Micro Credit Systems for Small Enterprises in Developing Countries - Practical guide (GTZ, 66 p.) 4. Advice for organising a micro enterprise support projects (introduction...) 4.1 Staff 4.2 General administration work 4.3 Loan Insurance Fund administration 4.4 Loan administration 4.3 Financial controls 4.4 Project financing 4.5 Project evaluation

Micro Credit Systems for Small Enterprises in Developing Countries - Practical guide (GTZ, 66 p.)

4. Advice for organising a micro enterprise support projects

One should not be under time pressure to establish the project. Before one starts to work with the target group, it is necessary to carry out a comprehensive survey about the:

· Project area
· Problem statement
· Target group
· Project objectives
· Final goals
· Roles of the partners
· Staff which has to be properly selected and employed

After this has been completed the following things have to be set up:

· The training contents and courses
· The micro credit scheme
· A control system

The establishment of the micro credit scheme, the training courses, the office administration work and the control system have to be checked by a neutral party. The staff has to be trained properly in all these topics before the work with the target group can start. It can take up to one year until the work with the beneficiaries starts. Do not be put under pressure to establish the project quickly. Take enough time to prepare everything so that you can start a clear, understandable, safe and controlled work.

4.1 Staff

Select qualified personnel. The staff is the key player for the success of the project. Therefore the staff has to be continuously and intensively trained about the project, the business¹⁹ and accounting management. They have to be familiar with current credit methods. Furthermore, a basic knowledge in computer software is mandatory so that credit data and the project's budget can be analyzed and the progress of the whole project can be monitored.

¹⁹ The above mentioned "Improve your business, basics, practical management for small businesses" includes also a "Trainer's guide - Training of Entrepreneurs".

To work with 150 to 200 micro entrepreneurs you need 1 Project Director, 3 Extension Workers, 1 Book-Keeper, 1 Secretary and 1 Office-Ordinary. Start with one entrepreneur group per Extension Worker. If the group is running well, start to identify and to check a second group. Continue until each Extension Worker has a maximum of 4 groups at the same time. If a group has nearly finished repaying of the first loan, the Extension Worker can start the preparation for the second loan. If a group is almost independent a new group can be identified and the Extension Worker can start to do the business checks. But before a new group is started, make sure that there is enough money in the revolving fund for the expected second loans as well as the first loans for the new group. An Extension Worker needs time to react to problems of the entrepreneurs, to assist in individual situations, to teach courses, to collect the repayments as well as to prepare and report training matters and loan repayments. The "Kabwe Enterprise Support Project" showed that one Extension Worker is fully occupied with four entrepreneur groups. Therefore, the Project Director should be sensitive if an Extension Worker wants to be responsible for additional groups. Something could be wrong. If there are too many entrepreneurs who have to be supported, it will be difficult to attend to the entrepreneurs, to keep everything under control and to establish a proper reporting system.

4.2 General administration work

The position of the Book-Keeper is very important since a proper accounting system is vital for the project. The accounting system provides all information about income and expenses, cash in hand and money at the bank. Proper accounting is the basis of operations control and analysis. Therefore, only with proper maintained accounts it is possible to manage all project activities. It helps to make decisions. The accounts must be up-to-date at any time and ready for inspection. All entries have to be made daily or at least weekly.

There are excellent books about simple accounting systems. For example the "Manual of practical management - for third world rural development associations" from Fernand Vincent²⁰ is recommendable. The following accounting documents, books and forms described in the "Manual of practical management" are necessary to be maintained for any bookkeeping purposes:

²⁰ Manual of practical management - for third world rural development associations, Fernand Vincent, Volume II Financial Management, Development Innovations and Networks (IRED), Series IV Tools and action, 1989. General secretariat: IRED-Forum, 3 rue de Varembe - Case 116, 1211 Geneva 20, Switzerland, Tel. 7341716, Fax. 7400011.

