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close this bookSustainability of Micro-enterprise Credit Schemes in Kenya's Informal Sector (K-REP, 1993, 14 p.)
View the document3.1 Introduction
View the document3.2 Planning for Self-Sustainability
View the document3.3 Sustainability Ladder
View the document3.4 Role of monitoring and evaluation

3.2 Planning for Self-Sustainability

Compared to many development programmes, credit schemes for micro-enterprise development have greater potential for becoming self sustaining, financially, and should not depend on donors funds except for expansion of the schemes and for financing those components of the programme that do not generate revenue.

Sustainability however, can only be achieved when a programme is well designed, planned and managed in a business like manner. NGOs are generally admired for their humanitarian predisposition which does not always come with good business management. The question is how NGOs can blend the good hearted nature they have, with the characteristics of successful business management.

The first step that needs to be considered, is internalizing the need for setting up self-sustaining schemes, making it part of the vision for the NGO. Many NGOs accept projects designed to become self-sustaining, simply because he donor says so and that's how to get funds. It is imperative that policy makers and chief executives believe in this goal before embarking on implementing credit schemes. Only then can good planning and management be effective. Secondly, there is the need for technically competent and committed staff.

Discussion on financial management principles and techniques needed for managing such schemes, is outside the scope of this paper. This discussion will center on a few simple techniques that can be instituted as a means of establishing a sound base for tracking progress towards self-sustainability.

3.2.1 Establishing Cost Centres

Where an organization is involved in various activities, whether related to credit or not, it is important to separate the functions and financial management of these activities. This can be done by establishing cost centers and determining which of the programme components are expected over time to generate revenues sufficient to cover related operating costs (profit centres).

3.2.2 Cost Classification

For each profit centre, costs may be classified under three main categories; Direct Costs, Operations Overhead, and Institution Overhead, as a basis for tracking the levels of cost coverage.

(a) Direct Costs include:

Direct labor


Salaries of staff that are directly involved in the production of goods/services (in this case salaries of credit officers).

Direct Material


Technically, direct materials refer to those raw materials that can be traced in the finished product. In the case service industries such as credit, there are no direct materials.

Direct Expenses


All expenses that are directly related to the production process. In this case expenses such as, passbooks, rent of credit office (not supervisor and managers offices), transport for delivering and collecting money, and all expenses associated with giving of credit.

These first three categories constitute what it known as Prime Costs and is the first level that NGO credit scheme should attempt to cover from credit operations revenues. In the K-REP sustainability plan, Prime Costs are to be covered in the first year of credit operation of the programmes. K-REP supported programmes were able to achieve this level of sustainability within 8 to 12 months of operation.

(b) Operations Overhead

The second category of costs, Operations overhead, is a group of operations expenses related to supervising and administering credit operations. These include salaries and fringe benefits paid to supervisors of credit officers, e.g. Branch Managers, Project Accountants, Secretaries, Messengers, cost of money, transport costs, electricity, telephone, postage plus any miscellaneous expenses associated with the credit operations including tea for staff if such is provided.

Once revenues reach a level where both prime and operations overhead are covered, a significant achievement will have been made. For if this level can be sustained, then at least the branch lending activities can continue without further donor input. This is level two of the sustainability ladder. Two K-REP funded programmes (Juhudi Eldoret and PCEA Chogoria) appear well on the path of meeting this planned target of sustainability within three years as per the plan. The other programmes will take longer to achieve this because of defaults that have undermined their achievement of sustainability within the planned period.

(c) Institution Overhead

Level Three of the sustainability ladder includes covering of institution overhead. This include the cost of managing the institution, developing programmes, and other establishment costs that cannot be allocated to the first two levels. Where an organization has many programmes, this cost is apportioned to all programmes. The problem is that many of these "other" programmes are usually non income generating, and so apportioning costs tot them serves no purpose. For credit operations revenues to cover some portion of institution overhead, is itself a great achievement. However, this is easier said than done. Moreover it is only a portion of institution overhead that can be covered, unless the credit programme is significantly large. To cover institutional overheads NGOs can resort to other non programme financial investments.

Level Four of the sustainability ladder include covering the institutional overhead as well as meeting training, Research and other developmental costs.