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Our Experience Starting a Rotary Global Grant Microfinance Project
Category: Microcredit | By RAGM, 10-May-2013 | Viewed 3712  Comments 0
Michael Rosen is a member of the Rotary Club of Bainbridge Island and the lead member of the Grant Committee for Global Grant-funded Guatemala microcredit project.

April, 2013

In October 2012, the first of 11 new micro-finance "lending groups" was created in Guatemala as a result of the Rotary Foundation's Global Grant 25636. These 12-person groups of women are selected for membership to receive loans of up to 2500 Guatemalan Quetzals to fund small businesses. Their loans are repaid within one year making funds available for subsequent loans. This article describes that project briefly in terms of its on-the-ground impact and describes some of the key steps we took in setting up the project.

Micro-finance to Guatemalan Women

Irlinda (right) uses the Q2500 loan to finance her livestock business. For 200Q she can purchase a small pig. After four or so months, she can sell it for between 600Q - 800Q. The Author (left) reviewed her repayment documents (in hand)
Solidarity and Development ('S&D' hereafter) is a small (three-person staff + three volunteer directors) microfinance institution (MFI) that has been providing microfinance services in western Guatemala for the past decade. Its beneficiaries are women who are poor by rich-world standards (earning around $1560 to $3888 per annum) but are not destitute. They support their families by modest retail, livestock or fabric-craft businesses. To fund these businesses, S&D makes loans of up to 2500 Quetzals (about U$ 330) to be repaid in monthly installments over one year. Funds are typically used to buy additional stock (for resale) or livestock feed. Fundamental to the success of this program is that the women - usually well known to each other - are organized into "lending groups" that meet monthly to make repayments, make savings contributions and, frequently, make additional loans from the savings contributions.

The project team's experience is that careful group selection and orientation plus a strong group dynamic fosters a sense of mutual accountability: the result is a remarkably low default rate. This model has been in place since 2006 and currently serves approximately 450 borrowers. Since then there have been only four cases of "near-default", each occasioned by the death of the borrower. In three of those cases, the families took over responsibility for the loans. In the fourth case, the lending group paid a third, the family a third and S&D absorbed the cost of the remaining third.

The Savings component is important. At each monthly meeting, in addition to paying principal and interest on her loan from S&D, a borrower is required to make a minimum contribution to the Savings fund. (Experienced savers often make more than a minimum contribution.) The money thus collected ismade available to other members of the group as loans - with the interest rate set by the group. At the end of the one-year repayment period, interest thus collected is returned proportionately to each saver.

Monthly lending group meeting. Treasurer (center) records repayments from borrower/attendees. S&D Field Officer (man on left) available to facilitate dispute resolution. S&D volunteer director (right) looks on.
The current project injected approximately U$ 45,000 as loan capital enabling S&D to screen and start up 11 new lending groups servicing 138 new businesses. To allow for adequate group origination and servicing, the grant allocated a modest amount to the first months' program delivery costs, enabling the organization to take on and train a new Field Officer. Additionally, approximately $10,000 was allocated for training: a pilot program, only now being launched to provide rudimentary business and life skills training to the members of the lending groups.

Our Experience Starting a Global Grant Microfinance Project

Rotarians contemplating similar efforts may wonder about the mechanics of setting up such a project. In general, setting up is all about defining clearly what the project is and what the associated roles and responsibilities are. Once the project has started, day-to-day execution is handled by the MFI, i.e. S&D. While the Rotarian role can be significant in the fund-raising, organizational, project development, and grant-writing phases, once the project has begun this role is largely one of monitoring, funds management and oversight. Overall, it is a complex organizational effort rife with opportunities for miscommunication which makes critical a clear understanding of and commitment to roles and responsibilities.

Multi-organization collaboration

This project is active collaboration between three Rotary clubs, the microfinance institution and The Rotary Foundation. The RC of Quetzaltenango, Guatemala ("RC Xela") is the host country club. The international lead club is RC of Bainbridge Island, WA and the backup international club is RC of Victoria Harbourside, Canada. Other Canadian clubs around Victoria BC also contributed to funding this effort.

Overall Time Line

Collaborations between S&D and the three Rotary Clubs began with a Foundation Humanitarian Matching Grant in 2008 and another in 2010. Informal preparations for this Global Grant project began in early 2011, clarifying the partnership and funding commitments. Prior to preparing the grant application, S&D was asked to propose a clear scope of work, to which the Rotary Clubs agreed after slight modifications, emphasizing improved evaluation and training components. The lead international partner, RC Bainbridge, drafted a Memorandum of Understanding, setting forth the RCs' and S&D's roles and responsibilities. S&D prepared a detailed project budget and a preliminary implementation plan, which the RC's reviewed, sought some modifications to, and approved. Based on this, a Global Grant Proposal was submitted in the Spring by the lead international partner and approved by TRF. (The proposal is no longer required by TRF).

