Example of South Africa

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Anouk Vijverberg

S1540963

Master Thesis

University of Groningen

Faculty of Economic and Business Groningen, 17 December 2010

MSc Accountancy & Controlling Specialization in Accountancy

Supervisor: dr. J.S. (Joanna) Gusc

Second supervisor: dr. E.P. (Pieter) Jansen Code: EM869A20

The controls of

microfinance

Example of South Africa

Anouk Vijverberg s1540963

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Acknowledgements

First and most important I want to thank my supervisor Joanna Gusc for taking the time and effort to provide productive feedback during my research. Furthermore I am thankful to Pieter Jansen for being the second supervisor of my master thesis. Then I appreciate the help of PwC Johannesburg during my stay in South Africa. Finally I want to thank my friends and family for unconditional support and belief.

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Executive summary

This research is concerned with the microfinance process of microfinance institutions (MFIs) in South Africa. A qualitative approach is used to answer the following research question;

How do microfinance institutions in South Africa control the relation with the microfinance client for both individual contracts and group contracts?

The relation between the MFI and the microfinance client is analyzed according the agency theory; within the relation the MFI is seen as principal and the client as agent. Both parties are expected to act in alignment with the assumptions of the agency theory and the relation can be presented through contracts. In South Africa there are two different microfinance contracts; individual contracts and group contracts. Through the microfinance process, MFI tries to control agency problems adverse selection and moral hazard. Adverse selection is expected to happen before the contract is settled and moral hazard may influence the relation after the contract is settled. The microfinance process is split in three phases; screening, monitoring and enforcement, where controls are implemented to control the realtion between the MFI and the client. This research aims to explore the control mechanism of the microfinance contracts and provide a better understanding of the controls in the different phases of the microfinance process.

The research has a qualitative approach; data is collected through interviews, observation and secondary data. Collection of data is done in South Africa between February and June 2010 and data analysis and interpretation is done in the Netherlands between October and December 2010.

Main findings of this research is that both microfinance contracts are outcome based contracts; the microfinance process will result in repayment. However, the controls in the two contracts are different performed. The individual contract focuses to behavior based controls such as performance reviews and unannounced informal visits, while the group contract has a stronger focus towards outcome based controls. The controls in the group contract are self-selection, peer monitoring and joint liability where the controls of the MFI are carried to the group members. In the group contract, the actions taken by the MFI as principal are forwarded to the group.

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Glossary

Adverse selection – The incorrect selection by

the principal due to asymmetric information. In lending context the lender may choose an unreliable client through not enough or erroneous information.

Behavior control – A control mechanism that

controls the actions of the client through fixed salaries and hierarchical governance.

Information asymmetry – When one party,

during a transaction, has other information than the other party. In lending purpose it means that the borrower has more information about the borrowers’ risk profile, risk attitude, abilities and performance compared to the principal.

Mashionisa loan – An informal local money

lender in South African townships that loans his/her own money for profit. The loan can be used for all purposes and characterized by extreme interest rates.

Micro client – The poor residents of rural areas

that receives a microcredit. The micro client set up the micro-enterprise to improve livelihood.

Microcredit – A small amount of money that is

provided to the micro client by MFIs to establish or expand a micro-enterprise.

Micro-enterprise – A small scale enterprise

owned by the poor and funded by microfinance.

MFI – Microfinance Institution is an organization, based in a developing country that provides microfinance to the poor to start or expand a micro-enterprise.

Microfinance – Providing financial services of

small amounts to the poorest in the world to alleviate global poverty. Financial services consist of microcredit, savings facilities, insurance facilities and organized payments.

Moral Hazard – The inability of the principal to

observe or assess the actions taken by the agent due to information asymmetry. In lending perspective it means that the MFI does not understand the actions and the outcomes of the actions taken by the client.

Outcome control – A control mechanism that

control the actions of the client through variable salary, commissions and market governance.

Stokvels – An informal saving club in townships

or rural communities in South Africa. Money is saved for funerals, wedding and Christmas dinners.

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7.1 OPTIMAL CONTRACT... 35 7.2 THE SCREENING PHASE... 36 7.2.1 Self selection ... 36 7.2.2 Capacity ... 36 7.2.3 Collateral ... 36 7.2.4 Capital... 36 7.2.5 Conditions ... 37 7.2.6 Character ... 37 7.3 THE MONITORING PHASE... 37 7.3.1 Peer Monitoring... 37 7.3.2 Business Training ... 38

7.3.3 Unannounced informal visits ... 39

7.4 THE ENFORCEMENT PHASE... 39 7.4.1 Joint liability... 39 7.4.2 Progressive lending... 40 7.5 CONCLUSION... 40 CHAPTER 8 DISCUSSION... 41 8.1 THE SCREENING PHASE... 41 8.2 THE MONITORING PHASE... 42 8.3 THE ENFORCEMENT PHASE... 42 8.4 PROPOSITIONS... 42 CHAPTER 9 CONCLUSION ... 44 9.1 MAIN FINDINGS... 44 9.1.1 Managing microfinance... 44

9.1.2 Individual contract and group contract ... 44

9.1.3 Control mechanism ... 45

9.2 REFLECTION AND FURTHER RESEARCH... 45

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Chapter 1 Introduction to Research

Billions of people have to live with an income of less than $1,25 per day (Morduch, 1995) which is the poverty line set by United Nations (2010). Poverty is prevalent all over the world, with numerous development programs trying to improve that situation (Epstein and Crane, 2005). There are eight millennium goals set by the United Nations to reduce global poverty before 2015 (United Nations, 2010). One of the millennium goals is to decrease the number of people who live under the poverty by fifty percent (United Nations, 2010). A way to help people out of poverty is microfinance, which has proven to be extremely effective so far (Aghion and Morduch, 2005). Microfinance consists of providing financial services of small amounts to the poor to establish or expand their own business (Bosman and Schrijvers, 2007). Microfinance consists of multiple activities; providing credit, saving facilities, insurance and organized payments (Bosman and Schrijvers, 2007). To recognize and aid the entrepreneurially poor, contributions to economic development in low-income societies can be made (Bhatt, 2001) and global poverty can be alleviated (Epstein and Crane, 2005).

