reader-on-microfinanceandhiv

The MBP Reader on
Microfinance and
HIV/AIDS:
First Steps in
Speaking Out
A Resource Document
Prepared for the Africa
Regional Microcredit
Summit, Harare, Zimbabwe,
October 2000

TABLE OF CONTENTS
Tab 1: Microfinance and HIV/AIDS…It’s Time to Talk, August 2000 (Draft).
Jill Donahue, Technical Advisor, DCOF
Tab 2: Microfinance & HIV AIDS: Some Issues for Consideration for the Workshop
on Microfinance and HIV/AIDS. UNDP Regional Bureau for Asia and the
Pacific, 2000.
Heather Clark, Special Unit for Microfinance, UNDP
Tab 3: Initial Survey Results: The Intersection of Microfinance and HIV/AIDS—
Glimmers from Africa
Joan Parker, Microenterprise Best Practices Project, DAI
Tab 4: FINCA Uganda: Helping Microentrepreneurs Cope with AIDS
Guy Winship, FINCA Uganda, and Julie Earne, FINCA Africa
Tab 5: FOCCAS Uganda: Integrated Microfinance and HIV/AIDS Education
Tab 6: CARE-Pulse, Zambia: The Impact of Death and Illness on Microfinance
Lemmy Manje, CARE-Pulse
Tab 7: World Relief/Rwanda Shares a Cautionary Tale
Tab 8: Opportunity International: Financial Products Plus Education and Legal
Support
Tab 9: Microcredit and HIV/AIDS: An Anonymous Report from East Africa
Tab 10: Microcredit and HIV/AIDS: An Anonymous Report from Southern Africa
The MBP Reader is also available for downloading on the project website at
http://www.mip.org/pubs/mbp-res.htm.

INTRODUCTION TO THIS VOLUME
This Reader draws together early writings on the topic of microfinance and HIV/AIDS. The
pieces provide a range of views: from donors, practitioners, and observers.
The first three papers provide a general overview for readers (Tabs 1, 2 and 3). The volume
begins with a paper by Jill Donahue (technical advisor to Displaced Children and Orphan’s
Fund) which provides an excellent discussion of how microfinance relates to HIV/AIDS.
The second paper is a keynote address presented by Heather Clark, Technical Advisor for the
Special Unit of Microfinance of UNCDF, which cautions the reader to proceed carefully in
using microfinance as a tool to combat HIV/AIDS. The third paper provides early survey
results of the impact of HIV/AIDS on African microfinance institutions, collected with
USAID funding by the Microenterprise Best Practices Project (MBP).
The final seven papers present specific experiences of microfinance institutions working in
high-prevalence HIV/AIDS areas. Thanks go to all contributors, including two institutions
that remain anonymous. The named institutions – FINCA/Uganda, FOCCAS/Uganda,
CARE-Pulse/Zambia, World Relief/Rwanda, and Opportunity International/Africa – provide
a range of possible responses to HIV/AIDS. These cases were either written by the
organization’s staff, or by MBP based upon detailed interviews with the organization’s senior
managers. Financial support for documentation was provided by USAID (Tabs 4, 5, 6, 7, 9,
10) and UNAIDS (Tab 8).
Many thanks to all contributors for speaking out.
Joan Parker
Microenterprise Best Practices Project
Development Alternatives, Inc.
Bethesda, Maryland, USA

Jill Donahue
Technical Advisor
Displaced Children and Orphan’s Fund
MICROFINANCE AND HIV/AIDS
... It’s time to talk
August 2000
(DRAFT)

D R A F T
Sincere thanks to John Williamson, Senior Technical Advisor, Displaced Children and Orphan’s Fund; Betty Wilkinson,
Associate Director, Institutional Reform and the Informal Sector (IRIS) University of Maryland at College Park; Laura
van Vuuren, Microentreprise Development Technical Unit, World Relief; and Anita Campion, Director, Microfinance
Network who each provided comments and guidance on initial versions of this paper.
S U M M A R Y
The consequences of the HIV/AIDS pandemic on the African continent are unprecedented and far-
reaching. But for many families, concerns about sliding into poverty subsume the other effects of
HIV/AIDS. Income and savings become crucial weapons against the impact of HIV/AIDS as
households struggle to build and protect their economic resources.
Microfinance services can help families increase their income and build their savings. However, for
most microfinance institutions (MFIs), the impact of HIV/AIDS on their clients and on the institution
is an emerging issue. Microfinance practitioners in countries heavily affected by HIV/AIDS need to
look closely at these issues. The economic welfare of their clients and of their institutions depends on
it.
Innovations are vital for the good of clients and institutions. Three areas should guide innovation: 1)
Developing new products and services. What’s good for the client is good for the institution; MFIs
should examine what clients are doing to cope economically and help them improve on their strategies.
2) Watching the bottom line of MFI performance. An unhealthy institution is not good for clients.
Finding cost-effective methods to innovate while protecting operational integrity is key. 3) Fostering
strategic alliances with HIV/AIDS organizations. Mitigating the social impact of HIV/AIDS may help
MFI clients to remain good clients. Social impact is an HIV/AIDS organization’s mandate— not an
MFI’s. To utilize each other’s comparative advantages and create synergy, practitioners from the two
industries must start talking to each other.
INTRODUCTION
In Africa and elsewhere, the HIV/AIDS pandemic is unraveling years of hard-won gains in
economic and social development. The scale and severity of the pandemic’s impact is
already large and will continue to increase for many years. AIDS is also pushing the number
of orphans to unparalleled levels. Already, estimates from several countries seriously
affected by AIDS show that more than one in five of all children have lost one or both
parents. The proportion of orphans will continue to increase. Life expectancy will drop to 40
years or less in nine sub-Saharan Africa countries by 2010, and AIDS-related mortality will
substantially reduce gains made in child survival.1
At all stages of the epidemic, families bear
most of the social and economic consequences of HIV/AIDS. The pandemic is an evolving,
slow onset disaster, and no country can assume it has seen the worst of it.
THE IMPACT OF HIV/AIDS ON HOUSEHOLDS
The impact of HIV/AIDS does not stop with individuals who contract HIV and cope with
prolonged AIDS-related illnesses and finally, death. Its consequences are exponential. It
erodes the resources of immediate and extended families as they try to cover multiple
hospital trips, medical expenses and funeral costs. A family reduces or may have to halt
their income earning activities as the demands of caring for someone with AIDS mount. This
reduced capacity increases the likelihood that the household will have to sell productive
assets such as land, draft animals, equipment or fixed capital from their business. In effect, it
seriously undermines the household safety net.
1
Hunter, S. and Williamson, J., “Children on the Brink: Strategies to Support Children Isolated by HIV/AIDS”, USAID, 1997.

Children are affected too. Not only do they lose one or both parents, the reduced resources
of their caretakers often means that they can no longer attend school or receive proper
health care. The loss of productive adults also means that, as a matter of survival, children
engage in income earning activities or take over work in the family field. Some become
household heads trying to care for younger siblings.
ECONOMIC COPING STRATEGIES
Poverty is no stranger to many people living in Africa. For most households, concerns about
avoiding poverty or slipping further into it subsume issues related to AIDS. The disease is
not the only cause of poverty, but poverty intensifies its impact. Whether households can
cope with the impact of HIV/AIDS, or other emergencies, depends a great deal on the state
of their resources before, during and after a crisis affects them.2
Generating income and building up savings help households accumulate and protect their
resources. These activities are long-standing coping mechanisms that poor families employ
to respond to times of economic stress, whatever the cause. Understanding how families
manage their household resources during times of crisis can lead to insights on ways to
reinforce their economic security.3
In their paper examining the dynamics of household economic portfolios, Chen et al.
explain household economic coping behavior in terms of (a) reducing risk, and (b)
managing loss.4
Risk reduction strategies include:
♦ Choosing low-risk income-generating activities that earn modest, but steady, returns.
♦ Diversifying household crop and/or income earning activities.
♦ Building up savings and in-kind assets (e.g. livestock, jewelry, household goods).
♦ Preserving extended family and community ties.
Loss management techniques on the other hand, fall into three stages. Stage one strategies
are reversible. Stage two approaches are difficult to reverse because they involve the sale of
productive assets, undermining future household capacity to generate income and produce
food. Stage three indicates the destitution of the household where few, if any, coping
mechanisms remain available.
2
Adequately caring for children in the household, absorbing orphaned children, shouldering the medical expenses of a
family member with AIDS, participating in community efforts to address the impact of AIDS on the community are
examples of “coping with the impact of HIV/AIDS.”
3
For a comprehensive analysis of current literature and recent research on how poor entrepreneurs mitigate economically
stressful situations, see Sebstad, Jennifer and Cohen, Monique, “Microfinance, Poverty and Risk Management.” AIMS
synthesis study commissioned for the World Bank’s World Development Report 2000/01 (WDR). March 2000
4
Chen, Martha Alter and Dunn, Elizabeth, “Household Economic Portfolios.” AIMS Paper. Harvard University and
University of Missouri-Columbia, June 1996.

