| Micro-Success: An Online Lending Guarantee & Risk Rating System | ||||||||||||||||||||||||||
| Loan product | member loan amounts | source | guarantee | |||||||||||||||||||||||
| Micro-Group loans | 3 rounds: shs100,000, 150000, 200000 | donations | (donated funds become group loan capital) | |||||||||||||||||||||||
| Community Guaranteed Loans | 3 rounds: 250,000, 350,000, 450,000 | kiva | (15% of returned group loan capital serves as a guarantee) | |||||||||||||||||||||||
| Micro-Success! Loans | shs500,000 - 2,500,000 | kiva/other | (85% of returned group loan capital serves as a guarantee) | |||||||||||||||||||||||
| Micro-Group Loans: For borrowers without a MicroSuccess Rating or formal employment | ||||||||||||||||||||||||||
| - Self-selected groups of 5 CBO members take a picture together & list their micro-project intentions at flickr and at ned.com with a dropcash/chipin campaign | ||||||||||||||||||||||||||
| - in 3 incremental rounds LiA raises up to shs1,000,000 in donated group loan funds + a small portion of the operations capital required to monitor the loans | ||||||||||||||||||||||||||
| - At the end of Round 3, the group returns the donated capital to LiA to serve as their guarantee against future individual loans of higher amounts sourced online | ||||||||||||||||||||||||||
| - Group performance in returning the loan capital ontime establishes each member borrower's MicroSuccess Rating that affects future access to loans | ||||||||||||||||||||||||||
| All payments MUST be made on time, on or before pre-agreed payment dates. Any round may be repeated to clear a late payment record | ||||||||||||||||||||||||||
| ONLY members with a 100% ontime repayment record graduate to a higer amount in the next round; new funds will only be raised for what good payers need | ||||||||||||||||||||||||||
| Min 1 x monthly self-reporting with (ie short handwritten updates provided to CBO at moment of payment) is also required to move on to the next round | ||||||||||||||||||||||||||
| Borrower updates are translated & posted by CBO appointed staff on the flickr photo and ned.com pages established for the group's fundraising | ||||||||||||||||||||||||||
| All borrowers will be visited at least once by a local/global team of internet4change reporters to verify their projects during one of the 3 rounds | ||||||||||||||||||||||||||
| To raise online | LiA USA | transfer fees | ARRIVES in UG |
exchange loss reserve | foundation + i4c reports | granted to CBO | loaned to CBO for group | Total group capital | cbo-earnable interest (max 25%) | total potential CBO income | earnable cbo monthly income on this capital | 5 groups | 10 groups | 20 groups | ||||||||||||
| Round 1 | $ 400 | $ (36) | $ (24) | $ 340.00 | ||||||||||||||||||||||
| mo 1-4 | 581,400 | (15,400) | (48,000) | (18,000) | 500,000 | 500,000 | 41,667 | 59,667 | 14,917 | 74,583 | 149,167 | 298,333 | ||||||||||||||
| Round 2 | $ 200 | $ (18) | $ (12) | $ 170.00 | ||||||||||||||||||||||
| mo 5-10 | 290,700 | (7,700) | (24,000) | (9,000) | 250,000 | 750,000 | 93,750 | 102,750 | 17,125 | 85,625 | 171,250 | 342,500 | ||||||||||||||
| Round 3 | $ 200 | $ (18) | $ (12) | $ 170.00 | ||||||||||||||||||||||
| mo 11-16 | 290,700 | (7,700) | (24,000) | (9,000) | 250,000 | 1,000,000 | 125,000 | 134,000 | 22,333 | 111,667 | 223,333 | 446,667 | ||||||||||||||
| Converting donated group loan capital to individual guarantee fund reserves | ||||||||||||||||||||||||||
| When a group finishes 3 group guaranteed loan rounds, the capital is returned to LiA & deposited in the LiA Network loan guarantee fund | ||||||||||||||||||||||||||
| 15% will be earmarked as Community guarantee funds (for the group's CBO) to guarantee individual "practice loans" of up to shs450k sourced thru Kiva | ||||||||||||||||||||||||||
| 85% will be earmarked as MicroSuccess! guarantee funds, managed by Life in Africa Foundation, to guarantee loans to individuals with a rating of 8 or more. | ||||||||||||||||||||||||||
| - The funds are assigned a maximum guaranteeable value based on the group's performance and deposited in long-term interest bearing accounts. | ||||||||||||||||||||||||||
| - The CBO share of interest earned on guarantee deposits will be calculated and paid annually, and may be used for any CBO-operations related purpose declared in the CBO annual report due to LiA | ||||||||||||||||||||||||||
