Microfinance Institutions and Salary Based Consumer Lending

• by Trevor Mugwang and David Cracknell
• Feb 2, 2006
• 1 min
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This note draws on the experience of MicroSave’s Action Research Partners (ARPs), involved in providing consumer loans to low income salaried workers.

This note draws on the experience of MicroSave’s Action Research Partners (ARPs), involved in providing consumer loans to low income salaried workers. Under these loans monthly deductions are made from salary accounts maintained with the financial institution or payments are made through direct payroll deductions and remittance in the lender’s accounts. It cautions the MFIs which intend to provide such loans that these loans can outstrip funds very quickly. It also suggests managing risks and explains the strategies such as using pilot tests to identify operational constraints, managing employer-employee relationships, controlling repayments, ensuring affordable loans to customers, strengthening credit control and administration, and using technology for further reducing the risks.