This page presents the summary of the report.
Read the Summary Report of this study (recommended) as a pdf: Summary Report
Read the complete Impact Study: Full Report | Annexes

This report is also available in French. [ coming soon ]

Summary of Results and Main Recommendations of the Study

Institutional Framework

Zakoura Micro-Crédit (ZMC) is the microfinance arm of the Zakoura Foundation, a national NGO devoted to increasing the quality of life of the most underprivileged Moroccans. ZMC provides credit and training to a target market of economically disadvantaged women using a solidarity group methodology. Between its founding in 1995 and September 2000, ZMC had disbursed 82,814 loans totaling 121,489,000 Dirhams. Its current repayment rate is 99.69%.

Goals of the Study

ZMC is a participant in the UNDP’s MicroStart program, which provides training and technical support to promising microfinance institutions around the world. This impact study was conducted by the Local Technical Service Provider (LTSP) DIS .

From ZMC’s point of view, the study had four main objectives:

1. To better understand their clients’ requirements in terms of products;
   
2. To allow them to assess client satisfaction;
   
3. To evaluate the impact of the program on clients’ lives and businesses; and
   
4. To understand the reasons clients leave the program.
   

The results of the study will be used to “prove and improve”: to develop an objective sales argument about the impact of ZMC, useful for both management and external partners; and to develop a set of recommendations for enhancing the institution’s operations and impact. To that end, the study analyzes ZMC’s impact at three levels: on clients’ enterprises, on their households, and on clients as individuals. In order to gauge these effects, we utilized “Learning from Clients: Assessment Tools for Microfinance Practitioners – Draft Manual” (AIMS Tools) developed by the SEEP Network. These tools include a series of quantitative and qualitative evaluation methods.

This report is divided into two parts. The first part gives a description of the context of the study, lays down the hypotheses to be examined and presents the methodology to be employed while collecting information during the surveys.
The results of the study are presented in the second half. Rather than presenting them in a linear fashion by giving the results for each of the tools used, we chose to combine all that we had learnt from each of the tools and present the results thematically, divided into chapters and sections.
Here, we shall give a summary of the most salient results and then sum up the main recommendations.

Findings

It must be noted that in general, there were relatively more clients as compared to non-clients who were open and more at ease in answering the questions raised. For example, to a question referring to changes in their income, the proportion of clients who gave no answer was 1.1% as against 9.3 % for non-clients.
We also observed that 62.7 % of the clients had recorded an increase in income over the preceding twelve months. Of them, 5.3 % considered the increase substantial, whereas for the same questions, the figures stood at 38.9 and 0% in the case of non-clients!

The program’s clients seem to be more actively involved in managing the household budget, potentially because of their increasing and more substantial financial contribution.

The Zakoura program’s clients seem to be better protected against shortages of inputs as compared to non-clients. The same is the case with “events outside their business activities”. However, as with any other entrepreneur, they too are affected by the general economic situation, which impacts on the demand for their products or services.

The Zakoura program seems to have given a boost to entrepreneurship among its participants while making it easier for them to take advantage of possible business opportunities.

Clients’ sales from the two primary activities of their enterprises are higher by 14 % on an average as compared to those of non-clients. However, with regard to the profits calculated, the difference is smaller – 8.9 %. The smaller gap can be explained by the fact that clients are better able to assess their profits as compared to non-clients. In a certain sense, they have better control over the management of their funds.
The results obtained upon going through the answers to questions concerning the functioning of the enterprise itself enabled us to conclude that the Zakoura program had helped its clients to further diversify their activities (their average profits from their secondary business were far higher than those obtained by non-clients).

In most fields of activity, clients’ sales and profits were higher than those in the case of non-clients, which explains the decreasing need for supplementary sources of income (such as wages which means working for others).

Access to a funding source has enabled clients to undertake the necessary investments to promote their business, thereby extending their process turnover ratio, leading to economies of scale (relative reduction of unit costs).

We observed that participation in the ZMC program also promoted diversification in enterprise activities, either through the funding it enables, or through the empowering (network) of the women participating in it.
As far as the opportunities the loan program offers clients, it was observed that, proportionally speaking, clients had made more changes in their business over the 12 months preceding the survey. For example, over the same period, 63.30% of the clients increased the size of their businesses as against 39.3% of non-clients. In the same way, 54.8% of the women who had spent some time in the program expanded their product range as compared to only 35.5% of incoming clients.

Hence, the Zakoura program seems to be fulfilling its role by loosening the financial constraints that held women entrepreneurs back from taking decisions. The access to the credit market that the program offers appears to provide the participants with surplus resources that can be used for strengthening and expanding their enterprise activities. It also gives them the opportunity to think in broader terms about further developing their business. In addition to increased investment, they also expand their distribution network.
Given the prevailing economic situation, clients seem far less disadvantaged than non-clients.

