MARA Women Savings and Credit Programme

Background

The Mara Women Savings and Credit programme was started by the Evangelical Lutheran Church of Tanzania (ELCT) Diocese in Mara in 1998 with the aim of providing financial services to the people in Mara region to reduce poverty and improve their living standards, especially of women. Through its Development Department, the Diocese had developed a savings mobilization concept which was well received by women in the area. The savings for different groups has grown fast reaching substantial balances and the Diocese has been encouraged by the positive development and has seen the need to consolidate the groups into a formal structure that could also handle credit. In 1997 the ELCT Diocese in Mara approached Strømme Foundation (SF) and received funding for the new project from 1998 for (a) Capacity building, (b) Training support and (c) Funds for on lending

Purpose/objective

The programme has not received funding from SF in 2004 and possibilities for any further funding has depended largely on the Diocese's willingness to de-link the programme from the ELCT-DM into an independent entity. Eventually the Diocesan committee agreed to transform the programme into a legal entity independent of the Diocese. This assignment was commissioned by SF in order to review the performance of the programme, study the microfinance environment in the area, and assess legal options for setting up of a company and determine the way forward.

Methodology

Rashid G. A. Malima of PRIDE Management Co. Ltd. was assigned to study and recommend the way forward through document review, interviews with the primary stakeholders.

Key findings

i) The Mara Women Credit Programme (MWCP) has been operating within the normal parameters of a microfinance program of this type, size, and scale in Tanzania. The programme has grown rapidly especially in the last three years and has the potential to attain full financial self-sufficiency within a two year period. By then the programme should be able to begin accessing commercial funding. This is consistent with the normal development of a successful microfinance institution.
ii) The programme has been operating without clear functional components for an effective and efficient institutional framework. This has been a major impediment towards institutional development
iii) Organizational Structure: The programme is small but operates without a formal organizational structure as such, the functional responsibilities are currently "free flowing" amongst all staff. Distribution of authority, which is a key for assurance of accountability, has been unclear.
iv) Management Systems: The programme operates without any documented system for management guidance.
v) Cost Structure: The cost structure does not present a consistent or near consistent pattern of expenditure. Capital expenditure has been treated differently over the years ranging from being expensed, added back to the balance sheet
vi) General Performance: It is worth noting that the programme has been able to register good performance over the review period. The programme shows excellent financial results. However, the recorded results need to be considered with great care due to the fact that the institution operates without either a business plan or an annual plan of activities.
vii) Financial Manager is a key function in any MFI demanding through knowledge, experience and confidence in corporate finance. The existing Finance Manager is adequately skilled but needs more exposure to sharpen her knowledge in microfinance. The specific areas of exposure should include record keeping, archiving, reporting, computer applications on accounting and microfinance best practices. She will also need to pursue professional qualifications as a certified accountant when the project converts into an independent legal entity.

Recommendations

i) Legal Status: The continued success of the programme depends largely on its being transformed into a legal entity. The desired legal status should allow the programme to operate independent of the direct influence of its stakeholders. Stakeholder interest would be carried and or assured through the new institution's governing body. Of the several options considered, incorporation as a company limited by shares is highly recommended.
ii) Staffing: Staffing of the programme requires a major re-organisation in terms of functional capacities and numbers. The general outlook suggests high commitment but questionable satisfaction. It is important to ensure that all staff is aligned to a functional organization structure with clear terms of reference.
iii) Improvement of MIS: There is an urgent need to strengthen MIS for both portfolio and financial management. The report identifies two critical areas to be addressed in terms of systems and the technical capacity to run the system and recommends as follows:
- To re-evaluate suitability of Loan Performer or selection of an alternative integrated system.
- To identify a candidate with the necessary knowledge and experience in computer applications.
iv) Reports: The programme operates without a system for generation of regular reports, which should be addressed immediately starting with a set of three basic reports: Daily transaction report, Loan Portfolio report, financial statements (management accounts).
v) External Audit: There are weaknesses in the effectiveness of the existing internal audit function which is largely attributed to SF's strong influence in the assignment. It is therefore recommended to separate institutional external audit function from the SF's external verification of fund utilization. This may be accomplished by expanding the terms of reference for the external audit to include the issuance of two separate reports (i) the annual audit report and (ii) a report on utilization of funds.
vi) Liquidity Constraint: Liquidity has been observed as a serious limitation to programme growth for smooth continuity. In order to ensure continuity SF should consider rescheduling of the existing loans as a way to reduce the outflows which will translate into a relief on the liquidity problem.
vii) Loan Portfolio: It is recommended to establish a loan loss provisioning policy to guide on ageing, risk classification, provision rates and write-off criteria.
viii) Technical Assistance: The successful development and implementation of the proposed rationalization of the institutional structure together with a review of the market and product features will require the support from specialized professionals. It is therefore recommended to SF to facilitate the process by outsourcing the necessary professional expertise to lead in the proposed rationalization process.

Comments from the organisation

The study has helped and the following changes and improvements have taken place: i) the programme has been completely separated from the Diocese leadership and the process of registering a company limited by guarantee is in its advanced stage, ii) the old loan is being rescheduled in anticipation for a new loan, iii) the process of formalizing the institution with policies and a business plan underway, iv) capacity building in progress through professional staff exchanges etc., v) they have gone along way to sort the MIS challenges by cleaning the imbalances systems, vi) reorganization of products, group lending approach, increased recovery and service delivery undertaken. There is marked potential and demand for the services in the rural areas the programme focuses on.