How do you choose who gets the loan?

The short answer is that we don't! Our local partners with their teams of expert staff manage all day-to-day operations, including loan approval. In credit-led programmes, the Loan Officers assess each loan application carefully. They support clients through the business planning process and visit them in their homes and businesses. Because of the Group guarantee system, each member of the group effectively has to approve the loans to fellow-members too, so it's a very 'bottom-up' and democratic process. This is even more explicit in the savings-led programmes in Morogorro, Tanzania and Kenya. Here, the loan capital itself is owned by the group and they are solely responsible for deciding which of their own members takes a loan next and on what terms. Local staff guide and facilitate this process. 

Of course, all of our partners exist to fight poverty and transform lives so we seek to ensure that your donations are used to deliver savings, loans and training to our target client-base, the 'economically active poor'. Thanks to the introduction of the Progress out of Poverty Index, we can now begin measuring more objectively how poor our clients are - both before they join our programme and after they have been with us for several loan cycles. 

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How do you assess the difference you are making?

We measure financial and social performance, using both quantitative and qualitative indicators. Financial indicators and outputs are of course much easier to track; we measure number of clients, number and value of loans made (cumulatively and the current portfolio), value of savings, portfolio at risk, repayment rates, average loan sizes and operational sustainability, to name a few. We also receive regular income and expenditure statements from our partners. These chart the success of our partners themselves, as microfinance institutions.

Our real objective is to make a difference to our clients, the people who use our services. Of course we need to make sure we work with strong partners so that our partners can serve the clients well; that's why we track the performance of our partners carefully and regularly. But local Boards of trustees and directors in the countries themselves take responsibility for the growth of our local partners as institutions too, so we are increasingly focusing on measuring the difference we are making to the lives of our clients. The buzzword in the microfinance sector for this is social performance management - measuring how far we are meeting our social mission, to fight poverty and transform lives.

It's difficult to assess how far our work is transforming lives but we have recently introduced the Progress out of Poverty Index (PPI) which should help us assess more objectively

  1. How poor our clients are
  2. Whether they progress out of poverty over the course of their membership of our programme.

You can read more about the PPI measurement on their website, but in brief, it's a set of 10 questions which are specific to each country we work in. Each question (for example: 'What is your roof made from?') carries a score which tells you how far above or below the national poverty line that client is likely to be. Our local partners are now using these 10 questions for both existing and new clients. We ask the same clients the same questions 12 months on and see how their scores have changed. Of course, we can't prove a direct correlation between our programmes and any progress out of poverty which our clients make, but this is the first time that Five Talents has been able to use an objective measure of social impact so we're excited by it. The PPI was pioneered by the Grameen Foundation and is fast becoming the industry-standard. We support the SMART campaign's Client Protection Principles too although our partners have not yet applied for SMART certification.

Another vital way of measuring the difference we are making is by meeting the clients and hearing their stories. The economists amongst you and those who like hard data might feel uncomfortable with anecdotes, but when a client tells you in their own words that microfinance made a difference in their lives and now they feel they themselves to be successful - well, who are we to argue?

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How Christian are you?

Five Talents was founded on Christian principles. This leads us to honour and serve all peoples – irrespective of tribe or religion. The global network of Anglican churches provides an excellent springboard or supervisor for microfinance programmes, being respectful of local culture and trusted by their communities. In addition, the church is often present in rural and challenging areas of the world neglected by other organisations.

We don’t have a list of values framed on the wall of our office, but those who encounter us, see that we strive to be clear, transparent, excellent and with a care for the whole person, whether staff member, volunteer or client.

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How are local partners chosen?

We identify local partners after a rigorous assessment process. The criteria include vision, needs assessment, market competition, delivery aspects, local church links, leadership and governance. We are often asked to establish work in new countries, but establishing new ventures is very expensive and we are currently focusing on building up our existing partners.

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what interest rate do you charge?

Interest rates vary across programmes but are typically between 1% - 3% per month on a flat or declining balance basis. Loans are normally repaid over a term of 4-6 months. Interest is charged in order to cover the client training, mentoring, loan defaults, and local administration of the programme, in order that as far as possible, each programme can be self-sustaining. These rates may seem high but interest and inflation rates are generally high in developing countries. Rates and fees are set by the local team in the country concerned to reflect local conditions.

Commercial banks charge similar or higher fees (but of course these products are inaccessible for our clients) and street moneylenders (loan sharks) charge much higher rates and have no policy of forgiveness. Neither Five Talents nor its partners are motivated by profit making, and are not trying to earn money for shareholders or investors. Five Talents is a member of Microfinance Transparency which promotes full disclosure to clients and donors on the charges, fees and rates accompanying our services. 

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what are the repayment rates?

As of mid-2015, the repayment range across the current programmes is between 90-100%. The rate can go up and down over time. Where loans are repaid late, the Loan Officers continue to follow them up, until they are written off as a bad debt (see below - "What happens when a client can't pay back his/her loan"). A critical factor in achieving high repayment rates is wise group selection, training, responsible lending and follow-up by the partner's Loan Officers.

Some argue that we should aim for 100% repayment rate, but we always anticipate some defaulters as a consequence of working with riskier clients and funding start-ups in remote and excluded areas. It could even be argued that 100% repayment rate would suggest some mission drift! However, we aim for 90%+ repayment rates as this is vital for the credibility and sustainability of our programmes. The most recent calculation of average repayment rates was 97%.

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what happens if a client can't repay?

It depends on the reason. One advantage of our model of microfinance with its emphasis on training and mentoring is that our local staff really know the clients. They visit them at their homes and businesses as well as at the regular group meetings, so they know when a client is struggling for genuinely unavoidable reasons - a death in the family, sickness, a tragedy like a fire, for example. Equally, they know when a client's business is failing because (for example), the client is drinking the profits. Our Loan Officers are all trained to respond to late repayments on a case by case basis, with 'the heart of a pastor, the mind of a banker.' Where clients are late in repaying a loan due to the client's own neglect, the Loan Officer and the other group members (who are jointly responsible for the defaulter's debt) will strongly encourage repayment. Fines for late payments are applied and assets or savings may be used to offset the debt. Where the client has suffered a personal tragedy, however, the loan may be written off - and in those circumstances, the other members of the group do not have to pay up on behalf of the defaulter either.

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how big are the loans?

The biggest loans are typically around £1,000 per person. The smallest are £25 per person. The average loan per person across Five Talents' programmes is around £90. In some of the Five Talents programmes the loan itself is made to a group of entrepreneurs who each take their share of the loan and who all co-guarantee the repayment schedule. In other programmes, the loan is made to the individual but he/she is accountable to the wider group for repayment and recycling (other people are waiting to use the money).

The groups can vary in size (in some programmes 5 people, in others 50 people). Due to cost of living differences, a small loan of £25 is actually a significant cash-injection to a small business and can yield an impressive rate of return to the business owner. Loan sizes grow with subsequent loan cycles.

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why do you emphasise savings as well as loans?

We are keen to encourage the discipline of saving and to avoid reliance on credit. Savings can be used to pay for emergency health care, planned school fees, or business investments. Savings can provide a safety net and help overcome “shocks”. Regular saving of a small amount can soon build up to a useful lump sum. Our members want a safe place to keep their savings, away from the home, and our programmes provide what is often the first safe place for people to save. Indeed, we now have many more members in our savings schemes than our loan schemes.

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Microfinance terminology

Yes! We have an entire glossary of terms to explain some of the jargon that gets thrown around in the microfinance sphere.

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