Loss Management at Household Level
Stages Strategies
I.
Reversible mechanisms
and disposal of self-
insurance assets
♦ Seeking wage labor or migrating to find paid work
♦ Switching to producing low maintenance subsistence crops
♦ Liquidating savings accounts, selling jewelry, chickens, goats
♦ Calling on extended family or community obligations
♦ Borrowing from formal or informal sources of credit
♦ Reducing consumption and decreasing spending (education, health)
II.
Disposal of Productive
Assets
♦ Selling land, equipment, tools or animals used for farming
♦ Borrowing at exorbitant interest rates
♦ Further reduction in consumption, education, health
♦ Reducing amount of land farmed and types of crops produced
III.
Destitution
♦ Dependence on charity
♦ Break-up of household
♦ Distress migration
Source: “Household Economic Portfolios” by Chen and Dunn for USAID’s AIMS project
Compare the table above with the following examples of some typical household responses
to pressures felt from HIV/AIDS impact:
♦ Grow less labor intensive crops (e.g. corn is substituted with cassava)
♦ Reduce food consumption (e.g. reduce or forgo eating meat, reduce number of
meals)
♦ Postpone responding to or paying for non-emergency health needs
♦ Remove children from school to reduce costs and to contribute to household labor
pool
♦ Change income earning activities, with reductions in business volume or even shifts
to less risky types of businesses
♦ Increase demands on extended family, kinship, and community resources to support
both consumption and health/education needs in the household
Finally, as a crisis situation deepens, a household can be forced to:
♦ Liquidate savings
♦ Sell off productive assets, or
♦ Shift care of children to other relatives or friends.
Many of these responses closely mirror what Chen et al. describe in their study. Some of
them are reversible. Their consequences on the well-being of the household are temporary.
Other responses are more serious. For instance, selling productive assets (such as land,
business capital or farming equipment) seriously undermines each household’s ability to
provide for itself in the future. Avoiding stages two and three depends on the resiliency of
stage one strategies. Stage one, in turn, depends on the successful outcomes of risk
reduction activities. Therefore, strengthening risk reduction activities of affected households
and helping them avoid stages 2 and 3 will reduce their vulnerability to poverty—and, by
extension—the impacts of AIDS.

TARGETING MICROFINANCE CLIENTS IN AN HIV/AIDS CONTEXT
This paper seeks to promote microfinance services as a tool that strengthens the economic
coping strategies of all eligible households located in areas heavily affected by HIV/AIDS.
This in turn can bolster family safety nets and mitigate AIDS impact. However, this paper
does not advocate explicit targeting of clients who are infected with HIV.
Microfinance institutions do operate successfully in communities seriously affected by AIDS.5
However, MFIs throughout the world have learned through past experience that the
institution runs into trouble when its staff tries to target loans to groups they select to meet
project goals.6
Microfinance programs work best when they rely on client self-selection and
focus on packaging financial services to attract the desired clientele. Artificially engineering
or predetermining the composition of groups undermines the delicate mix of peer pressure
and group accountability on which the success of lending programs must be built. Finally,
to survive and thrive, microfinance must try to reach all eligible clients in an area. If the
potential client base is too limited, the organization will not be able to pay the costs of
doing business in those areas.7
It is important that microfinance institutions be efficient
enough to cover their costs because the industry has learned that long-term subsidies for
credit projects are unacceptably expensive. In addition, clients who become accustomed to
running their businesses with subsidized services cannot maintain their businesses in a
market environment when the subsidies are withdrawn.
Explicit targeting of clients with AIDS can also increase stigma and have negative outcomes.
Take, for example, the experience of an East African association of HIV positive women
whose members originally came together to help one another cope with their HIV status.
They decided to try raising and selling vegetables to secure a source of income, only to
discover that no one would buy their vegetables because of the stigma associated with
HIV/AIDS.
A cross section of any self-selected solidarity group would probably reflect the HIV
prevalence in the general population. It is also likely to include members who are caring for
orphans, are widowed, are single heads of household, or are supporting someone in their
family suffering from AIDS and related illnesses. It is this last group—the “survivors” and
those who make up the safety net for people living with AIDS—that microfinance services
are best positioned to serve. Microfinance services are also important to households not
seriously affected by HIV/AIDS, but which, at any given time, may well become so. Having
access to financial services will enable them to shore up their resources ahead of time. From
this perspective, it makes sense to target areas seriously affected by HIV/AIDS, but not
individuals.
5
Rutherford, Stuart et al. “Savings and the Poor, the methods, use and impact of savings by the poor of East Africa.”
MicroSave-Africa, Kampala March 1999. This study reports that FINCA Uganda has 100% on time repayment rate. FINCA,
who lends exclusively to women, routinely reports that 75% of its clients are caring for orphans. The MicroSave-Africa
studies, covering Uganda, Tanzania and Kenya, report successful operational and financial performance among the majority
of the thirteen microfinance institutions included in their research.
6
An example of explicit targeting to meet project goals would be an HIV/AIDS project that includes only HIV positive
clients, commercial sex workers, or households caring for orphans as eligible for microloans.
7
Wilkinson, Betty, “Field Notes for Considering Microfinance Services in the Context of AIDS Orphans,” Prepared for
USAID/Zambia. IRIS Center, University of Maryland. June 1999.

COMPARATIVE ADVANTAGE OF MICROFINANCE SERVICES
Microfinance can strengthen its clients’ income earning activities. It is one of the few
interventions that show potential for doing so in a cost-effective manner. On the enterprise
level, impact evaluations of microfinance services show that access to credit enables
businesses to survive crises. At the household level, evaluations point to income and asset
accumulation.8
The following are comparative advantages of microfinance services in
mitigating the economic impact of HIV/AIDS:
♦ Help clients to maintain or increase income
♦ Provide clients with an opportunity to build savings that are secure, easy to
liquidate quickly and retain value
♦ Reduce clients’ vulnerability to loss
♦ Enable clients to avoid irreversible coping strategies that destroy future income
earning and productive capacity
These are very important elements in lessening the epidemic’s impact on families and
communities. While access to savings and credit services may not be beneficial for those
whose immediate survival is at stake, it may play a valuable role in helping households get
ahead of the disease before the worst consequences arrive. This is especially crucial for
households that are already poor or are still at risk of falling back into poverty.
The anecdotes in the box below describe how access to microfinance has enabled some
MFI clients to reduce the impact of HIV/AIDS in their households.
A woman in Malawi who sold fried donuts received a loan from Save the Children’s microcredit project
(GGLS)9
. The loan allowed her to move into the more lucrative fish trading business and, with the
increased revenue, build up a bit of savings. However, her sister became ill and she had to take care of
her. So, she went back to donut selling and used her savings to make ends meet. After her sister died,
she was still able to go back to petty fish trading.
Several members of a CARE microfinance institution (PULSE) in Zambia said they joined a credit group so
that they could increase their business volume or diversify their activities. They were concerned because a
family member was ill, and they anticipated that they would have to support his children in the future.
The clients knew that their family expected them to take care of these children because they had a
business activity. They also knew they needed to prepare themselves so they could absorb this new
burden.
The 17-year old daughter of a Kenya Women’s Finance Trust (KWFT) client started taking over her
mother’s business as her health deteriorated. When the mother died, the group offered her place in their
group to the daughter. Since she was under the legal age for entering into contracts, she couldn’t be given
a loan. So, they turned the mother’s savings over to the daughter and allowed her to keep an honorary
membership until she turned 18.
There are two other, subtler, aspects of microfinance’s comparative advantage over other
microenterprise interventions. The first is the built-in mandate to scale up operations in order
to achieve self-sufficiency. As stated at the beginning of this paper, the impact of HIV/AIDS
continually increases. It affects a widening circle of family, children and community. In
8
Sebstad, Jennefer and Chen, Martha Alter “Overview of Studies on the Impact of Microenterprise Credit.” AIMS paper.
Washington, DC. Management Systems International. June 1996.
9
GGLS or Group Guaranteed Lending and Savings.

Microfinance
clients
Households needing
relief assistance
Poor
Poorest
(economically
productive)
Destitute
(no longer in
cash economy)
addition, impact is felt over an extended period. The microfinance industry expects its
services to attain operational and financial sustainability to become permanent fixtures in the
country’s institutional landscape. Increasing client outreach to achieve economies of scale is
one way that microfinance institutions arrive at balancing the cost of lending to poor
people. The very mandate of the industry demands that an institution’s coverage grows and
that its services become a long-term establishment, not a transitory initiative. Both of these
attributes are potent forces in designing approaches that will mitigate the impact of
HIV/AIDS.
Another aspect of microfinance's comparative
advantage relates to helping families build and
maintain their assets and remain economically
productive. This capacity allows them to play a
critical role in informal safety nets for those in
crisis, not only for extended family members, but
also for the community generally. But, if too many
families are unable to support themselves, their
needs rapidly overwhelm safety nets. Minimizing
the number of families in need of relief increases
the chances that the community can maintain a
safety net for its most vulnerable members.
Microfinance services should not be seen as an intervention that will pull destitute
households out of poverty—particularly in communities seriously affected by HIV/AIDS.
Nonetheless, in poor households with the capacity to carry out small income earning
activities, it can help smooth out their income flow, increase food security and help cover
school and health expenses. This can mean the difference between household maintenance
and collapse.
INNOVATIONS — WHAT’S GOOD FOR CLIENTS IS GOOD FOR THE INSTITUTION
In communities heavily affected by the disease, HIV/AIDS is altering the context in which
people earn their livelihoods and define their financial needs. One approach to the
microfinance and HIV/AIDS conundrum is to accept that it is an integral part of the reality
confronting MFI clients. Understanding the economic coping strategies of clients in such
areas can reveal innovative ways to serve clients by improving on their strategies. This
would be enormously beneficial to clients who are caring for family members suffering from
AIDS-related illnesses or who have taken in additional children. Innovation is also good for
the industry as a whole. In fact, many leading practitioners feel it is a necessary ingredient
for a strong and resilient industry.10
There are at least three approaches that microfinance practitioners could take that would
have a negative effect on the institution and its clients. One is to react before fully
understanding how the disease actually affects clients; thereby making decisions based on
misconceptions or untested assumptions. This view could lead to directing resources
primarily towards insulating the institution at the expense of learning about clients’ financial
service needs. Another is to start adding activities that go beyond an MFI’s economic
mandate in response to social needs of clients. This approach is bound to undermine
10
In her article, “Bringing Development Back into Microfinance,” Maria Otero calls innovation “an essential component of
[the industry’s] advancement.” The Journal of MicroFinance, Vol. 1, No. 1, Fall 1999.