· Budget form
· Cash book, petty cash vouchers and receipts
· Cash control form
· Bank: accounts, vouchers, documents like cheques and statements, transfers, withdrawals, deposits
· Bank reconciliation form
· Goods account vouchers
· Expense statement
· Accounting books about all activities: income and expenditure, cash in hand and money at the bank
· Profit and loss accounts
· Cash-flow and balance sheet form
· Depreciation form
· Stock form
· Inventory of goods
· Check list of all regular running costs like office rent, insurance payments or car maintenance

The accounting system must be controlled regularly at least once per month by the Project Director and a neutral external person. The system must be simple so that everybody who has to control can understand it easily.

4.3 Loan Insurance Fund administration

The organization must have a separate bank account for the deposits of the Loan Insurance Fund. This makes it easier to manage and control the LIF.

To manage the savings of the LIF, one must keep the following documents:

a) LIF Savings Account Register and Saver Account Register
b) Individual LIF Savings Receipt Card
c) LIF Savings Receipt
d) LIF Savings Account Book

e) LIF Savings Cash and Bank Accounts²¹

²¹ All documents needed in connection with the LIF should be printed in a color different from the one used for the loan documents so that they can not get mixed.

a) The Book-Keeper should keep a register of the LIF savings account of the savers as follows:

	Project Name LIF Savings Account Register
Date	Account No.	Name	Address	Remarks
02.07.'97	0111 SK
02.07.'97	0537 SK
02.07.'97	1224 SK

Table 11: LIF savings account register²²

²² See Appendix III: "LIF Savings Account Register".

The account numbers should be written down by one group after the other. They should be constructed as follows:

· The first two numbers indicate the number of the group.
· The third number indicates the sub-group number.
· The forth number indicates the number of the individual saver or borrower.
· The two letters at the end should be the initials of the Extension Worker who attends to the entrepreneur.

It is advisable to set up an additional Saver Account Register. The first column should contain the names of the savers in alphabetical order and the second one should be filled with their respective account numbers. Such a register helps in finding the account number of an individual saver.

b) For each borrower an Individual Savings Receipt Card is set up which has be kept by himself properly. On this card each of his deposits or withdrawals are recorded and signed in the following way:

Project Name Individual LIF Savings Receipt Card
Name of the saver: .............................................. Group Name: ....................................................
Address: ........................................................................................................................................
Account No.: ................................... Signature of the saver: .........................................................
Date	Details	Amount $ Deposit	Amount $ Withdrawn	Balance $	Signature Receiver of money	Remarks
	BAL/B/F	DB	CR	BAL
05.07.'97	Deposit	1.50	-	1.50	Treasurer
12.07/97	Deposit	1.50	-	3.00	Treasurer
19.07.'07	Deposit	1.50	-	4.50	Treasurer
20.07.'97	Withdrawn	-	4.50	0.00	Saver

Table 12: Individual LIF saving receipt card²³

²³ See Appendix IV: "Individual LIF Savings Receipt Card". It should be printed on a card board.

c) An LIF Savings Receipt Book has to be given to each Extension Worker who signs for the receipt of the book which has to be numbered and recorded. Besides this each page of the Receipt Book has to be numbered. The original receipt remains with the treasurer of the group. The copy is kept in a project file which itself has to be placed in a secured box in the office. The Extension Worker and a representative of the group have to deposit the LIF money immediately at the bank. The copy of the LIF receipt and the banking slip must be given to the Project Director who checks the documents and gives them to the Book-Keeper. After the Book-Keeper has checked them as well, he enters the savings into the LIF Savings Account Book, which is explained under d).

Project Name LIF Savings Receipt
Group name: ................................................................... Week No.: ........ Date: ..........
Savers of 1. Sub-group								Total $ amount
Acc. No	0111	0112	0113	0114	0115	0116	0117
Amount	2.5	2.5	2.5	2.5	2.5	2.5	2.5	$ 17.50
Savers of 2. Sub-group
Acc. No	0121	0122	0123	0124	0125
Amount	3.75	3.75	3.75	3.75	3.75			$18.75
Grand Total:								$ 36.25
Place:					Date:
Grand Total amount of (in words): Thirty six dollars and twenty five cents only Paid by: Name ............................................................... Signature:....................................... Received by: Name: ...................................................... Signature: ........................................ Witnessed by group representative: Name: .............................. Signature:................................

