ECONOMIC DEVELOPMENT CENTERECONOMIC DEVELOPMENT CENTERPLOIESTI BRANCH OFFICEPLOIESTI BRANCH OFFICE

Economic Development Center (CDE) is a Romanian non-governmental organization

 MISSION:

to promote the economic development of micro, small and medium sized private enterprises.

to provide these enterprises and private entrepreneurs a one-stop source of business information, support services and financial product. Small business and agricultural enterprises can get help from organizations like CDE, since they cannot obtain a loan from a structured institution such as a bank.

OBJECTIVE:

Financing:

The Government of Romania through World Bank and the Ministry of Public Finances, Soros Economic Development Fund

CDE runs the micro-credit scheme for the implementation of the Rural Microfinance Project financed by the International Bank for Reconstruction and Development according to 4.602-RO loan agreement.

The credit agency CDE has been nominated by the Ministry of Public Finances to provide the administration services for the fund to grant micro-credits to the beneficiaries in 4 of the 8 areas of the country, covering 17 counties:

CDE’s main areas of expertise are:

• micro-finance

• provision of business development services

• capacity building for local or central authorities

Objectives for Micro-Lending Program:

• To facilitate access to micro-credits;

• To promote local economic development;

• To provide focused information and support services;

• To strengthen the culture for entrepreneurship;

• To foster job creation through business start up and expansion;

• To increase the success rate of businesses and the pace of business development;

Benefits:

• Collateral: In most cases, the farmer does not have adequate assets to use as collateral for a standard loan. CDE considers the good faith and assurance of the entire group as collateral for their loan.

• Payment schedule: Farmers require payment schedules different than a normal structured loan payoff where funds are received, then repayment begins immediately. CDE’s repayment methodology is flexible and allows for agricultural ventures that may not receive revenue until after crops have been harvested and sold months later.

• CDE philosophy is that the borrowers know their business best, so farmers can create their own repayment schedule, pending approval. The CDE program puts faith in the borrowers and allows them to succeed in repaying the first loan, then larger loans, improving the self-esteem and quality of life for the whole community.

The program started in October 1998 and focuses on expanding the creation of retail intermediaries on village level to disburse small amounts of credit, in the form of “Rural Development Associations” (RDAs).

 

The program mechanism is based on the commitment and accountability of the borrowers (rural entrepreneurs) and fast response of the lender (CDE) to credits’ demand.

RDAs main functions are: 

• to screen the loan applications;

• make credit decisions and provide mutual guarantees;

• organise social pressure in order to ensure a good repayment rate.

From the experience gained, the effective guidelines of CDE’s lending methodology are:

• the viable groups should have no less than 25 members while the maximum should not exceed 60 members;

• only one member per household may receive a loan in the same group;

• groups elect their own Credit Committee;• groups create their own by-laws;• no member of a group receives a new micro-loan unless all

members of the group are up to date on micro-loans repayments;

• groups typically create a “group buffer fund” from the loans disbursed.

CDE LOCAL OFFICES

The RDAs creation process takes 4 to 10 weeks during which the CDE staff is:

• making village study and analysis of the economic and social characteristics of the area;

• developing working relationships with farmers on the basis of the confidence and mutual understanding;

• organizing the first meeting with potential members of the RDA and selecting the initiative group;

• working with the initiative group on issues regarding the by-laws, RDAs’ internal regulations, costs of investments, interest rate, RDAs cash flow for a household etc;

• creating RDAs with its internal structure;• providing training for RDAs’ Credit Committee: - loan application and credit analysis; - rules on managing the RDAs; - organizing meetings; - developing services for RDAs’ members;• supervising credit analysis, performed by the elected Credit Committee;• monitoring the activity of the RDAs and the usage of the loans.

The main activities of the CDE are:

• select the communities eligible for assistance;

• initiate and establish RDAs;

• participate in the decision process related to lending process;

• organize monthly disbursements and collection of micro-loans;

• actively monitor the use of the credits and make sure in cooperation with RDAs about the timely repayment of credits.

CDE team provides enterprise development and consulting services for enhancing the clients’ ability to make profitable use of financial services received such as:

• basic business training: bookkeeping, marketing, business planning, finance;

• specific production skills;

• business management skills.

