CUDA View: Pre-funding - Why We Do It

I’ve written recently about the changes taking place in our loan program. A number of those changes have been implemented since the writing of that article. I now have a growing stack of applications from potential borrowers waiting for approval, the new website is entering the planning phase and our first borrowers’ group meeting took place last Friday. One new development that I forgot to include in the list was our decision to begin pre-funding loans. 

For our first 8 loans the process looked something like this: 

  • Potential borrower contacts us after being told about the program
  • Potential borrower learns about the program and describes their business/plans over the course of 4-5 meetings
  • Visit business of potential borrower 1-3 times
  • Approve loan - wait 2-4 weeks for loan funds to come in
  • Sign contract - disburse loan
  • Meet monthly for prayer, conversation and payment

Having to wait a month, or more, for funding was nagging at us. We had made improvements in other areas of the process but not this. Potential borrowers were applying, meeting, planning and preparing to grow their business...and then were having to wait to implement their plans. This didn’t seem like a very responsible requirement on our part so I went and looked at the loan process used by Kiva and World Vision. Both groups use local MFI’s to find and approve of new borrowers. Once the borrower is approved the MFI makes the loan and only after making the loan do they supply that data to Kiva or World Vision.

World Vision gives this explanation for their decision to pre-fund loans:

This practice (pre-funding) allows MFIs to be more efficient and better serve their clients. WorldVision’s MFIs work extremely hard to provide world-class service to borrowers. To ask an entrepreneur to develop a business plan, go through training, prepare for the startup of a business, and then wait unnecessarily for a loan would be bad customer service.

So we once again are copying the successful practices of the big groups. Now when you see a loan available for funding (and there are 3 right now!) it is for a borrower who has gone through our process and been approved. They have formed a plan and we have lent them the funds to begin implementing their plan. We lend the money from special donations we have received just for this purpose. But as these funds are not unlimited your participation and support (through lending) is just as vital as ever. We cannot make new loans without you contributing to these borrowers, so that a rotating quantity is available to the next borrower waiting in line.