Community-Managed Loan Funds: Which Ones Work?
Government and donor projects that deliver microfinance—that is, credit and other financial services for poor and low-income people—usually involve microfinance institutions (MFIs) with professional staff. However, an increasing minority of microfinance projects rely instead on community-managed loan funds (CMLFs). In CMLFs, credit to the members of a small group is managed by the members themselves, with no professional management or supervision of the approval, disbursement, and collection of loans. These funds are referred to by a variety of names, including revolving funds, self-managed village banks, accumulating savings and credit associations (ASCAs), and community-based finance.
This Focus Note presents conclusions from a performance review of dozens of CMLF projects established or supported by donors and international nongovernment organizations (NGOs) over the past 15 years. It turns out that success is strongly linked to the source of funding for the loans group members receive.