SEND GHANA A STUDY OF SYNERGIES: CREDIT UNIONS AND MICROFINANCE IN NORTHERN GHANA S EASTERN CORRIDOR

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1 SEND GHANA A STUDY OF SYNERGIES: CREDIT UNIONS AND MICROFINANCE IN NORTHERN GHANA S EASTERN CORRIDOR Submitted to: By: Siapha Kamara Andres Gouldsborough Chief Executive Officer Research Officer SEND Foundation of West Africa Canadian Co-operative Association G11 Regimanuel Estates 275 Bank Street, Suite 400 Nungua Barrier, Sakumono Ottawa, Ontario Accra, Ghana Canada, K2P 2L6 Montreal, October 2008

2 TABLE OF CONTENTS INTRODUCTION 1 1. COMING TOGETHER: COMMUNITY COOPERATIVE CREDIT UNIONS The Credit Union Concept Community Cooperative Credit Unions: From Need to Reality Mission, Governance and Management Becoming a CCCU Member Savings and Loans 8 2. CCCU AND MICROFINANCE: A HYBRID MODEL SEND s Microfinance Program: Savings and Credit with Education Credit Unions with Microfinancial Orientation CCCU AND MICROFINANCE: A SYNERGIC RELATIONSHIP Microfinance is Strengthening Credit Unions Supporting their Mission and Deepening their Outreach Marketing their Services and Enhancing their Image Boosting their Membership Reducing Risk and Promoting Smooth Cash Flow Increasing Profits Credit Unions are Strengthening Microfinance Providing a Reliable Platform for Effective Service Delivery Promoting Economies of Scope and Cost Effectiveness Providing Stable and Sustainable Financing Offering Incentives through Graduation CCCU AND MICROFINANCE: IMPACTS OF A VIRTUOUS CYCLE Spreading the Benefits: Impacts on MF Beneficiaries Impacts on Enterprises Impacts on Women Impacts on Households Deepening the Benefits: Impacts on Graduated MF Beneficiaries Enterprise Sales and Assets Financial Security and Empowerment Household Welfare Consolidating the Benefits: Impacts on CU Members Growth and Maturity Sustainability Accessing Reliable and Reasonable Savings and Lending Products MOVING FORWARD: TOWARDS FULL INTEGRATION AND EXPANSION Microfinance Expansion and Credit Union Satellite Operations Establishing and Consolidating Transitional Products Strengthening the Education Component Monitoring, Evaluation and Information Integration and Standardization 40

3 LIST OF TABLES 1. COMING TOGETHER: COMMUNITY COOPERATIVE CREDIT UNIONS 2 Table 1.1: Community Cooperative Credit Union s Staff as of May, Table 1.2: Becoming a CCCU Member in the Eastern Corridor (GH ) 7 3. CCCU AND MICROFINANCE: A SYNERGIC RELATIONSHIP 15 Table 3.1: CCCU Membership and Gender 16 Table 3.2: Microfinance Graduates and Potential Graduates in the Eastern Corridor (May, 2008) 17 Table 3.3: Yield on CCCU Investments 18 Table 3.4: Total Savings of MF Beneficiaries and Graduates deposited in their CCCUs (May, 2008) 19 Table 3.5: Yield on Loan Portfolio between June 2007 and May 2008 ( ) 19 Table 3.6: Percentage of CCCU Resources Invested in Microfinance as of May, Table 3.7: Investment in Microfinance in the Eastern Corridor ( ) 22 Table 3.8: Number of Solidarity Groups Benefiting from the MF Program in the EC 23 Table 3.9: Number of Women Benefiting from the MF Program in the EC CCCU AND MICROFINANCE: IMPACTS OF A VIRTUOUS CYCLE 24 Table 4.1: Main Indicators of Microenterprise Performance 25 Table 4.2: Main Indicators of Women s Financial Security 26 Table 4.3: Main Indicators of Women s Empowerment 26 Table 4.4: Main Indicators of Household Welfare 27 Table 4.5: Main Financial Security Indicators 30 Table 4.6: Decision Personal Income Use 31 Table 4.7: Decision Household Income Use 31 Table 4.8: Main Household Welfare Indicators 32 Table 4.9: Percentage of Women purchasing Assets for their Household by Asset Quality 33 Table 4.10: CCCU Membership 34 Table 4.11: CCCU Assets and Share Capital as of May, 2008 ( ) 34 Table 4.12: CCCU Share Capital Growth ( ) 35 Table 4.13: CCCU Income and Expenditures from June 2007 to May 2008 ( ) 35 Table 4.14: CCCU Cost Recovery (June 2007-May 2008) 35 Table 4.15: CCCU Member Savings as of May 2008 ( ) 36 Table 4.16: CCCU Borrowers as of May Table 4.17: CCCU Loan Portfolio as of May 2008 ( ) 37

4 LIST OF FIGURES 1. COMING TOGETHER: COMMUNITY COOPERATIVE CREDIT UNIONS 2 Figure 1.1: Northern Ghana s Eastern Corridor 2 3. CCCU AND MICROFINANCE: A SYNERGIC RELATIONSHIP 15 Figure 3.1: Investments of CCCUs in the Eastern Corridor CCCU AND MICROFINANCE: IMPACTS OF A VIRTUOUS CYCLE 24 Figure 4.1: Beneficiary and Control Group Enterprise Monthly Sales (GH ) 28 Figure 4.2: Percentage of Women purchasing Category 3 Assets for their Enterprise 29 Figure 4.3: Percentage of CU Graduates by Total Savings ( Savings Histogram) 30 Figure 4.4: Type of Household Contribution 32 Figure 4.5: Growth of CCCU Loan Portfolio between 2006 and 2008 ( ) 37

5 ACRONYMS AO BOD CCA CCCU CU CUA EC ECLSPP EGF FSC IGF LO MF SCA SG Account Officer Board of Directors Canadian Cooperative Association Community Cooperative Credit Union Credit Union Credit Union Association Eastern Corridor Eastern Corridor Livelihood Security Promotion Program Externally Generated Funds Food Security through Co-operation Internally Generated Funds Loan Officer Microfinance Savings and Credit Association Solidarity Group

6 EXECUTIVE SUMMARY As part of their strategy to promote livelihood security in northern Ghana s Eastern Corridor, SEND partnered with the Credit Union Association of Ghana to facilitate the creation of Community Cooperative Credit Unions. These community-based, memberowned and savings-led institutions finance their loan portfolios by mobilizing member savings and shares rather than using outside capital. To access the Credit Union s financial services you have to become a member, and to do so, you have to buy shares and save regularly. This posed a significant problem for the poorer, more vulnerable groups that did not have the necessary capital to become members. In response to this challenge, in 2004 SEND decided to pilot a Credit Union with Microfinancial Orientation model. The idea was simple: offer small-scale affordable microfinancial services to low income women so that they could improve their enterprise s performance and their household living standards, and at the same time build the necessary resources to subscribe to the traditional Credit Union system. The vision was that low-income entrepreneurs would build-up savings and capital through a solidarity-group microlending scheme, and eventually use these savings to purchase Credit Union shares (Graduate), becoming full members and therefore accessing larger, more affordable loans. After four years of program implementation, the integration of Microfinance in the Credit Union model has proven to work exceptionally well; this unique relationship has not only been mutually reinforcing, but also synergic. By adopting Microfinance as a product, Credit Unions boost their membership, improve the quality of their loan portfolio, deepen their outreach and increase their income. A Microfinance scheme on the other hand, when channeled through Credit Unions, increases its funding opportunities and number of beneficiaries, reduces operational inefficiencies and provides incentives for sound financial performance. One strengthens the other, and in doing so, their capacity to strengthen each other. The Credit Union-Microfinance integration is synergic because its final outcomes are greater than the sum of each of its parts. The positive impacts of this relationship on the welfare of Microfinance beneficiaries and Credit Union members are much more significant than if these initiatives were operating on their own. Such impacts can be understood at three levels: 1. A Microcredit scheme serving more women and effectively improving their livelihoods at the enterprise, individual and household level. 2. A Graduation mechanism giving Microfinance beneficiaries the opportunity to become Credit Union members, and in doing so, deepening the positive impacts of accessing financial services 3. Mature and sustainable Credit Unions effectively serving their traditional membership and contributing to their economic and social development.

7 Despite the great success of the Credit Union-Microfinance integration in the Eastern Corridor, there is still plenty of room for improvement and expansion. Four specific strategies are suggested for its further development. Fist of all, Community Cooperative Credit Unions should invest more of their Internally Generated Funds in Microfinance and start using the Microfinance platform to deliver traditional Credit Union products and services to remote communities. Secondly, transitional products, both for Microfinance beneficiaries and graduated women, should be designed and implemented in order to renovate interest in the program, promote product and service usage and smoothen the graduation process. The whole scheme s education component should be strengthened; not only the education campaigns on better business practices, health, nutrition and sanitation carried out by Microfinance Loan Officers, but also the mobilization campaigns geared towards increasing Credit Union awareness and membership. Finally, a stronger more synergic relationship between Microfinance and Credit Unions will require an effective external auditing and monitoring team, and the implementation of a comprehensive information system, one that includes not only current activity data, but also indicators and benchmarks that provide the necessary input for appropriate management decisions and effective overall monitoring and evaluation.

