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KIÚTPROGRAM Social Microcredit Program
Case Study
June 11, 2013
The World Bank
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ACKNOWLEDGEMENTS
This report was prepared, in alphabetical order, by Robin Audy (Consultant, World Bank),
Sandor Karacsony (Consultant, World Bank), Barbara Kits (Consultant, World Bank), Joost
de Laat (Senior Economist), György Molnár, Senior Research Fellow, Institute of Economics,
Hungarian Academy of Sciences, and Lea Tan (Consultant, World Bank). Sujani Eli (ECSHD
Program Assistant) provided team support. Detailed comments by Roberta Gatti, Sector
Manager and Lead Economist, ECSH4, and peer reviewers Ms. Aglaia Zafeirakou, Senior
Education Specialist (HDGPE) and Ms. Sophia V. Georgieva, Social Development Specialist
(ECSSO) are gratefully acknowledged.
World Bank ECA Vice President : Phillippe H. Le Houerou
World Bank ECCU5 Country Director : Mamta Murthi
World Bank HD Sector Director : Ana Revenga
World Bank HDE Sector Manager : Roberta Gatti
World Bank Task Team Leader : Joost de Laat
This report has been prepared for the European Commission; however, it reflects the views only of the authors, and
the Commission cannot be held responsible for any use which may be made of the information contained therein.
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TABLE OF CONTENTS
ACKNOWLEDGEMENTS .................................................................................................................................. 2
TABLE OF CONTENTS ..................................................................................................................................... 3
1 Introduction ........................................................................................................................................... 4
2 Kiútprogram – Program Description ..................................................................................................... 6
2.1 Mission and Rationale.................................................................................................................. 6
2.2 Group Lending Concept ............................................................................................................... 7
2.3 Institutional Framework ............................................................................................................... 8
2.4 Daily Fieldwork Activities ........................................................................................................... 9
3 Kiútprogram Client Characteristics ..................................................................................................... 13
4 Program Operating Performance ......................................................................................................... 17
4.1 Loan Portfolio Performance ....................................................................................................... 17
4.2 Repayment and Client Characteristics ....................................................................................... 19
4.3 Program Costs Per Loan Issued ................................................................................................. 22
4.4 Client Feedback ......................................................................................................................... 23
4.5 Stakeholder Feedback ................................................................................................................ 26
4.6 Post-Pilot Contiunation .............................................................................................................. 26
5 Discussion ........................................................................................................................................... 28
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1 INTRODUCTION
This report is a case study of the Kiútprogram (‘Way-out’) financial services pilot project by the
Polgár Foundation for Opportunities. Kiútprogram was a European pilot project 1 focusing on the
provision of microcredit for Roma inclusion that operated in the most disadvantaged microregions of
Hungary from June 2010 until December 2012. The objective of this case study is to learn from the
practical experiences by the Kiútprogram pilot project in providing microcredit services and thus provide
practical insights for policy makers and program managers designing financial services promoting Roma
inclusion. Was Kiútprogram able to reach poor Roma households and, if so, with which specific lending
approach and at what cost? How important were other, complementary, financial services provided by
Kiútprogram? And, is there evidence that the access to microcredit provided a way out of poverty and into
inclusion? Answers to these questions will provide guidance to the design of financial services programs
aimed at promoting Roma inclusion.
The insights – mainly operational – provided by this case study are based on a combination of
qualitative and quantitative information. Qualitative information comes from interviews conducted
with management, staff and its sponsoring financial institution, the policy lessons document prepared by
Kiútprogram (2012) itself, as well as the analysis of client feedback data from Kiútprogram management
information system (MIS). This MIS was developed in partnership with the World Bank and implemented
by Kiútprogram field staff. It included a detailed survey with each potential beneficiary before the formal
loan application (the ‘intake questionnaire’), which collected information on the socio-economic
background characteristics, and a (proposed) business questionnaire. The MIS also included a second
survey toward the end of the loan cycle with the actual clients, which focused on client feedback. Finally,
the MIS collected loan repayment information and information on the time allocation across different
tasks by field workers.
As such, this case study does not aim to provide a rigorous assessment of the project impact on the
beneficiaries. This was not feasible nor was the MIS designed with this objective in mind. It was
impossible to design a rigorous prospective evaluation for several reasons. First, as described in greater
detail below, it was a real challenge for the project to find qualified applicants, making a randomized
evaluation design based on oversubscription impossible. Randomization at the community level might
have been possible, but – mainly in the first phase of the project – with very few individuals per
community ultimately interested and qualifying, such a design would have risked being underpowered.
1
For more information about the European pilot projects for Roma inclusion, visit
http://ec.europa.eu/regional_policy/activity/roma/pilot_en.cfm
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And, as a pilot project, the design evolved over the course of the project duration. Instead, the information
used in this case study provides the basis for important insights – mainly operational - for the provision of
microcredit and related financial services targeting poor Roma.
This report follows the companion report “Reducing Vulnerability and Promoting the Self-
Employment of Roma in Eastern Europe through Financial Inclusion” (World Bank, 2012), which
provided an assessment of two complementary questions: first, whether Roma in Eastern Europe lack
access to a wide range of basic financial services; and second, whether improving access to microcredit
can be a means to substantially raise self-employment. Key findings from the companion report were
based on the UNDP/World Bank/EC regional Roma survey (2012) survey data.
The companion report finds that self-employment levels are relatively low, but there is considerable
interest among Roma in becoming self-employed. Among working Roma, the share that is self-
employed is low in the Czech Republic, Hungary, and Slovakia, while noticeably higher in Bulgaria and
Romania. The vast majority of Roma express a desire for stable jobs, similar to the responses of non-
Roma neighbors, and many express an interest in starting a business and becoming self-employed.
However, the companion report finds that most Roma interested in becoming self-employed face
significant obstacles that limit access to credit and which are not easily addressed by regular MFIs.