With regard to professionalism in the management of their business, there is no notable difference between clients and non-clients – the majority in both cases keeps the money from their business separate from the money used for family and personal expenses. However, 65.7% of the clients did admit that they only started this practice once they had joined the program. ZMC has also encouraged its clients to calculate their profits on the basis of their record of income and expenses (in this case, 71.6% of the 46.6% admitted that they started this practice only after they joined the ZMC program), which reinforces the idea that the program has contributed substantially to consolidation and professionalism in the management practices of its clients.
Thus, 56.6% of the clients have said that they only learnt which of their products was earning them the highest profits once they started participating in the program.

With regard to the program’s impact on the household, irrespective of the geographic area under consideration, the proportion of clients who have increased spending on education is 10 points higher than in the case of non-clients. All school-aged children go to school in 83.9% of client households (73% in the case of non-clients).

From the viewpoint of population targeting, 37.8% of the clients declared that as far as the profit use was concerned, their first choice was the purchase of food and food products. In contrast, only 26.50% of the non-clients admitted that the profits were primarily used to finance such purchases. In spite of this difference, food remains the primary item as far as the priority goes for using the profits earned, irrespective of the group concerned. This proves that ZMC’s client base is still composed of a population group that sets aside a major proportion of its budget for food and food items, and that, therefore, it is a group of limited means.

However, the summary table of the number of people per household, in particular the number of working persons, allows us to compare the socio-economic profiles of both client and non-client samples, thereby helping us to explain why non-clients sometimes have “household performance” results that are better than those of clients. It would appear that, since loan officers are offered an incentive to collect the maximum number of clients possible (premiums are normally linked to the number of new clients in a portfolio), they have a tendency to "run" after clients and are therefore "less careful" about the fact that they should be from among the "poorest" sections. Hence, new clients sometimes have the profile of working women, who are less disadvantaged than older clients.

Among the clients, more than one-third had observed an improvement in their diet while only 18 % of non-clients remarked on a similar change. On the other hand, a larger number of non-clients felt that their diet had declined in quality.

With regard to empowerment, proportionally speaking, a higher number of the ZMC program’s clients were taking more decisions on their own.

As for the functioning of the program itself, we observed that when the group was properly managed, the clients felt that it was useful since it served as a basis for mutual help if and when required. On the other hand, they also appreciated the fact that Zakoura enabled them to form a fresh solidarity group from one cycle to another, if they liked.

When the clients were asked to give their spontaneous reaction to the program, as far as the overall quality of the program was concerned, the women respondents were unanimous in their opinion. For them, the program’s main attraction was that it provided them with a regular source of working capital. As we had observed in the report, the program led to a relative reduction in shortages of resources for its clients. One of the results obtained from the focus groups was that client satisfaction had increased due to the fact that they were able to reimburse their loans in small installments.

The program’s second major advantage, according to them, was the fact that the interest rates proposed were lower than those associated with other informal credit sources.

However, very few women mentioned the training and technical assistance provided during the program, while previous results had quite clearly highlighted the usefulness of these services.

It also must be noted that some of the clients were disappointed with the fact that solidarity did not necessarily work within the groups.

Viewpoint of outgoing clients

On the whole, the program was viewed positively, even by clients who had left it. It may be noted that for 32.8% of them, the loan was considered easy to reimburse, but the loan amount was believed to be too small to meet their business needs. One must remember that one of the main complaints the participants (present clients) make to Zakoura is the small size of the loans.

In conclusion, it may be noted that the program has had a very clear impact when you consider the enterprise activities of clients versus non-clients or even when its effects at individual level are examined. The performance of the former is often significantly higher than in the case of the latter. However, the impact at household level is not as tangible. This may be explained by interference by other family members. On the other hand, we have observed that there are a proportionally higher number of clients who are the head of the household (35.30% against 21.30% in the case of non-clients). In the same way, the “dependency ratio” (defined as the ratio between the number of persons per household and the number of working members in that household) is higher among the clients as compared to non-clients.


Summary of main recommendations

In preparing the recommendations, we shall try take into account not only the results of the client surveys, on the basis of each of the five tools used, but also the ground reality of the ZMC program. In other words, the aim is to take into account what is desirable while bearing in mind what is actually feasible. Past experience in the framework of work with MFIs participating in the Micro-Start program has shown us that optimum results are obtained when an MFI tries to make its procedures more flexible, in response to clients’ concerns (for example, reducing transaction costs resulting from excess traveling), without calling into question any of the mechanisms that guarantee the program’s durability. Making a distinction between what is “negotiable” and what is “non negotiable” is in the interest of MFIs themselves.

For the same reason, we shall not take up any of the client’s wishes that are likely to undermine ZMC’s success. For example, a reduction in the number of members in a solidarity group or even permission to set up groups with members from the same family .