8 INTRODUCTION The general trend of the Credit Union movement across the globe is towards commercialization of its products and services in order to ensure institutional and financial independence, as well as long-term sustainability. Unfortunately, this trend is coupled with a movement away from serving the very poor; few Credit Unions consider serving poorer clients as a good business opportunity, and instead focus on a better-off clientele. In an attempt to deepen the outreach of the Community Cooperative Credit Unions in the Eastern Corridor without compromising their growth and sustainability, SEND Ghana facilitated the implementation of a hybrid model, a model based on the idea that Credit Unions can and should work with a microfinancial orientation. The first two chapters of this report justify the existence and explain the nature of this hybrid model; basically by exposing the logic behind the original idea and describing the implementation process and challenges. Chapter three is an in depth analysis of the relationship between the Credit Union model and solidarity-based Microfinance. It argues that in the Eastern Corridor such relationship has not only been mutually reinforcing but synergic. The chapter explores the nature of such synergy in detail, specifically the ways in which Credit Unions are strengthening the Microfinance scheme and vice versa. Chapter four explores the impacts that the hybrid model has had on Credit Union clients and Microfinance beneficiaries, particularly in terms of their enterprises economic performance, their individual empowerment and their families welfare. The last chapter summarizes the main findings of the study and presents a set of recommendations to effectively continue integrating Microfinance into the Credit Unions in the Eastern Corridor, and in doing so, multiplying the positive effects of the hybrid model in the target communities. 1

9 1. COMING TOGETHER: COMMUNITY COOPERATIVE CREDIT UNIONS The idea is to encourage people to come together and try and solve their problems collectively; the Union is a poverty alleviation strategy involving the active participation of the community (Habib Haruna, Bimbilla CCCU Manager) 1.1 The Credit Union Concept Credit Unions (CU) are democratic financial cooperatives owned and operated by their members. They exist to meet the financial needs of their membership, enhancing their opportunities for personal and professional growth. Some go beyond this objective and seek to additionally, directly foster social and economic development at the community level; development geared particularly towards the most vulnerable population. Members are typically united by a common bond, a strong affiliation such as working for the same company, going to the same place of worship or living in the same community. Regardless of their account size, members may run for the CU s board or participate in any of its committees; and, based on a one-member, one-vote structure, they have the power to direct Credit Union policy according to their needs. The CU approach is very simple; members rely on their own capital (pooled together) to increase their access to financial services and to, as a consequence, contribute to their and their community s economic development. Credit Unions offer a savings-first, selfsustainable approach; they finance their loan portfolios by mobilizing member savings and shares rather than using outside capital. Not only they provide access to financial services but, as not-for-profit cooperative institutions, CUs use excess earnings to offer members more affordable loans, a higher return on savings, lower fees or new products and services. 1.2 Community Cooperative Credit Unions: From Need to Reality The Eastern Corridor Livelihood Security Promotion Program (ECLSPP) was established by SEND Ghana in 2001 to promote, through a participatory and inclusive approach, livelihood security and equality of men and women in the resource-poor and conflictridden Eastern Corridor (EC) of Northern Ghana. Currently, the program focuses on food security, agricultural marketing, youth self-employment, rural commercial women and education on reproductive health, HIV-AIDS, gender, human rights and peace. The Program covers a significant area within the Northern Region: Tamale Municipality (Region s Capital), Salaga (East Gonja District), Kpandai (Kpandai District), Chamba and Bimbilla (Nanumba North District) and Kete Krachi and Banda (Krachi West District). Figure 1.1: Northern Ghana s Eastern Corridor 2

10 One of the projects within the ECLSPP strategy, the Food Security through Co-operation (FSC) project, was designed to promote the formation of farmer s cooperatives and assist them in the cultivation and commercialization of soybeans. The initiative, supported by the Canadian Cooperative Association (CCA), sought to provide farmers with an additional source of income and improve the nutrient and protein quality of their family s meals. During the implementation of this project, lack of access to reasonable credit for farming activities came out as one of the most pressing needs. In addition, enterprises of local artisans and women were also constrained due to their lack of access to financial services. Individual loans, based on a revolving fund concept, were given out by SEND to the artisans and women, but repayment left much to be desired. In light of this, the establishment of a community-based, member-owned and savings-led financial institution seemed to be the most appropriate strategy to address the absence of financial services and poor repayment patterns in these communities. As a result, SEND partnered with the Credit Union Association (CUA) of Ghana to facilitate the creation of Community Cooperative Credit Unions (CCCU) in the target area. The process leading to the establishment of these CCCUs was challenging but rewarding. First, feasibility studies were carried out to determine the viability of implementing such an idea. Then, SEND staff visited these communities and sensitized opinion leaders and the general population on the importance of having a community-based financial institution, and educated them on the CU concept and methodology. An interim Board 3

11 was established, made up of individuals representing different segment of the community (salaried workers, farmers, traders, women); and with the support of a group of volunteers, it started mobilizing members for the Union. The whole process was championed by SEND, not only through logistics and technical support but also by providing the necessary resources and funds (an office was rented in each community, furniture and stationary were purchased and stipends were given to volunteers). Finally, after an intense mobilization and recruitment campaign, in July 2002 the first CCCU started operations in Kpandai, followed months later by one in Bimbilla, and one year later by one in Kete Krachi. Growth has been gradual, both, in terms of membership and services offered. Kete Krachi s CCCU for example, started out with 9 members, one year later they were 96; as of May 2008 the Union had more than fourteen hundred members. Moreover, all CCCUs started out only as savings institutions, but as they consolidated themselves in the community, they started expanding their services: individual and group loans, loan protection plans, interest on savings, agricultural loans and educational savings. Kete Krachi Community Cooperative Credit Union In 2005, SEND s Microfinance (MF) Program, funded entirely with external resources, starts to disburse loans and collect repayments through the local CCCUs. In mid 2006 all Unions decide to invest in the program, using their member s savings (Internally Generated Funds-IGF). The end of 2007 and beginning of 2008 represent also an important period for the development of CCCUs in the EC; with the support of SEND Ghana, all Unions commissioned brand new buildings for their offices and, in an effort to professionalize their services, hired qualified full time managers to run their daily operations and pursue future growth. 4

12 Commissioning of the Kpandai CCCU As CCCUs in Bimbilla, Kpandai and Kete Krachi were strengthened, others were established in other areas. In 2004 Tamale s CCCU started operations, in June 2005 it was Banda s turn, and three months later Chamba s CCCU began offering saving opportunities to its members. However, up to this day, Banda s Union is mentored and supervised by Kpandai s CCCU manager and Chamba s office is overseen by the staff in Bimbilla. Since their inception, these relatively new CCCUs have grown and matured significantly, except for Banda s Union, which is clearly lagging in most performance indicators. 1.3 Mission, Governance and Management The objective of the CCCUs in the Eastern Corridor, as portrayed by their Mission statement, is to improve the socio-economic well-being of especially women and children in [their] target communities by offering affordable and client-friendly loan products and savings opportunities. Their mission goes beyond exclusively meeting the financial needs of members, including the broader community and particularly the most vulnerable and marginalized population. All CCCUs are owned and controlled by their members. Through their annual meeting they have the final decision in the operations of the Union; each member, irrespective of his total savings, has one vote during this meeting. Since it is not possible for all members to meet and decide on every question which concerns the CCCU, their authority is delegated to a committee, the Board of Directors (BOD). The Board is elected every two years by CU members during the Annual General Meeting. Once elected to the BOD, members choose from among themselves a chairperson, vice chair, secretary and 5

13 treasurer. The Board meets usually once a month and generally oversees their CCCU s activities and performance Three other committees support the BOD; the Loan committee, in charge of approving, rejecting or modifying loan applications; the Supervisory committee, responsible for verifying and evaluating the work of the officers who have been elected/hired to administer the society (internal auditing); and the Education committee, in charge of informing members and potential members about CU membership and its benefits. These committees are also elected by Union members, except the Education committee which is appointed by the Board. They are usually made up by three people and are supposed to meet on a weekly basis. As with Board members, most committee volunteers are salaried workers; mainly teachers and health workers, followed by local entrepreneurs. Even though there is female representation in all CCCU s Boards and committees across the EC, the number of women actively participating in them could and should be increased. Within the CCCU s in the Eastern Corridor, Loan committees seem to be the most functional and consistent. They meet on a regular basis, usually once a week. In Chamba, they meet every time the Accounts Officer needs them, and they even visit loan applicants to their homes and business. The performance of the Education committees varies among communities. In Kpandai for example, they target and visit different communities every month, they are well organized and regularly submit a monthly action plan to their Board and Manager; but in Tamale on the other hand, this committee is simply not functional. All CCCUs claimed that the major constraint for the Education committee was the lack of funding to carry out the educational campaigns. However, across all Unions it is the Supervisory committee that has the most problems. In many Unions it is simply not operational; in others, its members lack the capacity and technical know-how to effectively audit the CU s operations. As Kpandai s Manager explains, they [the Supervisory committee] need to be more regular with their visits, and need people with technical knowledge, particularly accounting; they need to be more familiar with the whole CU s policies and procedures. During the first quarter of 2008 most CCCU s in the Eastern Corridor saw a significant change in their management structure. In an effort to boost CCCU performance and professionalize its services, managers were hired for the Unions in Kete Krachi, Bimbilla, Kpandai and Tamale. Chamba and Banda are still run by their Accounts Officers but their general operations are overseen by the managers in Kpandai and Bimbilla respectively. Loan Officers, mainly in charge of microfinancial services, have increased in number and have been fully incorporated to all CCCUs operations. 6