institutional sustainability. The third one relates to underestimating the costs of developing
innovations. Spending immoderately on research and development at the expense of an
MFI’s bottom line is not a desirable outcome either.
The microfinance industry needs satisfied clients and healthy institutions. In any case, MFIs
do not adequately understand how the epidemic is affecting their own operations or their
clients’.11
Some would say that it is not the business of an MFI to find out. But if better
appreciating clients’ realities will allow MFIs to arrive at demand-driven innovations that
protect the institution while serving clients, then it is in the best interests of the institution to
do so.
Innovating by developing new products or services—Special attention should be
devoted to innovations that expand outreach and choice of services to current markets, and
that capture new markets by reaching as deeply into the poorest economic strata as
feasible.12
Particular areas of interest are savings schemes for coverage of health, medical
and educational costs and new ways of delivering these services.13
Some examples:
♦ Insurance (life and health)—Pooled deposits can be made to an insurance company,
which in turn manages the policies. Alternatively, an MFI can retain responsibility and
deposit pooled savings in an interest bearing account on behalf of its clients.
♦ Smaller loans for shorter terms—Clients caring for an ill family members or who
become ill themselves, often have to curtail their business activities. Often, the
minimum loan size is too large a debt for the household to absorb. Some solidarity
groups have resolved this by allowing clients the option of a smaller loan until they are
back on track.
♦ Partnering with loan or health institutions that provide opportunities to prepay or
save against future medical expenditures (e.g. community-managed pharmacies
operating on a revolving fund basis, health or life insurance companies).
UNHEALTHY MICROFINANCE INSTITUTIONS ARE NOT GOOD FOR CLIENTS
Developing new products and services or flexible policies means additional costs to the
institution. One response is to increase interest rates and/or fees. Some alternatives for
keeping costs down while striving to innovate:
♦ Using participatory methods of wealth ranking with clients to ensure the institution
is reaching deeply into the country’s poorest economic strata14
♦ Encouraging internally financed and controlled emergency funds or informal
ROSCAs that solidarity group members manage
♦ Inviting the participation of clients to propose product and methodology
innovations
11
Parker, Joan “Microfinance and HIV/AIDS.” Microenterprise Best Practices Discussion Paper. Bethesda, MD. Development
Alternatives, Inc. May 2000. See also Versluysen, Eugene “East And Southern African Microfinance Institutions And The Aids
Epidemic.” (MOVED PERIOD) MBP Trip Report. Bethesda, MD. Development Alternatives, Inc. December 1999.
12
Expanding outreach to provide access to as many eligible clients as possible is important to counteract the economic
impact of HIV/AIDS. Expanding the choice of services to existing clients may help to prevent their dropping out of
programs. Capturing new markets among the poorest will help minimize their vulnerability to poverty and enhance coping
mechanisms.
13
KWFT and KREP report savings schemes for school fees and health costs as the top two client requests for new products.
14
For instance, the CASHPOR House Index and SEF’s Poverty Wealth Ranking. These tools are low-cost and can be a way
of reaching new markets (e.g. poorer clients).

♦ Looking for strategic alliances with other institutions in order to refer clients to
them for services or to share costs of product development and delivery
Similarly, the institution may need to pay even closer attention to performance indicators. It
may be wise to pick out a few that would lend themselves to serve as an “early warning
system.” Examples of such indicators would be portfolio at risk (PAR>30), the loan loss
reserve or default fund, and client retention rates. Finally, an institution may need to
develop new strategies for staff development or benefits. An increase in staff mortality
translates into higher re-training and recruitment costs.
Innovating by adapting loan delivery methodology may be a lower cost option than
developing new products and services. One option would be to observe what solidarity
groups already do that mitigates the economic impacts of HIV/AIDS on their members, and
at the same time mitigates the risk that the impacts pose to the group/MFI. For example, in
situations where a client becomes ill, has to care for an ill family member or has absorbed
orphaned children, some solidarity groups decide to:
♦ Run a solidarity group member’s business when she is too ill or overwhelmed with
her patient’s needs or assist her with household and childcare chores so she can
attend to her business. (averts defaults or use of default funds)
♦ Advise an ill member to chose someone within her family or household to learn
the business and run it when she can no longer do so. If the business survives, the
designated family member continues as a solidarity group member. (reduces cost of
recruiting replacement member)
♦ Raise money to cover the loan so the ill member does not have to liquidate her
savings to repay. (protects loan default fund or involuntary savings held by MFI)
♦ Allow the member to take out a smaller loan if she has to reduce her business
activity because of her own or a family members’ illness, or an added burden of
caring for orphaned children. (increases likelihood of retaining client)15
Innovations in products and in lending methodology may help protect an institution’s
bottom line. Such innovations have a strong potential for improving client retention and
recruitment rates and protecting against default. The opportunity cost of dropout rates is
often overlooked by MFIs. A recent statistic from the Microfinance Network estimates that it
takes three loan cycles of a replacement member before recovering the investment costs of
the dropout. This is, or should be, cause for concern—at least among MFIs operating in East
Africa. In 1998, client dropout and exit rates ranged from 21% to 68% among the MFIs that
MicroSave included in their East Africa study.16
It may be tempting to assume that many
dropouts in HIV/AIDS affected areas are clients who are HIV positive. Although there is no
scientific proof, it is entirely plausible to assume that such clients exit voluntarily when their
health status no longer permits them to continue their economic activities and is negatively
affecting their ability to repay.17
These clients’ needs are likely to go beyond what
microfinance services can realistically provide.
15
Examples are based on informal interviews that the author conducted with MFI clients and solidarity groups in Zambia,
Kenya and Malawi.
16
Drafted by David Hulme, “Client Exits (Dropouts) from East African Microfinance Institutions,” MicroSave, Kampala 1999.
17
According to the MicroSave report, “Client Exits from East African Microfinance Institutions,” most client exits are
voluntary. And of those voluntary exits, a significant portion claim they are “just resting” and plan on re-entering the
program. Many others exit because the MFI’s products and policies did not suit them.

However, it is also possible that significant numbers of clients who drop out are the safety
net for family, friends or relatives suffering from AIDS. They may exit because their care and
support responsibilities force them to temporarily reduce their business activities and their
willingness to absorb more debt. In this case, there may be a financial service or product or
an improved lending policy that, if offered, might keep them from exiting. Social services
like communal child care, assistance in caring for their AIDS patient or even help with the
household chores might also make the difference between “taking a rest” and remaining a
client in good standing. This last aspect again goes beyond an MFI’s mandate. Strategic
alliances with community initiatives that specialize in this type of social service would be a
better alternative.
STRATEGIC ALLIANCES—MICROFINANCE AND HIV/AIDS INITIATIVES
The figure below should serve as a reminder that MFI clients’ lives unfold in a multi-faceted
context. AIDS is part of that context; we ignore it at our own peril and to the detriment of
our clients. In addition, the role a household plays is not static. There are many roles, which
include involvement in a variety of activities to make ends meet. These roles evolve in a
dynamic environment, shifting as each new demand emerges. Learning about these roles is
part and parcel of knowing clients—a good microfinance practice.
Shifting Roles Of A Household In An Aids Affected Community
As explained earlier, keeping to a minimum the number of residents who slide into
destitution is critically important to maintaining community safety nets for the most
vulnerable community members, including those who are severely affected by
HIV/AIDS. Microfinance services can play an important role, but they are not a
panacea. Trying to meet non-financial needs of clients can undermine an institution’s
sustainability.18
Mobilizing communities to respond to the impacts of HIV/AIDS is also crucial, but
this is not the role or aim of a microfinance institution. And while supporting income
generation is important, HIV/AIDS project implementers do not have the best
18
Versluysen, Eugene, “East And Southern African Microfinance Institutions And The Aids Epidemic.” (MOVED PERIOD)
MBP Trip Report. Bethesda, MD. Development Alternatives, Inc. December 1999.
A
HOUSEHOLD
COULD BE
Caring for orphans
Part of a family network
caring for sick relatives
A friend, neighbor or
member of a CBO providing
assistance to families
affected by HIV/AIDS
Living with AIDS
Client of a microfinance
institution and member of a
solidarity-lending group
Engaged in many activities
to make ends meet

background for this. Some do, on the other hand, have expertise in mitigating the
social impact of HIV/AIDS, most notably through community mobilization.

HIV/AIDS Community Initiatives and Microfinance
In the schema above, microfinance and HIV/AIDS projects are not an either/or proposition.
Instead, they are separate but linked through information exchange and mutually supportive
activities. Initiating strategic alliances that are operationally separate but overlapping would
allow each to do what it does best, yet still benefit from the other’s activities. They
complement each other. One meets the social and non-financial needs of community
members whose own economic safety nets have failed them; and the other delivers financial
services for those who would benefit from strengthening their economic situation. The table
on the following page, “Matching Needs with Comparative Advantages”, provides an
illustration of how practitioners might define needs and areas of their respective
comparative advantages.
Finally, strategic alliances would provide opportunities for:
♦ MFIs, at the request of clients, to invite an HIV/AIDS NGO to provide information on
prevention, care and support topics19
,
♦ HIV/AIDS groups to gain insights from microfinance staff and clients on income
earning related topics and on how to assist community members who are not good
candidates for credit,
♦ MFIs to reduce research costs for product, service and lending methodology
innovations by using information on clients’ economic coping strategies, which is
gathered by those involved in HIV/AIDS projects, and
♦ MFIs and HIV/AIDS programs to cross-refer eligible clients.
19
There are different kinds of organizations addressing HIV/AIDS issues. Some focus on prevention of HIV transmission,
some focus primarily on supporting people living with HIV/AIDS, and others focus more on orphans and other vulnerable
children.
MFI
clients
Individuals
and families
affected
by
HIV/AIDS
Economic
Strengthening via
Microfinance
Community –based
HIV/AIDS
initiatives
Operationally
separate…..
…but conceptually
joined