Not many suppliers of microfinance target start-up businesses in general, and even fewer are reaching
(starting) Roma entrepreneurs. A key reason is that many potential Roma entrepreneurs do not qualify for
credit in light of lack of savings and indebtedness, very low levels of education, even when compared to
the segment of the general population that is being refused credit, and little employment experience,
especially lacking experience starting and operating a business in the formal economy.
In light of this, and global experiences around the provision of financial services to the poor, the
companion report concludes that a comprehensive approach to financial inclusion is needed that
goes beyond strictly providing microcredit. This approach addresses first basic barriers, such as the
limited outreach of financial service providers in Roma communities and the (related) lack of access to
savings technology, but also addressing low financial literacy and business skills. The study documents
these barriers and highlights various examples from Europe and elsewhere to achieve this. These include
examples of programs providing families with incentives for targeted savings; e.g. saving for housing
improvements, saving for secondary education, savings for preschool etc. Similarly, introducing non-
stigmatizing and accessible electronic government-to-citizen payment systems can promote financial
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inclusion. Finally, a ‘Graduation approach’ (CGAP-Ford Foundation) promotes business skills and
grants/loans for self-employment, but after financial literacy and savings promotion.
The Kiútprogram was defined by its founders as ‘social microcredit’, and aimed to enable the
unemployed living in deep poverty – primarily, but not exclusively Roma – become self-employed.
To achieve this, the Kiútprogram provided participants with not only financial services (importantly,
unsecured microloans), but also related social services from counselling to physically joining applicants to
local municipalities for the registration of their businesses. Results of the Kiútprogram indicate that
facilitating the creation of sustainable enterprises among participants required intensive social work by
well-trained field workers familiar with social work, lending, and business. Key features of Kiútprogram’s
inclusive social microlending model were formulated as follows:
i. a focus on participants’ employment (including self-employment) outcomes rather than
profitability for the lender;
ii. the potential to significantly increase inclusion and economic empowerment among participants
by demonstrating the participants’ commitment to break out of poverty; and
iii. the ability of the borrower to operate a business as a profitable investment in the formal economy.
The remainder of this case study introduces the operational experience of Kiútprogram and attempts to
draw broader policy lessons on the provision of microcredit that aims to reduce poverty and promote
inclusion, especially among extremely vulnerable and frequently discriminated populations such as many
Roma.
2 KIÚTPROGRAM – PROGRAM DESCRIPTION
2.1 MISSION AND RATIONALE
The primary mission of the Kiútprogram was to facilitate Roma inclusion by assisting clients to
establish sustainable formal businesses that connect with the economic mainstream. Disadvantaged
areas of Hungary - the target area - are characterised by low levels of business activity, underdevelopment
of infrastructure, low levels of investments and low share of the service industry. Previous attempts to
generate employment opportunities in such areas have largely failed. Kiútprogram’s rationale was based
on the assumption that the development of micro- and small businesses could be a viable step forward for
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many, as there is no real alternative to entrepreneurship other than participation in public work programs.
In the words of one client:
I wanted to make my dreams come true and open my own pastry shop called 'Sweet Dreams'. The project
started in 2010 in our region: that's when a field worker came to see us. The reason why I joined is
because I was unable to create funds to start the business. I sell pizza, pastry and cake, and a lot of young
people come to me to play pool and table soccer. There is no discrimination here; the customers are both
Gypsies and Hungarians. This project can truly be an opportunity for the poor if they take it. I also have
further plans, I want to expand the shop and build an outside sitting area and a bakery right next to the
shop.
2.2 GROUP LENDING CONCEPT
The concept of the Kiútprogram was inspired by Muhammad Yunus’ Grameen model operating in
Bangladesh.2 Muhammad Yunus launched the model in 1976, providing unsecured loans of relatively
small amounts to people living in deep poverty in order to enable income generation. He established the
Grameen Bank in 1983 after processing and assessing the results of early initiatives. The Grameen model
aims to provide financial services, loans and information to those living in deep poverty in order to enable
them to utilise their own resources to rise from their disadvantaged living conditions. The primary
prerequisite of success is mutual trust, in addition to the loan. The core of the lending activity is a
voluntary, self-nominated group of five loan recipients where the traditional safeguards required by banks
are replaced by joint liability. Lending in the Grameen scheme is sequential: group members receive their
loans one after the other. If the first loan is repaid as agreed, the loan recipient may be granted another
loan, which is larger in amount.
The idea of adapting the Grameen model to Hungary was proposed by the Polgár Foundation for
Opportunities in 2008. Kiútprogram was developed with an institutional structure adapted to the specific
conditions of Roma inclusion. Loans were formally issued by Raiffeisen Bank; Kiútprogram administered
lending operations as the bank’s agent. Extensive client selection and client support – described in more
detail below – was a very time intensive process, going well beyond the Grameen model. Clients were
recruited from a pool of potential entrepreneurs with incomes of less than 60% of Hungary’s median
household income. Loans were administered to groups of 5-6 members through the use of sequential
lending, i.e. a loan would first be provided to two members, then a second to two other members, and
2
See Yunus, M. (1999): Banker to the Poor. Microlending and the battle against world poverty. Public Affairs, New
York.
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finally the group leader would receive the loan. While loans were provided in group settings, they were
not, however, jointly liable. According to Kiútprogram staff, the group-based approach increased
participants’ self-confidence, and helped them learn more easily the skills necessary for building a social
or business network. Indeed, as shown in the client feedback below, many clients (70%) valued this
element. The loans had a 1-year tenure and a weekly repayment schedule, and 5% of the loan amount was
paid to a common group fund. The maximum loan amount was set at HUF 1 million (approximately EUR
3,400 at the time).
2.3 INSTITUTIONAL FRAMEWORK
Kiútprogram Microcredit Initiative Non-profit Ltd. was established by private shareholders as a
not-for-profit shareholder group. Kiútprogram was responsible for program implementation,
management and operations, as well as promotion of the microcredit product as an agent. Kiútprogram
also trained and managed field workers; recruited and trained clients, as well as supported business
development through mentoring; assisting the development of business plans; preparing, evaluating and
submitting loan contracts; serving as a focal point with employment services, central and local
government agencies and the financial institution; monitoring and evaluation; and program administration.
