Credit Program of PKSF

.1            Provision of loanable funds to MFIs

PKSF presently provides loanable funds to its 221 POs – 3 big, 216 small and medium and 2 Pre-PKSF POs – under its mainstream credit program as well as under some projects.

The mainstream credit program includes the following components: (i) Rural microcredit (ii) Urban microcredit, (iii) Microenterprise credit; and (iv) Hardcore poor microcredit.

The projects under which credit funds are provided include (i) Second Participatory Livestock Development Projects (PLDP-II), (ii) Integrated Food Assisted Development Project (IFADEP) (iii) South-West Flood Damage Rehabilitation Loan Programme (SRLP); (iv) Financial Services for the Poorest (FSP); (v) Micro-Finance and Technical Support (MFTS) Project; (vi) Micro Finance for Marginal & Small Farmers (MFMSF) project; (vii) Programmed Initiatives for Monga Eradication (PRIME); and (viii) Learning and Innovation Fund to Test New Ideas (LIFT).

7.1.1            Features of PKSF Credit Program

a)      PKSF provides loans to three categories of POs- Organizations Operating in Small Areas (OOSA), Big Partner Organizations Operating in Large Areas (BIPOOL), and Pre-PKSF POs.

b)      PKSF charges 4.5% service charge per year from its OOSA and Pre-PKSF category POs and 7% service charge per year from its BIPOOL category POs.

c)      Loan received by OOSA category POs from PKSF are repayable within a period of 3 years. First 6 months are considered as a grace period and loans along with service charge are to be repaid in 10 quarterly installments within the rest 30 months.

d)      Loans received by BIPOOL category POs are payable in 4 years in 12 equal installments with a grace period of 12 months.

e)      PKSF charges 1 to 1.25% service charge for the hardcore poor program and institutional development program.

7.1.2            Implementation of Credit Program

a)      Application in prescribed form:

PKSF receives application for loan in a prescribed application form that requires the applicant-organization to include details of information about the organization, its program, its financing, etc.

b)      Preliminary appraisal:

If an organization has experience of managing credit program for the poor, PKSF preliminarily selects it for field visit to see if all information provided by the organization is consistent.  PKSF judges experience in rural credit program using several criteria: (a) number of years of experience, (b) amount of loan disbursed, (c) number of members and borrowers, (d) recovery rate of loan, (e) adequacy of skilled salaried staff and (f) credibility of sponsors.

c)      Field visit:

Once an organization is selected for field visit, an officer visits the organization. If the performance of the organization is found satisfactory it is recommended for acceptance as PO. If there is some deficiency, the concerned organization is kept under observation and suggestions are given for improving the performance.  On the other hand, if performance of an organization is found unsatisfactory, the application is rejected.  Usually, the main reasons for rejection are the financial mismanagement, gross inconsistency between information in the application and that gathered from field verification.

d)      Approval by the Governing Body:

The final power of accepting an organization as a PO rests with the Governing Body.  If the management considers an organization to be accepted as PO, the proposal is placed with detailed description of the organization along with the field report, rationale for accepting it as PO and recommendation of the MD, in a meeting of the Governing Body. The Governing Body after deliberation accepts or rejects or puts certain conditions for accepting the organization as a PO.

e)      Signing of Loan Agreement:

(a) Final step in disbursing loan to the newly selected PO is the signing of a standard loan agreement with PO.  The loan agreement contains terms and conditions of loan (e.g. rate of service charge, area of loan disbursement, number of installments etc.). The loan is collateral free.  In addition to a loan agreement, a promissory note is signed by the representative of the PO. (b) The loan agreement is signed from PKSF's side by the Managing Director and from PO’s side by the Chief Executive of the PO or sometimes jointly by the Chief Executive and the Chairman.

f)      Verification of Loan Utilization:

After the first loan is given, the PO is supposed to disburse the loan immediately after receiving the fund and give a list of borrowers to PKSF.  An officer from PKSF in charge of the PO visits the PO to verify the loan disbursement and utilization of loan by the members.  Usually, PKSF officials visit the POs at an interval of 3 months.

g)      Application for Successive Loans:

The approval of successive loans to a PO depends on several factors: (a) satisfactory utilization of previous loan, (b) maintaining high rate of recovery of loan at the field level (>98%); (c) giving reports regularly to the PKSF, (d) potential for expansion of loan program; and (e) repayment of loan installments to PKSF, if due. The successive loan proposals upto Taka 2.5 million are approved by the Loan Committee chaired by the Managing Director. Similar loan agreement is signed for each installment of loan. Loan beyond Tk. 2.5 million limit is approved by the Governing Body.

h)      Pre-PKSF Partner:

Recently PKSF has taken a decision to select those NGOs which have potentials for becoming PKSF full partners but cannot meet the criteria for this. PKSF provides small microcredit funds to these NGOs and give technical assistance to build their capacity to make them full-partners eventually.

7.1.3            Performance of Credit Program

PKSF now funds 221 POs. POs are dispersed all over the country. As on November 2006, the POs of PKSF have been working in all 64 districts of Bangladesh.

Loan Disbursement

PKSF in its first year of operations could disburse only Taka 3 million.  That was the preparatory year for formulating policies and a period of learning to disburse loan to institutions. Upto November 2006, it has disbursed Taka 33,937.70 million.

Loan Outstanding

PKSF has Taka 15,956.34 million loan outstanding with POs as of November 2006.

Borrowers

As of November 2006, total number of borrowers financed by PKSF fund was 7.28 million of whom more than 91.68% were women.

Recovery of Loan

PKSF has two different recovery rates: (a) recovery rate of loan between the PO and PKSF, and (b) recovery rate of POs.  Recovery rate of PKSF is 96.90%. This rate is defined as the percentage of due amount has been received on time.  Loan recovery of POs at the field level is 99.25%.

7.2            Developing best practices for microcredit management and operations of MFIs

PKSF reviews its policies and programs continuously and adjusts them to meet the changing requirements. PKSF in the last decade has prepared a number of policy guidelines and standards for the microcredit sector based on the felt needs involving the practitioners - PKSF staff members and POs representatives and officials. PKSF has a program to develop standards in further areas and review and revise ones already prepared. Major policy guidelines and standards prepared by PKSF are: