Richard Rosenberg

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 non-government 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.