Figure 2. Kiútprogram’s institutional framework
EU DG Region
Institutional structure Roma integration
pilot project
Largest donor
POLGAR (1.43 M EUR)
Foundation Supervision
EU connections
RAIFFEISEN Main shareholder
BANK Civil connections
Analysing social impact
Loans and savings
Loan guarantee World
IT system KIÚTPROGRAM Bank/UNDP
MFI
Impact evaluation
Monitoring support
Advocacy
Field work
Accepting business plans
EXPERTS, Client and program administration
Government
Loan agency
SHAREHOLDERS
Monitoring & evaluation
Advocacy Quality control
Feedback
Networking Financing welfare bridge and other
related costs
Regulation, laws
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Kiútprogram’s partners played pivotal roles. Kiútprogram’s partner financial institution, Raiffeisen
Bank, took on expenditures and losses of lending up to HUF 20 million within the framework of the
bank’s corporate social responsibility program. Raiffeisen Bank did not charge Kiútprogram clients
commission or other banking fees for its services, and provided training to staff in regionally designated
local branches. It also offered savings accounts and provided IT support. Polgár Foundation for Equal
Opportunities, the main shareholder of Kiútprogram Non-profit Ltd., was the primary partner to the EU
agreement. Polgár carried out project management and evaluation tasks. In addition, it was responsible for
the dissemination of program results.
Financing for Kiútprogram – both its operational costs and loan portfolio – amounted to
approximately EUR 1.4 mln and were primarily provided by the EU project titled Pan-European
Coordination of Roma Integration Methods – Roma Inclusion: Self-employment and microcredit, granted
by an agreement signed in June 2010. The loan portfolio was financed exclusively from private
sources: the Raiffeisen Bank and individuals. Support was also granted by the Hungarian government
(which has been discontinued). In addition, another indirect source contributed to the program: in
Hungary, new entrepreneurs can apply for state assistance to counterbalance the requirement for paying
social security contributions starting in the same month as they get their licence (even if there is no
business income) and personal income tax (if there is income). Assistance can be received for 6 months,
with a maximum monthly amount equal to the minimal wage. The Kiútprogram duration was initially set
at 2 years, and was extended by 3 months at Kiútprogram’s request, as 2 years was considered to be too
short for a program issuing loans with one-year duration.
2.4 DAILY FIELDWORK ACTIVITIES
The intense involvement of field workers providing a variety of business and social support services
was a key feature of the program. Field workers provided a multitude of services, including providing
support developing the business plan, business registration support, and accounting support. Further,
during operations the scope of tasks of the field workers was larger than originally anticipated. Field
workers had to personally meet the clients at least once a week and provide continuous technical
assistance support to the operation of the business.
Specifically, field workers were actively involved in:3
3
This description is adopted from “Social microcredit, self-employment and Roma inclusion. Lessons of
Kiútprogram, a social microcredit pilot", 2012. Available at:
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1. Community selection. Field workers came from the region in which they worked, but did not work in
their actual place of residence – except for Budapest. Communities were selected jointly with
Kiútprogram management, often following consultations with other organisations such as the Roma
Minority Self-Government and other civil organisations. Community selection involved personal
visits, getting familiar with local residents and finding one or more contact persons; people well
familiar with the community.
2. Organising a community meeting. The field worker first organised a community meeting, often
connecting it to another community occasion to reach more people, to provide information about
Kiútprogram and generate interest to start the personal interactions. Field workers conducted
recruitment activities and organized forums usually in areas with higher density of Roma, however,
becoming a client was not subject to ethnicity. Only income above the given threshold caused
ineligibility. Nonetheless, the fact that primarily Roma clients were targeted reportedly inhibited the
interest of some non-Roma. The proportion of the Roma is 80% among both the applicants and the
actual clients.
3. Family visits. Field workers would next meet with interested candidates, often at the home of the
family to get a real picture of the environment and the financial situation and to explore whether the
candidate has a viable business idea. During this visit, field worker completed the intake
questionnaire. Based on objective and subjective factors, the field worker decided if there was scope
for follow-up with the candidate. At least 8 to 9 suitable candidates within a given location had to be
identified to create at least one group, considering dropout rates.
4. Group meetings. After identifying 8 to 9 candidates, initial group meetings were organised to learn
about group dynamics. Before receiving the loan, people tend to present their favourable side. During
this initial meeting the business questionnaire was filled to explore earlier business experience –
virtually all informal - and assets, and to discuss the new business ideas. During this meeting, the
candidates also selected the group leader, usually the most active, most motivated member.
It was the field worker’s task to prepare and lead the group meetings. Beside the pre-arranged
programs (see later) the group meetings gave a good occasion to discuss the problems of the
local community, and the personal/family problems of the group members. The organized
debates served also as a kind of communication training. After gaining their trust, the field
workers became a general mentor of the group members.
http://www.kiutprogram.hu/index.php/en/documents-f?download=92:social-microcredit-self-employment-and-roma-
inclusion-lessons-of-kiutprogram-a-social-microcredit-pilot-and-policy-recommendations-for-the-new-structural-
funds-period
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5. Filtering. To officially become group members, the candidates had to meet certain criteria:
Were there any unpaid taxes or utility debts? Tax arrears can prevent being issued a
government business license. For serious candidates, field workers would help with the settlement
of tax backlog, public utilities debt and unpaid loans by rescheduling them, applying for partial
remittal or paying in instalments.
Were there any unpaid loans? Debt per se was not a reason for exclusion, but too much debt
was. Raiffeisen Bank assisted in providing credit reports. In the first year of the pilot, the field
workers ran into a few situations where certain candidates were not really intending to start a
business, but rather wanted the loan to pay back informal debts owed to loan sharks (“usurers”).
With experience, field workers were increasingly able to identify these situations early.
Prepare a simple but realistic business draft (on a piece of paper; so-called “checked paper”)
containing rough income and cost figures and list potential customers and suppliers.