| The no. of group members with clean records + the % of loan capital returned by the group determines 2 key MicroSuccess Rating variables | ||||||||||||||||||||||||||
| 1. the % of funds on deposit required by LiA as a guarantee for any future loan sourced online for these group members as individuals | ||||||||||||||||||||||||||
| 2. the highest amount guaranteeable for each member of this group against the returned group loan funds now deposited | ||||||||||||||||||||||||||
| => | This amount can increase through CBO deposits of additional funds (ie loan-blocked member savings) into the guarantee fund for the duration of the loan | |||||||||||||||||||||||||
| CBOs are encouraged to establish organizational policies that: | ||||||||||||||||||||||||||
| - require payment of reasonable service fees and interest (that shall never exceed 25% pa) for member's use of donated group loan capital | ||||||||||||||||||||||||||
| - impose additional documentation, borrower reserve requirements and/or capping rules on group guaranteed and/or community guaranteed borrowers | ||||||||||||||||||||||||||
| - Allow their members to skip up to 2 rounds under specific (clearly delineated) written rules that apply equally to all borrowers | ||||||||||||||||||||||||||
| - recycle loan guarantee funds on deposit to guarantee a broader portfolio of borrowers in other other parts of the MicroSuccess system, as long as the total amount guaranteed by the CBO doesn't exceed what is allowed by LiA as the risk rated CBO guaranteeable amount | ||||||||||||||||||||||||||
| Guarantee Fund Reserves & the MicroSuccess Rating: Group Loan Performance Scenarios | ||||||||||||||||||||||||||
| At the end of round 3, the group's donated lending capital must be returned to LiA by the CBO within 15 days. | Capital returned to lia by cbo for group | % of original capital raised | no. of 100% clean records | guarantee K per person | cap guaranteeable for grp members | total org guaranteeable amount | These scenarios illustrate how well-paying members in groups with slow payers can improve their individual access to higher credit amounts by working together to recover the group loan capital | |||||||||||||||||||
| The % of the donated loan funds returned at that time determines the required reserve for on-time paying members of that group & the total guaranteeable value of those funds - for each of those individuals whenever they apply for a WE Network loan in the future and for the CBO in developing their portfolio. These figures will never change except in case of future late payment or a loan default | 1,000,000 | 100% | 5 | 200,000 | 800% | 8,000,000 | 1,000,000 | 100% | ||||||||||||||||||
| (850,000) | 85% | 5 | 170,000 | 1,416,100 | 7,080,500 | required reserve = 12.5% + ((% not returned) / (no. of clean records)) | ||||||||||||||||||||
| (150,000) | 15% | 5 | 30,000 | 249,900 | 1,249,500 | highest guarantee = (% returned / required reserve) x funds on deposit | ||||||||||||||||||||
| 12.50% | required guarantee reserve | MS rating => | 8.00 | MicroSuccess Rating = total guaranteeable amount / capital returned | ||||||||||||||||||||||
| Capital returned to lia by cbo for group | % of original capital raised | no. of 100% clean records | guarantee K per person | cap guaranteeable for grp members | total guaranteeable amount | Capital returned to lia by cbo for group | % of original capital raised | no. of 100% clean records | guarantee K per person | highest guarantee for grp members | total org guaranteeable amount | |||||||||||||||
| 880,000 | 88% | 4 | 220,000 | 568% | 4,996,129 | 1,000,000 | 100% | 4 | 250,000 | 800% | 8,000,000 | |||||||||||||||
| (748,000) | 85% | 4 | 187,000 | 1,246,542 | 4,986,168 | (850,000) | 85% | 4 | 212,500 | 1,770,125 | 7,080,500 | |||||||||||||||
| (112,200) | 15% | 4 | 28,050 | 186,981 | 747,925 | (150,000) | 15% | 4 | 37,500 | 312,375 | 1,249,500 | |||||||||||||||
| 15.50% | required guarantee reserve | MS rating => | 5.68 | 12.50% | required guarantee reserve | MS rating => | 8.00 | |||||||||||||||||||