Consulting services:

• management, marketing, financial projections, computer applications and accounting;

• assistance in developing a business plan;

• information and research on government donors or investors programs;

• seminars and workshops;

Interest rates and service fees:

The interest charged – 9.5 % up front (equivalent of aprox. 17% APR) - ensures a commercial approach for the lender while for the borrowers the cost associated for borrowing is rather understood as the cost of rapidly and timely accessing funds.

Simple loan application and rapid review:

Micro-loan applications require simple, easy to understand and answer questions aiming to provide sufficient information regarding the viability of the business to be financed.

Well-designed questionnaires, visits to workplaces and qualified staff further contribute to an effective lending and review process.

With the backing of the group guarantee and the screening involved in group self–selection, loan review, approval and disbursement can be also performed quickly.

Repayments:

Peer group lending programs have a variety of incentives and sanctions to facilitate timely repayment. Group members are responsible for collecting the total loan, and no member is eligible for additional credit if within the whole group there is default in the repayment process.

This group lending scheme develops a driving commitment to on-time repayment and maintains up-to-date credit administration systems that rapidly alert program staff about credit delinquencies.

Training and organization building:

Training and on site technical assistance are part of the program strategy. Training allows group members to improve their existing management and administrative techniques, while technical assistance leads to a better understanding of each other’s needs (lender and borrower).

CDE Micro-lending methodology works this way:

• CDE goes into a community and interviews farmers, explains the lending process and CDE procedures for forming a lending group. Only members may apply for loans, after getting approval of the group and final approval from CDE. Taking a loan means that both the group and CDE trust that the loan will be repaid.

• If there is adequate interest, a group is formed, with a Board of Advisors. This board usually consists of 7 people.

• The group can add other local farmers as new members, up to a maximum of 60 members.

• The lending group meets once a month, and 2/3 of the membership is required to be in attendance to conduct a meeting.

• If a member misses three consecutive meetings, they are removed from the group. A family member may be a substitute for the meeting.

• CDE chairs each meeting, and members can request a loan. This meeting is usually held at the school or other public building.

• A new member request is usually discussed by group members prior to the meeting. The proposed member explains his position and answers questions from the CED staff about his farm. The new member must leave the room while members vote whether to accept him, with a minimum 2/3 vote.

• CDE collects information about the individual from other members and the community before giving final approval for the member

• When members apply for a loan, they thoroughly explain their situation, what the money will be for, and when it will be repaid. All members leave the room while the Advisory board votes on approval. CDE still has final say on issuance of each loan.

• After 3-5 weeks the individual can receive the loan after approval. The funds issued include the loan amount minus first year’s interest. Loan contracts are created in $US, but the actual loan and repayment is in RON.

• The following options can result when applying for a loan:a.) Approve the amount as requested.b.) Approve with a lower dollar amount.c.) Pend until further information is provided by the borrower, and borrower can reapply.d.) Reject.

• The loan gets repaid according to the schedule created by the member and approved by CED.

• If a member does not repay, the following actions (can) take place:

a.) All new loans for the group are frozen.b.) During this time, the group usually pressures the individual to pay back the loan.c.) In worst case, the member’s assets can be sold, to pay the loan. d.) If the loan is paid, then activity or the group resumes.

If the loan is NOT paid, then CDE can end all group activity or dissolve the group, but this has never occurred.

The Results 

The farmers using this micro-lending program are showing dramatic success in their agricultural ventures, and are rapidly changing the rural communities in which they live. The next step may be farming cooperatives for purchases of jointly-owned tractors and heavy equipment to make their ventures even more successful. Group marketing for produce may expand to more distant markets in Romania. These small borrowers are making a huge contribution to the modern economic productivity of Romania.

Program Statistics:

(NOTE: UPDATE THIS PAGE!!)

         No. of clients 4,030

         Total value of credits disbursed 2,550,000 USD

         Maximum credit amount 4,000 USD

         Financial cost/credit 9.5% up-front flat

         Average loan amount 650 USD

         Repayment rate as of October 2002 100%

 

The progress of the micro-credit program development entitles an estimate of an increase of the number of clients of up to 6,000 until the end of year 2003.

Ploiesti Office of CDE

Contact persons:

Adrian Daniel Pintea - Program CoordinatorOtilia Badiu - Loan Officer

Alin Pencu - Loan Officer

Phone:

0244 510 716

Alin Pencu Otilia Badiu Daniel Adrian Pintea

Peace Corps Practicum, March 2007: Daniel, Kristin, Otilia, Alin, Steve