Microfinance is an activity performed by microfinance institutions (MFIs). There are risks concerned with providing credit to the poor because for MFIs it is difficult to assess their entrepreneurial skills (Bosman and Schrijvers, 2007), the poor lack valuable assets to secure a loan (Vigenina and Kritikos, 2004) and they do not have higher education which is deemed necessary in establishing a business (Huls, et all, 2010). Despite the risks, the MFIs provide microcredit to the poorest in the world. When money is loaned from the MFI to the client, it implies there is a relationship between the MFI and the microfinance-client. To control the relationship between the MFI and the client, MFIs have a specific microfinance process that takes into account social processes and informal credit arrangements (Vigenina and Kritikos, 2004).

The microfinance process consists of three phases; screening, monitoring and enforcement (Bhatt, 2001). During the screening phase, the potential client will be assessed towards requirements by the MFI. The outcome of the screening phase will be the basis of the monitoring phase if the client qualifies for a microcredit (Bhatt, 2001). During the monitoring phase and the enforcement phase, the credit agreements are controlled, resulting in compliance with the original contract (Bhatt, 2001). Within microfinance, there are two different contracts that represent the relationship between the MFI and the client. The first contract is an individual contract where the MFI provides a microcredit to a single borrower (Vigenina and Kritikos, 2004). The second contract is a group contract where a group of borrowers receives a common microcredit (Kritikos and Vigenina, 2005). The credit-delivery systems and activities to control the credit agreements are specific to the two contracts.

A relation between two parties can be described by the agency theory. The agency relation is a relation where one party, the principal, delegates work to another party, the agent (Eisenhardt, 1989). In the relationship both parties are assumed to act in a certain way, which may result in risk sharing, adverse selection and moral hazard (Eisenhardt, 1989). To reduce the problems in the agency relationship, the

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relation is controlled through outcome based contracts or behavioral based contracts (Jensen and Meckling, 1976). In this research it is analyzed if the microfinance relation between the MFI and the client can be described by the agency theory. The agency theory is used to formulate proposition for this research. It is interesting to verify the control mechanism, outcome based controls or behavioral based controls, for both individual and group contracts.

The theoretical contribution of this research is to explore the control mechanisms in the microfinance process which may generate new awareness of the microfinance relationship. The purpose of this research is to provide a practical understanding of MFIs, additionally it may enhance theoretical insights in microfinance. The study is performed in South Africa and uses a qualitative method to analyze the microfinance process of MFIs in South Africa. It is interesting to analyze the South African microfinance market because South Africa is a complicated country. South Africa is the richest country in the African continent but is also the one of the most unequal countries in the world (Daniels, 2004). The inequality is measured by the Gini Index where South Africa is ranked as number two (Baumann, 2001). Due to the dualistic economy and other differences, South Africa forms a good basis for exploring microfinance.

1.1 Research Question

This research aims to explore the control mechanism of the microfinance process for both individual and group contracts in South Africa. Therefore the purpose of this research is:

To provide a practical understanding of the microfinance process for both individual contracts and group contracts of microfinance institutions in South Africa.

The main question in my research will be:

How do microfinance institutions in South Africa control the relation with the microfinance client for both individual contracts and group contracts?

To answer the main question I formulated seven research questions. The sub questions were helpful in structuring the research. The following research questions will be answered:

1. What is microfinance?

2. What is the microfinance process?

3. Why is it interesting to research microfinance in South Africa? 4. How did the microfinance sector develop in South Africa?

5. How can the microfinance relationship be explained by the agency theory?

6. What type of control mechanism is used for individual contracts of MFIs in South Africa? 7. What type of control mechanism is used for group contracts of MFIs in South Africa?

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1.2 Research Conditions

To perform this research a scope is needed to set the boundaries of research:

- This research study is a final assignment for the Master Accountancy & Controlling at the University of Groningen and is done according to the requirements set by the Faculty of Economics and Business and in particular the Master Accountancy & Controlling.

- Research timeline for this thesis is one year. The study is performed in Johannesburg, South Africa and Groningen, the Netherlands.

- The research is a qualitative research which means that outcomes and findings of the research are difficult to generalize. From this point of view the objective of research is to incite for further research.

- The research is restricted to the credit component of microfinance in South Africa and will not include insurance or savings components.

1.3 Motivation for research

The United Nations called 2005 the international year of microcredit to make microcredit publically known. Through microfinance, financial systems become available to the poorest people in the world and global poverty is alleviated (Epstein and Crane, 2005). Billions of dollars have been loaned and the stories of success are impressive (Epstein and Crane, 2005). Although there have been many important contributions in microfinance, the precise nature is less clear. For this reason it is interesting to provide a practical understanding of the microfinance process and understand the relations between the MFI and the client.

In current literature, there are a few academic studies about microfinance programs (Aghion and Morduch, 2005) and it still needs to break through into the financial journals (Brau and Woller, 2004). Reason for the lack of research is that MFIs and other money lenders are not interested to assist because research is a waste of time and money (Bosman and Schrijvers, 2007). Another reason for the lack of research, are the differences between the economic and political environment, program quality, leadership and various contextual variables that make comparisons challenging (Epstein and Crane, 2005). The IMF adds that there are just a few data resources available to evaluate the microfinance controls (Bosman and Schrijvers, 2007). Recently, different initiatives are employed to make reliable data available (Epstein and Crane, 2005). According to the IMF, the researchers and MFIs should experiment with different programs to verify which controls work and which controls do not work (Bosman and Schrijvers, 2007).

Recently there is a discussion going about the actual goal of microfinance which is the result of an Indian MFI that grown rapidly through its stock options (S.D., 2010). Microfinance proved to be effective in alleviating global poverty (Epstein and Crane, 2005) but also proved to be profitable (Hermes, et all, 2008). More parties are interested in microfinance and a shift in microfinance have been recognized from

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not-for-profit to for-profit institutions (S.D., 2010). MFIs are often loss making which means they are financial dependent from donors (Hermes, et all, 2008). Researchers as Epstein (2005) and Datar (2008) argue that MFIs focus on making more and bigger loans instead of alleviating poverty. When the goal of MFIs is to alleviate poverty, then MFIs should focus on helping their client build enterprises and make the client financially independent (Datar, et all, 2008). However, improving the effectiveness and efficiency of microfinance may only be achieved when MFIs focus less on the poor (Hermes, et all, 2008). The discussion about the purpose of microfinance and the goal of the microfinance process make it an interesting topic to research.