| Members who have not completed the 3 loan amount rounds with perfect ontime repayment records but who wish to keep trying (to obtain a MicroSuccess rating) must repeat each cycle with a late payment until they have completed perfectly. If there isn't enough capital left, those members will have to wait or help with recovery. | Capital returned to lia by cbo for group | % of original capital raised | no. of 100% clean records | guarantee K per person | cap guaranteeable for grp members | total guaranteeable amount | Capital returned to lia by cbo for group | % of original capital raised | no. of 100% clean records | guarantee K per person | highest guarantee for grp members | total org guaranteeable amount | ||||||||||||||
| 600,000 | 80% | 3 | 200,000 | 417% | 2,504,348 | 750,000 | 100% | 3 | 250,000 | 800% | 6,000,000 | |||||||||||||||
| (510,000) | 85% | 3 | 170,000 | 1,133,220 | 3,399,660 | (637,500) | 85% | 3 | 212,500 | 1,770,125 | 5,310,375 | |||||||||||||||
| (76,500) | 15% | 3 | 25,500 | 169,983 | 509,949 | (112,500) | 15% | 3 | 37,500 | 312,375 | 937,125 | |||||||||||||||
| 19.17% | required guarantee reserve | MS rating => | 4.17 | 12.50% | required guarantee reserve | MS rating => | 8.00 | |||||||||||||||||||
| Capital returned to lia by cbo for group | % of original capital raised | no. of 100% clean records | guarantee K per person | cap guaranteeable for grp members | total guaranteeable amount | Capital returned to lia by cbo for group | % of original capital raised | no. of 100% clean records | guarantee K per person | cap guaranteeable for grp members | total org guaranteeable amount | |||||||||||||||
| Loan funds sourced by the CBO from elsewhere and/or group loan funds recovered by the CBO after the 15 day return deadline may used by the CBO to finance repeat loan rounds for dilinquent group members as necessary, as long as the source of loan funds is clearly reported and consistent with monthly and annual CBO portfolio figures. | 750,000 | 85% | 3 | 250,000 | 486% | 3,642,857 | 800,000 | 95% | 3 | 266,667 | 671% | 5,364,706 | ||||||||||||||
| (637,500) | 85% | 3 | 212,500 | 1,062,500 | 3,187,500 | (680,000) | 85% | 3 | 226,667 | 1,888,133 | 5,664,400 | |||||||||||||||
| (95,625) | 15% | 3 | 31,875 | 159,375 | 478,125 | (120,000) | 15% | 3 | 40,000 | 333,200 | 999,600 | |||||||||||||||
| 17.50% | required guarantee reserve | MS rating => | 4.86 | 14.17% | required guarantee reserve | MS rating => | 6.71 | |||||||||||||||||||
| The highest Micro-Success Rating possible after completing the Group Lending process is 8 | ||||||||||||||||||||||||||
| - the rating will increase by +1 point with every future loan repaid with a perfect ontime record | ||||||||||||||||||||||||||
| - the rating will decrease by -1 point with every late payment on any future loan | ||||||||||||||||||||||||||
| - the rating will become a part of the borrower's public profile (affecting the speed of finding future lenders and resulting in additional risk reduction measures that the CBO or LiA may wish to impose) | ||||||||||||||||||||||||||
| To apply for any MicroSuccess loan product of greater than shs500,000, requires a minimum MicroSuccess rating of 11. That rating can be earned through Community Guaranteed Loans sourced online. | ||||||||||||||||||||||||||
| Community Guaranteed Online Lending: For CBO Members with a MicroSuccess Rating and/or verifiable employment | ||||||||||||||||||||||||||
| Using the Micro-Success Rating to guide loan size & reserves | ||||||||||||||||||||||||||
| - Through operating the group guaranteed loan system, CBOs will develop a growing subset of experienced borrowers who have a MicroSuccess Rating | ||||||||||||||||||||||||||
| - The MicroSuccess Rating determines 2 guiding variables for when these members apply for individual loans that are guaranteed by the CBO | ||||||||||||||||||||||||||
| 1. The % of reserves required for the CBO to guarantee an individual member's online loan | ||||||||||||||||||||||||||
| = (the % of group capital returned) / (the MicroSuccess Rating) | ||||||||||||||||||||||||||
| 2. The maximum amount guaranteeable with what's on deposit for that member now | ||||||||||||||||||||||||||
| = (the amount deposited for that group member) x (the MicroSuccess rating) | ||||||||||||||||||||||||||
| - The CBO can increase the guaranteeable amount for any member with a MicroSuccess rating by submitting evidence of CBO managed member savings deposits backed by 100% liquidity (as reflected in the CBO's current financial statements). For calculating purposes, the amount in savings is added to the guarantee funds recorded on deposit with LiA, then multiplied by the MicroSuccess Rating to derive a new maximum amount guaranteeable. | ||||||||||||||||||||||||||