Matching Needs with Comparative Advantage20
What product/service?Client Need
Existing More Innovation Needed
• Strengthen and/or grow
micro business operations
• Opportunity to build up
voluntary savings
• Diversify survival income
earning activities
• Standard financial
services
• Peer or individual
lending
methodology
• Demand deposit savings products
• Fixed term deposits
• Life/health insurance
• Temporarily reduce, but
maintain business activity
• Skip a loan cycle
• Transfer business to family
member
• Liquidate savings
• Information on social and
health services
• Assistance with household
and child care chores
• Peer lending
methodology
• Savings-led
initiatives
• Credit with
Education
• Community
mobilization/
empowerment
projects
• Deepen outreach to poorer
clients
• Smaller loans for shorter terms
• Life/health insurance
• Flexible lending/ membership
policies
• Overlapping community and
economic strengthening
programs
• Membership in informal ROSCA
• Grant to build back productive
assets
Not so poor
significant
productive
capacity/assets
Poor
Fragile assets and
capacity
Very Poor
Minimal assets,
still productive
Poorest
No assets,
capacity very
weak
Destitute
Not in cash
economy
• Medical care or assistance
to care for family member
• Liquidate productive assets
to pay for medical costs,
funeral
• Abandon all productive
activities
• Relief assistance
• Community
mobilization/
empowerment
projects
• Government
welfare
• Community initiatives that
effectively mobilize internal and
external resources to build
funds for relief assistance
CONCLUSION
This paper is an attempt to set out ideas and issues in the hopes that MFI practitioners and
those directly addressing HIV/AIDS will continue the discussion. It does not presume to
have a prescription for the ideal combination of economic strengthening and social services
for communities affected by HIV/AIDS. Scattered experiments exist, but it is largely
uncharted territory. In the meantime, AIDS marches on in its indiscriminate way, wiping out
the economic resources of people who never thought they would be poor as well as those
who were already worried about their next meal. The disease is not going to wait for us to
“figure it out”. We have got to start thinking and talking. Together. Now.
The author welcomes comments at jemdonahue@earthlink.net
20
The above table is illustrative, it is not meant to be exhaustive. It suggests one way of looking at overlapping needs and
services.

1
Microfinance & HIV AIDS: Some Issues for Consideration for the Workshop on
Microfinance and HIV/AIDS. UNDP Regional Bureau for Asia and the Pacific,
2000.
Heather Clark, Special Unit for Microfinance, UNDP
Penang, Malaysia. September, 1999
Introduction
Today I would like to use my time to talk about some definitions commonly used in the
field of microfinance much the same way as our colleagues have defined terms in the
field of HIV/AIDS.
Discussing lessons from international experience in microfinance, we highlight ---what
we know about successful MFIs and what we know about their markets, their customers,
products and the role microfinance plays in poverty alleviation.
In considering the linkages between HIV/AIDS and microfinance I would like to draw
out some issues for your deliberation and pose some questions to provoke your thinking
over the next few days of this workshop.
Characteristics of Successful MFIs’:
Successful MFIs’ have a number of characteristics in common. Successful MFIs:
• …………Start with their clients. They know their customer, know their market
and they design products to fit the financial requirements of the people they serve.
The design of products is based on the financial requirements of the household and
the economic activities the household supports. Successful MFIs are responsive to
the market. They listen to their customers.
• …………Are led by people who have a clear, long-term vision of the MFI as an
institution, not an isolated project dependent on subsidies that have a limited life.
Successful MFIs work hard to be “donor-free”.
• They are dedicated to continue to serve the majority of poor people in the
countries where they operate who do not have access to the formal financial
system.
• They are growth oriented and specialized to support that the growth. The
specialization includes staff, management, information systems, the financial
products they have developed. Over time they have perfected their
methodologies to reach large numbers of poor people in a cost effective and
efficient way.

2
• They adhere to high standards of institutional and financial performance.
• ……….Know how to manage risk to the institution.
• All finance is about risk and trust. It deals with a promise of behavior in the
future (such as repayment of a loan, and safeguarding and providing a return
on savings) ……And, the future is uncertain.
• Successful MFIs have learned now how to protect against delinquency and
default, which is very expensive for the institution. Delinquency and default
have put many credit operations (and banks) out of business. When the
delinquency rate exceeds 10% and the default rate is greater than 5% the
operation will have a hard time becoming financially sustainable.
• They have developed products and service delivery methodologies, or ways of
reaching their customer with the product, that screen out people who can’t or
won’t pay and keeping the best customers with a good on-time repayment
record. For example, small loans, increased size of the loan after repayment,
and frequent repayment intervals, and frequent contact between the borrower
and the credit officer. In this way MFIs’ help people who are considered
“unbankable” establish and build a credit history.
• ……….Know how to enhance the value of the product to the client by keeping
costs low. By locating in convenient locations to the client, easy and quick
procedures for applications. Often the costs to obtain the loan are higher than the
costs of interest and fees. Such as the costs of bus fares, time spent in meetings, costs
to fill out application and costs of legal documents. Successful MFIs keep their own
costs low through efficient operations.
.
• ……….Recognize that permanence in the community is essential to fulfilling
their missions and is also a powerful incentive for repayment.
• ……….Meet the challenge of charging interest rates that cover the full cost of
delivering the service to clients. Because microfinance works with many small loans,
it is more expensive that traditional banking. The costs an MFI has to meet are:
operational costs, the cost of funds (e.g. borrowing from banks, and the cost of
inflation) a reserve for bad debt and capitalization for growth.
• ……….Developed systems to serve the poor, reach scale and achieve financial
viability.

3
Microfinance is not a panacea for poverty alleviation. It can be a powerful tool to
help people with economic opportunities to manage their financial affairs more
effectively by managing the cash flow in the household, and increase income.
The financial service does not create the economic opportunity. The borrower, the saver,
the entrepreneur creates the economic opportunity. A financial service is one means to
make it happen.
Issues and questions for deliberations:
• Consider when financial services are the appropriate response for people living with
HIV/AIDS
• Why choose microfinance, rather than other economic support or interventions, such
as business development, market linkages, skills training, and community services?
• Consider the value of community-generated safety nets and how they are
distinguished from microfinance.
Who are Microfinance Clients? The majority of microfinance clients are on, a little
above and little below the poverty line. People with economic opportunity benefit from
credit. Microfinance is not for the destitute. Microfinance clients use financial services
to:
• Respond to economic opportunities
• Diversify income streams in the household
• Provide liquidity/cash flow
• Absorb shock of adversity by building assets
• Cope with loss through consumption smoothing , avoiding the sale of a productive
assets
• Invest in the future (business or social investment, such as children’s education)
Economic shocks to the household are frequent and diverse for microfinance clients.
According to AIMS surveys (USAID action research project on impact of microfinance),
the most prominent risks cited by microfinance clients are illness, death and loss of
income earner.
Issues and questions for deliberation:
Are MFIs already serving people living with HIV/AIDS, particularly if 90% of people
don’t know they carry the virus, and a large percentage of poor people in many countries
where MFIs work are also living with HIV?
What have we learned from MFIs that operate in areas with high incidences of
HIV/AIDS?
How have MFIs coped as an even greater percentage of clients are affected by these same
risks?
Consider the risks and costs of targeting, particularly targeting areas without markets or
economic activities, regardless of HIV/AIDS prevalence, and, targeting special groups of
people.

4
MFIs have varied goals and institutional structures.
Successful MFIs are specialized, growth oriented and reach large numbers of poor
people. Financial sustainability is required for MFIS to support growth. For example,
growth is needed as loan sizes increase with stepped up lending, as the portfolio expands
to serve more people, as new branches are opened, and new products are developed.
There are many types of institutions that provide microfinance services. They include
credit projects with a limited life, specialized NGOs, multi-sector NGOs, community
savings and loan associations, ROSCAS, cooperatives, credit unions, government
agencies, non-bank financial intermediaries, specially licensed finance companies and
banks (government, development and private banks). Each of these have different
mandates, ways of operating, products, daily business decisions they make, and the
likelihood of their longevity to provide services on a permanent basis.
• In deliberations, consider the range of microfinance operations from projects to
formal financial institutions and banks.
• Recognize their potential and the limits of each type of institution.
• What is reasonable to expect from the range of institutions that have different
mandates, products and ways of operating and plans to remain in business?
• Practically speaking, what are we asking of these institutions?
• We need to recognize that the field of microfinance is a young field, and recognize
the consequences of pushing MFI's into areas they are not equipped to deal with or
that are beyond their focus and specialization. Focus and specialization are key to
successful microfinance operations.
Market and Market Forces
Responding to different markets requires different market strategies. What is the market?
Who are the customers? Are we speaking of:
• Existing customers who are living with HIV/AIDS?
• Attracting new customers?
• General population in areas of high HIV/AIDS incidence?
Each response may require a different market strategy and perhaps a different product
design ---penetrating a new market, expanding in the same market, offering a different
product to the same customers.
• What do we know about the kinds of financial services valued by people with
deteriorating health? How much are they willing to pay?
• What do we know about coping strategies, and the financial services required by
households that have experienced the shock of illness, death or loss of an income
earner?