1.4 Structure of thesis

At this moment you are reading the first chapter of my master thesis where the subject and research questions are introduced. The next chapter will present a geographical background of South Africa. This chapter will explain why it is interesting to research the microfinance sector in South Africa. The third chapter will address the concept microfinance and microfinance institutions (MFIs) and explain the microfinance process. In the fourth chapter I will explain if the microfinance relationship can be described by the agency theory. This chapter will result in propositions about the control mechanism for the individual contract and group contract of MFIs. In the fifth chapter I will present the research design that is used to explore the microfinance process. Results for the individual contracts and the group contracts are presented in chapter six and seven. A comparison of the two contracts in microfinance is conducted in chapter eight. This chapter is a discussion of the results where the propositions are treated. Final chapter conclude about the controls in the microfinance process and recommend for further research.

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Chapter 2 South Africa “a world in one country”

South Africa is the richest country of the African continent and known as one of the most unequal countries in the world (Daniels, 2004). The differences within the country makes South Africa interesting to research because a comparison within the country is possible. The (so-called) rainbow nation consists of different ethnic groups, languages and religions that all live together. The landscape varies from mountains, to coastline, to dessert, to forest. The political history is known by colonialism, war, race difference and freedom. Nowadays there is a dualistic economy which means that there is a first and a second economy. All these aspects make the Republic of South Africa “a world in one country” where developed and developing parts can be compared.

2.1 Regional context

To understand the microfinance sector in South Africa it is important to be familiar with the features of the country. Aspects that contextualize the differences are landscape, population and culture and the political movements.

2.1.1 Location and landscape

South Africa is located south of the equator where the capital is positioned at 25⁰ Southern latitude and 28⁰ Eastern longitudes. The country is 1,219 thousand square km with a coast line of 2,798 km and a country border of 4,862 km. There are nine provinces in South Africa: Eastern Cape, Free State, Gauteng, Kwazulu-Natal, Limpopo, Mpumalanga, Northern Cape, North West and Western Cape. The capital is Tshwane (Pretoria) together with Cape Town as legislative capital and Bloemfontein as judicial capital. South Africa’s landscape varies from interior plateaus, rugged hills and a narrow coastline (World Factbook, 2010).

2.1.2 Population and culture

There are 49 million people living in South Africa with a population growth rate of 0.281%. The largest group (65.8%) of the population is between 15 and 64 years old and the average age is 24,7 years. Life expectancy for men is around 50 years and for women around 48 years. Most people, 61% of the population lives in urban areas such as Johannesburg, Cape Town and Durban (World Factbook, 2010). There is not one South African culture; within the country there are many different ethnic groups, languages and religions. The “rainbow nation” of South Africa can be divided into four ethnic groups; Black/Africa (79%), White (9.6%), Colored (8.9%) and Indian/Asian (2.5%). There are eleven official languages spoke; English, Afrikaans, Ndebele, Xhosa, Zulu, Sepedi, Sotho, Swati, Setswana, Tshivenda and Xitsonga (World Factbook, 2010).

Around fifty percent of the South African population is living in poverty. The poverty in South Africa is not limited to one specific race group but is concentrated among the black population (Daniels, 2004). In the black ethnic group the women are more likely to be poor compared to men (Skowronski, 2007). That

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South Africa is one of the most unequal countries in the world can be measured according the Gini index (Baumann, 2001). The Gini index is a measure for inequality where 0 represent totally equal and 100 totally unequal (Worldbank, 2010). In South Africa the Gini index is calculated as 65 and therefore it is ranked second in the world (World Factbook, 2010).

2.1.3 Politics

The political history of South Africa is complicated. In 1652 the country was discovered by the Dutch and after the British seized the Cape of Good Hope in 1806, the Boers (Dutch settlers) started the great trek up north. South Africa became an interesting country for immigration because of the discovery of gold and diamonds. The Boers were beaten by the British during the Boer War (1899-1902) but from 1910 the British and Afrikaners ruled together under the Union of South Africa. In 1948 the National Party became the biggest party and they instituted Apartheid. Apartheid is the separation of races where the white minority rules over the black majority. The African National Congress (ANC) rebelled against Apartheid with well known leaders as Nelson Mandela and Desmond Tutu. Eventually the first multi-racial election was held in 1994 where ANC was voted in power. The ANC government brought an end to Apartheid but unfortunately South Africa is still struggling to cope with the Apartheid inequalities. The current president of the Republic of South Africa is Jacob Zuma (World Factbook, 2010).

2.2 Economy and financial sector

The economy of South Africa is a middle-income, emerging market. It has a well-developed financial and legal system, communication, energy and transportation sector. South Africa’s GDP is around $505 billion and is ranked as number 26 in the world. But the GDP per capita is $10,300.00 which is number 104 in world ranking (World Factbook, 2010). Heritage of Apartheid there is a gap between rich and poor continued in financial policy purposed by large banks in South Africa. As presented in figure 2.1 there is a first economy a second economy (ETC, 2005). The first economy in South Africa includes the highest standards of globalized consumption and lifestyle and is ahead of European standards (Daniels, 2004). On the other side of the economy, the second economy, a part of the population is living in poverty. Since Apartheid, there are economic problems in poverty, economic empowerment for the disadvantaged groups and a shortage of public transportation. Many households do not have access to clean water, energy, health care and education.

Regulatory organizations in South Africa try to trigger to merge both economies. The National Credit Regulator (NCR) provides top down incentives to the commercial banks in the first economy and bottom up incentives to the financial institutions in the second economy (Meagher, 2004). Figure 2.1 presents a pyramid of financial institutions in South Africa where the poverty line separates the first economy from the second economy. The second economy can be split into the "economically active poor" and the "very poor". The poor do not have credit access at the commercial banks but are designated to MFIs. The economically active poor population is "active" because they are working in micro-enterprises. The very poor lack any income-generating assets and hardly have not any chance to receive a microcredit (ETC, 2005).

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Figure 2.1 Pyramid of Financial Institutions in South Africa

First economy

Second economy

Middle class Rich

Economically active poor

Very poor Commercial banks

MFIs

Poverty line

2.3 Research South Africa

It is interesting to explore microfinance in South Africa because it can provide a better understanding of microfinance in other countries. South Africa is a complicated country through all the differences and especially the dualistic economy make it difficult to develop an effective credit market (Daniels, 2004). For South Africa it is better if the two economies come together to one economy where both rich and poor are active (ETC, 2005). When there is one economy, the poor are becoming wealthier and independent, the livelihoods will improve and problems caused by poverty are reduced. Further it is interesting to research South Africa because it can be an example for other African countries (Turner, 2008). South Africa is the richest and most developed country in the African continent. Understanding the microfinance environment in South Africa can be helpful for people who are working in microfinance in other countries of the African continent.

