Appendix 1: Revolving loan scheme (RLS)

What is an RLS? It is simply a pooling mechanism for capital. Essentially it is a fund that "revolves" round a series of potential beneficiaries. You borrow from the fund for your enterprise - it could be an individual enterprise or a cooperative venture. When you pay back the money, it goes back into the pool for another beneficiary to use. The advantage of such a scheme is that it is specifically targeted for certain kinds of activities and for certain kinds of borrowers. Over time, those who manage the scheme know their borrowers and the activities, and can offer specialised advice to the users of the fund.

There are two kinds of RL Schemes.

1. Cooperative Revolving Loan Scheme
2. Commercially-Operated Loan Scheme

In the first case, the beneficiaries themselves own and manage the pool; in the second case, a bank or some such organisation owns and manages the pool. In the first case, the fund could initially be raised through pooling together the beneficiaries' own savings (much like burial societies do), or it could be raised as a grant from a donor NGO, or commercially from a bank. If the scheme is successful, and members duly pay back their capital and interest, the fund can grow in size and the members can decide either to go into a large collective venture, or to distribute some of the earned income as dividends among themselves. A cooperative loan scheme is better for the PWDs to establish, provided, of course, they have the requisite financial management skills. Many cooperative schemes of this kin have failed because of lack of these skills.

There is a variant of this scheme that we should know about. This is the so-called Revolving Loan Guarantee Scheme (RLGS). In this case, you do not draw out of the pool directly. The pool is there only as a "guarantee" against defaults of capital borrowed from commercial banks. [A "default" is when a borrower fails to pay back his or her loan]. The "Guarantee" acts as a kind of collateral. This is a useful way for people who have no collateral (assets) of their own. They come together to act as each other's guarantors against loans borrowed from the banks or lending institutions.

At the Entebbe Workshops much interest was shown by the participants in the running of such a loan scheme in Kenya.

Kenya Credit Scheme for the Disabled Entrepreneurs: A Case Study

The ILO/UNDP funded revolving loan scheme in Kenya was one of the successful projects for PWDs. The project was started after realising that the main objective of vocational training had the following problems:

a) Graduates of vocational rehabilitation Centres lacked materials, tools and equipment to start their own business, even after getting the training; and

b) they lacked entrepreneurial or business skills.

Several steps were, therefore, taken - namely:

· identification and promotion of those who would benefit from the scheme and have an interest in self-sustaining business;

· after identification and selection of entrepreneurs, a five-day intensive training is carried out in the business management skills;

· after training, those who needed assistance such as working capital, raw materials, tools and equipment are advised to write a business plan that would be taken to the bank. The loan is disbursed only after the bank is satisfied that the proposal is viable.

The ILO/UNDP deposited US dollars 500,000 in a local commercial bank as security or guarantee. Initially, there were problems of convincing bank branch managers to take on the loan scheme but the media helped to publicise the scheme. The training of bank managers was organised by the project.

Conditions and performance:

· In addition to the guarantee fund provided by the project, the clients are encouraged to get guarantors from their own community - religious leaders, etc. Furthermore, business assets (e.g. machinery) acquired by the project are also placed as collateral.

· The maximum repayment period is 36 months, but it varies with the type of business.

· Interest rate was 19 percent in 1990 and it had remained at that level even though the interest rate in the Central Bank had gone up to 26 percent. Thus the PWDs are getting money more cheaply than in the open market.

· The period of grace is about three months but this also depends on the nature and gestation period of the business.

· There is no minimum because it is determined by the business, proposal, but the maximum is 150,000 K Shillings (about US$ 260).

· The loan scheme is open to both groups or associations of PWDs and to individuals.

How well did the scheme perform?

Since the scheme started in 1989, it had trained 1,100 PWDs. However, out of these only 256 could present fundable projects and had received loans. Out of 256, about 19 had defaulted completely, 41 were struggling to repay and were being assisted, and 39 had repaid in total. The causes for default varied from region to region. Political activities had affected the scheme because some politicians during their campaigns told the people that the loan was a grant, and so they decided not to pay back the loans. Other causes are social: for example, funds had been diverted to build houses or marry more wives.