5
• What financial services offer a good risk prevention strategy? (e.g. a loan can
increase household indebtedness)
• What are the implications for the way existing financial services are used when:
• household expenditures are reallocated
• household expenditures increase
• What financial services are best suited for:
• Anticipation of a lump sum expenditure, such as funerals
• Anticipation of household safety net after income earner is lost?
• What have HIV/AID practitioners learned about the dynamics of the household
economy that is relatively predictable?
• Is there a difference in the household dynamics between those living with HIV/AIDS
and those affected by illness death, loss of an income earner that is not due to
HIV/AIDS?
• And, what advice on these topics can HIV/AID practitioners provide to their friendly
neighborhood bankers?
Microfinance Products
There are three basic microfinance products: loans, savings and insurance
• Loans
• Mostly short term working capital
• Larger loans for fixed asset
• Housing
• Savings
• Mostly compulsory savings used a loan guarantee as protection to the lender.
Most microcredit operations and MFIs cannot mobilize deposits without a
license from the Central Bank. Member societies can mobilize savings from
their members.
• Savings are often a more appropriate financial product for the very poor than
credit. This implies working with formal financial sector institutions,
ROSCAS and member societies.
• Insurance
• Loan insurance is most common. Common ways of providing loan insurance
are: 1) purchased by the borrower when taking a loan as a percentage of the
loan; 2) establishing an emergency fund in village banks, community loan
associations and other groups; and 3) compulsory savings.
• Some very early experience with health insurance and life insurance,
including MFIs providing this service directly and linking with private
insurance companies.
• How does HIV/AIDS effect this structure in modifying products or the use of
products that MFIs have traditionally offered?

6
• What is the experience and response of MFIs operating in areas of high incidence of
HIV/AIDS?
• Recognize that designing, testing and training staff to support new product
development is expensive and takes time.
• Recognize that too many products and services may overwhelm an MFI and have
negative effects on a well-established microfinance operation.
Service Delivery Methods Minimize Risk to the Institution
A common service delivery methodology is the use of solidarity groups to minimize risk
and lower the cost of delivering many small loans to many people.
Groups self-select and are responsible for repayment in case of delinquency and default
Transaction costs are shifted to the borrower group to make services affordable.
• Are solidarity models with a social contract likely to become supportive of coping
strategies for families living with HIV/AIDS?
• How does the behavior of the solidarity group change?
• Is there a greater tolerance (and less discrimination) on the part of groups? Do they
seek to minimize their own risk? How?
• Does the group increase the price to cover the risk? (risk = cost). Does the group
spread the risk by increasing its size?
• What about “credit with education” models? Is there a difference in how these
groups respond?
• What do HIV/AIDS practitioners what to learn about the dynamics of the groups
which are the cornerstones of many microfinance methodologies? What have MFIs
learned about this dynamic?
In conclusion, when two fields come together there are often more questions than
answers
• Each field has different perspectives that must be respected
• Each field has a body of knowledge that is valuable
• Each field has developed “best practices” based on experience of what works and
doesn’t, and
• Neither field will easily compromise best practices -----with good reason.
I look forward to the next few days of honest discussion on these topics that are bound to
be controversial on many levels just because of the advances both fields have made.
Heather Clark
Penang
15.9.99

Initial Survey Results
The Intersection of Microfinance and HIV/AIDS: Glimmers from
Africa
(Reports on survey results as of August 23, 2000)
Between June and August 2000, twenty-two microfinance institutions (MFIs) from across Africa
responded to a voluntary USAID survey exploring (1) the effects of HIV/AIDS on MFIs and their
clients, and (2) MFI responses to the HIV/AIDS crisis. Although the survey is on-going, this sheet
provides initial findings as of August 23, 2000.
SURVEY RESPONDENTS
The 22 MFIs represent Burkina Faso, Ghana, Kenya, Malawi, Mozambique, Namibia, Rwanda,
Somalia, South Africa, Tanzania, Togo, Uganda, Zambia, and Zimbabwe. 54% provide financial
services only; fully 95% strive for full financial sustainability. On average, the MFIs have been in
operation for over five years, have 7500 clients, and 79% women clients.
ECONOMIC STRESS AND BEHAVIOR CHANGE FOR MICROFINANCE CLIENTS
Without exception, all programs reported that their clients are under extreme economic stress.
MFIs cited medical expenses as the greatest economic stress on their clients (95%); then feeding
the family (86%); then paying for funerals (77%). In addition, 50% cited the costs of caring for
orphaned children. At the same time, clients’ ability to respond economically to these challenges
is compromised by increasing illness, where 60% of MFIs report higher rates of illness among
their clients over the last 12 months.
Is growing economic stress translating into changes in microfinance behavior? It appears that
client behaviors are changing on several levels. MFIs report observing the following trends over
the last 12 months:
• increased difficulty in loan repayments (57% of MFIs)
• increased requests for access to compulsory savings (47% of MFIs)
• higher client absenteeism at meetings (45% of MFIs)
• increased requests for smaller loan sizes (29% of MFIs)
In addition, clients are exhibiting signs of difficulty in saving, lower productivity on the job (both
due to illness and to growing household responsibilities), regular diversion of enterprise loans for
health care or funeral expenses, and more frequent “pausing” in use of microfinance services.
Of the survey respondents, 36% are currently tracking cleints by indicators that can be used to
shed light on the changes HIV/AIDS is generating in households, such as number of dependents
per household; number of female-headed households; or number of households caring for
orphans.

2
Microenterprise Best Practices Development Alternatives, Inc.
EFFECTS ON THE MFI
Defaults are definitely on the rise due to HIV/AIDS. Over a quarter of MFIs noted this change
explicitly. Others mentioned that loans diverted to pay for health emergencies are more
frequently leading to defaults. The number of clients withdrawing savings and/or no longer
borrowing because of HIV/AIDS is not clear at this time. While 77% of the MFIs responding do
monitor client exit rates, they do not know why these clients are leaving their programs. Some
programs are now adding exit surveys that include health information.
At this time, MFIs have not begun to separately track the impact of HIV/AIDS on their financial
bottom line, so it is yet impossible to estimate the overall effect the disease on MFIs’ ability to
cover costs. However, when the survey asked MFIs whether their overall cost structure is rising
due to HIV/AIDS, 41% answered in the affirmative. The most frequently cited areas of cost
increases are in loan loss provisions and in staff benefits (both reported by 27% of respondents).
A third area is new client induction costs (14% of respondents) – which reflects the need to
continually replace exiting clients with new clients to remain on the same expansion curve.
EFFECTS ON THE MFI STAFF
MFI staff – at any level – are not immune to this disease or its consequences. 43% of MFIs
reported that staff household sizes are rising as they absorb orphans. 24% report an increase in
staff absenteeism, and another 24% report increases in staff illness over the last year. In
addition, 29% of programs report “other” indicators of how HIV/AIDS is affecting staff, including:
requests for transfers to be closer to sick family members; requests for higher salaries to
compensate for rising medical and funeral costs; increasing staff concerns about benefit
packages; and reduced productivity on the job.
PRO-ACTIVE MFI RESPONSES TO HIV/AIDS
While AIDS clearly takes a toll on MFIs and their clients, microfinance can also be used to
combat the disease. The survey uncovered several areas where MFIs are already active.
To date, the most common response is provision of health information to clients and their
families. Fully 43% of MFIs report participating in an AIDS education and prevention program,
primarily through partnerships with health organizations or hospitals. MFIs that launch these
programs through partnerships – rather than as an integrated part of the microfinance
methodology – appear to be able to initiate these programs more quickly, more effectively, and at
lower cost to themselves or their clients.
A few MFIs have begun to launch new financial products to respond to HIV/AIDS. Two MFIs
have piloted health care plans with local HMOs to provide basic medical support for all illnesses,
including HIV/AIDS. This responds directly to the finding above that medical costs are the single
largest economic strain on households.
More common is loan insurance, designed to cover the loan balance outstanding in the case of
client death. This insurance is primarily designed to protect the quality of the MFI’s portfolio, but
also helps those legally bound to repay the client’s debts, whether family or solidarity group
members. This death protection comes at a significant cost to the client – typically a fee of 2-5%
on the face value of the loan – which adds significantly to the cost of borrowing.
But perhaps the most valuable role of microfinance in the face of the epidemic is to continue to do
what it does best: offer still-productive adults an opportunity to strengthen the household’s

3
economic base through access to financial services. The more aware the MFI is of the needs of
HIV/AIDS-affected communities, the more likely the MFI is to be appropriately flexible in how it
delivers these basic services so that clients get the most possible from these services.
ROLE OF DONORS
The survey findings point to four roles donors can play at this point in time:
• Insist that MFIs become knowledgeable about HIV/AIDS and its economic effects, and the
real costs of ignoring it
• Provide financial incentives for better monitoring on this topic
• Encourage information exchange between MFIs on this topic
• Encourage strategic partnerships between MFIs and high-quality health providers (for
information, education, and health care)
MFIs are anxious about engaging in this discussion: as an illustration, 41% wished to remain
anonymous in their answers. At the same time, these respondents are aware that HIV/AIDS
must be faced now. Even slight encouragement from donors can move this process forward
quickly.
FINAL SURVEY RESULTS
These preliminary results will be replaced by the formal survey report, which will be completed in
October 2000. The final report will be posted on the Microenterprise Best Practices website: at
www.mip.org, along with other papers on this topic.
For more information, contact Joan Parker, Development Alternatives, Inc., at
joan_parker@dai.com.

FINCA Uganda: Helping Microentrepreneurs Cope with AIDS1
September 2000
INTRODUCTION
FINCA International is a global microfinance intermediary that provides over $60 million in
loans annually to 160,000 clients through a world-wide network of 8,000 village banks. While
FINCA has prided itself on specializing in the delivery of small working capital loans to
microentrepreneurs around the world, we have found that our clients demand a range of financial
and other services in order to overcome the extraordinary obstacles that they face every day to
advancing the health and well-being of their families.
In Africa, the devastating impact of AIDS afflicts each and every community with which FINCA
works. FINCA Uganda’s response has focused on empowering women and raising their
economic status through microfinance services in order to prepare them to meet the challenges of
poverty, including the AIDS epidemic. At the same time, FINCA has sought to leverage its own
services through a series of alliances with organizations that provide health education, credit
insurance and most recently a pilot health insurance project.
This paper provides an introduction to the larger context in which FINCA is working to address
the AIDS epidemic. It then focuses on a highly experimental but promising pilot project that
FINCA Uganda implemented in collaboration with Nsambya Hospital Health Partners, Nsambya
Hospital and DFID to provide 300 of its 23,000 microfinance clients with limited health
insurance. This new insurance product cannot cover direct treatment of HIV/AIDS, but will pay
for the treatment of illnesses that result from a compromised immune system. FINCA Uganda
uses its network of village banks to facilitate the collection of premiums.
While the pilot insurance program now only covers a portion of its costs, FINCA Uganda may be
able to use its extended network of 300 village banks to expand the availability of this product to
achieve greater economies of scale and eventually financial viability. At the same time, FINCA
regards its pilot insurance program as still very much in the developmental stage and is not
prepared to draw definitive conclusions about its long–term prospects.
1
This Mini Case Study was prepared by Mr. Guy Winship, FINCA Uganda Country Director, and Ms. Julie Earne,
Africa Planning and Finance, under the auspices of the USAID Microenterprise Best Practices project managed by
Development Alternatives, Inc., September 2000.