Complete and evaluate a business scoring card. This was a management evaluation tool
summarising the information collected from the base questionnaire, the business draft and
personal meetings. Subjective factors were also included such as the candidate’s motivation,
communication skills, existing web of relationships, risk-taking and decision-making skills,
family background, business experience, etc.
The field worker would send the business draft and the scoring card with his or her recommendation
to the Kiútprogram management team where the Credit Committee (CC) would review these
materials. The members of the CC included the professional manager, the financial manager at the
bank (an employee of the Kiútprogram) and a dedicated expert member of the management board.
6. Finalizing business plans. After filtering, a decision was made about the group and, if given the green
light, the remaining group members would create their finalised business plans. By this time, the ideal
number of group members was 6. Field worker would meet the group at least once a week and also
work with the clients individually. Business plans followed a template, including a cash flow plan for
13 months, and detailed descriptions of the intended loan use, market connections of the planned
business, potential partners, risk analysis, analysis of future outlook, and finally the assessment by the
field worker. The business plan was recorded by the field worker based on the client’s detailed inputs.
The group members discussed and approved each plan before submission. Finalised business plans
were approved by the CC. Finalizing the business plans took approximately half of the field worker’s
time dedicated to the groups.
7. Formalization of the group. After the finalised business plans were approved, as well as the loan
sequence (with the leader last), the group was officially formed during a ceremony with members of
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the Kiútprogram management team. Each group members received a certificate, signed the group
foundation document (including lifestyle rules defined by the members) and the certification of group
membership. The group also received a Group Diary to record the group meetings, repayments, and
taking and returning cash from/to the group fund.
8. Preparing and issuing the loans. Following the loan sequence, the first two recipients started their
business. Business accounts were opened for the cash component of the loan, as well as security
deposit accounts and group fund accounts. The security deposit worked as a savings account with a
15% interest at sight. Additionally, a personal account for the client - not connected with the loan –
was opened. Furthermore, Kiútprogram prepared the application for the support to become a formal
entrepreneur or primary producer and clients were required to contact a bookkeeper affiliated with the
program. These were identified in each region and paid for by the program. At this point, clients also
received a so-called “loan recipient’s booklet” to track repayments, income, and expenses on a daily
level.
9. Creating and maintaining the business. The field worker assisted in the purchase of one-time
investments and inventory, accompanying the client if needed or providing necessary transportation.
Field worker support was also useful in cases of prejudices against the Roma and the poor. During
acquisitions, field workers continued to provide practical training about budgeting. This was important
as clients had rarely seen this much money before, and they might have been prone to – for example –
purchase goods that were unnecessarily expensive. According to Kiút, such support was a delicate
balance, since the clients also had to become independent.
Field worker support with obtaining official licenses was also common. Most businesses were
categorised as either retail or agricultural ventures. A small group chose forestry; the others are
scattered, unique activities. Most businesses required one or more licenses: and operating license, a
license to use public premises, an animal health control license, a food safety license, a fire safety
license, a legacy protection license, etc. According to Kiút, prejudices by officials providing licences
played a role in about half of the cases.
10. Tasks connected with the repayment of loans. Finally, field workers spent considerable time tracking
repayments, and working with clients and Kiútprogram management to resolve situations of payment
arrears. In case of default due to ill faith (maliciousness), the group or Kiútprogram management
decided to remove the member from the group, and the bank put a halt on lending and initiated debt
collection. However, this was more of a psychological measure since the loans were unsecured,
leaving usually nothing to collect. The client was automatically added to the banking “black list”.
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According to Kiútprogram staff, the role of the fieldworker as simultaneously being social worker
and loan agent providing various services became critical. Had these two areas been treated separately,
field workers operating as social workers would have slid into the role of advocates for the clients,
regardless of the level of the client’s actual business potential; on the other hand, field workers acting
exclusively as loan agents would only have motivated clients to repay loans as opposed to encouraging the
creation of feasible businesses. Kiútprogram was concerned that such separation would have diminished
the performance of the program, or field workers would have sought to contract clients of higher socio-
economic status. In some instances, field workers were also reported to be essential in counteracting
discrimination faced when new entrepreneurs registered their businesses, for example.
There was, however, considerable turnover among field staff. Over the two-year period, Kiútprogram
recruited field workers five times. Selected applicants underwent a training program and were required to
pass an exam. The training sessions took 4-5 weeks, and included both a theoretical component and a field
component, with the latter in one of the settlements. Altogether 57 people started the training, 48 people
completed it, and 37 passed the exam. The training was modified each time based on the feedback and
recommendations of the trainees and the program experiences. The high number of trainees reflects in part
relatively high turnover. Some field workers simply quit, finding the work burden (primarily
psychological) too much. Others were let go. During full operations, approximately 19 field workers were
in place.
3 KIÚTPROGRAM CLIENT CHARACTERISTICS
The program put in considerable efforts to identify clients. During the course of the program, 202
settlements were visited and lending groups were formed in 38 settlements. More than 900 interested
candidates were contacted personally, and 44 actual groups were formed out of 60 pre-groups. As of
October 2012, loans with an average value of EUR 1,800 had been issued to 138 clients. 75 clients had
become individual entrepreneurs (mostly in retail), and 63 clients had become primary producers
operating animal husbandry or crop cultivation businesses.