Table 13: LIF savings receipt²⁴

²⁴ See Appendix V: "LIF Savings Receipt".

d) The Book-Keeper has also to keep a LIF Savings Account Book where the savings of each participant are recorded. One page can be reserved for each individual member. The projects LIF Savings Account Book has to be kept in the same way as the Individual LIF Savings Receipt Card. Each page of the book can be printed in the same way as the individual LIF Savings Receipt Card a column for the signature is not needed since the Book-Keeper just fills in the LIF Savings Account Book according to the receipts.

e) The Book-Keeper has to keep for all LIF Savings a normal Cash and Bank Account. This is part of the "General administration work" as described in Chapter 4. The paid LIF amount has to be deposited immediately in the project bank account for the LIF. This should avoid fraud and interest can be earned.

4.4 Loan administration

The organization must have a separate bank account for the revolving fund. The entire money for the loans as well as for the loan repayments including interest payments of the borrowers and administration fees have to be deposited in this account.

To manage the revolving fund one must keep the following documents:

a) Register of Loan Disbursement Accounts and Borrowers Account Register
b) Individual Loan Repayment Receipt Card
c) Loan Repayment Receipt Book
d) Loan Repayment Account Book
e) Loan Cash and Bank Accounts²⁵

²⁵ All documents concerning loans should be printed in a color different from the LIF documents to avoid mixing them up.

a) The Book-Keeper should keep a register of all loans disbursed to the entrepreneurs as follows:

Project Name Register of Loan Disbursement Accounts
Date	Account No.	Name	Address	Loan purpose	Loan amount	Interest rate	Administration fee	First installment	Last installment	Remarks
02.07.'99	0311K S			buying chicks	300	30%	5%	17.09.'97	20.03.'98
02.07.'99	0312K S			sewing material	300	30%	5%	17.09.'97	20.03.;98

Table 14: Register of loan disbursement accounts²⁶

²⁶ See Appendix VI: "Register of Loan Disbursement Accounts".

It is advisable to set up a Borrowers Account Register whereby in the first column the name of each borrower is recorded alphabetically and in the second column the account number of each borrower is written down accordingly. This list will help to find the account of a special borrower quickly. Furthermore it informs about the disbursed loans and on which day the money has to be completely paid back.

b) For each borrower an Individual Loan Repayment Card is set up which has to be kept properly. On this card each of his repaid amounts are recorded and signed in the following way:

Project Name Individual Loan Repayment Receipt Card
Name of borrower: .............................................. Group Name: ....................................................
Address: .........................................................................................................................................
Account No.: ................................... Signature of borrower: ..........................................................
Date	Details	Loan Interest Admin. fee	Weekly Repayment	Balance	Signature Receiver of money	Remarks
	BAL/B/F	DB	CR	BAL
07.09.'97	Loan	300	-	300	Borrower
07.09.'97	Interest	62.42	-	362.42	Borrower
07.09.'97	Admin.	6	-	368.42	Borrower
29.11.'97	fee	-	14.17	354.25	Treasurer
06.12.'97		-	14.17	340.08	Treasurer
13.12.'97		-	14.17	325.91	Treasurer

Table 15: Individual loan repayment receipt card²⁷

²⁷ See Appendix VII: "Individual Loan Repayment Receipt Card". It should be printed on a card board.

c) A Loan Repayment Receipt Book has to be given to each Extension Worker who signs for the receipt of the book which has to be numbered and recorded. Besides this each page of the receipt book has to be numbered. The original receipt remains with the treasurer of the group. The copy is kept in a project file which itself has to be placed in a secured box in the office. The Extension Worker and the representative of the group have to deposit the loan repayment money immediately in the bank. The copy of the LIF receipt and the deposit slip must be given to the Project Director who checks the documents and gives them to the Book-Keeper. After the Book-Keeper has checked them, he enters the repayments in the Loan Repayment Account Book, which is explained under d).