2
INSTITUTIONAL BACKGROUND
FINCA Uganda, a member of the FINCA International network, was founded in 1992 to provide
financial services to Uganda’s poorest families so they can create their own jobs, raise household
incomes, and improve their standard of living. FINCA Uganda uses the Village Banking™
methodology, pioneered by FINCA in 1984, for delivering these services to its clients. Strict
focus on reaching scale while achieving
sustainability and maintaining focus on the
poor has allowed FINCA Uganda to grow to
serve more than 23,000 active clients in 20
districts of Uganda. The institution also
reached full operational and financial self-
sufficiency in the current fiscal year. In the
future, FINCA Uganda may apply for a
Central Bank license in order to allow the
institution to further diversify the products
and services that it may offer its clients.
THE IMPACT OF AIDS ON FINCA CLIENTS
The AIDS epidemic has taken a terrific toll on the African population, and FINCA Uganda
clients — low-income self-employed women — are no exception. In addition to coping with the
social impacts of the disease, FINCA clients suffer through direct financial or indirect financial
hardships as a result of AIDS. Statistics obtained from Nsambya Hospital health experts show
that working class families in greater Kampala can spend up to 75% of their disposable income
on health care.2
This level of burden is exacerbated by the inability of many Ugandans to pay for
preventative and early treatment of illnesses, including AIDS. In addition to these costs, an
unanticipated impact of group solidarity lending was that clients were asked to repay the loans of
fellow group members who became too ill to work or died of AIDS – a problem that FINCA has
since remedied through insurance.
In addition the direct costs above, most FINCA clients are facing additional indirect costs of the
disease. Many of FINCA’s low-income clients have been forced to curtail their income-
generating activities to care for stricken family members. Within their communities, FINCA
clients are seen as fiscally responsible. As a result, the care of children whose parents have died
of AIDS often falls to them. FINCA Uganda estimates that between 75 and 80 percent of its
clients are currently caring for AIDS orphans. The burden of caring for family members is high,
and FINCA members’ taking on additional responsibilities demonstrates the strength and
determination of these clients.
™
Trademark of FINCA International, Inc.
2
Conversation with Medical Superintendent, Nsambya Hospital, Kampala, Uganda
FINCA Uganda
Current Statistics
Active Clients 22,959
Female Clients (%) 100%
Portfolio Outstanding $1,682,735
Average Loan Size $142
Financial Self-Sufficiency1
126%
Note: All statistics are for July 2000
1
Operating income / [operating expenses + financial
expenses + (inflation * equity)]

3
PROVIDING SERVICES TO MEET A NEED
How can microfinance programs help their clients cope with AIDS, which impacts not only their
health and the health of their families—but also their livelihoods? Until the epidemic is halted,
not just microfinance institutions, but all organizations, will have to address this question.
FINCA Uganda has undertaken a number of initiatives to support the efforts of Ugandan
entrepreneurs cope with the impact of AIDS on them and their families. FINCA Uganda
continues to believe that its primary mission is to provide sustainable financial services to
Ugandan microentrepreneurs. The financial products it offers have an important impact on the
lives of its clients and their ability to cope with the impact of AIDS. At the same time, FINCA is
seeking to directly or indirectly provide insurance and other services to its clients by following
some of the following principles which resonate with FINCA’s core village banking
methodology:
§ Preserve income and savings of the clients, particularly those coping with AIDS or
supporting relatives afflicted with AIDS
§ Create a pricing and cost structure that is both sustainable for the insurance provider and the
clinic, and affordable for the very poor
§ Focus on serving the entire family
§ Serve without discrimination (including prior illnesses)
§ Make administration of healthcare benefits and partnerships with providers easy, accountable
and transparent
§ Protect group members against risk of loss resulting from illness or death of a fellow group
member
§ Protect against loss associated with the death of an immediate family member.
The Products
Functionally, the products that FINCA Uganda is able to offer its clients can be divided into four
categories:
Direct
Provision
Working Capital Loans
Mechanism for Safe Savings
Access to Group Health
Insurance
Partner
Provision
Credit Insurance
Accidental Death Insurance
Health Care
Health Education
Financial Products Non-financial Products

4
Working Capital Loans and Safe Savings
FINCA provides low-income families with small working capital loans and savings using the
Village Banking methodology. FINCA believes that these core products are its most effective
tool in helping clients cope with the negative effects of AIDS. These small loans help to prevent
and reduce the negative impact of AIDS through economic empowerment of women, education,
and broadening and stabilizing the economic base of communities and families. Strong
businesses and stable livelihoods reduce the need to sell off productive assets in times of crisis
and helps preserve the economic foundation of the family.
Health Education
Since its founding, FINCA Uganda has sought to engage a variety of health training
organizations to provide their services to Village Banking groups. Village Banking group
meetings provide a convenient, low-cost method for these organizations to obtain access to
women who might be interested in their training and education seminars. The format of
meetings allows trainers to teach while the group members conduct their repayment and
represents a value-added service for FINCA’s clients.
Credit Insurance
FINCA Uganda offers credit insurance through a partnership with AIG Uganda Ltd. The
objectives of the life insurance program are twofold. From the clients’ perspective, the insurance
pays the balance of a group member’s loan in the case of her death or disability for any reason,
taking the burden off the other members of her group. The credit insurance also reduces the
incentive for groups to exclude people with health problems, including HIV/AIDS, since they
may receive coverage. In addition to the benefit that clients receive from this product, FINCA
Uganda may be less affected by loan losses due to HIV/AIDS than many similar organizations.
Accidental Death Insurance
FINCA has also developed an accidental death insurance product in partnership with AIG as part
of its credit insurance product. In the case of accidental death of a client, a payout of 1.2 million
Ugandan shillings (US$674.16) is made to family members whom she has pre-designated as
beneficiaries. Additionally, a payout of 600,000 Ugandan shillings is made for the accidental
death of a spouse as well as 300,000 for a child.

5
THE HEALTH CARE PROGRAM
Description
FINCA Uganda has also been successful in pioneering a unique partnership to provide affordable
health care for its clients. The Health Care Program started in mid-1999 as a pilot project
through a partnership with a reputable mission hospital, Nsambya Hospital in Kampala, and
Nsambya Hospital Health Partners. The program has since been extended to Kitovu Hospital in
Masaka. Under the program, clients in a Village Banking group qualify for the program if more
than 60% of a group’s members participate. At the beginning of the loan cycle, clients pay a fee
of 24,000 Ugandan shillings (US$15.17) to cover themselves and up to three additional family
members for the term of the loan (4 months.) Additional family members can be added for an
additional fee.
The plan provides for: casualty and outpatient services, in-patient services, referral for
consultation with consultants recognized by Nsambya Hospital, surgery, special investigations
including X-ray, ultrasound, electrocardiogram and laboratory facilities available within
Nsambya Hospital, pharmacy: drugs prescribed by the Nsambya Hospital medical practitioner
within the agreed treatment protocols of the specific scheme, maternity coverage, and dental care
including cavity filling, tooth extraction and general consultation and optical consultation.
The plan does not include: complex dental surgery other than as a result of accident, optical
appliances (e.g. spectacles), sight correction other than general optical consultation, hearing aids,
cosmetic surgery, infertility investigations and treatment, intentional self-inflicted injury, injury
or illness arising out of intentional involvement in riot, civil commotion, affray, political or
illegal act by a member, treatments not scientifically recognized and their consequences,
alcoholism or drug addiction and their consequences, and continuous medication for chronic
diseases.
There is a further limitation in the case of recurring chronic diseases; members will be covered to
a maximum of three weeks inpatient treatment in a three-month period. The maximum limit of
expenditures on an individual is 350,000 Ugandan shillings (US$196.63) in a single period of
illness. The Health Care Program does not cover direct treatment of HIV/AIDS, but it will pay
for the treatment of illnesses that result from a compromised immune system. The provision of
direct treatment of HIV/AIDS in Africa is currently cost-prohibitive and would not allow for
effective cost-recovery. While triple viral therapy is not included, the treatment of resultant
diseases is an important step forward for covered individuals afflicted with HIV/AIDS in
increasing life expectancy and improving quality of life.
Additionally, clients are expected to pay a small co-payment, usually 1,000 Ugandan shillings
($.57), with each out-patient visit. In-patient visits require a slightly larger co-payment. The co-
payment ensures more appropriate usage of hospital services.

