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close this bookGuidelines for the Formation of Small Enterprise Loan Policies and Procedures (K-REP, 18 p.)
View the document(introduction...)
View the documentIntroduction
View the documentI. Client Characteristics
View the documentII. Loan Characteristics
View the documentIII. Related Procedures

I. Client Characteristics

In planning your project, you will have to decide who it is you wish to assist and in what sorts of economic activities you wish to assist them. You will want to define a client profile strategy which will indicate what you would like your overall client group to be. You might indicate the proportions of female and male clients, the proportion of group enterprises, client groups or individual enterprises, the proportions of clients of different income levels, and other possible characteristics of the people and their enterprises. This strategy will reflect the aims and goals of your organization as well as the resources you have to work with. In this section, as Well as sections II and III, it is suggested that you review the following policy areas, first one at a time and then as a whole, drawing upon your knowledge of the people, their needs, and realistic opportunities available to them for improving their lives. Then draw up your policies related to client characteristics.

A. Age and Sex - The guidelines you will have with regard to the ages and Sex of client, i.e., maximum and/or minimum age and women and/or men. To consider:

· how age of persons involved might effect the viability of the economic activity or the learning process;

· what are the legal implications in defining age limits, e.g., lending to minors;

· possibly others.

B. Location - Where the enterprises are located. Where the clients are located. To consider:

· in what geographic areas do you plan to focus your lending;

· do you plan to work In rural or urban areas or both;

· what areas can you realistically reach with your staff and resources;

· does the activity have to have a fixed locale, and, if so, what is the basis for determining a fixed locale. This is particularly relevant for very small enterprises.

C. Type of Business - The sorts of economic activities that will be financed; commerce (vendors, traders, wholesalers, retailers), services (repair, construction, transport, clinics, food, storage, mechanics, etc.), manufacturing (milling, furniture making, etc,), and agribusiness (grain millers, food processors, resources extractors, woodcutters, and possibly others). Another criteria for type of business could be those that meet unmet demands for key products in rural markets. To consider:

· what will be the implications of your policy regarding types of business to be financed on local economic development;

· what types of business can your program adequately serve with the Technical and Management assistance resources you have.

D. Status of Business - The legal and operational conditions clients must meet. To consider:

· must client have all necessary licences/registration;
· must enterprise be functioning before loan can be made; if so, for how long;
· if client will be a new business, then under what conditions can a loan be made;
· must business be for profit, not for profit, or can it be either.

E. Group and/or Individual Enterprises - A group enterprise is one in which all participants have ownership in common. Individual enterprises are those in which ownership and management tends to be concentrated in one or two persons. Groups of individual small enterprises are not considered group enterprises in this context. To consider:

· what restrictions will you have as to whether group enterprises, individual enterprises, and/or groups of individual enterprises will receive loans.

F. Size of Enterprise - How big or small will enterprises be that you will assist. To consider:

· what limits will you have which define the size of the enterprises which can receive loans. These limits might be defined by amount of total assets, total fixed assets, (with or without land and building), number of employees, total sales, net income, and possibly others.

G. Experience/Training of Business Persons - The background clients will have in the enterprises you will support. To consider:

· what will be the requirements for technical and/or managerial experience or training of the borrower(s). These, could be defined in terms of certain training courses, years experience in a technical or management capacity, or combinations thereof, before they receive the loan or while they are using the loan.

H. Reputation - Generally, this is an unwritten criteria which would be looking for references on the client. To consider:

· honesty and integrity = do they honor their commitments;

· capacity - are they seen as being able to do things generally;

· industriousness - are they consistently hardworking;

· possibly other indicators of credit worthiness.

I. Involvement of borrower in the enterprise being financed. To consider:

· what are the requirements for day-to-day involvement of the borrower in the decision making and management of business, such as a certain number of hours per day, days per week, certain portion of the activities of the enterprise and possibly others.

J. Lack of Access to Other Credit. To consider:

· what limits will be placed oh lending to persons who could borrow or have borrowed from sources other than the project (i.e. banks and financial institutions) including supplier credit.