon of mass empowerment for the unbankable?'

'Microcredit: killer weapon in the fight against poverty?'

'Credit and control: does microfinance lead to women’s empowerment?'

Grameen - Banking for the poor in Bangladesh