Project Name Loan Repayment Receipt
Group Name: ................................................... Week No.: ............... Date: ...................
Name: (Of one sub-group only)	Account No.:	Loan $ repaid	Interest $ paid	Ad. fee $ paid	Total repayment $	Remarks
	0531	9.62	1.44	0.19	11.25
	0532	9.62	1.44	0.19	11.25
	0533	9.62	1.44	0.19	11.25
Grand Total:					33.75
Place: .............................................................. Date: ...................................................... Grand Total amount of (in words): Thirty three dollars and seventy five cents only Paid by: Name: ...................................................................... Signature:......................... Received by: Name ............................................................... Signature: .......................... Witnessed by group representative: Name: .......................... Signature: .............................

Table 16: Loan repayment receipt²⁸

²⁸ See Appendix VIII: "Loan Repayment Receipt".

d) The Book-Keeper also keeps a Loan Repayment Account Book where all repayments of each borrower are recorded. Two pages of the book respective can be reserved for one borrower. The Loan Repayment Account Book has to be kept as follows:

Project Loan Repayment Account Book
Name of borrower: ..............................................................................................................
Address: ..............................................................................................................................
Account No.: ........................................................................................................................
Date	Detail	Loan amount $			Interest amount $			Admin. Fee amount $			Total amount $			Remarks
	BAL/B/F	DB	CR	BAL	DB	CR	BAL	DB	CR	BAL	DB	CR	BAL
07.09. 1997	Loan	300	-	300	-	-	-	-	-	-	300	-	300.00
07.09. 1997	Interest	-	-	-	62.42	-	62.42	-	-	-	62.42	-	362.42
07.09. 1997	Admin. fee	-	-	-	-	-	-	6	-	6	6	-	368.42
29.11. 1997	repaid	-	11.54	288.46	-	2.40	60.02	-	0.23	5.77	-	14.17	354.25
06.12. 1997	repaid	-	11.54	276.92	-	2.40	57.62	-	0.23	5.54	-	14.17	340.08
13.12. 1997	repaid	-	11.54	265.38	-	2.40	55.22	-	0.23	5.31	-	14.17	325.91

Table 17: Loan repayment account book²⁹

²⁹ See Appendix IX: "Loan Repayment Account Book".

e) The Book-keeper has to maintain a normal Cash and Bank Account for all Loan repayments, interest and administration fee payments. This belongs to the "General administration work" as described under Chapter 4.2. The repaid money has to be deposited immediately in the project's bank account for the revolving fund. This should avoid fraud and interest can be earned.

Note to Revolving Fund: In the event that somebody fails to repay the loan, interest and administration fee and neither the sub-group nor the group is able to solve the problem, the LIF of the sub-group will be transferred to the Revolving Fund Account in order to cover the missing amount.

Before one starts to check businesses for a new group, prove if there is enough money in the Revolving Fund Account to pay out all necessary loans for the new group. Furthermore make sure that there is still enough money for the expected second loans for the currently running groups.

Do not use the whole amount of the Revolving Fund at the same time. A minimum of 20 to 30 % of the Revolving Fund should be in the bank account at any time. In the event that the loan repayment decreases drastically since the borrowers do not repay the loan a reserve is needed to pay out further loans under new conditions which take the problems into consideration. It is also necessary always to have money available for unforeseen circumstances.