The focus of this research is the credit access of the poor in South Africa. By examining the economically active poor and the very poor in South Africa, it is possible to develop systems that alleviate national poverty. Microfinance proved to be an effective to alleviate poverty (de Aghion and Morduch, 2005) and may result in bringing the first and second economy in South Africa together (ETC, 2005). This research will explore microfinance process of MFIs in South Africa which can be helpful in bringing the two economies together.

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Chapter 3 Microfinance in South Africa

Around 1950, governments try to alleviate poverty through microfinance in developing countries. Unfortunately these projects were not always successful because less than fifty percent of the loans was repaid, the costs of microfinance exceeded the expectations and most credits were directly turned to the powerful people in the developed countries (Morduch, 1995). In the last fifty years a change has been recognized; microfinance is the way to alleviate poverty in the world by providing financial service to low-income households in the world (Bosman and Schrijvers, 2007). Nowadays repayments between ninety and hundred percent (Bosman and Schrijvers, 2007). This chapter is concerned with the understandings of the concept of microfinance. First part will provide a historical background about microfinance and MFIs in general. Second part will describe the microfinance sector and MFIs in South Africa.

3.1 What is microfinance?

Microfinance is defined as “providing financial services of small amounts to the poorest in the world". In microfinance small credits and other services are provided to the poor to establish or expand a micro-enterprise (Morduch, 1995). Microfinance consists of four activities; providing microcredit, savings facilities, insurance facilities and organized payments (Aghion and Morduch, 2005). According to facts by the World Bank (2010) there are currently 16 million people in the world who are using financial services through microfinance.

3.2 Historical background

Microfinance was introduced by Muhammad Yunus in Bangladesh. In 1970 Muhammad Yunus was an economics professor at the Chittagong University of Bangladesh and interested in poverty alleviation. Yunus described his experiences at the university as following; “I was teaching economy in Bangladesh in

1974. You can imagine it was very difficult to teach the elegant theories of economics when people are dying of hunger all around you. I became a drop-out from formal economics. I wanted to learn economics from the poor in the village next to the University” (Morduch, 1995).

To learn from the poor, Yunus went to little villages to provide small loans from his own pocket to the villagers. Typical for these loans was that he did not provide a loan to individuals. Instead it was built as a group loan. The group structure introduced by Muhammad Yunus is still used by MFIs all over the world (Yunus Centre, 2006). A group credit consist of five persons who are mutual responsible for all the repayments (Bosman and Schrijvers, 2007). In this system the first and second person receive a credit first, then the third and fourth person and lastly the fifth person. The most important rule is that if one group member defaults, all the credits will be taking back or denied (Morduch, 1995). After successful results in microfinance, Professor Muhammad Yunus started the Grameen Bank in 1976 as the first Microfinance institution (MFI). Muhammad Yunus was awarded with the Nobel Peace Prize in 2006 for his innovative and new ideas about alleviating poverty (Yunus Centre, 2006).

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Since the success of the Grameen Bank more institutions and banks were inspired to change and develop alternative microfinance models with varying ideas and visions (Morduch, 1995). Other famous pioneers in microfinance are BancoSol of Bolivia, Bank Rakyat of Indonesia and the village banks started by the Foundation for International Community Assistance (FINCA) (Morduch, 1995). To make microfinance publically known, the United Nations called 2005 the year of microfinance. The goal of the United Nations is to improve cooperation between private and public institutions and reduce global poverty (Bosman and Schrijvers, 2007).

3.3 Microfinance Institutions

Around 1950 governments and commercial banks tried to provide microcredit to the poor but failed. Only fifty percent was repaid and the costs were to high (Morduch, 1995). The first microfinance institutions (MFIs) were convinced that there was a more effective way in providing credit. MFIs lowered the interest rates and conducted different controls to select and monitor clients (Aghion and Morduch, 2005). Nowadays MFIs present repayment rates between ninety and hundred percent (Bosman and Schrijvers, 2007). Not only MFIs but also commercial banks, NGO’s and credit unions started to provide financial services to the poor because it proved be profitable (Hermes, at al, 2008).

Figure 3.1 Mapping of Microfinance Institutions

NGO Government

MCI Local Bank

Special bank

International Financial Sector

Individuals, small enterprises

MCI + MFI Credit Credit Savings Credit Savings Services Financial Support Local financial sector Credit Union Licensed mutual ownership bank Credit/Savings/Services Capital Members of union Credit Savings Services Dependent on other people's money Leverage public money

Dependent on members money

Credit Savings Services

In the existing literature three types of organizations are identified that provide credit to the poor as presented in figure 3.1. The first group are the donor funded institutions, which consists of microcredit institution (MCI), microcredit institution + (MCI+) and microfinance institution (MFI) (Daniels, 2004). The MCI provides credit to the poor, the service of the MCI+ is extended with limited payments and the

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operations of an MFI consist of credits, savings, insurance and organized payments (Bosman and Schrijvers, 2007). The MCIs and MFIs are not-for-profit institutions which are financially funded by governments, NGO’s, the financial sector and the public (Daniels, 2004). The second group in the microfinance market are the financial banks that use leverage from the public to provide financial services (Daniels, 2004). In this group, local banks and international banks are identified to provide microcredit. The third group consists of credit unions which operate as open or closed unions. Deposit taking comes from members in the bond (Daniels, 2004).

In nature the operations of an MFI are similar to a bank; providing credit and facilities as savings, insurance and payments. To operate as a commercial bank, the institution will receive a banking status which is not applicable for MFIs (Bosman and Schrijvers, 2007). Focus of this research are the MFIs that are not a banks. It is interesting to explore the operations of an MFI because microfinance is the core business of MFIs. Therefore the MFIs are more experienced in areas with poverty when it comes to providing microcredit. Through years of operation they know where the people live, what their needs are and how they can gain trust from the poor.

3.4 The microfinance process

The microfinance process starts when an individual comes to a MFI to apply for a microcredit and finish when the client repays the microcredit. According to Wenner (1995), Ghatak (1999), Tassel (1999) and Bhatt (2001), the microfinance process can be divided into three phases; screening, monitoring and enforcement. To verify if the client is reliable and responsible to repay the microcredit, the MFI will assess the individual according to preset requirements. This phase of the microfinance process is called “screening” (Bhatt, 2001). If the individual qualifies for a microcredit, the contract is settled between the MFI and the client. After the contract is settled the microcredit is paid to the client and will the microcredit be controlled by the MFI. The credit is controlled by the MFI to verify that the microcredit is invested according the goals in the contract (Bosman and Schrijvers, 2007). In the monitoring phase of the microfinance process the MFI want to understand the actions taken by the client and the outcomes of the actions (Bhatt 2001). As result the MFI want the client to act in compliance with the contract which means that the client fulfill all the requirements. The outcome is repayment of the microcredit which is controlled in the enforcement phase of the microfinance process (Bhatt, 2001).