6
Cost-recovery
The Health Care program is currently serving ~300 clients in the Kampala region, fewer than 5%
of FINCA Uganda’s total client base. Demand for the product is high, however, and FINCA
believes that the potential market for the product is large. An important reason why FINCA
considers the pilot health care program so promising is the potential for full cost-recovery that
exists.
Currently, 60% of cumulative treatment costs are covered by client premiums. The shortfall has
been underwritten by the Department for International Development. This shortfall is mainly
due to the fact that there are only just over 300 individuals in the pilot program, and as such, the
program currently lacks the economies of scale necessary to cover all costs. However, if after
additional months of testing and monitoring of the program, FINCA finds that premium levels
are not commensurate with risk and usage levels, the premium will be re-evaluated with
sustainability in mind. Rather than mere price hikes, methods for altering the pricing structure
can include a reduction in the up front premium, coupled with an increase in the out patient co-
payment, thereby placing the burden of cost on those who use the product most. This would act
as another incentive to reduce unnecessary and improper usage of the product. The graph below
demonstrates the degree to which client premiums have been able to cover treatment costs for the
pilot test program at Nsmabya hospital from October 1999 to June 2000.
FINCA/Nsambya Hospital Health Plan-
Income/Expenditure Trend
-
500,000
1,000,000
1,500,000
2,000,000
2,500,000
Oct-99 Nov-99 Dec-99 Jan-00 Feb-00 Mar-00 Apr-00 May-00 Jun-00
Month
UgandanS
hillings
Expenditure
Income

7
LESSONS LEARNED
§ Pre-existing non-health-related groups, like Village Banks, are important. They aid in
collection of premiums as well as providing a random pool of potential users without
predetermined health issues. MFIs are one example of such groups. Dairy cooperatives
and burial societies are others. Use of groups provides both a random pool of potential
clients demanding different levels of health care and an efficient funds collection
mechanism.
§ Internal controls: Two main areas of internal controls have been identified as integral in
the operation of a health product. The first is the audit of provider treatment costs. The
audit includes corroboration of appropriate diagnosis and prescribed treatments as well as
an audit of billing and pricing. Second is an audit of approved clients. Through the use
of digital technology, each participating FINCA family is issued a photo ID card. The ID
card is presented upon check-in and matched to a scanned photo file on the admittance
computer.
§ Legitimate usage and controls: Co-payments are important to reduce unnecessary usage.
The program generally requires a co-payment of 1,000 Ush. The co-payment ensures
that unnecessary visits, (e.g., aspirin for hangovers) are minimized, while it is low enough
to not hinder proper usage.
§ Impact on retention: Many clients join FINCA to gain access to the health care product,
or remain with the FINCA Uganda program to ensure access to these insurance products.
§ Ripple effect: With Village Banking groups in some 820 communities throughout
Uganda, FINCA operates an extensive network for education and information
dissemination. We believe that the training and education that takes place in our Village
Banking group meetings is merely the tip of the iceberg. Our clients take the lessons they
have learned on preventing the spread of the disease, and on caring for those who are ill,
back to their homes and their families. We believe that, as a result, coming generations of
Ugandans will be better informed about the disease.
§ A transparent and well-defined relationship with the health provider is integral to the
program’s success.
§ The provision of health care and the accessibility of groups do not necessarily overlap.
Identifying a premium service provider network is a key hurdle to overcome in
developing countries. In many cases an exuberant market exists well before the
infrastructure is in place to provide these highly demanded services. While many private
hospitals are desperate for well paying clients, many are skeptical of seemingly larger-
scale contracts that have no track record of payment.

8
CONCLUSION
While FINCA Uganda is a financial—not a health services—organization, the reality of working
in an area where HIV/AIDS is highly prevalent for eight years has required management to take
the epidemic into account when designing its financial products and services. FINCA Uganda
has successfully transformed itself into a sustainable financial institution by developing products
that work within that context and make a valuable contribution to the lives of its clients, most of
whom are directly and indirectly affected by HIV/AIDS. While our primary goal is, and will
continue to be, to provide small loans and savings services to low-income clients, we also seek to
ensure that our clients can make productive use of our services. It is in that spirit that we have
created our pilot insurance programs. While there is much progress to be made in the area of
insurance coverage, FINCA’s current products are clearly making a difference in its clients’
quality of life.

Annex 1: Client Stories
Sulaiba Nankabirwa is in her 9th
loan
cycle with FINCA. She has a small
business raising broiler chickens.
Sulaiba is responsible for raising her
granddaughter, since her daughter and
son-in- law were forced to move away
from the family in search of work.
Sulaiba’s situation is not out of the
ordinary. Many FINCA clients have
non- traditional family structures. The
dependence on extended family is high
in Uganda; less economically productive
relatives, or those who are ill with AIDS
and HIV often leave children with more
stable family members.
In this case, Sulaiba herself fell ill and was treated for malaria at Nsambya Hospital. Due to the
swift and effective treatment she received, her malaria did not progress to a dangerous stage and
Sulaiba was able to maintain her business and look after her granddaughter.
Mary Okello has been a member of a FINCA Village
Banking group for almost 2 years. She recently
registered herself, her husband, and two children in
the FINCA/Nsambya Hospital health plan. In late
July, her son Kitembo was severely burned with
boiling water in the village. He was admitted to the
hospital for two weeks and treated for second degree
burns as well as malaria. All of the hospital bills
were covered by the health plan, and Mary did not
have to deplete her savings account. During the time
her son was being treated at Nsambya Hospital,
Mary was able to continue her business. Mary and
Kitembo are pictured to the left.

FOCCAS Uganda: Integrated Microfinance and HIV/AIDS Education
A Case Study for the Microenterprise Best Practices Project
September 2000
THE PROBLEM
The international development community faces a major challenge: create innovative solutions
to poverty that are effective, sustainable, and have the potential to reach very large numbers of
vulnerable people. With the success of the Grameen Bank and other large-scale programs in
providing access to credit for millions of poor households, microfinance programs (providing
credit and savings services) are increasingly cited as an effective and sustainable way to reduce
poverty. Many thousands of microfinance institutions are now working in nearly every country
in the world, and the Microcredit Summit has played a significant role in raising the profile of
this world-wide movement.
In recent years, microfinance practitioners have increasingly recognized the potential impact of
HIV/AIDS on both their clients and institutions. In some cases, microfinance clients themselves
grow ill and die due to HIV/AIDS, but more frequently, unusual financial and time demands are
placed upon clients by illness and death in their extended families and their communities in
general. Many microfinance institutions are asking how they can better serve their clients in this
context. In many countries, the HIV/AIDS epidemic is so severe that the cumulative effect
threatens development in general, and microfinance institutions specifically, through reduced
loan-portfolio growth, decreased client retention, increased portfolio delinquency, and increased
demand for savings deposits. The epidemic also impacts microfinance institution costs and
efficiency through death and greater strains upon experienced staff. In such environments,
microfinance institutions are seeking ways to better understand and mitigate the impact of the
epidemic upon their institutions and their social goals.
THE UGANDAN CONTEXT
As a nation, Uganda is hailed for its decade-long progress towards achieving economic growth,
political stability and democracy. Yet Uganda remains one of the world’s poorest countries, and
for many Ugandan rural families, life remains a daunting challenge of daily struggle to survive.
In addition to widespread poverty, the rural poor in Uganda face serious health and nutrition
problems, including a high prevalence of HIV/AIDS. Various studies estimate that as much as
18% of the adult population may already be infected with HIV, with regional variations of 4 to
25%. The World Health Organization projected that the number of HIV-infected Ugandans

2
could increase to more than 1.9 million by 1998, with the highest prevalence among the age
group expected to be the most economically productive—those between the ages of 15 and 35.
Approximately 160,000 have already died of AIDS-related diseases, and there are an estimated
1.1 million AIDS orphans.
Fortunately, the Ugandan government was one of the first to acknowledge the existence and
urgency of the HIV/AIDS crisis, and has been a world-wide example of what can be done to
address the problem. With international funding and technical assistance, public education
campaigns and local service providers have been successful in reducing the rate of HIV
infection.
As in many other developing countries, Uganda’s formal financial sector is composed primarily
of commercial banks that have not yet extended services into the rural areas due to a lack of
motivation and the systems to cost-effectively provide rural outreach. Limited access to
financial services is cited as one of the major constraints to rural poverty alleviation.
Recognizing this constraint, national government and international donors have made significant
investment in the development of microfinance institutions and a microfinance regulatory
framework over the past several years. As a result, several microfinance institutions have
emerged with the potential to sustainably provide financial services to the low-income
population in the major urban centers and some rural areas.
One of these relatively new institutions is FOCCAS Uganda (Foundation for Credit and
Community Assistance), a Ugandan microfinance institution founded in 1996. The mission of
FOCCAS is to support self-help solutions to poverty and malnutrition in eastern Uganda, an area
that includes over 1.5 million people, most living in rural areas of extreme poverty. Prior to the
establishment of FOCCAS, the founder considered many potential strategies and methodologies
to address the organization’s expressed mission, and eventually identified as most promising the
Credit with Education methodology as promoted by Freedom from Hunger, a U.S.-based
development institution. Using this methodology, FOCCAS currently offers financial services
together with health, nutrition, family planning and better business education, in the context of
group-based lending. FOCCAS currently works with over 12,000 women living in the rural and
peri-urban areas of eastern Uganda.
THE CREDIT WITH EDUCATION METHODOLOGY
Given the high levels of HIV/AIDS among the FOCCAS’ target population, it was realized from
the beginning that the programme would need to address the epidemic. Although both
prevention and treatment services are necessary, FOCCAS could not realistically contribute in
any significant fashion to direct health care service provision. Rather, FOCCAS chose to utilize
its growing network of group-based clients as a vehicle for HIV/AIDS prevention through
education and community mobilization.