On the other hand, we shall include the requests that we felt were relevant and would increase client membership (satisfaction), without increasing ZMC’s costs or endangering the program’s functioning (repayment rate quality).

In other areas, we have taken up clients’ requests and have tried to reformulate or adapt them as best possible in order to make procedures more flexible, without calling into question the basis of the ZMC program. For example, with regard to the extension of the grace period, a request that has been made at several occasions (as can be seen in the results obtained by all the tools) and which is supported by a fairly convincing argument by the clients, we would like to propose the following:

• For new clients (1st loan cycle): The grace period should not be extended, since it is very important that the contact be maintained in order to ensure continuity, proximity and “presence” for these clients, as at this stage we do not know how disciplined they are with regard to honoring their commitment to pay their installments within the specified time. On the other hand, we suggest that the amount of the first installment be reduced in order to respond at least partially to their constraints. They very rightly want to use the profits they earn from their enterprise to repay the loan, instead of using a part of the loan itself to do so.
  
• For longer-term clients in the program – those who have had a chance “to prove themselves” during preceding loan cycles - we believe that it would be more justified to increase the grace period to 3 to 4 weeks from the present 15 days. This can also be easily understood because the size of their loans is much greater, thereby taking their installments higher. An extension of the grace period in their case would enable them to begin reimbursing the loan only once their enterprise is running well enough, with the help of the loans granted. They feel that repaying the loan from the product of their sales is not the right thing to do and that it would be far better to pay from the profits generated. In some borderline cases, a part of the loan is frozen in order to be able to meet their installments.
  

We have observed that loans are sometimes used to parry external crises. However, such usage has not, properly speaking, been provided for in the terms and conditions of the contract between Zakoura and its clients. The use of loans for such reasons is completely non-productive, although it may sometimes prove useful. It would be far better if clients had access to a proper insurance system rather than being forced to misuse the ZMC program to fill the gap. In the discussion and conclusions drawn from the application of Tool no. 4 (Client Satisfaction Survey), we have brought up the request of clients to have access to a savings service.

We have also given the example of clients who use the loans to pay for medical examinations. In fact, such a situation is quite “understandable” and not all that rare in most micro-finance programs. However, we believe that it is the right time to recommend to ZMC (while waiting for a savings or insurance system to be set up) that loan officers take the help of solidarity groups in order to “assess” the use of loans for such purposes, which are not “in conformity with the initial rationale” of the ZMC program.

The interviews also revealed cases where clients wanted to avail of certain opportunities and used loans to purchase food items since it was more cost-efficient to do so during a particular period as the prices were lower (for example, during the cereal harvesting season). In such a situation, they often chose to postpone investing in their enterprise – in order to “make full use of the opportunities that presented themselves”.
Hence, we could recommend the following, in particular:

• To better assess projects and their ground reality before granting loans
  
• To involve solidarity group members more in the process so that they could monitor each other better (giving them a true sense of responsibility)
  
• To ensure a more rigorous follow-up so as to remain in closer touch with clients once loans are granted and to avoid granting fresh loans to clients who do not stand by their commitments as far as investing in their enterprise is concerned, even if they do repay their loans on time.
  

In both the cases, the number of clients per loan officer may not increase at the desired pace and may even have a negative effect on their bonuses. Hence, qualitative criteria should be introduced upstream for the grant of bonuses to Zakoura staff at various levels (loan officers, supervisors, etc.).

Some of the participants in the group discussions felt that for clients who had reached the 5th loan cycle or beyond, loans should be personalized. In fact, they felt that by the time they reach this stage, clients have already “proved” themselves, loan amounts are higher and the installment mechanism needs to be personalized (adapted to their activity).

In this regard, we recommend that ZMC look favorably at such an option for clients who reach an advanced loan cycle stage, if they have proved themselves as far as their sincerity and regularity in repayments is concerned. However, in that case, it would be essential to consolidate project assessments before granting loans and to ensure a thorough follow-up in the field.

With the diversification of products (the changeover to individual loans for long-term clients), the responsibilities of loan officers would increase considerably - in project assessment, follow-up and consultancy once the loan is granted. In several microfinance programs, these tasks, where the loan officer plays the role of a solidarity group, are often entrusted to “senior loan officers”.

With regard to installment payments, it appears that the clients manage to adapt to weekly repayments. They seem to constitute a viable repayment level and clients seem satisfied with the loan period insofar as it enables them to repeat the loan fairly quickly.

It must be pointed out that some clients wish that Zakoura would introduce some flexibility in repayment (rescheduling of payments) for extraordinary circumstances, in case of a very adverse economic situation or in case of illness. We think that such a strategy calls for an objective assessment of the condition of the clients concerned and the involvement of the solidarity group’s members, so that they can judge the real situation of the clients and bring their solidarity into play.