14 Table 1.1: Community Cooperative Credit Union s Staff as of May, 2008 Manager No. of Account Officers No. of Loan Officers Total Staff Kete Krachi Yes Banda No Kpandai Yes Bimbilla Yes Chamba No Tamale Yes Once a year in June, CUA audits all CCCUs in the Eastern Corridor. They are also expected to monitor their activities every month, but this is not really being done, basically because the Unions are quite scattered across the EC and CUA s northern office is clearly understaffed. Managers also prepare and present monthly and yearly reports to CUA, SEND and their Boards. 1.4 Becoming a CCCU Member CCCU membership is open to everyone. Membership is subject however, to the payment of an entrance fee (between 2 1 and 5) and the purchase of 20 worth of shares. Share ownership represents members financial stake in the CU, giving them the right to share in its profits and the right to vote and be voted for. Additionally, new members are required to have a minimum savings balance of 5; as seen in table 1.2 however, in some Unions the required minimum savings is less. Table 1.2: Becoming a CCCU Member in the Eastern Corridor ( ) Kete Krachi Banda Kpandai Bimbilla Chamba Tamale Shares Entrance Fee Minimum Savings Total So with approximately 30 anyone in the Eastern Corridor can become a member of their local CCCU. Then again, for those without the necessary capital to join, some Unions have developed gradual membership strategies. In Kpandai for example, the Union allows people to buy 10 worth of shares and start saving towards the remaining balance. In six months, if they have managed to become full members by purchasing the remaining shares, and have been able to save a bit, they are eligible for their first loan. Additionally, people can choose to come together and buy a group membership. Members belonging to a group pull their savings together and deposit them in their group account. They can also take a loan, one loan for the group account, and then split it between group members. Conditions for this type of membership are the same as for 1 On July 2007 the Bank of Ghana re-denominated the country s currency, the cedi, by setting ten thousand Cedis to one new Ghana Cedi. As of September, Ghana Cedi ( ) is equal to 0.86 US Dollars 7

15 individual membership. As for the cost, in most CCCUs it is the same as for individual membership; except in Chamba, were it is slightly higher. Gradual Membership: A notice in Chamba s CCCU explains how to open an account with only Savings and Loans As savings-led institutions, member s savings are crucial for CCCUs operations and sustainability. Every new member (individual or group) opens a savings account with the Union. Each member can decide the amount and regularity of their savings; however, some Unions encourage their membership to save specific minimum amounts. In Tamale for example, members are assumed to save at least 1 every month; in Chamba they are encouraged to save 2, but, as their Accounts Officer explains, this is always negotiable. Bimbilla s CCCU has started offering new interesting saving products. The Children s Savings Account, for example, allows members to open an account for their children; these become full CU members without having to buy shares. Parents are then encouraged to save for their children, and they are only allowed to withdraw at a rate of 10 every three months. This same product is also being marketed to the youth (Golden Life Account) as a way to encourage them to save towards their future education. The 8

16 purpose of these new products is to stimulate more constant saving patterns and therefore more stable working capital for the Union. As CCCU s matured, they began paying their members interest on their savings. Interest is calculated by CUA during their yearly audit based on the average assets of each Union. In 2008, most CCCUs paid their members a 4% annual interest rate on their savings (1% every three months on their savings balance). Member s savings are protected by a Statutory Stabilization Fund paid annually by each CCCU to CUA. CCCUs are financial intermediaries, and as such, they mobilize members savings and invest them in short term securities or use them as loanable funds for their members. To get a loan at your local CCCU you have to, first of all, be a full member; this means that you need to buy 20 worth of shares, pay an entrance fee and have the minimum required savings stipulated by the Union. Before accessing their first loan, members have to save regularly for six months; the amount is not important, says Kete Krachi s Accounts Officer, what is really important is how consistent you are. After six months of regular savings, members can apply for a loan. They can apply for up to twice the amount they have saved in the Union. The Loan Committee evaluates the application, and based on their findings, determine the size of the loan. The portion of the loan that is not guaranteed by personal savings has to be guaranteed through the savings of another active member. Guarantors pressure borrowers to repay regularly because if the repayment schedule is not adequate, then their access to savings and loans is restricted. The guarantor system varies from Union to Union. In Kpandai for example, if the staff knows and trusts the borrower, they are willing to leave up to 20% of the loan unguaranteed; in Bimbilla, the guarantor is also not required to warrant a loan completely and is freed if the borrower s repayment schedule is good (three timely repayments). In Chamba, borrowers can guarantee their loans with assets; in Kete Krachi, salaried workers can use a letter from their employers authorizing the Union to withdraw loan repayments from their salaries as collateral (through the commercial banks). In Tamale on the other hand, guarantors are not required at all, the whole system is based on building trust through strong relationship with members. Members have a one month grace period, and then start repayment according to a schedule they have previously agreed on. Repayment is usually done on a monthly basis and lasts between 6 months and 2 years, depending on the amount disbursed and the internal policies of each CCCU. The monthly interest rate, specifically designed to promote quick repayment, is 3% on the reducing loan balance (19.5% annual rate). In some CCCUs a loan processing fee of 1% of the requested loan is charged to borrowers Group loans have the same conditions as individual loans; the only difference is that the loan is disbursed to a group of people (it can be any number) instead of an individual, and that they are collectively responsible for the loan. If one member fails to pay, the other people in the group are responsible for loan repayment. Some CCCUs have developed 9

17 new loan products for their members. Kete Krachi for example, has a Short Term Loan, a loan for emergencies of up to 100 payable in one month at a 10% interest rate. Banda on the other hand, has developed a special loan product for their farmer members. A 500 loan, exclusively for farming activities, is disbursed to farmer cooperatives (15-25 members) in September. Only in January, when the harvesting season begins, coops start repaying their loans, interest is 10% quarterly. As part of their risk management strategy, some CCCUs are now introducing a Loan Protection Plan. It is simply an insurance policy sold to members when acquiring a loan. The policy covers the loan obligation of the insured member in case of death or disability, protecting the Credit Union and their members against financial losses. 10

18 2. CCCU AND MICROFINANCE: A HYBRID MODEL Most of the women here cannot get the 25 to become a Credit Union member. The Microfinance system helps them improve their businesses and livelihoods, and helps them save so that they can join the Credit Union in the future (Esther Mahama, Kpandai CCCU Manager). The idea of establishing Cooperative Credit Unions in selected communities within the Eastern Corridor was to increase the socio economic well-being of its inhabitants, particularly of women and marginalized groups, by improving their access to reasonable financial services. However, in order to successfully achieve such a mission, a vital question had to be resolved: How can you reach and serve the poorest and neediest population segments in your community without compromising long-term sustainability? The answer seemed simple: operate these CCCUs with a microfinance orientation. The basic idea was to offer small-scale affordable microfinancial services to low income women, mainly small scale food croppers, artisans and traders, so that they could improve their enterprise s performance and their household living standards; and at the same time build the necessary resources to subscribe to the traditional credit union scheme. The vision was that low-income entrepreneurs would build-up savings and capital through the scheme and eventually use these savings to purchase CU shares (graduate) and become full members of the credit union, accessing therefore bigger, better and cheaper loans. 2.1 SEND s Microfinance Program: Savings and Credit with Education The Microfinance program implemented by SEND through the Credit Unions in the EC was modeled after Freedom from Hunger s Credit with Education scheme. The scheme uses group-base lending combined with low-cost, non-formal education to help women build their productive assets, accumulate savings, increase self-confidence and improve basic business and family survival skills. It is based on the premise that beneficiaries need more than credit alone; they need educational services that specifically address the obstacles hindering their development. In this model, women are clustered into small Solidarity Groups (SG) of around 5 members. Groups are not imposed and are based on self-selection so that members within a group feel comfortable with each other and trust is enhanced. These groups are then, based on affinity, clustered into Associations. Each Savings and Credit Association (SCA) is composed of a maximum of 35 members. The Association works like a small general assembly, with a management committee, general by-laws and a voting system. After group formation, SCAs participate in several training sessions, learning how to manage the group, keeping financial registers and understanding payment and deposit procedures. 11