3.5 Microfinance in South Africa

3.5.1 Timeframe

The microfinance sector in South Africa started around 1980 through some pioneers. Since 1980 the development of the sector can be distinguished in four different phases; the pioneer phase, the breakout phase, the consolidation and the maturity phase.

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The microfinance sector in South Africa started when a few not-for-profit and commercial money lenders introduced microfinance (Skowronski, 2007). In the pioneer phase, a market for microfinance was recognized because of a growing rate in urbanization and industrialization. The pioneers started to provide small credits to the low-income household in the second economy (Baumann, 2001). These were illegal credits because the Usury Act of 1968 prescribed interest rates for small credits but the young pioneers charged other interest rates (Skowronski, 2007).

During the eighties the success of the illegal money lenders became widely known in South Africa. The government removed the price control on small term credits in the Usury Act (Skowronski, 2007). From 1992 the Usury Act allowed money lenders to charge unregulated interest rates on credits less than 36 months and up to R 6,000.- (Meagher, 2004). Due to this regulatory change, microcredit was legalized by the government and large amounts of formal capital flew into the sector. Because of unregulated interest rates on microcredit, the conditions for an efficient market did not exist anymore (Meagher, 2004). There was no regulatory oversight and no consumer protection because the government did not support the microfinance industry (Meagher, 2004).

Since the legalization in 1992, a rapid growth of microfinance is recognized (Baumann, 2001). The first official analysis estimated a total of 3,500 MFIs operating in South Africa. This growth could not hold long; in South Africa there is no infinite number of credit-worthy borrowers which results in a strong competition between MFIs (Skowronski, 2007). In this period the minister worked for five years to get agreements between the government and MFIs which result in the Microfinance Regulation Council (MFRC) in 2000 (Maegher, 2004). The establishment of the MFRC was the first governmental action in microfinance in South Africa.

Recently a sustainable growth rate can be recognized and a regulatory framework is developed (Meagher, 2004). The MFRC was replaced by the National Credit Regulator (NCR) in 2006, who promotes the development of an accessible credit market with a particular focus on low income communities (Skowronski, 2007). Goal of the NCR is to further formalize microfinance in South Africa, provide more consumer protection in the market and improve the national information and understanding about microfinance (Meagher, 2004).

3.5.2 Microfinance Institutions in South Africa

The headquarters of most MFIs in South Africa are based in Johannesburg or Pretoria. In these offices the directors and management are situated to manage relationship with donors, government and regulatory bodies. Under the top level there are local branches which are situated in the provinces of operations such as Mpumalanga, Limpopo, KwaZulu-Natal and the Eastern Province. Branch managers are based in the local branches to manage all the loans disbursed to the poor. They keep track of all the microcredit’s in an area and communicate with top management and loan officers. Loan officers are employees that visit the poor villages and communities. They are the first contact for the poor and have intensive contact with the communities. According to MFIs the loan officers are the most important link in the relationship between the MFI and the client.

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3.6 The relationship between the MFI and the client

To be able to explore the microfinance process, the relationship between the MFI and the client must be defined.

The target clients of MFIs are the poor population in the rural villages and communities who lack any income-generating assets. The poor population can be distinguished in "economically active poor" and "very poor" (see paragraph 2.2). From this point further, both groups are referred to as "poor". The poor may come to the MFI to apply for a microcredit to establish or expand a micro-enterprise. The microcredit can only be used for business purpose of the micro-client thus not for consumption goals.

In figure 3.2 the relationship between the MFI and the client is presented. The MFI settles a contract with the client to provide a microcredit to the micro-client. This can either be an individual contract between the MFI and one client or a group contract between the MFI and a group of clients. When the contract is finished the credit is repaid to the MFI. The contract between the MFI and the client is controlled through the microfinance process consisting of screening, monitoring and enforcement. In the different phases, controls are implemented by the MFI. This research aims to understand the microfinance process and explore the controls in the screening phase, the monitoring phase and the enforcement phase. A typical risk assessment in commercial credit to select a client are the 5 C’s of credit (Huls, et all, 2010) which will be used to describe the screening phase of microfinance. For the monitoring phase and the enforcement phase it is not possible to use existing controls from commercial credit because the clients in microfinance are less developed than clients in commercial banking in terms of wealth and knowledge. For this reason, the specific controls in the monitoring phase and the enforcement phase of MFIs in South Africa are described.

Figure 3.2 Relationship between the MFI and the client

Microfinance Institution (MFI)

Individual / Client Microcredit Repayment

Screening Monitoring Enforcement

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Chapter 4 Managing microfinance

For researchers and investors, that are interested in the South African microfinance market, it is interesting to explore the relationship between the MFI and the client. By exploring the microfinance process and the controls implemented in the process, a better understanding of the microfinance relations in South Africa is reached. To study microfinance relations we can use organizational theories. In the existing literature the agency theory is used to describe the relation between two parties. This chapter explores if the microfinance relationship can be described by the agency theory.

4.1 Microfinance and the agency theory

The agency theory has its origins in organizational studies and is used to describe the relationship between two parties: the principal and the agent. The agency relationship exists when one party, the principal, delegates work to the other party, the agent, who performs that work (Eisenhardt, 1989). Jensen and Meckling (1976) describe the relation between the principal and the agent as a contract. In an ideal situation the agent is expected to act in best interest of the principal. However, both parties want to maximize their utility which results in different desired outcomes and different attitudes towards risk (Eisenhardt, 1989). In perspective of a contract, the principal will establish appropriate incentives to change the normal activities of the agent in favor of the principal (Jensen and Meckling, 1976). Objective of the principal is to achieve the most efficient contract between the principal and agent given the assumptions about the agents’ actions (Eisenhardt, 1989).

Within microfinance there is a relationship between the MFI and the client. The MFI is the owner of the available funds and wants this amount to increase. A way to increase the available funds is to invest the money in projects which may result in a higher return. The business of the MFI is to provide microcredit to a micro-client. The MFI delegates the work of investing money to the micro-client who will invest the credit in a micro-enterprise that, under good business circumstances, will increase in value. If the investment is successful, the client will repay the microcredit. The microfinance relationship can be described by to the agency theory; the MFI is the principal and the client is the agent.

