PART 1

1. PART 1 INTRODUCTION Objectives • Presents experiences of Lesotho • Contribution of the central Bank of Lesotho (CBL) and the Government of Lesotho (GOL) providing an enabling environment for MFIs to operate in: Selection of Institutions The observations made in this paper will be based on few microfinance institutions that were interviewed. These are: Boliba Multi-purpose Cooperative, MAMOTH Financial Services, and Letsema Investment Holdings. OUTLINE OF THE PAPER PART I - Introduction PART II - Background - area within which MFIs operate PART III - Legal and supervisory framework The environment within which MFIs are expected to function. PART IV (I) Presents the SWOT ANALYSIS OF MFIs in Lesotho (II) The Innovative approaches by MFIs in Lesotho (III) The contribution of CBL AND GOL in strengthening the institutional capacity of MFIs and fostering of financial intermediation.

2. PART II Background within which MFIs operate Overview of Economic conditions of Lesotho

3. The statistics above are a reflection of the Socio-economic situation in Lesotho. • 50% of the population are adults • Estimated 50% of the adults are employed • - of which 83% are employed in the country and • - 17% are working elsewhere. • 17% of the population lives in the urban area and 83% of the population lives in the urban area. • Although the estimated number of HIV/AIDS adult as of 2000 is 5% the current UN statistics has indicated. • On the average all paid employees earn ±M2000 per month.

4. GDP CONTRIBUTION

5. Manufacturing and Construction are the main and have been contributors to Gross National Product GNP over the years • Agriculture is the main sub-sector to 70% of the population has been declining over the ten year period from22.6 to 16.4 in 2000. • Financial intermediation declined in the years 1999 - and picking up by 2000. During this time political upheavals were part of the blame.

6. PART III Legal Framework - GOL and CBLs policies on increasing outreach - FIA - Moneylenders’ Act - Societies’ Act. -Cooperatives Act -Companies’ Act Supervisory Framework GOL and CBL’s strategies for conduciveness - licence issuance - Strengthening capacity - Initiatives by CBL and Govt. - Highlights on failure of MFIs

7. PART IV INNOVATIVE APPROACHES BY MFIS Products Savings Loans Insurance Burial • Boliba (1) Savings -ordinary 50 – 10,00 Interest 4 – 6% Fixed deposit 3 – 24 months at 5 – 7% Subscription Account – 24 – 48 months at 7 – 9% (longterm) (2) Credit – Business loan – short – medium term Domestic – Individual/consumption 1/3 30% take home • Letsema (1) Loans Contractors Loans Civil servants loans General Loans SHG loans Savings Deferred pay (minors)

8. PART IV Cont… Burial Scheme (2) Ordinary Luxury – Invest M55.00 married M35 single Executive 65 M45 Supreme 75 M55 Elite 85 M65+ 120 • MAMOTH (3) Loans to working clients at 15% p.m. as tabled Invest: Death Insurance Student Medical Portfolio – Student Employee Medical Aid – Working personnel Medical Aid Scheme – Standard option – Day to Day Hospital Option – Hospital treatment Initiative by Central Bank of Lesotho • Commercial Court • Credit Bureau • RSCG Scheme • Export Finance Guarantee Scheme • Reestablishment of Lesotho Post Bank

9. PART IV Cont … SWOT Analysis Risk Management • MFIs use credit insurance to safeguard against possible risk • Stop order repayment • Collection deposits exist within clients and defaulters • Check and balances Performance Management • Staff motivation is protected through regulation meetings/consultations • Training • Appraisal system • PR established + Suggestion box for queries and complaints • Budget Management Reducing Operational Cost • Tight Security (Security Guards) • Screening employees for trust • Checks and balances in place and credit authorisation • Budget monitoring • Controlled expenditure vehicle telephone etc • Colleting debs from HR not individuals

10. PART IV Cont … Loan Portfolio • Follow-up and monthly reminders • Home/office visits • Sue Governance • Management in place through not fit and proper • Credit departments available Asset and liability Management • Short term investments e.g. Government securities Sustainability • Defaulters much less than paid up loans • Own/members capital used MIS System computerised through insurance software, Pastel and SAFRI SADAC Model

11. Credit To honour loans to clients, the clients should have been members for over three months. An established policy in borrowing depends on many factors some of which are: That a client must be employed or be a business person. There must be a third party to guarantee payment by the borrower. Be able to generate income Should dispute ability to pay Have reputation to pay debts

12. Maximum loans depending on the financial status of a person amount to M10,000.00 • The institutions claims that they charge interest on loans at the statutory rates of 25% per annum while the spread of the actual interest charged reflects a figure of 15% charged per Month broken down as follows • Savingsare classified in three ways. • - Ordinary savings ranging from M50.00 – over M10,000 with interest rate of 4% - 6% p.a. • - Fixed deposits • Depending on Clients choice and preferences or demands maturity of this category ranges between 3 months – 24 months with interest ranging from 5% - 7.5% p.a • - Subscription type of account – Spiral investment is designed for 12 months – 48 months and interest rates ranges from 7% - 9% p.a.

13. Savingsare classified in three ways. • - Ordinary savings ranging from M50.00 – over M10,000 with interest rate of 4% - 6% p.a. • - Fixed deposits • Depending on Clients choice and preferences or demands this category ranges between 3 months – 24 months with interest ranging from 5% - 7.5% p.a • - Subscription type of account – Spiral investment is designed for 12 months – 48 months and interest rates ranges from 7% - 9% p.a. • .Burial Scheme • This is a facility based in Maseru and Semonkong. • Luxury – is the lowest scheme offered. Clients subscription is M55.00 if married and for single subscribers the payment is M35.00 per month. Plus M60.00 per dependent. • Executive – a little higher that the Luxury with subscriptions of M65.00 for married clients, M45.00 for single clients with an option of M80 for each parent/dependent. • Supreme – Designed for middle level smallholder with premiums of M75.00/M55.00 per month respectively for married and single client M100.00 for each dependent. • Elite – This is the maximum policy offered with premiums of M85.00 and M65.00 respectively and M120.00 for dependents.

14. Medical plan offering two options suited to clients lifestyle. • Standard Option catering for day to day medical expenses and hospitalisation. • Hospital Option – catering for only hospital treatment. • Both options have similar benefits of out of hospital, in hospital, extended medicine, Funeral cover HIV/AIDS Benefits and Saving Account (optional) RISK MANAGEMENT A printout to all is presented to the collection department for actions which in turn turn makes follow ups on top orders by undertaking by site visits and telephone calls to ensure continuity of payments • Performance Management • Improving Staff Productivity • Staff are send on regular basis to training relevant to the institution’s business. • There is an incentive based appraisal system on an ongoing basis for staff.

15. Management Information System (MIS) Institutions have Inhouse software that is designed according to specification and requirements of the institution. The package has so far served Institutions well as it enables them to cope with all the requirements. Every now and then management has access to the Central Data Bank- Knowledge of what is happening in all sectors. The use of Pastel accounting software package is able to provide Institutions with all necessary information and financial trends e.g. loans and classification thereof interest rates calculations age analysis of balances

16. PART V • CONCLUSION • The main barriers to expanding access to financial services are: • The difficulty of serving the rural population due to the country’s topography i.e. the mountainous terrain. • The inconsistencies in different pieces of legislation guiding the financial sector. • Lack of policy especially for the microfinance sector. • Lack or slow development in enabling environment including infrastructure. • Outreach unsatisfactory • Barriers to expenditures • Need for Harmonization of legislation • Need for enabling environment • Infrastructure improvement • Enhancement of Governance and operational capacity of MFIs