19 Once trained, SG within the Association receive a group loan, which it then on-lends to its members as individual loans to be invested in income-generating activities. The women usually have no collateral to secure their loan, so group members guarantee each other s repayments; if an individual fails to pay, the liability for the loan is assumed by the group. The SCA acts as a second social guarantee; if a SG is unable to repay a member s loan, the SCA will be responsible for meeting the obligation. Loan sizes are set at a very small amount, ranging between 60 and 100; the idea is not to overburden the management capacity of the borrower. The standard loan cycle is four months and an affordable 10% interest rate ensures program sustainability. The interest rate is set to cover operating costs, including extension costs, loan-loss reserves, cost of funds and capital increases. Members repay the loans in regular installments with interest and also make savings deposits at their weekly meetings. The amounts to be saved every week are predetermined by each group according to their expectations and capacity. Principal, interest and savings payments go from member to SG, from SG to SCA and from SCA to Loan Officer. When the first loan is repaid, a well-organized SCA is eligible for a second loan and additional loans as each is repaid. SCA members getting together for their weekly meeting As women gather to pay back their loans they are engaged in informal participatory educational sessions. Loan Officers facilitate twenty to thirty minute sessions during the regular SCA meetings. Their role is to be a facilitator, not a teacher; the Officer facilitates discussions to draw out knowledge and ideas from the group. The non formal adult education curriculum covers health and nutrition topics, such as diarrhea management and prevention, breastfeeding, infant and child feeding, family planning, immunization and HIV-AIDS, as well as topics related to sound business practices, entrepreneurship and enterprise management. 12

20 2.2 Credit Unions with Microfinancial Orientation The microfinance scheme was not fully integrated into the CCCUs from the start; integration was designed to be gradual. During its initial phase, the scheme was introduced as a time-limited special project with its own systems, staff and policies. It was set up as a separate unit in which SEND provided training, technical assistance, and guidelines for program implementation; as well as the loan funds and funding for all costs of product delivery. Accounting and management systems were independent at this initial stage; however, MF Loan Officers and Credit Union Accounts Officers collaborated and constantly supported each others operations. All activities were reviewed and managed by SEND s Microfinance Officer. During the initial stages of integration, CCCUs are basically used as a platform for all Microfinance operations. MF loan funds, kept at commercial banks, are managed through the Unions; disbursed loans are reviewed by the Union s Account Officer and then distributed by a Loan Officer; repayments on the other hand, are consigned every week in a special CU account and deposited at the end of the month in the local commercial bank. Moreover, CCCUs provided Savings and Credit Associations with savings accounts for their collective deposits. One of the most important features and the whole purpose of the Credit Union Microfinance integration is the Graduation mechanism. Graduation, the process in which MF beneficiaries officially become full CU members, addresses the needs of maturing beneficiaries by allowing them to access additional and more affordable financial services. Graduation occurs when a SCA member, after consistently saving with the scheme, is able to meet all CU membership requirements (entrance fees, minimum savings and purchase of shares). Once graduated, women start benefiting from all the Union s products and services. Some CCCUs even offer additional advantages to graduates in order to encourage more MF beneficiaries to join the Union. In some Credit Unions in the Eastern Corridor, MF beneficiaries pay lower membership entrance fees; in others, once they graduate, they can guarantee their loans with their CSA savings account or they do not need to save for six months before taking their first loan, they can do it as soon as they join their local CU. Many Graduated women are reluctant to leave their SCAs. They value the education sessions and the social support of the Associations or simply do not desire CU services or find it difficult or intimidating to go to the Unions offices. In those cases, dual membership is possible. This option offers the best of both worlds, allowing mature SCA members to have access to all the benefits of the MF scheme and the CU as long as they can meet the membership requirements of both and keep up with their financial obligations. The merge between the Microfinance Program and the CCCUs has been slow but consistent. Their integration is best explained through the significant changes that have 13

21 occurred since the first MF loan disbursements in The MF scheme started out being entirely funded through external resources; today, two thirds of the funds for MF are internally generated (savings of members deposited at their local CCCU). Before, SEND was directly paying the salaries of MF Loan Officers; now, these officers are considered full CCCU employees, with the Union contributing towards their salaries and benefits. This change has required more responsibility and accountability from Loan Officers; they are now required to actively assist in all CU operations. During office hours, when not in the field, they have to be at the CCCU and support the staff with all counter work. Another significant change in the CU-MF model, that also demonstrates the maturity of their integration, is related to the role of SEND s Microfinance Officer. At the beginning, the Officer was directly in charge of many MF activities, including loan disbursements and repayments, data collection and analysis, and general support and supervision. With time, his role has slowly changed from providing hands-on supervision and technical support for program implementation, to managing, monitoring and evaluating the program at the macro level. Even reporting has changed within the scheme. Before, Loan Officers were accountable to SEND s MF Officer; now, the newly appointed CU Managers are in charge of supervising and directing the Loan Officers. Monthly reports are submitted to the Manager, and he or she in turn is responsible of reporting to the MF Officer during SEND s monthly team meetings. 14

22 3. CCCU AND MICROFINANCE: A SYNERGIC RELATIONSHIP The Microfinance and the Credit Union is like the right [hand] washing the left and the left washing the right (Egbert A. Codjoe, Kete Krachi CCCU Chairman) Synergy, from the Greek synergos meaning working together, is a term used to describe a situation where the final outcome of a system is greater than the sum of its parts. It is much more than a relationship of mutual benefit or dependence; it is coordinated cooperative action with outcomes that have more value than the total of what the individual inputs are. There is no doubt that the integration of Microfinance in the Credit Union model has worked exceptionally well. This unique relationship has not only been mutually reinforcing, but also synergic. Yes, CCCUs are strengthening MF and MF is strengthening CCCUs; but most importantly, this relationship is enhancing the benefits of the delivery of financial services in marginalized communities in the Eastern Corridor. 3.1 Microfinance is Strengthening Credit Unions To ensure long-term sustainability, Credit Unions have been moving towards a more commercialized approach; focusing on a better-off clientele and hence moving away from serving the very poor. Incorporating a MF product has allowed CUs to pursue their social goals without sacrificing financial viability and sustainability. MF supports the CUs social mission by deepening its outreach, by reaching to the most vulnerable segments of the community. However, MF is also proving to be an excellent product, a low-risk business yielding profits for the Unions and boosting their membership Supporting their Mission and Deepening their Outreach The mission of CCCUs sponsored by SEND in the EC is to improve the socio-economic well-being of especially women and children in its target communities by offering affordable and client-friendly loan products and savings opportunities. Without a microfinance product, Credit Unions could hardly achieve such a goal. Traditionally, people benefiting from CU services are those with average and relatively stable incomes; businesspeople and salaried workers that can afford membership. Through a mobile and decentralized model, the MF Program offers CCCUs the opportunity to penetrate new markets and provide services to poor clients. MF directly targets the most vulnerable groups in the community: poor women, mostly illiterate, and many living in remote rural areas, offering them small loans and savings opportunities. MF supports the mission of CUs by directly extending financial services to a lowerincome clientele, but it also encourages women to slowly save the necessary funds to become full CU members (which in other circumstances would be impossible to afford) and benefit from their traditional services and programs. 15

23 This combination of directly serving a more vulnerable population and promoting their graduation has, without a doubt, deepened CCCUs outreach; this is, it has significantly increased their rural and female membership and decreased their average loan size. Thanks to the MF scheme the number of female CU members in the EC has almost doubled in two years; as of May 2008 more than a third of the Unions members were women. Table 3.1: CCCU Membership and Gender % of Female CU Female Membership Growth Members (May, 2008) (June, May, 2008) Kete Krachi 34% 138% Banda 52% 164% Kpandai 38% 20% Bimbilla 38% 95% Chamba 31% 836% Tamale 36% 69% Total 36% 90% Marketing their Services and Enhancing their Image Microfinance serves as a very powerful marketing tool for CCCUs. First of all, CSA weekly meetings and education sessions serve as a platform to sensitize and educate MF beneficiaries on the CU concept, on its importance in the community, and the potential benefits of being a member. As explained by the CU chairman in Kete Krachi, Credit Union education is done by the Loan Officers while visiting CSAs in far away communities, they kill two birds with one stone. This education, added to the positive impacts of the MF program on end beneficiaries, has a multiplier effect. Women in the program serve as an effective channel to spread the word regarding the benefits of CUs and MF, particularly in the under-served rural areas. MF beneficiaries are usually very active, both socially and in their businesses; they have therefore very strong and broad business and social networks. These networks are used to propagate information regarding the CU and its benefits. Some of these women, according to Bimbilla s CU Manager meet in a day at least 100 other women...and if she is doing well in the CU, she will definitely spread the word. Even if they are not explicitly publicizing Credit Unions and Microfinance, the women serve as living physical evidence of their positive impacts. MF beneficiaries success stories are quickly associated with the local CCCUs. People looking for such positive changes in their lives are encouraged to become full CU members. This is particularly relevant in the rural areas were traditional CU members are not common and, therefore, such a demonstration effect is rare. In general, the bond between MF and the CCCUs has had a positive impact on the way the community perceives their local Unions. On the one hand, the MF component changed the image of the CUs to one of concern for serving poor women and rural areas (not just salaried workers and better-off individuals); it has raised the image of the CU as a social responsible entity. On the other hand, the success, reach and reliability of the MF 16

