Microfinance and street children: is microfinance an appropriate tool to address the street children issue ?

2.4.3. Program sustainability

Our previous microfinance model highlighted two dimensions of program sustainability: minimizing costs, and the ability and commitment to pursue the activity in the future. On these two dimensions, we find that Padakhep's microfinance program for street children is poorly sustainable. Let us analyse each of them.

1. Minimizing costs: repayment rate

A. DIC Mohammadpur ( FP )

Unfortunately, Padakhep was not keeping up-to-date data. Having received the CGAP Fund in 2001, the MFI was only keeping some data for detailing the use made of the awards fund. In order to check the validity of those data (which stated an astonishing 98% recovery rate), we decided to collect raw data from the branch office, which was keeping data from July 2003. These data allowed us to check the reliability of the informations reported in the CGAP report.

	July 2003 - June 2004	July 2004 - June 2005
Borrowers (Number)	75 (35 Boys, 40 Girls)	26 (9 Boys, 17 Girls)
Loan disbursement (Tk)	300,000	120,000
Loan recovered (Tk)	210,000	30,000
Loan outstanding (Tk) -	90,000	90,000
Number of active borrowers (i.e. borrowers with outstanding loans)	18	20
Service charge earned (Tk)	1,500	11,400
Average loan size (Tk)	4,000	4,615

Exchange rate: $US 1 = 68 TK

Those data indicate a particularly mitigated picture of the microcredit program. Indeed, the program clearly demonstrates, first, a major decline in the number of street children who benefited from microcredit. Second, it shows how the loan recovery is low. For example, between July 2004 and June 2005, only 25% of the loan disbursed has been recovered. Padakhep made therefore a provision for loan loss equal to 50% of the total amount (up to 1 year). After June 2006, this will be transferred to a provision of 100% in case the children do not repay. Unfortunately, all indicators tend to show that the children will not payback the loan, as the majority of them dropped out because their slum has been evicted by the government, and have therefore completely disappeared (as their family changed location). Supposing this, it means that Padakhep has lost the equivalent of 180,000 TK ($US 2650) between July 2003 and June 2005.

As pointed above, Padakhep did receive an award of $US50,000 from which $US 38,000 has been used as revolving loan fund. One question is therefore remaining: are those $US2650 of loss part of the award fund or is it a direct loss that Padakhep needed to finance from its own funds?

In order to answer this question, we need to capture the data from the first CGAP reports in order to see if Padakhep was still, in 2003, using the award funds as a revolving loan fund.

Before doing so, we must recall that the award funds have been distributed as loan funds to street children and their guardians. Let us now review the initial data:^101(*)

	July 2001 - Dec 2001			Jan 2002 - June 2002					Cumulative
	SC	Adult	All		SC	Adult	All				SC		Adult		All
Borrowers (number)	162	168	330		307	257		564		469		425		894
Loan Disbursement (US $)	4,832	16,832	21,664		9484	9459		31144		14,316		26,291		40,608
Loan Outstanding (US $)	2,511	3,076	1,0718		5080	18486		18486		7,591		21,562		29,153
Recovery rate										100%		100%		100%

Following these figures, a total of US$ 40,608 has been disbursed between July 2001 and June 2002. This means that the US $ 38,000 of the CGAP have been disbursed in less than one year.

Concerning the recovery rate, Padakhep points out that the recovery rate is equal to 100% However, being a bit surprised by those statements, some complementary meetings with the executive staff teached us that this recovery rate is not directly related to the loan amount recovered by the children and their guardians, but is related to the amount of loss recovered by Padakhep's own budget. This means that some loss happened.. Unfortunately, these loss amounts do not appear in CGAP reports, and no data have been kept in Padakhep's own reports. Our next section will highlight the major problems that lead to such a low recovery rate.

B. DIC Mirpur (Informal program)

DIC Mirpur started to provide credit facilities in December 2003. Since this date up to December 2005, a total of 41 street children -21 girls and 20 boys- have been provided with microcredit for investing it in different income generating activities.

The cumulative loan disbursement is equal to 41,400 TK (US$ 609), with an average loan size of 1000 TK (US$ 15). The DIC has recovered 87% of its loans, 5 street children having dropped out from the program

In order to understand practically the loan recovery process, let us focus on Shafikul Islam, whose previous section demonstrated how an active saver he was.

Bahrul Islam bought some cycle rickshaw servicing material in order to repair cycle risckshaws transiting in Mirpur. Having taken the loan in January 2004, he has been able to reimburse it in May 2004, respecting his weekly repayment schedule.

C. DIC Kawran Bazar (Informal program)

This DIC has disbursed, from July 2004 to December 2005, a total of 5852 TK (US$ 86) of credit to 44 street children (all boys), with an average loan size equal to 133 TK (2US $). Out of this, 38 street children have repaid their loans and 6 street children were not able to repay it because their business investments were not successful.

However, as pointed by the DIC Manager, those street children have not disappeared and they have promised to do their best to repay it.

The following figure captures the loan repayment time of the 38 street children, classified in three categories

10%

21%

69%

It demonstrates the quick repayment behaviour of street children. Indeed, only 10 percents have repaid after 1 month, half of them having done so because the loan amounts were bigger than the average (i.e. equal to 400TK)

2. Ability and commitment to pursue the activity in the future

Our different discussions with the staff showed a separated picture between microfinance section and youth section. On one side, the microfinance staff seemed to have few concerns about street children, but a high competence on microfinance. On the other side, the street children staff had a high commitment to serve street children, but few competences on microfinance. Beyond this question, some other elements affect the sustainability of the program. They are highlighted below:

· Who is responsible of what?

The microfinance for street children program is partly managed by the microfinance section, and partly by the child development section, creating therefore problems in terms of management and, hence, in terms of viability. Everybody seems therefore to «reject» the responsibilities on others. This shows how the lack of coordination is important.

· Where are the data?

A big issue impacting the sustainability is the data record. The system of record is far to be efficient, especially for credit. For savings, it seems to be more efficient.

· Where is the staff?

As pointed by the Executive director of Padakhep, the high staff turnover is a big problem. Indeed, working with street children is challenging, and the staff tends quickly to move on.

· Formal and informal program

The presence of a formal and an informal program jointly is clearly a big problem in terms of sustainability

* ¹⁰¹ 1 US $ = 58 TK at that time