Community-Based Microfinance Models in East Africa

This paper discusses new and improved models of rural, community based MFIs in East Africa. It uses the term Rural Financial Institutions (RFIs) to cover a variety of organizations.

The paper has two parts:

• Part 1 presents 4 selected models;
• Part 2 shares lessons learned in the implementation and promotion of community based microfinance.

The paper argues that lessons learned mainly from Tanzania will help in the promotion of community based microfinance initiatives elsewhere. Some of these are:

• To be - or not to be - a cooperative - both options can produce sustainable results, depending on how the promotional program is implemented;
• Careful selection of communities to work in will help avoid disappointments;
• Assessment of the economic potential is very important to determine the potential for growth and sustainability of the RFI;
• Radius of operation of the RFI should cover an area that can easily be traveled;
• Banking services and markets should be accessible;
• Willingness and commitment in the community to start an RFI is needed;
• Local leaders should participate positively and actively;
• Local promoters should be literate, willing to serve the target group and be trusted by the community, apart from having leadership and mobilization skills;
• Governance should be good and effective;
• Entry fees should be affordable;
• There should be emphasis on savings and RFIs should start lending with their own capital first.

The paper concludes with detailed lessons about the promoting agency.