3
Once it was understood that education was the most appropriate strategy for FOCCAS (and
perhaps for many other microfinance institutions) to address the HIV/AIDS crisis, the questions
then become ones of methodology:
§ How can we cost-effectively link microfinance services to programming to educate about
HIV/AIDS?
§ Should microfinance and education be delivered by separate institutions, delivered by one
institution using separate service delivery systems, or delivered in a fully integrated manner
as a single product?
§ What type of education is most successful at changing high-risk behaviors?
The Credit with Education methodology as practiced by FOCCAS and supported by Freedom
from Hunger uses an integrated approach as the optimal combination of both cost-efficiency and
impact effectiveness. Although the quality of both services MAY be slightly compromised, the
integrated approach can reach the same clients much more cost-efficiently, thereby sustainably.
Credit with Education is group-based lending to the poor that cost-effectively uses the regular
group meetings for non-formal adult educational as well as financial purposes. The Grameen
Bank may have invented this type of integrated delivery model, but Credit with Education
represents an elaborated version of the concept of linkage between financial services and social
education.
As practiced by FOCCAS, Credit with Education utilizes a fairly traditional village banking
methodology to provide microfinance and savings services. FOCCAS staff facilitate the
formation of village banks composed of an average of forty self-selected women from a single
community. The bank receives five weekly training sessions, including the election of a
management committee. After the training, the bank applies for a loan that is broken into small
loans to the individual members for investment in their individual enterprises. The members
guarantee repayment of each other’s loans, so they must all approve each member’s loan, and if
the bank pays back its entire loan, it becomes eligible to immediately receive a new, usually
larger, group loan. Bank members meet weekly to conduct their business, including making
installment payments of principal and interest on their loans and depositing personal savings.
The education is delivered in a twenty to thirty-minute “learning session” by the loan officer as
part of the weekly meetings. Adult non-formal education methods are used to facilitate the
education in a participatory way which builds upon the member experience and current
knowledge. The FOCCAS education curriculum includes six health/nutrition topics (diarrhea,
breastfeeding, HIV/AIDS prevention, infant/child feeding, family planning, immunization) and
four better business topics (business idea, increasing profit, increasing sales, managing money).
Each topic requires seven to eight learning sessions for introduction, full delivery, and review.
Credit with Education’s dual goals of high quality program performance and social impact is
outlined below. Adding education to a microfinance programme leads to the intermediary

4
benefits of enhanced health/nutrition knowledge and practices and improved self-confidence,
which lead to the ultimate benefits of overall better health and nutrition.
HIV/AIDS EDUCATION
The purpose of the HIV/AIDS education delivered by FOCCAS is to provide village bank
members with the information they need to protect themselves from HIV/AIDS. In addition, the
lessons bring attention to the fact that the AIDS epidemic is a community problem affecting
everyone. The loan officer helps women to think about HIV/AIDS in the context of the
community, to better support those individuals dying of the disease, and to make the behavior
changes necessary to prevent further infection.
At the end of the HIV/AIDS learning sessions, the women of the village bank will have done the
following:
1. Reviewed information on ways HIV is spread and asked their questions regarding HIV.
2. Discussed the problems of HIV and pregnancy.
3. Identified the location of an HIV testing site and learned the cost of this blood test.
4. Described sexually transmitted infections and their relation to the HIV infection.
5. Evaluated the three choices for preventing HIV infection during sexual relations and chosen
the best option for her; discussed what choices were being made in the community.
6. Prepared a role-play discussing HIV/AIDS with others.
7. Viewed a demonstration showing how a condom is used and practiced a discussion with their
partner about using a condom.
8. Developed plans to educate their children regarding HIV/AIDS.
9. Developed a plan of activities for their community to help people with HIV/AIDS.

5
The learning sessions provide members with information on HIV/AIDS which creates the
opportunity to apply the most up-to-date understanding, technology and practices coupled with
practical wisdom to reducing the risk of HIV/AIDS exposure. However, as we all know, having
access to information does not ensure its use or that individuals will change their behaviors. This
is why loan officers facilitate a process with the members to consider how to use the information
to change their behavior and improve their lives. This process involves problem-solving,
decision-making, motivation to action, and often, a type of psychological journey that involves a
number of steps before making the decision to change ideas or practices and form new habits.
The Road to Behavior Change (see following page) is an illustration of the mental and actual
steps that can be part of the personal change process. The stick figures represent an individual at
different steps of the journey, and the “bubbles” tell us what the bank member and the loan
officer are thinking at each step.
CHALLENGES OF HIV/AIDS EDUCATION
There are several challenges specific to the HIV/AIDS Prevention education. As with any
training regarding sexual activity, FOCCAS’ members are initially hesitant to discuss their
practices in an open forum. This tendency is compounded by the stigma that has been attached
to HIV infection, making many women hesitant to even discuss the issue in general, much less
how it might relate to the behavior and risks of themselves and their families. This makes the
first two steps on the Road to Behavior Change (see diagram on next page) even more difficult
than usual. For FOCCAS, the challenge is all the greater given that 90% of the clients are rural
women, most of whom have had limited exposure outside of their traditional environment.
Fortunately, the public education efforts of the Ugandan government and international
campaigns have raised awareness of the existence of HIV/AIDS and its nature, thereby reducing
the stigma of simply discussing the infection and disease. Taking advantage of this progress,
FOCCAS must ensure that the selection and training of loan officers explicitly addresses their
ability and willingness to openly and frankly discuss HIV/AIDS issues, even when loan officers
are working with women in their own community, and those who may be their elders. The
following section provides a broader discussion of the challenges faced in Credit with Education.

6

7
CREDIT WITH EDUCATION COSTS AND BENEFITS
Credit with Education has tremendous potential to be an unusually cost-effective strategy to
empower women to make significant changes in their lives. One challenge is the meeting length.
The brevity of each learning session is compensated by the opportunity for weekly meetings and
the long-term continuity of groups. Still, keeping the meeting sufficiently short is problematic,
especially since the more participatory the education, the more successful it will be. Anyone
who has facilitated a lively discussion knows how difficult it is to keep to a set period of time,
especially one as short as twenty to thirty minutes. A good learning session also needs to include
a review and follow-up of the previous session, a discussion of the day’s topic, and a summary
that includes actions to be taken as a result of the discussion. The loan officer must constantly
monitor the group’s receptivity and tolerance to continue and decide when to suggest that the
discussion be postponed until the following meeting. The loan officer’s facilitation skills are
critical to maintaining the integrity and dynamics of the sessions while respecting other
considerations of the village bank members’ time.
Another challenge is to identify the major location and culture-specific obstacles to behavior
change in relation to HIV/AIDS. In addition to determining the level of learning readiness of the
participants, the loan officer must be prepared to address the reasons the problems exist and why
women have not adopted or may not adopt new practices to overcome those problems. There are
systems for identifying and dealing with obstacles, but the process is time-consuming and
requires substantial skill on the part of each program’s training and education coordinator. This
aspect of the education component is a necessary cost early in the program start-up, but the
results pay off in the long term, with better-targeted messages and learning sessions. As the
participants gain confidence and understanding, they are empowered to increasingly identify and
address the obstacles without the external facilitation.
The challenges just described, and the Credit with Education objective to build financially self-
sustaining programs that reach very large numbers, highlight the need to recruit and train large
numbers of loan officers to become skilled facilitators. Loan officers also require basic training
in the technical areas of credit management, leadership, and the content of the HIV/AIDS
learning sessions, but teaching and maintaining excellent group facilitation skills is central to a
successful programme. Fortunately, the training for group facilitation serves both the credit
component as well as the education component.
Just as a microfinance institution requires information and supervision systems to ensure a high-
quality portfolio, systems are necessary to ensure high-quality and effective HIV/AIDS
education. What is therefore required is even more than the proper selection of field staff and
their training in facilitation skills and HIV/AIDS content, but also the systems for supervision of
education, assessment and feedback on the quality of delivery, monitoring of education impact,
and feedback from clients on the education content and quality. Such systems are available and
complementary to the systems currently used by most microfinance institutions, but effort is
required up-front to adapt the systems, put them in place, and provide the necessary staff skills.

8
Most microfinance institutions are reluctant to consider the provision of non-financial services,
assuming that this implies substantial additional costs that would prevent the programme from
becoming sustainable. Considering the marginal cost of the education component of several
similar programmes through the lenses of cost accounting (the traditional approach of allocating
costs to various cost centers), the percentage of total program costs attributable to the addition of
the education component varies from 4.7% to 10.0%. However, this is not an appropriate answer
to the question most often asked of practitioners of fully integrated Credit with Education
programs – “ How much more expensive is a village banking program when an education
component is added?”
If a highly integrated Credit with Education service were to drop the extra educational objective
and become a single-purpose village banking program, no staff would be laid off, no vehicles
would be sold, the ratio of field staff to village banks served would remain the same, and
therefore no costs would be reduced. There would be slightly fewer staff trainings, fewer overall
management objectives, and possibly the need for less technical assistance, but overall, the cost
reductions would be minimal, and any saved resources would likely be taken up by other existing
activities. Thus, in cases of tightly integrated services, the costs of doing village banking with,
versus without, education services, can be quite close. In practice, the addition of the education
component, at worst, merely extends the time period required for a well-managed institution to
achieve financial sustainability.
Although FOCCAS restricts it non-financial services to education, it does recognize that
education alone is insufficient to properly address the HIV/AIDS crisis in eastern Uganda. In the
future, FOCCAS intends to facilitate member access to complementary HIV/AIDS services such
as testing and counseling. This will require FOCCAS to identify appropriate local service
providers, introduce members to their services, and maintain the relationship between the two
institutions. This process has begun, but will require a more structured and intensive effort if it
is to provide benefits to the participants.
Although no information is available regarding the impact of FOCCAS’ HIV/AIDS education
component specifically, impact assessments in similar environments have shown promising
results from the Credit with Education methodology. In-depth, longitudinal, impact assessments
conducted in Ghana and Bolivia demonstrated that a well-managed Credit with Education
programme cannot only significantly increase clients’ knowledge and understanding of health
issues such as HIV/AIDS, but has led to changes which positively impacted clients’ health-
seeking behaviors.
CONCLUSION
HIV/AIDS has or will negatively affect most microfinance institutions, their clients, and their
client’s families, so microfinance institutions should seek to better address the crisis for both
their clients’ and their own sake. The most cost-efficient and effective means to addressing the
HIV/AIDS crisis is likely to be preventative education. Fortunately, there is good experience in
the design and delivery of such education by microfinance institutions that can effectively

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