TABLE 1: CLIENT SELECTION INDICATORS
Settlements screened 202
Persons screened (personal connection with field workers) 900
Number of intake questionnaires 447
Pre-groups 60
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Groups formed 44
Settlements with formed groups 38
Group-members 192
Number of loan recipients (clients) 138
Entrepreneurs 75
Mobile retailers 33
Shopkeepers 14
Forestry, timbering 10
Other 18
Licensed primary producers 63
Animal husbandry 32
Plant cultivation 31
Number of loan disbursements a 153
Value of total portfolio EUR 252,000 b
Average loan per person EUR 1,825
a
One person can get more than one loan
b
Calculated at 280 HUF/EUR exchange rate
Applicants were overwhelmingly confident that they could improve their lives. According to the
intake questionnaire administered by the field workers, 44% of applicants were dissatisfied with their lives
in general, and 64% with their financial position. The applicant pool median total monthly household
revenue stood at HUF 68,250, or approximately EUR 240. Average household size was 4.4 family
members, while average applicant age was 36 years. Applications were relatively evenly split between
women and men, with women comprising 40% of all applicants. The level of education among applicants
was generally low, with only 13% having secondary education or higher. Most applicants lived in a rural
environment, and access to sewerage inside the home was significantly lower than access to electricity
(64% and 99% respectively). Only 9% of applicants lived in settlements predominantly populated by
Roma – 78% of applicants instead lived in mixed settlements. The questionnaire allowed for double ethnic
identity, because it is typical among the Hungarian Roma population. 36% of the applicants declared
themselves as firstly Roma and secondly Hungarian, 32% firstly Hungarian and secondly Roma, 12% only
Roma, and 19% only Hungarian. The ethnic distribution of the loan recipients was almost the same.
14
TABLE 2: BACKGROUND CHARACTERISTICS OF THE LOAN APPLICANTS
Demographic / Income characteristics
Median total monthly household revenue HUF 68,250.00
Share of female applicants 40%
Average age of applicants 36 years
Average household size 4.4 people
Share of applicants with secondary education or higher 13%
Community characteristics
Share of applicants...
... living in a rural environment 87%
... living in a settlement predominantly populated by Roma 9%
Median distance to nearest bank branch 10 minutes
Median distance to nearest employment office 29 minutes
Personal / Welfare characteristics
Share of applicants...
... that is dissatisfied with their life in general (as opposed to
44%
’satisfied’ or ’very satisfied’)
... that believes they can do something to improve their life 93%
... characterizing him- / herself as a ’risk taker’ 44%
... with access to sewerage inside the home 64%
86% of applicants were either unemployed or outside the labor force. The majority of applicants were
unemployed (67%), followed by those out of the labour force (19%), those employed as employees (11%),
and finally the self-employed. Of those who were employed (either self employed or as employees), 14%
worked in the informal sector. The formally employed had, on average, 10.7 years of work experience.
The informally employed had an average of 2.3 years of work experience.
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FIGURE 1: EMPLOYMENT STATUS OF APPLICANTS
Personality characteristics of the applicants appeared mixed. Though 44% of applicants described
themselves as ’risk takers’, 85% indicated that they plan tasks carefully. With regards to group dynamics,
57% of applicants mentioned that they find satisfaction in influencing others, and 45% of applicants
would prefer to direct group activities rather than follow instruction.
In terms of business characteristics, as shown below, slightly less than half the businesses to which
loans were granted were in ’agriculture, forestry and fishing’, and slightly more than half in trade.
Only very few businesses remained unregistered by the end of the program. Regarding business owners’
experiences with problems in starting and operating the business, a lack of finance stands out. For
operating the business, a number of other challenges, including a lack of customers were also reported.
Only 10% of all business owners reported that they had no major difficulty at all in operating their
business.
TABLE 3: KEY BUSINESS CHARACTERISTICS OF SUCCESSFUL LOAN APPLICANTS
Key Business characteristics
Industry: agriculture, forestry and fishing 45%
Industry: trade 55%
The business is registered 99%
Lack of finance was the greatest problem encountered in setting
68%
up the business
Loan from bank was the main source of money for setting up 95%
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the business
What is the greatest problem you encounter in operating your
business?
No major difficulty 10%
Lack of finances/credit 21%
Lack of customers 22%
Government licensing and regulations 10%
Taxation 18%
Average level of sales in an ' average sales' month HUF 68,312.5
Percentage of businesses which have had either paid or unpaid
51%
workers in the last 12 months
When in operation during the past 12 months, at least one
14%
person besides the owner usually worked in the business
4 PROGRAM OPERATING PERFORMANCE
4.1 LOAN PORTFOLIO PERFORMANCE
Drawing on the early operating experience, Kiútprogram had to adjust its operating model in early
2011. The recruitment of clients during the Fall of 2010 took off much slower than expected, and the
program soon also presented several signs of crisis, notably the increase of late- or non-payment on loan
instalments. In response, in Spring of 2011 Kiútprogram field officers started to place bigger emphasis on
personality traits, capabilities, motivation, credit history, the supporting role of the family and any earlier
experiences. Furthermore, (i) Kiútprogram made the loan product and group formation rules more
flexible, (ii) hired new field workers and improved their training; (iii) added new regions to the target
areas and (iv) attempted to take on economic network building activities to connect its clientele with the
economic mainstream.
Loan repayment performance significantly improved after model correction. Clients whose groups
were formed before the correction belong to the so-called 1st batch (classification is based on the time of
selection rather than the time they received the loan: due to sequential lending, a number of clients’ groups
were formed before the modification of the model, but received the loans following the modifications).
Kiútprogram implemented further operational changes in 2012, shifting toward integrated businesses
solutions. In particular, Kiútprogram brokered a tripartite arrangement among an agricultural cucumber
17
buyer, the Kiútprogram itself, and its 23 clients (the 3rd batch) in a village in Northeast Hungary leading to
individual contracts in Summer 2012, which effectively guaranteed a market for the business products
(cucumbers).
Average loan. During the pilot the Kiútprogram staff concluded that in the case of relatively larger loans
the realistic time to see return on investment for most established businesses is longer than one year.
Given the time span of the project, they found diminishing the loan size to be a feasible solution.
However, the smaller loan size of the 3rd batch reflects also the nature of the business activity for which
the loans were provided.
TABLE 4: SUMMARY LOAN INDICATORS BY BATCH
1st batch 2nd batch 3rd batch Total/average
Groups formed 12 26 6 44
Loan recipients 41 74 23 138
Operating as entrepreneur in
13 59 23 95
December 2012
Loan disbursements 49 81 23 153
Average loan per person EUR 2,528 EUR 1,832 EUR 550 EUR 1,825
Average duration 52 weeks 43 weeks 26 weeks
Lending results. It is estimated that the average amount of arrears will be approximately 30% for clients
of the 2nd batch, who received their loans after March 2012. In case of the cucumber-growing project (3rd
batch), Kiútprogram expects that that (nearly) all clients will repay the loans on time. Approximately one-
third of businesses of the 1st batch are still operating, while this figure is two-third in the 2nd batch.