24 program has helped build familiarity, credibility and confidence in the CU. People are starting to perceive their CUs not only as socially responsible, but also as growing and maturing institution. This perception of social and financial wellness is increasing confidence and credibility in the local CUs, and therefore promoting membership growth and a more intense use of their loan and savings products Boosting their Membership According to all CU managers in the Eastern Corridor, the MF program is greatly contributing to the Unions increase in membership. First of all, MF has helped promote and market the CUs in their towns and surrounding rural areas, it has enhanced their goodwill and increased the community s awareness of their importance and benefits. This image and awareness boost has translated into more people from the community joining the Credit Unions. However, a more direct MF contribution to CU membership growth is through graduation. MF quickly reaches a large new market of potential CU members as it takes services to non-traditional clients in their own communities. These MF beneficiaries are encouraged to save and join their local CU. Four hundred and thirty women have joined a CCCU through the Graduation mechanism; this figure represents almost 10% of its total membership. Furthermore, there are around five hundred MF beneficiaries with the potential of becoming Union members; this is, with the sufficient savings to pay for entrance fees and purchase shares. As full members, MF women are able to continue their savings and access bigger loans. For CCCUs, the increase in membership translates into capital growth (shares), increased working capital (savings mobilization) and increased income (entrance fees and interest on loans). Table 3.2: Microfinance Graduates and Potential Graduates in the Eastern Corridor (May, 2008) No. Graduate Graduate Women as a Average Monthly No. of Potential Potential Graduates as a Women % of Total CU Members Graduates Graduates % of Total MF Beneficiaries Kete Krachi % % Banda 31 22% 5 8 3% Kpandai 77 9% % Bimbilla % % Chamba 63 15% 5 4 3% Tamale 8 2% Total % % Microfinance not only boosts CU membership but also increases its quality. According to the secretary of the CCCU Board in Kpandai, MF women are better members because MF educates women on finances and debt management, so when they graduate into the CU they are already very knowledgeable and well informed. It is true; women who have graduated into the CU are usually very active and committed CU members. The training received and experience gained through MF, plus the fact that through the scheme they have been able to set and successfully run an organized business, leaves the women in an excellent position to effectively manage their savings and loans with the CU. 17

25 Reducing Risk and Promoting Smooth Cash Flow One of the biggest challenges for CUs in the Eastern Corridor has been the strong loan shyness of its members, leading to reduced income generation and excessive liquidity. MF is proving to be an excellent investment for those excess funds, not only because the market is considerably large but also because the risk implied is quite low. Microfinance absorbs excess liquidity and at the same time promotes risk diversification, not only by lending to a completely new clientele, but also because it s done through a unique solidarity system. The fear of social pressure and the strong rural community interdependence make poor clients within this solidarity loan system excellent repayers; The payback has been good because of the solidarity system, says Bimbilla s CU Chair, the risk is low, the repayment rate is 99.5% The CCCUs portfolio quality increases as the MF system provides a reliable screening and delivery system to serve a low-risk market. But serving a population with different loan activities and loan cycles has additional benefits. The MF women take short-term working capital loans for commercial activities. Short loan cycles and timely repayments placed regularly into CU accounts promote cash flow smoothing. Besides, whenever there is an unexpected situation and the CU is short of funds for its daily operations, managers can borrow from MF accounts; MF and CU accounts can lend each other funds in case of emergencies or shortfalls explains Kete Krachi s Account Officer Increasing Profits Many Credit Unions in developing countries, particularly those serving rural populations, have a limited capability of transforming savings into loans and operating income; they are traditionally oriented to markets with a limited demand. Microfinance however, provides CUs with a profitable business opportunity. When administered by the Union, and in the right scale, the income generated through MF is sufficient to cover operating costs, provision for loan loss expenses, cost of funds and contributions to capital. It is not only that MF improves the utilization and circulation of idle assets, it is that it does so with a competitive return rate. Actually, from all CU investments, capital invested in MF has the highest yield; Microfinance is an excellent investment, says Kete Krachi s CU Accounts Officer, Its annual return is very high, thirty percent. Currently, it is the investment with the highest return rate. Table 3.3: Yield on CCCU Investments Annual Interest Rate (%) Bank Savings 4.1 T-Bills 8 CUA CFF Deposit 12 Loans to Members 19.5 Microfinance 30 Other Microfinance is not only a low-risk profitable investment; it is also a source of working capital. The savings deposited every week by the women participating in the program 18

26 represent funds available for the CU to lend to members or other MF beneficiaries. As of May 2008, MF beneficiaries and Graduates in the EC had 52,596 worth of savings deposited at their local CCCUs. Table 3.4: Total Savings of MF Beneficiaries and Graduates deposited in their CCCUs (May, 2008) MF Beneficiaries( ) CU Graduates( ) Kete Krachi 4,659 6,208 Banda Kpandai 6,363 2,341 Bimbilla 12,712 9,405 Chamba 4,324 4,289 Tamale 1,250 - Total 30,284 22,312 Savings deposited by CSAs and graduated women represent working capital for the CU, and therefore increase the CU s potential to do business and increase profits. Even though individual savings are not huge, there are a lot of women, so the total savings mobilized is quite considerable. But what is more important is that these women are usually very consistent with their savings and rarely withdraw. This means that the resources are available for the CCCU to invest, and realistic projections of such investment can be made by its management. Without a doubt, savings deposited by MF beneficiaries contribute to the CCCUs expanding loan portfolio, a portfolio that in May 2008 stood at 821,706 and yielded 80,652 in interest. Table 3.5: Yield on Loan Portfolio between June 2007 and May 2008 ( ) Total Per Borrower Kete Krachi 19, Banda - - Kpandai 23, Bimbilla 10, Chamba 10, Tamale 17, Total 80, Microfinance is a source of working capital and revenue for the CU, but most importantly, explains Kpandai s CU Manager, It helps build the necessary capital base that will guaranty the CU s future sustainability and independence. 19

27 A billboard in Bimbilla s CCCU reminds members and staff of the Union s weekly performance. 3.2 Credit Unions are Strengthening Microfinance There is an increasing recognition of the limitations and challenges of Microfinance, particularly in terms of attaining financial sustainability, achieving the scale of expansion necessary to reach significant numbers of poor men and women, and being able to offer a diverse range of services and products that meet the changing needs of its target population. In the Eastern Corridor, local Credit Unions are effectively helping the Microfinance scheme to overcome these challenges Providing a Reliable Platform for Effective Service Delivery To run smoothly, a MF program requires a reliable platform: office space, supplies and equipment, local networks and social connections, knowledgeable staff and technical support. Credit Unions in the Eastern Corridor are supporting the MF scheme with all of this. First of all, CU Managers and staff provide technical advice and guidance to Loan Officers and are always readily available to assist MF beneficiaries. Not only they support the LO with advice and manpower to pursue stubborn defaulters, but also with input for the education sessions, particularly those regarding financial and debt management. Secondly, the actual CU physical buildings (and the furniture, equipment and stationary inside it) serve as the coordinating place for all MF activities and, most importantly, are used to safely keep program beneficiaries savings (as well as disbursement and repayment funds). This in particular is of extreme relevance in an area characterized by the absence of formal and secure banking institutions. 20

28 Additionally, if a contingency arises, and the MF program is unexpectedly short of funds, the CU can quickly transfer funds so it can continue delivering services. And lastly, without the CCCU as a partner, the MF Program would not be legally entitled to collect savings from beneficiaries; it could disburse and collect loans, but would not be able to promote a savings culture among the women. Not only are CU an excellent platform for MF operations, but in many remote rural areas, they are the only available one. Furthermore, CUs are usually widespread and in most cases have regional and national networks, which could eventually contribute to efficient MF service dissemination Promoting Economies of Scope and Cost Effectiveness Microfinance Programs in general are relatively expensive to operate, mainly because of the distances and frequency of travels involved in loan disbursement and repayment. Delivering services focused to the poorest segments of the population in an effective and sustainable manner can be challenging. The alliance with the CCCUs allows the MF to do exactly that; deliver a poverty-focused product sustainably. Without this partnership, a MF Program would have to incur in a series of back office and overhead costs on its own, jeopardizing program sustainability and independence. MF fixed and variable costs, such as rent for office space, salaries and social security, Officer s transportation, equipment and stationary, are shared with or simply absorbed by- the Credit Unions. From a cost-effectiveness perspective, it is definitely much less expensive for a MF scheme to work with CU partners than to create new independent institutions. For CUs, this increase in scale and scope is also beneficial; more people are served and more income-generating services offered with a slight change in their operating costs Providing Stable and Sustainable Financing It has been increasingly difficult for MF schemes to meet the growing demand for their services. Pressure for program sustainability and fierce resource competition have seriously diminished the availability of external funding for MF. However, Credit Unions, which are in principle asset and savings-led financial institutions, have the capacity to finance new products, including microfinance, using their internally generated resources. 21