4.3 Financial controls

It is obvious and therefore normal practice that wherever money is involved strict financial controls have to be implemented. Fraud is a problem all over the world and developing countries are not an exception. It has to be taken into consideration that social pressure on the few people with regular incomes in developing countries could increase the risk of fraud. For example due to hunger, death, unemployment or a disease like AIDs the pressure from the extended family could cause a change in the perception of the workers dealing with financial matters. Furthermore, in some countries corruption is common and is even accepted. Due to such aspects control and decision making about personnel and finance is done by a neutral and honorable person or organization. This one is also responsible for the implementation and keeping up of a strict control system. Every six months an audit report should be done. In addition to that a person from the donor organization should visit the project in order to control the project status and the finances at least once a year.

To avoid corruption and fraud the following advise is recommendable:

· All documents have to be printed in books. They should not be on lose papers.

· On the front cover of each accounting book the name of the organization, the purpose of the book, the year and the signature of the Project Director should be stated.

· The pages of all accounting books have to be numbered.

· The Project Director has to maintain a list of each existing accounting book. The workers who use a receipt book in the field have to sign for this book.

· At the end of each day the balance of the cash book and cash in hand has to be checked and reported.

· Cheques for bank withdrawals or bank transfers have always to be signed by two persons.

· Each month the accounting records have to be balanced with the bank statements. If there is any discrepancy it has to be followed up immediately.

· Check all cash and bank transfers.

· Each cash operation has to be recorded in a so called cash book kept by the Project Director in a secure, lockable place in the office together with all important accounting documents such as the bank account book and voucher files, see under Chapter 4.2 "General administration work".

· The petty cash should be a very small amount. As far as possible payments should be done by cheque or through bank transfer. One possibility is to arrange with frequent suppliers, for example petrol stations for a credit account or prepayment account which is paid on a monthly basis.

· The money which is used for petty cash must be withdrawn from the bank. Never take money from the loan repayment for petty cash or any other project operations.

· Loan repayments have to be deposited immediately in the revolving fund bank account.

· Make sure that the money of the loan repayment is really 100 % banked by checking the bank statements regularly.

· Open three bank accounts one for the project's operation money, a second one for the LIF and a third one for the loan money. Never mix the money of these bank accounts. Never use LIF or loan money for the project's operation.

· All documents have to be numbered in the same way as done in the cash and bank book. The same numbers must be recorded in the corresponding account books and files.

· All receipts must be numbered consecutively and filed in the same way.

· Make sure that there are receipts for all operations. Make sure that the receipts are not falsified: For example figures could be changed. Besides this, check if the goods are really bought for the project. Make an inventory of goods.

· Each document has to be filed immediately so that nothing can get lost.

· If the accounting books are not up-to-date react immediately. Since loan repayments are made in cash, a lot of cash money is involved so that the temptation to embezzle some money can not be disregarded.

· Do an audit every six month.

4.4 Project financing

A project to support micro entrepreneurs in developing countries has a social character. Therefore, the project is implemented to obtain social gain and not financial profit. Such a project as described here can not be self-financing. The business training, checking and monitoring work as well as the loan administration for such small loan amounts is very expensive. Since the project is meant to serve the disadvantaged people, the target group can not afford to pay the full costs for these services. However, the organization must be able to cover the financial needs. At the start of the project the funding has to come through donors. If the project is established it can generate some income through interest payments on the loans, administration fees and eventually by consulting or training organizations and entrepreneurs who do not participate in the project. But the major part of funding has still to come through government assistance, sponsors and donors.

The described project deals with a revolving fund amount of $ 60,000. All other costs like salaries for the staff, office material, equipment, training material and operating costs for office rent and fuel have to be calculated with regard to the respective country's situation. Such a social project needs 100 % financing in the first 3 to 4 years. After this period, it is realistic to try covering the costs related to the revolving fund out of project's income. These costs can be quite high through an extreme high inflation rate and not repaid loans. Besides this the project should manage to cover 10 % of the total project costs through its own income. The following points give some ideas how the project can generate income so that the revolving fund will be covered continuously and 10 % of the total project costs as well:

· The interest rate of the revolving fund will be used to keep the revolving fund. This is a quite risky amount and maybe a very large amount is needed since the inflation rate can be extremly high meanwhile the loan repayment can be difficult.

