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Microloan Foundation Scotland

Malawi Tomorrow is one of the moving forces behind the microfinance project initiated by the Scotland Malawi Business Group to help groups of highly vulnerable women in the densely populated south of Malawi to raise themselves and their families out of poverty through investment in small enterprises.

Microfinance has already changed attitudes towards helping the poor in Asia and Latin America and is increasingly making a positive impact in Africa. It has created a banking system based, not on collateral, but on mutual trust, accountability, participation and creativity. It has proved highly effective in promoting income generation and employment growth. Successful projects transform rural communities, delivering tangible social benefits in terms of nutrition, literacy, birth rate, HIV/AIDS awareness, reduced dependency and enhancing the status of women.

A primary aim of the Malawi project is to maximise the prospects of success and minimise overhead and management input in Scotland by collaborating with an existing local microfinance provider with a track record of success. Accordingly, we have selected the two independent wings of Microloan Foundation (MLF), in London and Malawi, as our partners and joint managing agents, mainly because of their policy of concentrating on those most in need, focus on training and business development and efficient use of capital. Their ‘not for profit – not for loss’ model , which ensures long term sustainability through a revolving fund, reflects the combination of developmental nous and commercial discipline that Malawi Tomorrow and the SMBG strongly favour. Their innovative Microventures initiative, which provides clients with the skills and other support necessary to build higher margin and more resilient businesses, is another strength.

Funds generated in Scotland will be disbursed through MLF (Malawi), which was founded as an independent organisation in 2002. Since then it has opened six offices, recruited 31 staff, provided more than 10,000 loans to over 200 women’s groups and achieved an average repayment rate of 96%. At present, it operates only in Northern and Central Malawi and has agreed to cede development of the Southern Region to MLF (Scotland).

A detailed business plan is already in place. It provides for the establishment of five branch offices over three years and focuses on working with the poorest rural and illiterate clients not served by other microfinance providers. A phased approach to implementation will be adopted. The first phase, lasting three months, will be one of ‘due diligence’, during which key staff are recruited and trained and feasibility studies carried out on potential branch locations. During the second phase, the first branch will be opened as a ‘proof of concept’. Initial operations will be on a small scale to allow time for testing controls and ensuring that sound quality reporting procedures are in place. Phase three will entail the full roll-out of the other four branches. The total investment required over three years is about £400,000.