Kiútprogram estimates that about 60% of the older, and 70% of the newer businesses of the 2 nd batch will
remain sustainable.
18
TABLE 5: REPAYMENT INDICATORS OF CLIENTS RECEIVING LOANS PRIOR TO MARCH 2012
Arrears per
Arrears Arrears per
Currently payments due
Loan per payments due at
Persons operating as th
at the 180th day
repaid payments the 120 day after
entrepreneur after
due, % borrowing, %
borrowing, %
1st batch 41 13 0 62 28 33
2nd batch 46 31 7 39 12 20
Total 87 44 (95)a 7 52 20 27
a
All clients of the 2nd batch not listed here and clients of the 3rd batch still operate their businesses; if they were
included, the full number of active entrepreneurs would be 95.
The project itself was continued in a smaller extent from private sources after the
expiration of the pilot phase. Kiútprogram staff followed old clients and expanded the
cucumber-growing project. We present the final repayment indicators.
TABLE 6: REPAYMENT INDICATORS, STATUS ON 15 MAY 2013
Still operates as Loan totally Arrears per Payment per
Persons
entrepreneur repaid payments due (%) credit ratio (%)
1st batch 41 4 0 62 44
2nd batch 74 37a 14 45 62
3rd batch 23 22 2 22 81
Total 138 63 16 51 55
a
1 of them went back to the informal economy. According to the knowledge of Kiútprogram staff the others
remained in the formal sector.
4.2 REPAYMENT AND CLIENT CHARACTERISTICS
Most background characteristics are similar when comparing unsuccessful applicants4, defaulters
and borrowers repaying on time. As shown below, the share of women was largest among borrowers
repaying on time. Surprisingly, the share of borrowers repaying on time that had secondary education was
4
Unsuccessful applicants contain both the refused applicants and those who after all decided not to apply for a loan
beside the given conditions.
19
smaller than the same share among defaulters and unsuccessful applicants. Conversely, the share of
employed applicants was the lowest among borrowers repaying on time. Satisfaction with life in general
was higher among borrowers repaying on time as compared to the other two groups. The share of those
who took part before the project at least weekly in discussions and decisions of some kind of local
community was higher among borrowers repaying on time as compared to the other two groups. This
finding suggests that the intensity of local connections helps the success of the new enterprise. Ethnic
identity did not influence repayment. Lastly, the share of applicants characterizing themselves as ’risk
takers’ was slightly higher among defaulters than among borrowers repaying on time.
TABLE 7: UNSUCCESSFUL APPLICANTS VS. DEFAULTERS VS. BORROWERS REPAYING ON TIME
Unsuccessful Defaulters Borrowers
Applicants Repaying on Time
Number of applicants belonging to
318 71 67
each group
Share of applicants...
... living in a rural environment 86% 89% 96%
... living in a settlement
9% 6% 8%
predominantly populated by Roma
… of female applicants 38% 41% 51%
Average age of applicants 37 35 34
... with secondary education or
15% 14% 5%
higher
... that is employed 13% 28% 5%
... that is unemployed 66% 58% 79%
... that is inactive 20% 14% 16%
... that is dissatisfied with their life
in general (as opposed to 43% 40% 54%
’satisfied’ or ’very satisfied’)
... that believes they can do
94% 95% 85%
something to improve their life
... characterizing him- / herself as a
43% 48% 42%
’risk taker’
Median total monthly household
HUF 66,500 HUF 80,000 HUF 63,000
revenue
20
There was no big difference between successful and unsuccessful applicants in confidence levels
regarding their ability to obtain other loans. Among the successful applicants (including both
defaulters and those who paid on time), 23% believed that if they had to obtain a loan of 100,.000 HUF
(apr. 360 Euros) within the next month, they could obtain such a loan. When the same question was asked
regarding a loan of 500, 000 HUF (apr. 1800 Euros), this shrank to 17%. Among the unsuccessful
applicants, these figures amounted to 28% and 18%, respectively.
Defaulters generally appeared slightly wealthier in terms of land and livestock ownership than both
unsuccessful applicants and borrowers repaying on time. Land and livestock ownership among
defaulters was higher than among borrowers repaying on time by 9 percentage points and 5 percentage
points respectively. The percentage of unsuccessful applicants owning land was the lowest of all three
groups. The share of clients owning a car was 5 percentage points lower for defaulters than for both
borrowers repaying on time and unsuccessful applicants. Mobile phone ownership was highest among
defaulters, dropping slightly for borrowers repaying on time and unsuccessful applicants.
TABLE 8: ASSET OWNERSHIP BY BENEFICIARY TYPE
Share of applicants... Unsuccessful Defaulters Borrowers Repaying
Applicants on Time
...owning land 4% 18% 9%
... owning livestock 36% 41% 36%
... owning a car 38% 33% 38%
... owning a mobile phone 93% 94% 90%
Savings were generally very low among all groups of applicants. Conversely, a sizable share of
applicants in all three groups had made use of credit in the recent past, and an even larger share
had public or public utility debts. A marginally lower share of defaulters possessed any savings than
borrowers repaying on time and unsuccessful applicants. The share of applicants who had borrowed
money in the last 12 months or had public or public utility debts was highest among unsuccessful
applicants.
21
TABLE 9: SAVINGS AND DEBT BY BENEFICIARY TYPE
Share of applicants... Unsuccessful Defaulters Borrowers Repaying
Applicants on Time
... that has any savings 7% 5% 7%
Among those with savings:
average number of months
the applicant’s household 1 month 1 month 1 month
could live on these savings
as the sole source of income
... that has borrowed money
from a family member or
friend, or a bank, savings
38% 33% 31%
cooperative, money lender,
shopkeeper or any other
source in the past 12 months
... that has public and public
51% 45% 43%
utility debt
Previous business experiences. 20% of the successful loan applicants formalized existing informal
activity with the help of the program. In this respect there was no significant difference between borrowers
repaying on time and defaulters. Among the unsuccessful applicants only 15 % had an informal business
within the previous 12 months.
