Supporting Community-managed Loan Funds

This short brief from CGAP explains:

• What Community Managed Loan Funds (CMLFs) are;
• The advantages and disadvantages of the various CMFL models;
• The challenges that CMFL donors and funders face;
• The ways in which these obstacles can be overcome.

The presentation discusses:

• The three types of CMFLs - those that are externally funded, those that are savings based, and those that make up Self-Help Groups (SHGs);
• The advantages that stable and reliable CMFLs offer, including extending rural and poverty outreach, increased flexibility, the ability to offer savings, and general empowerment and community development;
• The numerous challenges CMFLs face, including external capital distortions, weak and unprofessional management and recordkeeping, inadequate training and support, and power inequalities that can lead to some members of the group exploiting others;
• Strategies that donors can employ to make CMFLs work well, including abandoning up-front external funding, linking with formal banks, additional technical support, performance reporting and more rigorous tracking.

The brief provides an introduction to the main issues surrounding CMFL models. The final section outlines recommendations for donors who are working with CMFLs. It provides:

• Some insights on confronting the problems that are endemic to this empowering form of extending financing;
• Specifically, the much needed role that donors can play in actively monitoring CMFLs and providing them with the training and support to run their operations more efficiently and accurately.