4.2 The assumptions of the agency theory

The assumptions in the agency theory concern people, organizations and information. When it comes to people it is assumed that the agent will act in self-interest instead of the principals interest (Eisenhardt, 1989). Self-interest in the agency relation may have a negative affect when the interest of the principal and agent differ. Another assumption concerning people is bounded rationality (Eisenhardt, 1989). The agent is assumed to make decisions based on simple models without all the available information. When a problem arises, the agent cannot capture all features of the problem with their complexity because the human brain is not capable of that. The third assumption concerning people is risk aversion which means that the agent will choose for the option with a more certain chance than uncertain chance (Eisenhardt,

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1989). When the agent needs to make a decision there is a trade-off between risk and return. In general a low risk comes with a low and certain return while the high risk decision may result in a high return but is less certain. It is assumed that the agent will choose the low risk option and is therefore risk averse. One of the organizational assumptions of the agency theory is goal conflict (Eisenhardt, 1989). In the relation between the principal and the agent, it is assumed that the two parties have different goals. Goal conflict is the result of available information between the principal and the agent. The second organizational assumption is information asymmetry between the principal and the agent (Eisenhardt, 1989). Information asymmetry means that one party has other information than the other party in a relations. In the agency theory it is assumed that the principal needs to be informed about what the agent is actually doing. The information of the principal and the agent is a tradable commodity that can be purchased or exchanged through an information system.

When exploring the microfinance relationship between the MFI and the client, some assumptions are applicable to the relation. It is expected that the microfinance client will act in self-interest instead of the MFIs interest when there is a conflict between the two parties. For example, the client has to realize a minimum turnover of R 200,00 per week to get a positive performance review. If the client only earns R 180,00 per week and needs a positive review, the client will lie about the realized turnover. The client is opportunistic and acts in self-interest. When operating in a micro-enterprise the client has to make business decisions but the client is not aware of all available information or cannot assess all the information. If a micro-client has a business in selling dresses and wants to expand the business to other villages and communities, the client has no information about other micro-clients and micro-enterprises in the villages. The client cannot analyze all the relevant information to assess the competition and is rationally bounded when it comes to decision making. To be more successful in a business, the entrepreneur has to take risks. The poor lack any assets and will not lose anything if they take risks. If the business is unprofitable the client will still live in poverty in the rural area. Therefore the poor microfinance-client is not risk averse. When the client becomes wealthier, there is a risk of losing his own assets if the business fails. In that situation the client is more likely to make the decisions that are less risky and more certain.

The mission of the MFIs in South Africa by providing micro-credits is to alleviate poverty which the MFI tries to accomplish through several goals: the client has to start a profitable micro-enterprise, the client has to improve their standard of living by generating an income and the client has to repay the loan including interest. The client’s goal of the microcredit is to operate in a profitable business and to earn money to take care of the household. In general there is no goal conflict between the MFI and the client. However, the MFI and the client may have different mindsets in their relationship. For example, the MFI requires the client to periodically save money in a savings account. Besides, the MFI prefers the client to put maximum effort into the business and wealth creation. Opposite the client does not intend to save money but prefers to spend the money earned in the business. Furthermore, the client prefers to put minimum effort into the business and earn enough money to cover the costs. This example shows there is a potentially goal conflict between the MFI and the client. The saving requirement will be explained in paragraph 6.2.3.

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In the relation between the principal and agent there is information asymmetry; the micro-client has other knowledge than the MFI. The MFI is not aware which actions are undertaken by the client and which information is used by the client to perform that action. An example is a microfinance client who operates in a grocery store. The client decides to hire an employee and delegates work to the employee. If the client is not telling the loan officer about the decision the MFI is not aware of the information and the reason to hire an employee. On the other hand, the client has no knowledge about which behavior motivates the MFI. In example of the client, the MFI may appreciate own initiative and self assessment of the client and will therefore be positive about the clients actions. But it is also possible that the loan officer prefers to be informed about every decision. In that situation the MFI will be stricter towards the micro-client.

4.3 Managing microfinance with the optimal contract

The agency relationship is controlled through agency contracts. There are two different contracts in the agency theory; a behavioral based contract and an outcome based contract (Jensen and Meckling, 1976). The behavior-based contract controls the actions of the agent through fixed salaries and hierarchical governance (Eisenhardt, 1989). Behavioral based contracts address the process of the agent, the strategy performed by the agent and there is high level of direction and intervention by the principal (Anderson and Oliver, 1987). The outcome-based contract controls the agents actions by variable salary; commissions, stock options and market governance are used to control the agents’ actions (Eisenhardt, 1989). In an outcome based contract there is relatively little monitoring, relatively little management direction and straightforward measures (Anderson and Oliver, 1987). Focus of the agency theory is to determine the most optimal contract given the assumptions about principal and agent in a relationship. Which contract is most efficient is dependent from the situation and actions by principal and agent (Ouchi, 1979). When it is possible for the principal to perfectly understand the technology of the agents’ process, it can achieve effective control through a behavior based contract. When it is difficult to understand the technology but there is a high ability to measure the outputs of the agents process, the most efficient contract is an outcome-based contract. There are situations where the understanding of the transformation process is perfect and there is a high ability to measure the output. In this situation the principal has a choice of either behavior or of output control (Ouchi, 1979).

In microfinance there are two different contracts. The first contract is an individual contract and the second contract is a group contract (Ghatak, 1999). The difference between the two contracts is the number of borrowers. The individual contract represents the relations between the MFI and one microfinance client and under a group contract the MFI has an agency relationship with a group of clients (Bhatt, 2001). Which type of contract (behavior based contract or outcome based contract) is relevant for the microfinance contracts will be discussed in paragraph 4.6.

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4.4 Agency problems in the microfinance relationship

The agency theory is concerned with resolving two problems that may occur within the agency relationship. The first problem is the agency problem that arises when the goals of the principal and agent differ (Eisenhardt, 1989) and it is difficult or expensive for the principal to verify the agents behavior; the behavior of the agent cannot be verified appropriately (Eisenhardt, 1989). The agency problem can be split in "adverse selection" and "moral hazard". Adverse selection is the incorrect selection by the principal because of asymmetric information. The principal may select the wrong person through too little information or erroneous information. Moral hazard is the agency problem which means that the principal cannot observe or assess the actions taken by the agent. The outcome of an action by the agent needs to be understood by the principal to infer with certainty what the agent did (Arrow, 1985). The second problem in the agency relationship is risk sharing (Eisenhardt, 1989). In the agency theory the problem arises when cooperating parties have different goals and division of labor (Jensen and Meckling, 1976). Specifically, the problem arises when the two parties have different risk attitudes and the agent may prefer different actions than the principal because of different risk preferences (Eisenhardt, 1989).

