M10 Obtaining loans from informal savings groups

Micro EnterpriseDebtFinancial Management
  • Groups with a well established savings system may be able to make loans available to members. When loans are made, it is usual to charge interest. Many groups find that 10–15% interest will cover the costs involved.
  • The money raised from interest payments should cover the costs of record keeping and banking and the rest should be invested to cover any loans that are not repaid (through death, sickness etc).
  • At the beginning it is a good idea to make only small loans. Once people have successfully repaid several smaller loans, they can usually be trusted with a larger loan.


  • Discuss the reasons behind interest charges. Compare these suggested charges with those of local money lenders. 
  • For example, Peter borrowed $50 to buy equipment for a tree nursery. He was allowed a year before starting to repay the loan and then had to finish the repayments within two years. Interest charges were 12% each year – $6 a year. His total repayment was $62 so he paid back $5.20 each month during the second year. He raised this money from the sale of fruit trees. 
  • Mary borrowed $50 to make palm oil. She bought palm nuts from the market, processed and bottled the oil, selling it quickly in the local market. She paid back her loan after only six months in full, paying just $3 in interest charges – a total of $53. 
  • Encourage members to discuss the implications of making such loans available and whether there is any training available locally.