29 Figure 3.1: Investments of CCCUs in the Eastern Corridor 10% 79% 1% 6% 3% 1% Bank Savings T-Bills CUA Loans to Members Microfinance Other Table 3.6: Percentage of CCCU Resources Invested in Microfinance as of May, 2008 Kete Krachi 8.50% Banda 70.70% Kpandai 6.60% Bimbilla 14.40% Chamba 3.60% Tamale 7.40% Total 9.70% As of May 2008, CCCUs in the Eastern Corridor had invested a total of 99,519 in Microfinance, almost 10% of their total investment capital. These internally generated funds (IGF) almost double SENDs externally-funded MF investments (Externally Generated Funds-EGF). Table 3.7: Investment in Microfinance in the Eastern Corridor ( ) Internally Generated Funds (IGF) Externally Generated Funds (EGF) Investment % of Total Investment % of Total Total Kete Krachi 38,967 84% 7,500 16% 46,467 Banda Kpandai 18,702 53% 16,600 47% 35,302 Bimbilla Chamba 33,350 51% 32,440 49% 65,790 Tamale 8, ,500 Total 99,519 64% 56,540 36% 156,059 Thanks to the CCCUs investment in MF, 52 additional Savings and Credit Associations have been created in the Eastern Corridor, positively impacting the lives of more than sixteen hundred resource-poor women. 22

30 Table 3.8: Number of Solidarity Groups Benefiting from the MF Program in the EC Internally Generated Funds (IGF) Externally Generated Funds (EGF) No. SCAs % of Total No. SCAs % of Total Total Kete Krachi 21 78% 6 22% 27 Banda 4 44% 5 56% 9 Kpandai 12 60% 8 40% 20 Bimbilla 12 57% 9 43% 21 Chamba 1 20% 4 80% 5 Tamale 2 29% 5 71% 7 Total 52 58% 37 42% 89 Table 3.9: Number of Women Benefiting from the MF Program in the EC Internally Generated Funds (IGF) Externally Generated Funds (EGF) No. Women % of Total No. Women % of Total Total Kete Krachi % % 774 Banda % 84 37% 229 Kpandai % % 545 Bimbilla % % 696 Chamba 33 29% 81 71% 114 Tamale 60 24% % 245 Total 1,642 68% % 2,418 CCCUs are providing a sustainable funding source for Microfinance, allowing it to expand its services and benefiting more women in even more remote and rural communities. And as the Accounts Officer in Kete Krachi s CU explains It is not only that there is capital available [for Microfinance], but also the speed of availability. As opposed to external grants or funds, CU money is quickly available for MF. It is there Offering Incentives through Graduation The CU-MF partnership is designed to encourage women benefiting from the MF scheme to graduate into the CU. When they graduate, these women have the opportunity to access larger, less restrictive loans at a lower interest rate and enjoy other CU services and programs. If they choose to, they can also stop attending SCA s weekly meetings and guaranteeing loans of others. Graduation acts as a powerful incentive for sound microfinance performance. The potential of larger and cheaper loans in the future promotes not only proper loan repayment patterns, but also significant increases in savings amongst MF beneficiaries. Graduation also responds to the changing needs of MF borrowers. When women first get involved in the MF program their businesses are relatively small; so actually their capital needs are quite modest. However, as businesses begin to grow thanks to these micro loans, more capital is required for further growth. The MF scheme offers larger loans to mature clients, but only to a certain extent. Graduating into the CU provides flexibility; it allows women to take loans based on their entrepreneurial spirit and the changing needs of their growing businesses. 23

31 4. CCCU AND MICROFINANCE: IMPACTS OF A VIRTUOUS CYCLE You mean impacts? Well, very simple, people are living better, the community is much better (Friko Juliana, Chamba CCCU Treasurer) By adopting Microfinance as a product, Credit Unions boost their membership, improve the quality of their loan portfolio, deepen their outreach and increase their income. A Microfinance scheme on the other hand, when channeled through Credit Unions, increases its funding opportunities and number of beneficiaries, reduces operational inefficiencies and provides incentives for sound financial performance. One strengthens the other, and in doing so, their capacity to strengthen each other. The MF-CU virtuous cycle is synergic because its final outcomes are greater than the sum of each of its parts. The positive impacts of this relationship on the welfare of MF Beneficiaries and CU members are much more significant than if these initiatives were operating on their own. Such impacts can be understood at three levels: 1. A Microcredit scheme serving more women and effectively improving their livelihoods at the enterprise, individual and household level. 2. A Graduation mechanism giving Microfinance beneficiaries the opportunity to become Credit Union members, and in doing so, deepening the positive impacts of accessing financial services 3. Mature and sustainable Credit Unions effectively serving their traditional membership and contributing to their economic and social development. 4.1 Spreading the Benefits: Impacts on MF Beneficiaries In strictly quantitative terms, the CU-MF hybrid model has contributed to a dramatic increase in the number of women benefiting from the MF scheme. Currently there are 2,418 women participating in the program, all of them supported by CCCUs physical and human resources, and 68% of them entirely funded through CU capital. This means that, as a result of this relationship, 1,642 additional women in the Eastern Corridor are enrolled in the scheme. Clearly the CU-MF partnership has significantly increased the number of women saving and taking small loans to improve their microenterprises. However, has it effectively contributed to the betterment of their livelihoods? The answer is yes. During the first trimester of 2008, SEND undertook a study to assess the impacts of its Microfinance Program. The evaluation combined qualitative and quantitative data and, in the absence of a baseline study, the levels and dimensions of the Program s impacts were determined by comparing the experiences of participants with those of a reference nonparticipant group. Six hundred women, all living in the Eastern Corridor, were interviewed during the study; four hundred and fifty were MF beneficiaries, the rest were waiting to receive their first loan (control group). Additionally, twenty five individual 24

32 semi-structured interviews were carried out. Informal and retrospective in nature, they targeted Program beneficiaries, as well as Program and Loan Officers. The analysis of the surveys and in-depth interviews generally confirms that microcredit can be used as a tool for improving the lives of marginalized rural women. Furthermore, it confirms that a comprehensive Microfinance scheme adequately supported by Credit Unions can have a tremendous impact on women beneficiaries at the enterprise, individual and household level Impacts on Enterprises The study presents clear evidence that Microfinance had positive impacts on the sales, profits and fixed enterprise assets of participating. When compared with the control group, in a month, program beneficiaries have 37% higher sales and 28% higher profits. A higher percentage of them have bought fixed assets for their businesses, and in general, they have a greater propensity to buy Category 3 assets (assets that are more expensive and add real value to their businesses: Kiosks, sheds, fridges, sewing machines, bicycles, ovens) Table 4.1: Main Indicators of Microenterprise Performance MF Beneficiaries Control Group Average Monthly Sales ( ) Average Monthly Profits ( ) % of Women that have Purchased Assets for their Business 91% 82% % of Women that have Purchased Category 3 Assets 18.3% 9.1% Microfinance Beneficiary showcasing her table-top store 25

33 4.1.2 Impacts on Women As enterprise performance of program beneficiaries increases, so does their financial security. Compared with women not participating in the Microfinance Program, beneficiaries have higher incomes and are more likely to have multiple sources of income. They also have a greater tendency to save and the monetary value of their total savings is 54% higher. Table 4.2: Main Indicators of Women s Financial Security MF Beneficiaries Control Group Average Monthly Income ( ) % of Women with Supplementary Income 41.0% 29.0% % of Women with Savings 99.0% 64.0% Average Total Savings ( ) Increased financial security in turn, has improved participants capacity to take control of their lives and futures. Even though difficult to measure, many women perceive themselves and are perceived as empowered. Again, when compared with noparticipants, beneficiaries have more control over the decisions regarding personal and family income, are more likely to be engaged in community groups or organizations and have higher self-esteem, as they have a greater tendency to perceive and recognize their own economic contributions to the household Table 4.3: Main Indicators of Women s Empowerment MF Beneficiaries Control Group % of Women Deciding how to use their Personal Incomes 74.3% 63.3% % of Women Actively Participating in Household Expenditure Decisions 64.2% 46.1% % of Women Participating in Community Groups or Organizations 35.4% 32.5% % of Women that Feel they make a Contribution to their Household 98.6% 89.6% % of Women that recognize their Economic contribution to their Household 63.8% 52.2% Impacts on Households The impact results suggest that microcredit has positive effects on beneficiaries households as well. One of the most significant impacts being on their children s education; most beneficiaries allege that participating in the microfinance scheme has enabled them to better cater for their children s education; 84% claim that their educational expenses increased since joining the program. Other household dimensions have also improved. When compared with non-participants, program beneficiaries spend 17% more on food every month, are more likely to visit a hospital on account of a personal or a child s injury or illness and have a greater tendency to spend earnings on house repairs or upgrades. More of them actually buy household assets and in general, they have a greater tendency of purchasing more expensive and durable ones (Category 4: Fridges, sewing machines, motorcycles, corn mills, televisions, zinc sheets). 26

