What we have learnt from poor funds in South Africa

Community Microfinance Network March 05

1. Financial issues are first and foremost social issues. The most important issue is the nature of the relationships established
around money, within communities and between communities and professionals.

2. All community-based socio-financial systems are inherently contradictory, and systems need to be designed around
conscious strategies to manage these contradictions.

3. Voluntarism is not a sustainable basis for socio-financial management. Professionals have a duty to understand
contradictory socio-financial dynamics and to provide support to communities to manage them. Professionals need to be
intimately involved, not because people cannot be trusted, but because the stakes are so high for poor people. Leaving
the poor alone to handle these contradictions simply sets communities up to fail.

4. The object of poor funds is to help build social movements that can challenge the reasons why people need finance in the
first place. Delivery for its own sake is important, but is not the primary objective. The way finance is handled should be
informed by this.

5. Loan funds should not be conceptualised or operated in isolation from other forms of NGO support (such as running costs)
or from the socio-financial systems of the social movement. They should be approached as a mutually interacting
ensemble of relationships.

6. Technical financial/managerial skills are important, but not as much as developmental/strategic skills. It is easier to learn
financial skills than vice versa. Funds should have different people managing these aspects; the tension between them is
healthy. Similarly, board, management, and field staff need to have both financial/managerial and developmental/strategic
skills. Boards should include suitable outsiders to provide insights and act as a sounding board. Good insights come from
the clash of ideas.

7. Systemic risk needs be analysed and the tendency for risk transference monitored constantly.

8. Strategies to control risk should be primarily social, since other methods (legal, etc.) undermine developmental goals and
are too expensive.

9. Contextual (historical, political, cultural, racial etc.) factors have a significant impact on how socio-financial systems
function. It is not always helpful to copy other funds.

10. Credit should be the last, not first resort for development interventions. Credit should be linked to strong savings systems.
Credit is savings in reverse.

11. End-user, bridging, and project finance have different dynamics and demand different skills one size does not fit all.

12. Housing, microenterprise, and consumption credit have different dynamics and demand different skills.

13. External end-user credit of any kind is almost impossible to manage successfully from within a social movement on a
voluntary basis.

14. Bridge finance for state entitlements (e.g. a housing subsidy) not tied to mobilisation by communities to achieve
partnerships with the state around these entitlements is unsustainable, since the most likely result is to shift the focus of
effort onto the provider of the bridge finance.

15. Funds must be strict about procedures and rules. The most important rules are the de facto rules, i.e. those that are
actually practised.

16. Funds and other socio-financial systems need to be decentralised around local feedback loops that allow accurate
knowledge about the performance of the system and the relationship between cause and effect within it. Loan funds and
NGO support systems cannot be operated by remote control.

17. Adequate non-community based field staff are critical. Every community involved in the socio-financial system must
interact with field staff on a regular basis, especially when financial issues are discussed or handled.

18. The role of field staff is not to handle money, manage systems, or make decisions for communities. It is to provide an
impartial third-party presence to provide confidence in the system, since the stakes for poor people are extremely high
and trust is hard to establish and maintain. Trust is a verb something you do not a noun something that is.

19. Fund managers need to be ruthless in demanding compliance with procedures and rules by field staff, especially about
interaction with communities and reporting.