| CBO Guarantee Funds @ LiA can be used to guarantee 4-15 month online loans of shs800,000 or less to it's members with any MicroSuccess rating | ||||||||||||||||||||||||||
| so long as: | ||||||||||||||||||||||||||
| - the loan amount does not exceed the highest guarantee available for the individual: (guarantee funds or 25% of salary + savings) x the MicroSuccess Rating | ||||||||||||||||||||||||||
| - the required reserves are verifiably on deposit for each loan made | ||||||||||||||||||||||||||
| - the total portfolio guaranteed by the CBO never exceeds the total guaranteeable amount determined by loan guarantee funds and banked savings deposits | ||||||||||||||||||||||||||
| - 100% of the outstanding principle on CBO guaranteed loans to LiA within 15 days of the last scheduled borrower payment | ||||||||||||||||||||||||||
| Deriving a Micro-Success! Rating from previous borrower performance at LiA | ||||||||||||||||||||||||||
| - Start calculating from the number 8 | ||||||||||||||||||||||||||
| - add one point for every loan repaid with no late payments | ||||||||||||||||||||||||||
| - subtract 1 point for every payment that was late. | ||||||||||||||||||||||||||
| - for repeated rounds count the best performing loan only | ||||||||||||||||||||||||||
| - any borrower whose score falls into negative must start again in the group loan system | ||||||||||||||||||||||||||
| Using verifiable employment in the MicroSuccess rating system | ||||||||||||||||||||||||||
| - any CBO member who is able to provide verifiable proof of employment, including a recent payslip and/or a letter from the employer stating the member's current salary level may enter the Micro-Success program with an automatic MicroSuccess rating of 9. | ||||||||||||||||||||||||||
| - the rating will increase by +1 point with every future loan repaid with a perfect ontime record | ||||||||||||||||||||||||||
| - the rating will decrease by -1 point with every late payment on any future loan | ||||||||||||||||||||||||||
| - The required reserves for loans to any borrower who has not passed thru the Group Guaranteed Loan system must be on deposit with the CBO in the form of member savings backed by 100% liquidity | ||||||||||||||||||||||||||
| - The maximum guarantee amount available is equivalent to 25% of the member's salary x the MicroSuccess Rating, as follows | ||||||||||||||||||||||||||
| Verified Salary Level: | 250,000 | 500,000 | 800,000 | |||||||||||||||||||||||
| 25% | ms rating | highest guarantee | 25% | ms rating | highest guarantee | 25% | ms rating | highest guarantee | ||||||||||||||||||
| 62,500 | 9 | 562,500 | 125,000 | 9 | 1,125,000 | 200,000 | 9 | 1,800,000 | ||||||||||||||||||
| 12.50% | <= required reserve | 12.50% | <= required reserve | 12.50% | <= required reserve | |||||||||||||||||||||
| CBOs are encouraged to develop Community Guarantee policies that: | ||||||||||||||||||||||||||
| - require payment of reasonable service fees and interest (that shall never exceed 25% flat pa) for member's use of donated group loan capital | ||||||||||||||||||||||||||
| - impose additional documentation, borrower reserve requirements and/or capping rules on community guaranteed borrowers | ||||||||||||||||||||||||||
| - establish borrowed amounts and repayment term lengths in accordance with verified project needs and the borrower's ability to repay in case of project failure | ||||||||||||||||||||||||||
| - sensitize the community to understand their direct stake in rapid community loan funds recovery | ||||||||||||||||||||||||||
| - appoint specific person(s) to manage payments documentation and online reporting on all of the CBO's community guaranteed borrowers | ||||||||||||||||||||||||||
| The CBO community guarantees: | ||||||||||||||||||||||||||
| 1. to pay 100% of the outstanding principle on CBO guaranteed loans to LiA within 15 days of the last scheduled borrower payment | ||||||||||||||||||||||||||
| -Failure of the CBO to repay in full within 15 days of the scheduled loan end date will result in a withdrawal from the CBO's loan guarantee fund to cover amounts due from LiA to external lenders | ||||||||||||||||||||||||||
| - a decrease in the CBO guarantee fund results in an automatic & dramatic decrease in the CBO's total guaranteeable portfolio | ||||||||||||||||||||||||||