· The administration fee will be used either to keep the revolving fund or to cover some of the 10 % of the project costs. Further income for the running project costs will be:

· Interest out of LIF and project money in the bank accounts.

· One could charge a small fee for the business management training adjusted to the financial possibilities of the target group.

· In the fourth year a fourth Extension Worker can be employed. Based on the made experiences of the project he has to offer business training courses and business consultancies for entrepreneurs who are able to pay for such services. The costs of the fourth Extension Worker will be covered and it will still be possible to make some profit.

· From the beginning of the fourth year consultancy service to other social projects can be offered. For such services as well as for the training and credit system money can be charged.

· Furthermore, training material and business books can be sold. The price can be lower for project participants but should be a profitable for external entrepreneurs with a larger enterprise.

To cover the remaining 90 % of the project costs serious attempts should be made to raise the money in the country where the project is established. The involvement of foreign donor organizations must be reduced step by step. Otherwise the project will never be sustainable. Therefore the following steps can be undertaken:

One has to "sell" the social aspect of the project. This is a difficult but possible task. The project work has to be published and must have a good reputation. It must be an advantage for public people to be in connection with the project. For example, you can arrange for an open day or you can organize a special day on which the entrepreneurs who successfully attended the business management training and repaid the loan show their increased business and standard of living. The press, important people out of the political and social field, big business leaders, the directors of important organizations and other important people should be invited. The following ways are possible for building up on the publicity of the good charity work and the good name of the project:

· The government of the country has to be involved. They should support the project on a regular financial basis. For them it will be a good opportunity to support a nicely running project for the disadvantaged people of their country. In this way their image will improve.

· One has to get in contact with big companies or other sponsors. For example a big company which is selling cars can sponsor a car or others can sponsor a training course through which they can make publicity to their own advantage.

· One has to get in contact with public figures, wealthy people and firms who like to spend some money for a charity purpose. If it is transparent what is happening with the money and if the money is really used for a good purpose, there will be people who support such a social project. In each country there are people who are working very hard but they do not have enough time to do charity work. For them it is good if they can give their input in form of financial assistance.

· There are also charity organizations which like to support a good functioning social project. Besides this there are people or companies who raise money at parties or for the festive season and like to donate it to a charity project.

· More ideas and possibilities to raise money will most probably come up if you are doing a reasonable, honest and trustworthy work with the disadvantaged people. For example in the described project entrepreneurs who increased their business significantly started further to train micro entrepreneurs and donated money for loans to other micro businesses in their area. Furthermore, the project educated 10 Volunteer-Trainers who did individual business training in addition to the group training. This improved the business knowledge and success. Last but not least it helped to have a really good loan repayment rate. Therefore, not much money was needed to cover the unpaid loan of the revolving fund. It should be mentioned that the entrepreneurs who were assisted from the project also made their contribution to support the project. In rural areas they build the training centers without any financial or material assistance from the project. They provided the center to the project free of charge and the houses could even be used for further social activities in that area. In urban areas the supported entrepreneur groups organized the meeting and training places for example in churches or government rooms which they renovated themselves. The organization did not pay any rent for the rooms, therefore project money could be saved.

4.5 Project evaluation

Project meetings are held by the project team monthly whereby the following aspects are discussed:

· Statements of the entrepreneur groups
· Problems of businesses
· Review of the training and credit system
· Progress with the existing borrowers
· Potential participants
· Plans for the future

The project team can be advised by the "Advisory Committee".

At least once a year a project evaluation should be done. The attached "Final Interview"³⁰ will assist to do the evaluation. The following aspects should be worked out by the evaluation meeting:

³⁰ See Appendix No. X: "Final Interview"

· Goals and objectives which were set
· Achievement of the goals and objectives
· Strong and weak points, good and bad aspects of:

Þ The training system
Þ The credit system
Þ The administration work
Þ The whole project

· Decisions about the ongoing of the project
· Future goals and objectives