Community-Managed Loan Funds: Which ones work?

Recently some donors have been moving from funding projects that involve microfinance institutions and staff to others which are based on the management and ownership of the community. Community-managed loan funds (CMLFs) are still the minority of donor-fund projects, but this model is increasing in number.

CMLFs are schemes of loan funds in which credit for the members of a small group is managed by the members themselves, with no professional management or supervision of the approval, disbursement, and collection of loans. There are several names referring to these kind of funds such as, village banks, accumulating credit and savings associations (ASCAS) and community-based finance.

This article presents the outcome of a review of the performance of several CMLF projects established or supported by donors and international NGOs over the past 15 years. It highlights that success is very much related to the source of funding for the loans group members receive. Therefore, there are three classifications for these kind of funds:

  • Externally funded groups.
  • Savings-based groups.
  • Self-help groups.

The review showed that of these three models, only the savings-based and the SHG models appear to be viable. However, another factor which helps build success is the quality of external support community groups receive. Such support is important on a continuing basis, not just at the inception of the groups.

The article starts describing the study’s methodology, including sources and criteria for evaluating CMLFs. Then it reviews the performance of the three types of CMLFs, addresses whether CMLFs need long-term external support, and reviews the debate over the relative merits of community-managed and professionally managed approaches. It concludes with a brief summary of the implications for development agencies that support CMLFs.

  • Resource type
  • Author Murray J. , Rosenberg R.
  • Organisation
  • Year of Publication2006
  • Region
  • LanguageEnglish
  • Number of pages16 pp.
  • EditionFocus Note

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