During the screening phase adverse selection may occur. In this phase the potential client qualified according preset requirements by the MFI (Bhatt, 2001). The goal of the screening is to identify if the individual will qualify for a credit and if the individual has the entrepreneurial skills to start a micro-enterprise (Bosman and Schrijvers, 2007). The MFI wants to know as much as possible about the individuals skills and abilities, current livelihood and family situation. Through interviews and observations the individuals risk profile is analyzed (Daniels, 2004). Based on all the gathered information it is possible that the MFI takes a wrong credit decision by selecting a unreliable and not responsible person. Adverse selection may happen because the MFI did not gather enough information or gathered wrong information; the client can lie during the interview about the clients skills and abilities or the client can hide significant information about the livelihood situation.

After the screening is finished and the contract is settled, the micro-credit and the micro-client need to be controlled, which result in credit repayment. This is done during the monitoring and enforcement phase of the microfinance process. In case of the MFI it is important that the micro-client puts maximum effort in the business to repay the credit (Bhatt, 2001). The actions undertaken by the client and the outcomes of those actions need to be understood by the MFI to verify if the client puts maximum effort into the business. The problem of moral hazard is applicable in the monitoring phase and the enforcement phase of the microfinance process.

When the individual applies for a loan, the individual is assumed to be risk neutral (Morduch, 1995). As discussed in paragraph 4.2, the micro-clients are poor and lack any assets. The approach to risk by the client is different then suggested in the agency theory. The MFI prefers the client to take risks because risky activities may result in high return while the client is not scared to take risks because it has nothing to lose. Therefore the problem of risk sharing is not expected in the microfinance relationship.

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4.5 Summary

As discussed in this chapter, the microfinance relationship can be described by the agency theory. The MFI (principal) delegates work of investing money to the micro-client (agent) who will invest money in a micro-enterprise. The client is assumed to act in self-interest instead of the principals’ interest and the agent is assumed to be rationally bounded in decision making. This as a result of goal incongruence and information asymmetry between the MFI and the client. Goal incongruence is apparent between the MFI and the client because the microcredit requirements set by the MFI are in conflict with the preferences of the client. There is information asymmetry between the MFI and the client because both parties have other information. The information can be purchased or exchanged between the MFI and the client. The assumption about risk attitude is different than suggested in the agency theory. The microfinance client is not risk averse because the client has nothing to lose when starting a micro-enterprise. However, the client is more risk averse when the client becomes wealthier.

The relationship is controlled by the principal through type of control mechanisms; a behavioral based contract or an outcome based contract. Within microfinance there are two contracts that describe the microfinance relationship between the MFI and the client. If there is a loan agreement between the MFI and one client, the process is controlled through an individual contract. Furthermore, it is possible that the MFI grants a microcredit to a group of borrowers which is controlled through a group contract. The proposition about which type of control is used in the individual contract and the group contract, is discussed in paragraph 4.6.

Both adverse selection and moral hazard are recognized in the microfinance relationship. Adverse selection may occur in the screening phase before the contract is settled. For the MFI it is possible that the MFI takes a wrong credit decision because the MFI did not gather enough information or gathered the wrong information. This means that the MFI select a client for a microcredit who is not creditworthy and will not repay the microcredit. Moral hazard can occur after the contract is settled, in the monitoring phase and enforcement phase. The actions undertaken by the client and the outcomes of the action need to be understood by the MFI. With this information the MFI tries to verify if the client puts maximum effort in the business and if the client will comply with the contract; repayment of the microcredit. The problem of risk sharing in the agency theory is not recognized in the microfinance relationship because the client is not risk averse.

4.6 Propositions

Using the agency theory, two propositions can be formulated to provide a better understanding of the microfinance process. The propositions are about the success of the two microfinance contracts and the controls that are used in the relationships. The propositions will be discussed in this thesis.

Proposition 1:

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The relationship between the MFI and the client in a individual contract can be described as a relationship between one principal and one agent. The transformation process is an investment of the microcredit in a micro-enterprise that will be started or expanded which result in repayment of the credit. In the relationship, the MFI does not have all the available information of the process and is not aware of all the actions taken by the client. However, the MFI knows which behavior to exercise in order to achieve desired outcomes. For example the MFI knows how to motivate the individual client to make the business successful. The outcome of the microfinance contract is repayment of the microcredit. There is a time lag between the effort taken by the client and the outcome of the process. However, the repayment can be measured with reasonable precision; in the contract is stated what amount need to be repaid on which date. According to Ouchi’s (1979) control framework, MFIs can achieve effective control through either outcome based contract or behavior based contract since the measurability of outcomes is high and knowledge of the transformation process is perfect. For this research I expect that individual contracts are mainly focused as behavior contracts. The first reason is that MFIs implement specific controls for individual contracts to reveal the behavior of the client to motivate repayment (Vigenina and Kritikos, 2004) which indicates a more behavioral approach (Eisenhardt, 1989). Secondly, the individual contract is used for the wealthier poor because a collateral is required and the MFI requires individuals who have experience in the micro-enterprise (see paragraph 6.2). When the microfinance client becomes wealthier the client is more risk averse (see paragraph 4.2) and a behavior contract is more effective (Eisenhardt, 1989).

Proposition 2:

Group contracts in microfinance focus to outcome based contracts.

The relation between the MFI and the group of clients can be described as one principal to multiple agents. The outcome of the microfinance process is similar as for the individual contract; repayment. For the group contract, repayment is easy to measure with reasonable precision. The knowledge of the transformation process is reduced compared to the individual contract because there is a group of agents which means that it is more difficult for the MFI to control the actions by the client. In the relation there is more potential for goal conflict because the group is not aware of the credit responsibilities; the credit requirements and preferences by the client differ (see paragraph 4.2). Since there is more potential for goal conflict, the MFI is not aware if the actions will result in the desired outcome. In Ouchi’s (1979) control framework the measurability of outcomes is similar as the individual contract but the knowledge of the transformation process is imperfect. For this reason I expect that the group contract focuses to an outcome based contract.