34 Table 4.4: Main Indicators of Household Welfare MF Beneficiaries Control Group Average Monthly Household Food Expenditure ( ) % of Women Visiting a Hospital in the Last Year 71.5% 54.9% % of Household Children Visiting a Hospital in the Last Year 77.6% 68.2% % of Women Spending on House renovations in the Last Year 56.1% 40.9% % of Women Purchasing Assets for their Household 87.6% 70.1% % of Women Purchasing Category 4 Assets for their Household 32.0% 18.8% There is also evidence that indicates that the program s impacts extend outside the household realm, particularly in terms of controlling and reducing the tension between some opposing ethnic groups in the region. The study also shows that, as expected, longer term variables are not impacted by the program. When comparing program beneficiaries with the control group, there are no apparent differences in their housing conditions, food consumption patterns and levels of community engagement. In general, the impact assessment confirms that low-income rural women can benefit from a well-developed, competitive microfinance scheme; and that such benefits go way beyond the individual level and positively affect the beneficiaries households and even their communities. Trading out of Poverty Esther Anane lives in Chamba, she is part of Tijitob, a Savings and Loans Association of in its eighth cycle. Before joining the program Esther was a petty trader, she would sell sugar, soap and gary; My business was very small, I would sell few things and make very little money, she recalls. Through the microfinance scheme, Esther was able to start a business as a rice trader in Chamba s central market. Her income has increased considerably, before I was earning 10 a month, with my new business I earn almost 40. The benefits have extended to her family. Thanks to the extra income, she has been able to contribute to her children s education. She proudly tells us that two of her children are in secondary school, that they have big plans of going to university, and that she will be able to support them. She has also been able to join the National Health Insurance Scheme; and she does not only pay for herself, she also pays for her husband. 4.2 Deepening the Benefits: Impacts on Graduated MF Beneficiaries Yes, MF beneficiaries are doing better; their businesses have grown and matured, they are more empowered and financially secure, and their family s livelihood has improved. What started out as and externally funded initiative giving loans to a small group of women, thanks to the CU-MF symbiotic partnership, has turned into a large scale operation funded through internally generated resources. But most importantly, the CU- MF alliance has given program beneficiaries the opportunity to graduate into the CU, and in doing so, deepen the initial positive impacts of the MF Program. By June, 2008, 430 women in the Eastern Corridor had graduated into their local CCCU and 507 more had the potential to do so. 27

35 The 2008 study undertaken by SEND to understand the impacts of its MF Program confirmed that MF beneficiaries were usually better off than non-beneficiaries, basically corroborating that microcredit can be used as a tool for improving the lives of marginalized rural women. What it also shows however, is that amongst Program beneficiaries, impacts on enterprise economic performance, individual empowerment and household welfare have been more evident and more intense in those who have graduated into the CU Enterprise Sales and Assets The study suggests that, on average, enterprises owned by MF beneficiaries have monthly sales 37% higher than those in the control group. This 50 monthly variation, represents an annual difference of almost 600 per year. Within MF beneficiaries there is a notorious difference as well; CU graduates have average monthly sales 22% higher than non-graduates. Figure 4.1: Beneficiary and Control Group Enterprise Monthly Sales ( ) CU Graduates Non-Graduates All Beneficiaries Non Beneficiaries Ghana Cedis Continuous access to credit has positive effects on enterprise asset accumulation as well. Affordable credit allows entrepreneurs to directly purchase assets; it may also increase an enterprise s income and, therefore, its capacity to indirectly accumulate assets. Increased assets, in turn, have a positive effect on business performance and efficiency, and eventually on revenue. When MF beneficiaries become members of their local CU, they have access to bigger and more affordable loans, which means that they have the possibility to intensely invest in productive assets. In the context of rural Ghana, enterprise assets commonly used by women entrepreneurs can be classified into 3 categories. Category 1 groups assets that are relatively inexpensive and do not significantly add value to the production process. Examples include containers, kitchen utensils, sacks, cloths, head pans or baskets. Category 2 is a collection of medium priced goods such as tables, benches, stools, barrels, shades or fans. Category 3, on the other hand, groups plots and buildings, as well as more expensive 28

36 items that considerably improve the performance of the microenterprise and add value to its process. Kiosks, sheds, fridges, sewing machines, bicycles, and ovens are examples of this category. When compared to the control group, more MF beneficiaries have been able to buy high value (Category 3) assets for their business, 18.3% versus 9.1%. However, within program participants, more CU graduates have been able to purchase these types of assets. The possibility of accessing cheaper and larger loans has enabled almost one third of graduates to really invest in quality assets for their businesses. Figure 4.2: Percentage of Women purchasing Category 3 Assets for their Enterprise 35% 30% 25% 20% 15% 10% 5% 0% Non Beneficiaries All Beneficiaries Non Graduates CU Graduates Financial Security and Empowerment One of the most direct impacts of SEND s Microfinance Program at the individual level has been on the income of program participants. Assuming that enterprise profits are the women s only source of income, it is clear that beneficiaries have higher monthly incomes than those not participating in the Program. Furthermore, when comparing nonparticipants with beneficiaries that have graduated into the CU, the difference is even greater. CU Graduates have a monthly average profit of while women in the control group only earn Each year, CU Graduates are taking home almost 90 more than non-graduated beneficiaries and 160 more than women not benefiting from the microcredit scheme at all. Graduated beneficiaries not only have higher income levels but are also more likely to have supplementary income. When asked if they had other sources of income besides their microenterprise, 49% of graduated beneficiaries said yes, while only 29% of women in the control group answered positively. 29

37 Table 4.5: Main Financial Security Indicators MF Beneficiaries Non Beneficiaries Non-Graduates CU Graduates Total Average Monthly Enterprise Profits ( ) Average Monthly Individual Savings ( ) Women with other Sources of Income (%) 29.86% 39.93% 49.30% 42.99% Practically all Microfinance beneficiaries, graduated or not, save regularly. However, the possibility of accessing larger loans through stable and periodic savings has boosted savings levels within graduated beneficiaries. On average, they save almost three times more than non-beneficiaries and four times more than non-graduates. In addition, 55% of the women that have joined the CU have savings over 50 and around 13% over 200. Figure 4.3: Percentage of CU Graduates by Total Savings ( Savings Histogram) 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Ghana Cedis The process of empowerment, of increasing women s capacity to take control of their lives and futures, is initiated by moderate but sustained economic betterment. Women participating in the MF scheme, particularly those who have graduated into the CU, are experiencing such betterment; but are they more empowered? To obtain insights into the process of empowerment the nature of decision-making in the domestic sphere was explored, particularly in terms of the control that program beneficiaries have over how their enterprise revenues are used, and the control they have over how the general family income is spent. Survey results indicate that CU Graduates have more control over the decisions regarding personal and family income. 80% of Graduates, for example, claim that they decide how their income is spent, for non-graduates the percentage is lower (71%). Likewise, 68% of CU Graduates claim having a say on family expenditure, compared to 62% of non- Graduates and 46% of non-beneficiaries. 30

38 Table 4.6: Decision Personal Income Use Non Beneficiaries Beneficiaries Non CU Graduates Graduates Total Table 4.7: Decision Household Income Use Non Beneficiaries Beneficiaries Non CU Graduates Graduates Self 63.27% 71.33% 80.28% 74.25% Self 23.38% 30.58% 35.92% 32.10% Both 23.13% 18.77% 13.38% 17.01% Both 22.73% 31.96% 32.39% 32.10% Spouse 10.20% 7.85% 3.52% 6.44% Spouse 40.91% 32.65% 26.06% 30.48% Other 2.72% 2.05% 2.82% 2.30% Other 12.34% 4.81% 5.63% 5.08% Another manifestation of empowerment is the increased participation in local institutions or groups. The survey indicated that CU Graduates have significantly higher levels of community engagement. When asked if they actively participated in other community groups and organizations, 48% of CU Graduates answered positively. Only 29% of non- Graduates and 32% non-beneficiaries on the other hand, claimed being engaged in other community groups or activities. Increased self-esteem is not only an important ingredient for empowerment, but also an excellent indicator. Microfinance is hypothesized to have a positive impact on the selfesteem of borrowers. Clients using credit, supposedly improve managing capabilities and their businesses, thereby increasing their contribution to the material welfare of their households and communities. As clients perceive these positive changes, their self esteem may increase. Self-esteem was measured through the way survey respondents perceive the importance of their own economic contributions to the household; they were grouped into 4 different categories: Type 1: Women feel they contribute to their households by taking care of some or all of the family expenses (e.g. food, education, health, children s allowances). Type 2: Women feel they contribute to their households by taking care of general chores and tasks (cleaning, cooking, sweeping, washing, fetching water, bathing children). Type 3: Women feel they contribute to their households by taking care of general chores and tasks and some of the family expenses. Type 4: Women feel they contribute to their households by participating in the decision-making process, by educating their children and by counselling and giving advice to family members. Women that identify more with types 1 and 4 are likely to be more confident and empowered as they recognize their role in their household and appreciate what they are doing to improve their family s wellbeing. In general, the survey indicated that more program participants (66%) identified themselves with types 1 and 4 than those in the control group (54%). Within beneficiaries however, CU Graduates had a higher tendency to portray their household contributions in terms of their economic input. Total 31

