The Top Up Problem - Weeks 21 -22: 10th - 21st November 2009

Visit from Africa / Middle East Office

On the 10th - 14th November we were fortunate to have a visitor from Habitat for Humanity International's Africa / Middle East Area Office. Grace Sebageni, Housing Microfinance Coordinator for Habitat's work in Africa and the Middle East, made her first visit to the MAKAZI BORA program. She reviewed our work and conducted field visits to clients with two of the credit officers from the Mbagala Branch. Her visit was primarily an introductory visit, but we will be working with her closely in the future as we work in any needed revisions to the MAKAZI BORA program and product in view of scaling up our services next year and working towards achieving sustainability.

Low Number of Loan Disbursements:

Loans were disbursed during on 12th November, but two clients who had been approved for disbursement had travelled and have not yet received their loans. On the 21st, the Credit Committee approved an additional 21 loans, which are scheduled to be disbursed on 26th November. For the month of November, it appears that we will disburse less than 40 MAKAZI BORA home improvement loans. This is disappointing, because we had hoped and targeted to be disbursing approximately 50 loans per month by November. One challenge was the loss of a credit officer who resigned back in August, but some of the portfolios of the existing credit officers continue to show slower growth than expected. An additional credit officer will likely be needed to reach our annual target of 510 loans disbursed for the pilot period prior to seeking additional captial to scale up the program. We also continue to undertake promotion in newly added wards such as Makangarawe.

The Top Up Problem

Although we continue to be cautious about giving any glowing reports on portfolio health this early in the MAKAZI BORA pilot, so far repayment has been good. Some clients miss their payment, but then pay within a few days and pay a late penalty. So far, we have not had a client go an entire month without making any payment. The few problems we have so far are primarily due to partial payments, which result in the client still being considered late.

Partial payments can be for a number of reasons. Sometimes the clients rounds off the payment and forgets a few hundred shillings. In other cases the client miscalculates the late penalty (1% of total instalment per day late) when paying late. Clients pay directly to our bank account and bring the deposit slip to the office. This reduces the handling of cash and the risk of fraud, embezzlement or theft. The problem, however, comes when the client brings a deposit slip that is not a complete payment and must "top up" their payment. To date, we have been requiring them to return to the bank and make the additional deposit and return with the slip. Obviously, this is a hassle and cost to the client, especially given that the lines at the bank can be VERY long and it is sometimes to top up an amount of the equivalent of less than one US dollar. Not surprisingly, some clients leave the office to go to the bank and deposit their "top up" but don't return to the office on the same day. This leaves us with a partial payment that requires follow-up and added time and costs.

To mitigate this problem, we are considering accepting cash payments of "top ups" up to a small amount at the office and then banking them daily with registration fees collected. We have been trying to avoid cash payment as much as possible for internal control purposes, so it is still under consideration as we try to determine where the root of the problem is coming from and how to address it effectively.