The Memorandum of Understanding, setting forth the RCs' and S&D's roles and responsibilities was signed by S&D and the Rotary Clubs in July. With these documents as a framework, in approximately 2 months we finalized the project planning and addressed the questions in the Grant Application which was submitted in September. TRF had questions regarding the project's plans for monitoring/evaluation and S&D's financial stability. Unlike other grants, the Foundation requires a microfinance application 'supplement' to the grant application and some supplementary information about the qualifications, and legal standing, of the MFI. Resolving these questions took about six months and the Grant was approved by TRF in February of 2012.

Monthly lending group meeting. Treasurer (center) records repayments from borrower/attendees. S&D Field Officer (man on left) available to facilitate dispute resolution. S&D volunteer director (right) looks on.
Forwarding funds from the three Rotary Clubs and two Districts took another six or so months and TRF released funds to RC Xela in August. Three months later, the project began as RC Xela released funds to S&D. These lengthy delays are not typical, but they underscore that time must be allowed for TRF processing, for additional information requests, for submitting club funds to the Foundation, for obtaining District commitments, and for arranging TRF's fund payouts to a designated club.

Project Inception

S&D and the RC Xela RC, as well as the two international partner clubs) have long history of working closely together. The first two Matching Grant projects were given to S&D for the purpose of providing well-managed microfinance services to dreadfully underserved areas. Those successes gave rise to the current effort to expand the number of people served and to experiment with related training (whichhas been delayed and is not discussed here). The Rotary Clubs remain attracted to S&D because of its proven diligence in funds stewardship, its low loan interest rates relative to other MFI's operating in the area, its focus on under-served areas, its stress on group responsibility for loan repayments, its emphasis on building a savings habit, and its remarkably low default rate.

Memorandum of Understanding

An early milestone in our effort was the signing of a Memorandum of Understanding between the three RCs and S&D. This is required for TRF Global Grants and formalized roles and responsibilities of the participants. Throughout the planning phase, it provided a framework for the development of both our application for a TRF Global Grant and for the implementation plan that spelled out how and when the project funds would be expended. That is to say, our MOU is the first place we look when questions about who did we say would do something about that come up.

This was begun in the Spring and signed in July of 2011, three months before we submitted the Grant Application to TRF.

Grant Application

The Rotary Foundation Global Grant Application, TRF's Terms and Conditions, and the Grant Award letter comprise the formal agreement between our Clubs which are driving the project and the Foundation which is contributing Grant money. It ensures that the project is aligned with TRF areas of focus and includes meaningful Rotarian involvement. It articulates specifics about the project: how much the project will cost, what the outcomes are and which Rotarians from which clubs will be responsible. Much of this is drawn from the MOU described above.

Additional Foundation emphases, in project design and the grant application, are "Sustainability and Measurability." Sustainability, notably how the outcomes of the project will be sustained after the project has been completed, must be explained. Additionally, the outcomes of the project must be evaluated: the application must explain what the evaluation plan is and what measurements will be utilized. These new emphases can be challenging and merit careful planning up front: applications must explain how they are to be addressed, and the final grant report include a series of questions requiring precise responses.

For example, one of our enumerated objectives was that the project seeks to empower beneficiaries to "create greater personal saving and money management skills." Documentation associated with S&D's Savings program will be used to measure this.

In particular, the Budget is specified at a fairly high level (one line item for "Lending Capital", one for new program support, hiring and training a new Field Officer). These numbers obviously come from discussions with S&D - who will be doing the lending and paying the salary and point to the need for a more detailed plan. This is where S&D's Implementation Plan comes in.
Implementation Plan

Our team stresses the importance of a carefully developed project budget, and detailed implementation plan, before a grant application is prepared. S&D drafted the preliminary project implementation planand a firm project budget early in the planning process . However, a more detailed schedule of project activities was done as the Grant funds were being disbursed. and subsequently revised on a quarterly basis. This document (Excel spreadsheet) runs to 10 pages / 140 rows and addresses things like when potential members of the groups were to be screened, monthly salary payments and when evaluation surveys were to be conducted. Revisions accommodate changes in the number of groups and delays in the training program.

Project Begins

Following approval of the Global Grant application , the three clubs must forward funds to TRF, and two districts release their funds to TRF. Clubs should plan in order to do this expeditiously. After receipt of them, TRF will wire money to one of the clubs, designated by the partners to manage, account for, and report on those funds. TRF and the Club's District established specific funding accountability mechanisms, and requires a club financial management plan for this.

Current Status and Looking Foreword

The project is anticipated to run about 21 months, from the date that Foundation funds were distributed, thus ending before April 2014. The initial tranche of lending began in October of 2012. We've received two quarterly reports from S&D and spot checked paperwork. We are satisfied repayments are being made. TRF requires an (interim) report on the project one year from their disbursement date - in August 2013. The grant may only be closed out after all funds have been lent out and repaid and lent out again. At this point, the grant closeout report, including a project evaluation and full accounting for funds, will be required. We are currently planning for another project which we hope will be funded about that time.
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