| 2. To post current narrative information to the member's online profile (including 1 project-verifying photo) about the borrower's progress | ||||||||||||||||||||||||||
| - within 6 weeks of loan disbursal, and | ||||||||||||||||||||||||||
| - within 2 weeks (before or after) of the final scheduled loan payment | ||||||||||||||||||||||||||
| 3. To provide monthly updated member payments information and overall CBO portfolio reports | ||||||||||||||||||||||||||
| - dates and amounts of all payments should be updated on the online member profile within 1 week of any payment made. | ||||||||||||||||||||||||||
| - financial reports in formats provided by Life in Africa's Chief Accountant must be provided by email to the LiA Founders list and in hard copy to Life in Africa Foundation at a monthly scheduled time to be established by the Chief Accountant | ||||||||||||||||||||||||||
| 4. to cooperate fully with Kiva and independent Internet4Change reporters who will visit all CBO borrowers at least once during each loan cycle | ||||||||||||||||||||||||||
| - CBOs guarantee to provide translation and direction when so requested by any internet4change reporter requesting to visit any active borrower. | ||||||||||||||||||||||||||
| Micro-Success! Loans: for proven borrowers and social entrepreneurs | ||||||||||||||||||||||||||
| Launching in Q4 2008, the MicroSuccess Loan portfolio is guaranteed by LiA Foundation's MicroSuccess Guarantee fund, for borowers with an established Micro-Success Rating of 11 or higher only | ||||||||||||||||||||||||||
| Ashoka Fellows and other social entrepreneurs verified through the i4c program may join the MicroSuccess program with an automatic score of 11 | ||||||||||||||||||||||||||
| - (all other conditions/scoring methods listed above and below apply) | ||||||||||||||||||||||||||
| To qualify to apply for Micro-Success! Loans of shs500,000 - shs2,500,000, all applicants must: | ||||||||||||||||||||||||||
| have a bank account | ||||||||||||||||||||||||||
| have a MicroSuccess rating of at least 11 | ||||||||||||||||||||||||||
| have completed a previous CBO guaranteed loan cycle of at least shs450,000 with perfect ontime repayment or earn more than a verified shs500,000 per month | ||||||||||||||||||||||||||
| have sufficient collateral and/or guarantee reserves on deposit in a form Life in Africa Foundation agrees to accept | ||||||||||||||||||||||||||
| complete an online application process and agree to posting regular updates about their project whenever they log in to report their payments | ||||||||||||||||||||||||||
| Non-internet-literate borrowers may engage the services of an internet4change agent | ||||||||||||||||||||||||||
| Advantages of Micro-Success! Loans | ||||||||||||||||||||||||||
| 1. the interest rate charged is never more than 22% p.a., charged at a declining rate of interest | ||||||||||||||||||||||||||
| significantly discounted interest rates are offered to loan plans that generate a positive impact on the local environment and/or community | ||||||||||||||||||||||||||
| 2. loan terms may be stretched up to 2 years | ||||||||||||||||||||||||||
| 3. All loan disbursals and repayments are made through transfers arranged with the borrower's own bank, anywhere in Uganda | ||||||||||||||||||||||||||
| 4. Borrowers may use more than one Micro-Success! credit product at a time, as long as the total outstanding never exceed the borrower's guaranteeable amount | ||||||||||||||||||||||||||
| the aim is to emphasize managing credit wisely as a tool. More than one form of credit simultaneously can provide a serious boost in an all cash economy, but only if managed well. | ||||||||||||||||||||||||||
| Micro-Success! offers borrowers the freedom to choose among several loan products, each designed to meet specific credit needs | ||||||||||||||||||||||||||
| - Family housing loans | ||||||||||||||||||||||||||
| - Loans for higher education | ||||||||||||||||||||||||||
| - Resettlement loans for the displaced | ||||||||||||||||||||||||||
| - Long term investment loans in construction and equipment | ||||||||||||||||||||||||||
| - Community benefit loans, for small community based projects that create social impact | ||||||||||||||||||||||||||
| Product-Specific conditions with regard to verification, documentation, reporting and other repayment conditions will apply | ||||||||||||||||||||||||||