Group loans and social collateral in Rwanda

It is busy, dark and noisy. There is the intermittent running of a diesel engine as 2 mechanics attempt its repair, and what seems to be an endless stream of men unloading bags of cement into an adjacent shed. About 80 people mill around, chatting and making last-minute phone calls to see where missing group members are.

I am in a shed out the back of a small bank branch near the bustling Kimironko market in Kigali, Rwanda. The group I am here to visit, Tuzamurane Group B, are here for a disbursement meeting, where members will sign a group contract and receive loans amounting to between $100 and $300.

Tuzamurane Group B

As a Kiva Fellow, I have been working with Kiva Field Partner Urwego Bank, a microfinance institution providing financial solutions to the financially excluded throughout Rwanda. Urwego, a well-established bank, has been using Kiva capital for the past 8 years to extend its reach to low-income people across the country.

View from Urwego head office, Kigali

Kiva lenders provide capital to Urwego primarily for group loans, which leverage social collateral to mitigate risk, given that most borrowers have little or no financial collateral to offer. Social collateral is built by group members, who vouch for each other and attest to one another's good character and work ethic.

Groups, typically comprised of 15 to 30 members, hold regular meetings to track repayments and to support each other with any problems that may arise. Groups appoint committees, comprised of a president, treasurer and secretary, to assist in the coordination and management of the group. This is all in addition to the formal vetting process to approve a loan that Urwego carries out.

A question that is asked time and time again by those curious to understand microfinance is, “what happens if someone fails to repay a loan?" At Urwego Bank, there are typically 3 steps after a group member defaults:

  1. At the loan closure group meeting, a defaulted borrower will explain her situation, and the president and loan officer will likely allow for an additional 1 or 2 weeks for her to make repayments if appropriate.

  2. A key requirement of receiving an Urwego loan is to make a 10% savings deposit. If a group member fails to make her repayment within the extended time frame and she has sufficient funds in her savings, this can be used to cover the outstanding amount.

  3. Finally, failing steps 1 and 2, the group president will collect money from other group members to cover the defaulted member's outstanding amount.

This social collateral is the backbone of group loan effectiveness. Groups place their trust in their president, who monitors members' personal and business circumstances so that appropriate assistance is provided and decisions can be made in the case of default.

Urwego Kimironko branch, Kigali

The members of Tuzumurane Group B all run microbusinesses in the Kimironko market. Businesses include fruit, vegetable and souvenir vendors, while others offer kitenge tailoring. 

Kitenge at the Kimironko market

This group has received Kiva funding for their past 2 loan cycles. Upon my introduction to Tuzumurane Group B, the group president stands, sharing his gratitude to Kiva and Kiva lenders for providing this capital. "Kiva has allowed us to grow our businesses, improve our living standards and give more people in the community a chance to access credit," the president says through a translator. The rest of the group claps.

As I shake the president's hand, the diesel engine goes quiet and the bags of cement are all unloaded. The group seems to sit a little more comfortably in their chairs, relieved of the need to lean in to catch every word. The loan officer of the branch reads the final terms of the contract. Each group member signs, and a photo is taking for the Kiva profile. The loan is then disbursed, and group members say their goodbyes before returning to their businesses. Businesses now bolstered with a new loan.

You can find more Urwego groups to support in Rwanda by clicking here


About the author

Hugh McKenzie

Hugh grew up on a sheep and cattle farm in rural Australia and now resides in Melbourne. Hugh received a Bachelor of Arts and Master of Business from Monash University and has worked across the development and social sector and, most recently, in management consulting. In consulting, he has worked across strategy, operations and project management for corporations, government and nonprofits. Hugh has a long-standing interest in market-based approaches to development and initiatives aimed at affecting social change. In pursuing this interest, Hugh has worked and volunteered in remote Indigenous communities in outback Australia, volunteered in microfinance in Tanzania, and founded an Australian nonprofit, Wheels in Motion, that aims to improve the quality of life for those living with spinal cord injuries.