Paper

Village Banking Dynamics: Evidence From Seven Programs

Do client loans grow or stagnate over time?

Five nonprofit organizations, all of whom are members of the SEEP Poverty Lending Working Group, participated in the study: CARE, FINCA, Freedom from Hunger, Women's Opportunity Fund and World Relief.

The study explores five major factors found to affect loan-size growth:

  • Loan policies and practices;
  • Village bank location;
  • Savings policies;
  • Membership participation rates;
  • Internal account policies.

The experience of these seven programmes indicates that village banking clients are able to absorb loans of increasing size. In general, average loan sizes, especially for sustained borrowers, do not stagnate at least for the first two to four years. When trends in average total loans (external plus internal loans) are considered, six of the seven programs exhibit patterns of variable but steady growth. Although loan growth rates were slower than the 500% projected by the original Hatch model, average loan sizes do increase on average by 280% over an approximately three-year period. Without comparable empirical data, it is not possible to say whether this represents relatively high or low growth rates relative to other credit methodologies.

Client profiles including low-income women does not lend itself to rapid loan growth. Instead this profile shows steady but more modest loan increases.

  • This reality is a challenge for NGOs and financial institutions that have made this type of client their market niche;
  • Timeframes for expected self-sufficiency may be skewed given client demand for loans;
  • An examination of each programs? financial sustainability performance on the relationship to loan-size growth rates should be considered for further review.

Small loans serving the very poor, especially women in rural areas was the original motivation behind the classic Hatch village bank model. Over a decade later, the practice shows that for the most part this incentive still dominates the field. As the pressures for sustainability increase, so will the challenges to innovate and evolve village bank programs to serve this clientele with programs that are financially and institutionally sustainable.

[Adapted from author]

About this Publication

By Painter, J. & MkNelly, B.
Published