Our micro-finance program was implemented in communities that are as self-contained as possible. Since we implemented the program in Lima, which is a city of almost 8 million people we chose identifiable neighborhoods with about 250 to 300 households and a community leadership that helps to organize the community and represent it in front of municipal authorities. For example, in both communities the leadership had lobbied for the construction of running water lines.
The survey work was implemented in two rounds. The first round (Baseline I) was a household level census of the community. The most important aspect of the survey was the collection of a list of all household members, but it also included basic socioeconomic indicators, information on leaders in the community, detailed income and occupation information, information on household assets, and information on household businesses. The community roster, or list of people living in the community, was derived from this survey.
The second round of survey work (Baseline II) was implemented in two modules. Module A was a household level survey that collected information about contacts the family had had in the community before moving there, and savings and loans held by family members. Module B was an individual level social network survey, which was conducted with both the head of household and his or her spouse. It asked respondents to name the people in the community outside of their home that they spent the most time with and who they trusted the most. Respondents were also asked to name family members who lived in the community but not in their household, and list people with whom they were members of Roscas and village banks. For each link we inquired whether respondents had borrowed money or objects from that contact or lent money or objects to that contact. We also asked a number of hypothetical questions, such as “Would you leave this person in charge of your home?”, “Would you ask this person to assist in the construction of your home?”, “Would you start a business with this person?” Baseline II surveys were done with sponsor households, any household they had named as well as any household those households had named. Clients of our loan program who had not received a baseline II survey were surveyed after the start of the loan program.
About 25 sponsors were recruited based on their responses to Baseline I. An attempt was made to identify sponsors that had been named as community leaders and who were in the top half of the socioeconomic spectrum, but some interested people who did not fit these characteristics were accepted. Sponsors were evaluated by a credit officer and were assigned a credit line based on their capacity to pay. They were allowed to use 30 percent of this credit line for personal loans or loans to other members of their household at a preferential interest rate. They participated in a training session held by the credit officer, explaining the program, how to sponsor clients, and what to look for in responsible clients. Each sponsor was told that they would participate in three lotteries over the course of the first six months of the program as an incentive for sponsoring loans. The number of points that they received was based both on the number of loans that they had sponsored and the percentage of their credit line that they had used sponsoring.
The loan program was advertised to community members through a door-to-door promotion. Each household received a customized laminated card explaining the program and listing all the sponsors and the interest rate at which the client could take out a loan if that sponsor agreed to co-sign the client’s loan. The back of the card contained a map of the community indicating the homes of all the sponsors to make it easy for clients to find the sponsors. An effort was made to explain the program personally to someone in each household but if no one was found at home after two or three visits, the card was left under the door. The same cards were distributed again in both communities three months after the initial promotion to remind community members of the program.
The credit officer made weekly visits to each community at a pre-specified time and location. Those who wanted a loan would go to the meeting with their sponsor to verify his or her willingness to co-sign the loan contract. Loan information was then collected through a Pocket PC, which assigned the correct interest rate based on the selected client/sponsor pair. Both the client and the sponsor returned to the meeting the next week and the credit officer handed out the check and both signed the contract. Both the client and the sponsor were given a copy of the payment schedule. If the loan had been assigned 50 percent sponsor responsibility, the sponsor and client would both later receive letters informing them that the sponsor was legally responsible for only half of the loan she had sponsored.
All loans were taken out for periods of six months with both capital and interest paid every month. The payments were made at a local bank, a 10 to 15 minute distance from the communities. Sponsors had initial responsibility for controlling default and ensuring that payments were made on time. If clients were more than a month late in their payments they would receive letters at their homes and the credit officer would visit the sponsors and eventually the clients themselves. Recuperation procedures were somewhat complicated by cumbersome record-keeping procedures of the NGO.