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Chapter 5 Research Methodology

In this chapter the research methodology for this research is presented. A qualitative method is chosen over a quantitative method, in order to be able to collect the necessary data. In academic literature, a debate about the right way of gathering information in present. (Onwuegbuzie and Leech, 2002). Differences between the two research designs exist with respect to ontology, epistemology, axiology, rhetoric, logic, generalizations and causal linkages (Onwuegbuzie and Leech, 2002). In general, the distinction is based on the kind of information that is used to study a phenomenon. A quantitative research relies on quantitative information such as numbers and figures and a qualitative research uses words, sentences and narratives (Blumberg, et all, 2005).

5.1 Research design

This qualitative research concerns the microfinance relation between the MFI and the client. The objective of qualitative research is to understand, analyze and explain management phenomena at social or company level (Delattre, et al, 2009). To study the microfinance process, a qualitative research is best suitable because the microfinance relation is a complex and specified matter. The microfinance relation is complex because the risk of lending credit to the poor is high (Morduch, 1995). Furthermore, South Africa is a complicated country because of its dualistic economy and differences in the population (Daniels, 2004). In qualitative research, data can be collected in multiple ways. The methods that are used in this research are interviews, observations and secondary data. Interviews are the most important source in gathering data to gain a better insight in microfinance. The observation is done by visiting the MFIs and rural areas in South Africa. Language barriers made it impossible to communicate with the local branch managers and clients. Therefore, the relations between the MFIs and the clients are observed. The secondary data are used to provide a better understanding of microfinance in South Africa. Annual reports of MFIs, mission and vision statements and other microfinance studies are analyzed.

The research was conducted in Johannesburg where I worked as accountant for PwC for six months. For my work I had contact with MFIs and other donor funded organizations in South Africa. The MFI I contacted through PwC was Marang Financial Service, based in Vereeniging in the Gauteng province. Marang is the largest MFI in South Africa and they have around 200 employees working for Marang. Goal of the MFI is to bring professionalism and efficiency improvement in order to create a solid fundament for financial independence. The MFI is established after a joint venture of two organizations. The organization is based in five provinces of South Africa and it serves among 24.000 clients. Through my work I had conversations with the management and employees of Marang about the microfinance process and the relations with the client. They told me about the programs and tools implemented to control a microfinance-loan and a microfinance-client. We talked about the features of the different contract types

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in South Africa, the specific credit-delivery programs for individual and group contracts and the number of clients, loan amount and repayment rates.

Besides my work at PwC I tried to have independent contact with MFIs in South Africa. To have independent contact with MFIs and clients of MFIs proved to be a difficult task. The MFIs were reluctant to provide information about the loans, as money lending was considered to be a personal matter. The MFIs were suspicious about the ultimate use of the information. As a researcher I provided information about the purpose of a master thesis and promised to be confidential about the provided information. However, financial information in South Africa showed to be a topic people do not want to talk about. The MFIs refused to provide any detailed information about the relationship with their clients. Eventually it was possible to have a more in-depth conversation with the Small Enterprise Foundation (SEF). SEF is working towards poverty alleviation by creating a supportive environment where credit services foster sustainable income generation, job creation and social empowerment. SEF started operating in microfinance in 1992 and since time the organization has disbursed 437,064 loans with a total the value of R572 million. From 1996 the organization started a special program to target the poor in the Limpopo province. I visited a branch manager from SEF who is working in Tzaneen in Limpopo to talk about the microfinance process.

The second source of gathering information is observation. While visiting the local branch of both Marang and SEF, I observed the relations in the MFI. Further I visited rural areas in South Africa. Together with friends I went to the communities in Limpopo and the Eastern Province. Along these visits I experienced the poor life in South Africa and had a better understanding of the purpose of the controls in the microfinance process. When visiting the rural areas I experienced some language problems. The black tribes in South Africa only speak Zulu, Xhosa or other languages and have little knowledge of English. I do not understand the black languages, therefore I observed the people in the communities.

Furthermore I conducted a secondary data review to explore the context of the microfinance environment in South Africa. In South Africa I contacted the University of Johannesburg and the National Credit Regulator (NCR) to receive information about microfinance. Both organizations conducted studies to analyze the credit delivery systems to the poor in South Africa. Next to this, I analyzed the annual reports, mission and vision statements and publications of other MFIs in South Africa.

5.2 Data collection and analysis

I lived in Johannesburg for six months and in these months I collected data for my research. I went to South Africa in February 2010 and started with the data collection in March 2010. I left Johannesburg in July 2010 for travelling. In October I came back to the Netherlands to analyze the data. The data is collected through different sources as described in paragraph 5.1. In total I had five interviews whereof three with branch managers and two interviews with loan officers of MFIs. The interviews where held in Vereeniging (Gauteng) and Tzaneen (Limpopo). For observation of the poor communities I went to two areas. The first area was in Limpopo where I went with a friend who was born in the community. The

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second area was the Eastern Cape where I travelled with friends. In total I analyzed six annual reports and websites of the following MFIs; Small Enterprise Foundation, Marang Finanicial Services, Women Development Program, FinMark Trust, Paradigm Shift and FINCA South Africa. Furthermore I received studies from the University of Johannesburg (Nunez, 2008), National Credit Regulator (Turner, 2008), Financial Diaries (CSSR, 2005). After collecting data I sorted everything in documents. All the results from the interviews, observation and secondary documents are summarized in Microsoft Office. The second step was to summarize all the data sources and findings which are presented in this thesis.

5.3 Limitations of research

Limitation of this research are aspects that influence the microfinance relationship. During my research in South Africa I aim to provide a better understanding of the microfinance process. The microfinance process is implemented by MFIs in South Africa which means I did research about the role of MFIs in the microfinance relation. However, the relationship consist of two parties who both influence the microfinance process. Limitation of this research is that there were no conversations with the microfinance clients about their experiences of the controls in the microfinance process. Second limitation of this study relates to exploration of the process. During my interviews and observations I only assessed the controls in the microfinance process at one stage. Because there was a time limit it was not possible to explore the microfinance relation from the first contact with the client till credit repayment.

Example of South Africa

Anouk Vijverberg

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Example of South Africa

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Acknowledgements

Executive summary

Glossary

Table of Contents

Chapter 1

Introduction to Research

Chapter 2

South Africa “a world in one country”

Chapter 3

Microfinance in South Africa

Chapter 4

Managing microfinance

Chapter 5

Research Methodology