39 Figure 4.4: Type of Household Contribution 80% 70% 60% 50% 40% 30% Non Beneficiaries Non Graduates CU Graduates 20% 10% 0% Type 1 Type 2 Type 3 Type Household Welfare Microfinance can indirectly impact household welfare through its direct effects on enterprise performance. Increased enterprise profits flow into the household in the form of new assets or increased food expenditure for example. There is also the possibility that microcredit can have a direct impact on household welfare since loan funds are fungible and can be used to directly meet household needs. One could conclude therefore that Graduated women, with access to larger loans and better enterprise performance, experience higher levels of household welfare. The evidence shows that, even though household welfare indicators are slightly higher for Graduates than for non-graduates, the difference is not considerable. For example, Graduated women on average spend every month on food; much more than non-beneficiaries ( 27.60), but only slightly higher than non-graduated beneficiaries ( 32.06). It seems that the direct positive effects (at the enterprise and individual level) of becoming a CU member have not yet translated into significant household improvements. The percentage of Graduated women visiting or sending their children to the hospital due to an illness is only marginally higher than non-graduates. For house upgrades and renovation, actually less graduated women claim having done any in the last year. Table 4.8: Main Household Welfare Indicators Beneficiaries Non Beneficiaries Non Graduates CU Graduates Total % of Women Visiting a Hospital in the Last Year 54.90% 68.60% 77.46% 71.49% % of Household Children Visiting a Hospital in the Last Year 68.21% 77.00% 78.83% 77.59% % of Women Spending on House Upgrades 40.91% 57.34% 53.52% 56.09% At the household level, the only significant difference between graduates and nongraduates is in terms of household assets. 89% of CU Graduates have purchased at least 32

40 one asset for their household, compared to 86% of non-graduates and 70% of nonbeneficiaries. Graduate women are not only buying more material goods for their household, but they are purchasing as well more expensive and durable ones. Household assets were grouped into four categories according to their monetary value and potential to increase household wellbeing: Category 1: Tables, benches, cooking utensils, bowls, cups Category 2: Radios, clocks, irons, bags, plastic chairs, cup boards, walkmans Category 3: Animals, bicycles, tape recorders, gas burners, wardrobes, furniture, beds, mattresses, fans Category 4: Fridges, sewing machines, motorcycles, corn mills, televisions, zinc As seen in table 4.9 below, more CU Graduates, were able to purchase Category 4 goods for their household; twice the number of women in the control group and almost 15 percentage points above non-graduates. Access to cheaper and larger loans and increased enterprise profits have allowed them to invest in more expensive goods, like a fridge or a motorcycle, that directly improve the living standards of their families. Table 4.9: Percentage of Women purchasing Assets for their Household by Asset Quality Non Beneficiaries Beneficiaries Non Graduates CU Graduates Total No Assets 29.87% 13.31% 10.56% 12.41% Purchased Assets 70.13% 86.69% 89.44% 87.59% Category % 19.45% 8.45% 15.86% Category % 10.24% 9.86% 10.11% Category % 29.69% 29.58% 29.66% Category % 27.30% 41.55% 31.95% Need a Ride? Rosemary, a well known hairdresser in Kpandai, joined SEND s Microfinance scheme in Thanks to the 100 quarterly Microloans, she has been able to improve and diversify her business. In 2006, after consistently saving for a year, and encouraged by the local Loan Officer, Rosemary became a full Credit Union Member. It is the best thing I have done she tells us, thanks to the Credit Union, I was able to buy a car. Rosemary s car is really a minibus, offering regular transport services between Kpandai and Tamale, the regional capital. To purchase the vehicle, she took a 2,400 loan which she paid back in less than a year. Today, she uses the profits of this new enterprise to feed and educate her children, and of course, to save at the Credit Union. She already has another business idea. 33

41 4.3 Consolidating the Benefits: Impacts on CU Members The CU-MF symbiotic relationship has strengthened the MF Program, and in doing so, has increased the opportunities for its beneficiaries (graduates and non-graduates) to improve their and their family s well being. But this mutually reinforcing relationship has also strengthened CUs, and has therefore amplified the positive impacts on CU members. The CU-MF symbiosis has contributed not only to Credit Unions growth and maturity, but also to their sustainability. These mature and sustainable CUs are offering more and better financial products and services to their members, allowing them to improve their businesses performance and household living standards Growth and Maturity As of May 2008, 4,304 people in the Eastern Corridor, 1,562 of which were women, were members of their local CCCU. Between June 2007 and May 2008 membership increased in more than 50%, as almost 1,500 new members joined their local Union. Table 4.10: CCCU Membership June, May, 2008 % Change 2007 Male Female Group Total Kete Krachi 1, ,414 28% Banda % Kpandai % Bimbilla % Chamba % Tamale Total 2,827 2,402 1, ,304 52% Growth has also been significant for Unions assets and share capital. In May 2008, the six CCCUs in the EC had total assets worth almost 1,200,000 and share capital totalling 82, 685. Table 4.11: CCCU Assets and Share Capital as of May, 2008 ( ) Total Assets Share Capital Kete Krachi 519,844 38,082 Banda 14,972 2,535 Kpandai 191,063 12,102 Bimbilla 225,704 12,910 Chamba 92,266 8,806 Tamale 118,726 8,249 Total 1,162,574 82,685 Between 2007 and 2008 the three largest CCCUs in the area (Kete Krachi, Bimbilla and Kpandai) experienced, on average, a 46% increase in their total assets; and between 2004 and 2008 they almost multiplied by nine their total member shares. 34

42 Table 4.12: CCCU Share Capital Growth ( ) Kete Krachi 2,900 38,082 Kpandai 2,460 12,102 Bimbilla 1,360 12,910 Total 6,720 63, Sustainability The total income for all SEND-sponsored CCCUs in the Eastern Corridor for the period June May 2008 was of 108,575. Expenditures, on the other hand, totalled 52,727. So even when deducting grants and donations for that specific period ( 12,232), CCCUs in general were able to recover all the costs incurred, and some actually had considerable profit margins. Table 4.13: CCCU Income and Expenditures from June 2007 to May 2008 ( ) Income Total Without Grants Expenditures Kete Krachi 25,121 22,848 10,820 Banda Kpandai 25,937 24,937 7,846 Bimbilla 15,329 13,339 9,131 Chamba 18,207 13,548 10,941 Tamale 23,981 21,672 13,989 Total 108,575 96,343 52,727 Table 4.14: CCCU Cost Recovery (June 2007-May 2008) Total Excluding Grants Kete Krachi 232% 211% Banda - - Kpandai 331% 318% Bimbilla 168% 146% Chamba 166% 124% Tamale 171% 155% Total 206% 183% A 100% cost recovery means that incomes are equal to expenditure in a determined period of time; values below this figure mean that that generated income is not sufficient to cover operational costs. As of May 2008, the cost recovery for CCCUs in the EC was of 183%. However, two years earlier, during the June 2005 June 2006 period, cost recovery and profitability was far from reality. Kete Krachi for example, was only able to recover 56% of its costs during this period; Bimbilla recovered 43% and Kpandai 63%. In two years, Unions have been able to turn things around and generate sufficient income to cover their operational expenses. Even though cost recovery is positive, self sufficiency of CCCUs is still to be achieved; mainly because many operational costs are not being recorded and because many expenditure items are being kept unreasonably low. However, all evidence indicates that 35

43 Credit Unions sponsored by SEND are clearly in the trail towards financial and institutional sustainability Accessing Reliable and Reasonable Savings and Lending Products As Credit Unions grow, mature and become sustainable, so does their capacity to adequately serve their target population and achieve their mission. Of the approximately 4,300 CU members in the Eastern Corridor, approximately 70% are active (according to Managers and Account Officers). As of May 2008, active CCCU members, those who regularly and consistently save in the Union, had total savings of 931,924; approximately 217 per member and 340 per active member. Table 4.15: CCCU Member Savings as of May 2008 ( ) Total Savings Savings per Member Savings per Estimated Active Member Kete Krachi 443, Banda 10, Kpandai 126, Bimbilla 185, Chamba 83, Tamale 82, Total 931, Growth in Savings has been extraordinary in the past four years. Kete Krachi s savings in 2004 for example, were only 9,540; Kpandai had managed to mobilize 23,320, while Bimbilla s savings accounted for 10,150. This means that, on average, these three CCCUs multiplied their savings in almost eighteen times between 2004 and Two Credit Union Loans have contributed to the significant growth and diversification of this store in Kete Krachi s main street. In May 2008 there were 771 CCCU borrowers in the EC, with a total loan portfolio of over 800,000. The average loan size per borrower is of 1,066; with male borrowers 36