Supporting Community-Managed Loan Funds

01 May 2006

Donors support many community-managed loan funds (CMLFs) often designed as components of larger projects. Unlike microfinance institutions (MFIs) with professional staff, CMLFs rely on group members themselves to manage the funds. CMLFs can be attractive alternatives for areas and populations that are too expensive for formal MFIs to reach.

The performance of CMLFs varies greatly by model. Externally funded groups almost always decapitalize and collapse due to poor repayment. Savings-based groups generally have better results. Since these groups lend their own savings, the incentives to repay loans are greater and repayment rates are usually much higher.