Finally, both successful and unsuccessful applicants displayed relatively similar self-reported
character traits. 91% of successful applicants and 84% of unsuccessful applicants described themselves
as planning tasks carefully, while 85% of successful applicants and 72% of unsuccessful applicants
indicated that they made decisions quickly. Successful applicants were more likely to enjoy multi-tasking
than unsuccessful applicants (81% and 70% respectively). Both groups were equally likely to prefer to
direct group activities (45%), though a higher percentage of unsuccessful applicants than successful
applicants gained satisfaction from influencing others (25% and 20% respectively).
4.3 PROGRAM COSTS PER LOAN ISSUED
Operating costs were high in the two-year pilot period: the cost of identifying, issuing, and
subsequently supporting a loan of EUR 1,800 was almost EUR 6,000. The largest costs were incurred
by the field workers’ wages and material expenditures. For each 20 field workers, 5 staff members were
required in the Kiútprogram program headquarters, including highly qualified lending professionals.
Continuous training, legal support, external communications and bookkeeping for the clients required
22
further contractors. Serving 300 clients per month cost a gross amount of EUR 62,0005. EUR 22,000 was
paid in taxes and contributions accumulated by the microcredit institution only (excluding clients’
contributions).
Kiútprogram estimates that continuous operations at full capacity cost approximately EUR 210 per
month per client (gross), or EUR 130 per month per client (net, i.e., without taxes and
contributions). Estimated lending losses totalled approximately 30% under regular operating conditions.
Given the average loan amount of EUR 1800 for the 2nd batch of clients (i.e., following the adjustment of
Kiútprogram’s operating model ), the lending losses were EUR 540 per client per year, or EUR 45 per
month. The operating costs of lending activities were amply covered by interest margin, and the full net
cost of regular operation was EUR 175 per client. As Kiútprogram shifted its operating model toward
implementing integrated projects (such as to the cucumber-growing venture) on a larger scale, lending
losses were be further reduced.
Comparison with the cost of public works suggests that the Kiútprogram net operating costs are
lower. The net wage paid to public work participants with only primary education in Hungary was EUR
168 during the program period (77% of the net amount of the minimal wage). Considering the costs of
public work programs, this amount must be supplemented by the costs of employing managers, the
administrative costs and the costs of equipment. Altogether, the annual client costs of Kiútprogram may be
comparable to the cost per person per year in the public work program. While public work does not
necessarily increase the chances of getting employed, within the framework of Kiútprogram a majority of
clients established a self-sustaining business paying taxes and contributions in the long run.
4.4 CLIENT FEEDBACK
Field workers collected client feedback at the end of the project, providing useful information on
project design. However, the findings below may overstate positive responses for two reasons. First, not
all those who defaulted in batch 1 were willing to be re-interviewed, and second respondents may have
been more positive toward the Kiútprogram fieldworkers than they really felt.
The interest payment scheme of the Kiútprogram model attracted client interest, while other
features, including group lending, were more neutral but not important impediments for clients. For
two of the other three indicators measured, namely the Kiútprogram group lending model and the size of
the loans, the majority of successful applicants was indifferent. For both of these program characteristics,
23
about one third of successful applicants reported that these elements increased their interest to join, and
smaller shares reported that it had the opposite effect. The length of the loan period did not affect interest
for about half of all loan recipients: the other half was almost equally divided between a decrease in
interest to join and an increase in interest to join.
TABLE 10: KIÚTPROGRAM PROGRAM CHARACTERISTICS AND BENEFICIARY INTEREST TO JOIN
Interest to join: share of applicants that believes the [program element] reduced, increased, or did not
affect their interest to join Kiút.
Increased No difference Reduced
Kiútprogram group lending 34% 53% 14%
model...
Loan sizes... 35% 55% 9%
Lenght of loan period... 22% 47% 31%
Interest payment... 52% 36% 12%
The majority of clients interviewed indicated that the loan contributed to improving their
businesses, while there was more variation in the perceived impact on the family’s financial
situation. 90% of participants responded that the loan very much improved their businesses. In 48% of
cases, participants noted that the loan either very much improved their family’s financial situation, while
7% of participants experienced a negative impact on their family’s financial situation as a resul t of the
loan. 45% of participants also mentioned that the loan increased their fulfillment in life.
TABLE 11: BENEFICIARY OPIONS ON LOAN IMPACT
Very much Somewhat Same as Negative
before impact
Did the loan contribute to improving your
90% 8% . 1%
business?
Did the loan contribute to improving your
48% 32% 14% 7%
family's financial situation?
Did the loan contribute to improving your
45% 27% 22% 5%
fulfillment in life?
24
A large proportion of loan recipients found the participation in the program a useful experience.
70% of participants found the functioning of the group to be beneficial, while only 7% found it
counterproductive. In terms of support provided, only 3% of participants found the quality of information
provided inadequate, while the percentage participants that found support in running of the business and in
book-keeping inadequate was 6% and 1% respectively. The close neighborhood of participants was
generally supportive. By contrast, the wider neighborhood was only reported to be supportive by 38% of
all loan recipients.
TABLE 12:KIÚTPROGRAM PROGRAM CHARACTERISTICS AND LOAN PERFORMANCE: BENEFICIARY
FEEDBACK
Helped my
Neutral Counterworked
activity
Functioning of the group 70% 23% 7%
Very adequate Adequate Inadequate
Quality of the information provided 59% 38% 3%
Support in running my business 58% 37% 6%
Support in book-keeping 60% 39% 1%
Helpful /
Neutral Hostile
Sympathetic
How did your close neighborhood
77% 8% 14%
relate to your participation?
How did your wider neighborhood
38% 35% 27%
relate to your participation
The general opinions of successful applicants on the importance of other forms of support when
starting a business were positive, shown in the table below. The majority of successful applicants felt
that financial literacy training, financial savings support, and microcredit for business were either
somewhat or very important. Across the three services, savings support was considered to be very
important by the greatest share of clients, followed by financial literacy training, and then microcredit.
