The strength of microcredit is avoiding repayment problems in the first place. The system is designed in such a way that risks are mitigated throughout the process. Key elements from some of the most effective organizations include:
- Selecting clients that are investing in a business, not used for personal consumption
- Assessing the clients capacity to take on a loan
- Assuring clients are committed to the program and understand the expectations of them
- Repaying loans frequently, even weekly over a longer period of time making payments small
- Lending in peer groups that can act as a safety net in times of struggle
- Refinancing loans when microentrepreneurs continue to struggle
During our due diligence phase of selection a new MFI partner, WPF will review these as well as all policies of a potential WPF grant recipient to make sure their policies are acceptable. However, we are not in the MFI incubator or improvement business; i.e. our mission is to get business development funds into the hands of the very poor. We look for MFIs who have a proven track record for doing just that. We have staff to monitor and evaluate how well our grants funds are spent, but no staff for MFI training development.