Many of the clients felt that prior consultation and agreement was necessary before deciding on timings for repayment and training meetings, so as to avoid disrupting their professional activities as far as possible. For example, some prefer the afternoon.

We feel that it would be appropriate for Zakoura to examine these options more deeply, by questioning a large number of clients, to take into account their diverse activities and locations (regions), before making any arrangements.

The physical conditions for the meetings need to be improved - several women would like to have benches or chairs in order to avoid problems caused by the cold weather when they are seated on the floor.

An oft-quoted demand has been reiterated in the interviews held while implementing the quantitative and qualitative tools – regarding an increase in the loan rate. We believe that by targeting poor working better, Zakoura will be able to avoid increasing the amount of the 1st loan, without losing out to the competition. As far as prospecting for clients is concerned, more efforts need to be made, in order to reach the poorest. The system of bonuses for loan officers could include a gratuity to those that grant low initial loans, with a moderate and gradual increase in the amount. This would ensure that Zakoura’s mission would be better fulfilled, along with a higher retention rate.

The survey results also show that an additional educational input is required to explain the following to the clients:

• Under what conditions their loan amount would increase from one cycle to another
  
• For what reasons the loan is repeated without increasing the amount and why the amount is sometimes reduced.
  

For the first loan cycles, a 6-month period seems very suitable. For advanced loan cycles, according to the activities concerned and the pace of business, adapting the installments seems appropriate.

In the case of clients whose business is dynamic in nature, they prefer to retain the 6-month period even with higher loan amounts, as otherwise, the period before a fresh loan can be obtained would be extended. For enterprise activities with a longer turnaround period, it would seem that 9-month cycles for loans above DH 3000 and one-year cycles for DH 5000 loans are far more appropriate, according to the women. In our view, ZMC may consider these complaints favorably.

Discussions (in the focus groups) have revealed the need for an individual savings service.
The same applies to a "security fund" representing collective savings to meet the needs of Zakoura’s clients in times of difficulty.

We believe that ZMC could examine these requirements and define the optimum indicators for meeting the need for an individual and collective savings service.

With regard to individual savings, it would be necessary to make the concerned supervisory authorities aware of these requirements for an amendment to present laws. The option for individual savings could be reserved for microfinance institutions that have proved themselves through: i) good governance, ii) efficient management leading to financial viability, and iii) transparency in transmission of information.

The analysis of the survey results shows that the needs and complaints expressed were extremely diverse. The heterogeneity of ZMC’s clientele could, however, be circumvented by adapting loan amount more to the real absorption and repayment capacities of clients, for those in advanced cycles.

This leads us to recommend that ZMC should strengthen its detailed client information and targeting system. In order to improve the retention rate, it would therefore have to:

• Target clients better; ensure that their business activity profiles are of the kind that would comply with the procedures that ZMC has established and that they are in harmony with its mission and its strategy to work durably;
  
• Adapt these procedures, without harming its viability (on this point, refer to the detailed discussion of the results of the focus group meetings - Section II, Chapter IV).
  

The recommendations resulting from interviews with outgoing clients, aimed at learning how the program could be improved, coincide with the principal grievances mentioned above. Thus, 30.5% of them were in favor of an increase in the loan amount and 28.7% emphasized an extension of the repayment period. In Chapter IV, Section II, we have shown that the women need explanations that are more detailed. Thanks to the group dynamics within the focus groups, the women explained to their colleagues that with an extension of the repayment periods, the amount of time they would have to wait before being able to apply for a fresh loan would increase (later cycles). On learning this, the women went back on their proposal and declared that weekly repayments over 23 weeks would be satisfactory.

Corresponding to the proportion of women leaving the program because of group-related problems, 14% proposed that loans should no longer be granted collectively, but individually. The idea does deserve to be examined in greater detail for older clients, with higher loan levels (See Chapter IV, Section II).

It may be noted that the proportion of dropouts suggesting the reduction or removal of interest rates is no higher than 4.3 %. This observation is fully consistent with the fact that very few clients noticed the reduction in interest rates applied in the months preceding the survey. The idea is also consistent with the observations that are commonly made in the field of microfinance. The problem target groups face is not related to the cost of financial services, but to the access to credit. The cost of credit from other sources is often exorbitant.

These observations, based on interviews with outgoing clients, also confirm the results of the quantitative and qualitative surveys with ongoing clients; for clients in the higher loan cycles, those who have proved their reliability and regularity in repayment, ZMC should consider offering more adapted services – in terms of loan amounts, repayment indicators, guarantees, etc.

In conclusion, we would like to point out that the recommendations given here must be taken in their context. In the body of this report, we have linked the recommendations to comments made in client surveys. The reasoning behind the recommendations is, thus, further substantiated.

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