25
TABLE 13: IMPORTANCE OF DIFFERENT FINANCIAL SERVICES: BENEFICIARY FEEDBAC
Very Somewhat Not important
important important
Offering financial literacy training improves your 53% 41% 5%
life
Offering financial savings support improves your 69% 18% 13%
life
Offering microcredit for business improves your 45% 37% 18%
life
4.5 STAKEHOLDER FEEDBACK
The Kiútprogram helped address negative stereotypes at the local level. According to Kiútprogram
clients and staff members, the feedback received from local office managers and administrators of
employment centres, banks and other offices was that some were surprised to see that the Roma clients
could handle the administrative hurdles of the enterprises and repay the loans. Officials and administrators
would not have thought that these people were willing take on such a huge financial risk if there is a
slight chance ofto improving their own lives and their families’ future. Similar opinions arrived from some
of the business partners. Furthermore, the mayor of the village where the cucumber project was
accomplished stated that Kiútprogram was more successful in promoting economic integration than a local
public work program in which the unemployed receive allowances in return for agricultural work. Given
the cucumber project success, several mayors from neighboring villages invited Kiútprogram field
workers to introduce the program also in their settlements.
4.6 POST-PILOT CONTIUNATION
In September 2012 private sponsors decided to continue the Kiútprogram on a small scale after the
EU pilot program terminated and after the Hungarian government support had been discontinued.
Kiútprogram staff followed contracted clients up to the end of their loan period, but – with the exception
of one county – new loans were not delivered.
From March 2013 only the so called “cucumber-growing” project has been continued, with a
professional leader, two field workers and an assistant. The 2012 cucumber results attracted considerable
interest in the surrounding villages of the area. Beside the 23 original clients, the program has 90 new
26
clients in 7 settlements. With more field workers even larger clientele could have been reached according
to Kiútprogram. The average loan size is 500 Euro, while the planned average operational cost is 1100
Euro/client. The enlargement necessitated the involvement of a new buyer, who – according to his
statement – previously never had a connection with Roma producers of Roma origin. The program found
also a new partner bank delivering the loan, namely a local saving cooperative6. The encouraging results
from this project point to considerable financial inclusion of Roma living in these communities. One of the
lessons for Kiútprogram from the cucumber project experience is the need to have prospective borrowers
use the loan for activities for which there is a demonstrated demand in the market; i.e. a clear market chain
in which the funded activities fit. In particular, Kiútprogram helped broker an agreement between an
agricultural cucumber buyer and Kiútprogram borrowers.
6
Hodász-Porcsalma Saving Cooperative
27
5 DISCUSSION
The Kiútprogram was successful in targeting poor and mostly unemployed people, the majority
Roma. Finding suitable clients was initially difficult, however. Over the two year project period, 138
loan contracts were signed. This low number reflects in part the initial difficulty of finding suitable clients,
and the subsequent decision to increase client screening and support before approving loan requests. 86%
of applicants were either unemployed or outside the laborforce. However, applicants were
overwhelmingly confident that they could improve their lives. The program required intensive follow-up
by well-trained field workers familiar with social work, lending, and business. The operating costs were
high in this pilot period: the cost of issuing a loan of EUR 1,000 was almost EUR 6,000. Estimated
lending losses totalled approximately 30% under regular operating conditions.
Assessing the cost effectiveness of the Kiútprogram pilot program is not straightforward, but the
program may be considered cost effective compared to common active labor market policies. Is EUR
6,000 ‘expensive’ for a EUR 1,000 loan? First, it depends of course on the program impact. In the absence
of a plausible counterfactual, this is impossible to isolate rigorously. Several indicators, however, suggest
that the project improved the lives of clients: for example, approximately two-thirds of clients continue to
operate a business beyond the loan cycle, and more than two-thirds indicate that the program improved
their financial situation and improved their fulfilment in life. Second, it also depends on the nature of the
comparison. The Kiútprogram argues that social microcredit should not be benchmarked against regular
microcredit, but against active labor market programs. For example, the annual client costs of
Kiútprogram may be within the range of costs per person per year in public works programs, or even
lower when considering the taxes and social contributions paid by new entrepreneurs. Public works,
however, have not proven to sustainably increase employability.
Furthermore, Kiútprogram fieldworkers point to the programs role in changing perceptions among
local officials and the general public regarding Roma entrepreneurship. For example, people often
did not expect that poor Roma would be willing to take on financial risk and invest considerable energies
to start a new enterprise that might lift them out of poverty. And, successful experiences such as the
cucumber project led to increased demand among officials from neighboring communities requesting the
program’s support there as well.
The Kiútprogram made several adjustments to improve the performance of the program. Given the
comparable circumstances of Roma in neighboring countries, these adjustments likely have wider
application. They include:
28
Providing a broad range of financial and social services aimed to enable the unemployed
living in deep poverty – primarily, but not exclusively Roma – become self-employed. The
range of services started in many instances with social support followed by a range of businesses
support services from business plan development to financial literacy training, including savings
support, and ultimately to (unsecured) microloans provided in group settings. Experience
demonstrated that the comprehensive approach was necessary and client feedback at the end of
the project suggests that this wide range of services were valued. These findings are also
consistent with the companion World Bank (2012) report emphasizing a comprehensive approach
toward the financial inclusion of Roma, focusing on access to bank accounts, (targeted) savings,
financial literacy, and business skills training.
Careful selection of people that seemed to have good – but difficult to measure -
entrepreneurial skills such as trustworthiness, motivation, ability to articulate a business plan,
etc., improved repayment outcomes. Fieldworkers recommended the use of real skill-based
evaluations of applicants that can measure such character traits.
Flexibility of the loan product. During the pilot, staff and clients reported that the realistic time
to see return on investment for most established businesses is much longer that one year. In most
cases, field workers reported that entrepreneurs struggling with repayment difficulties were not
lacking the willingness but the capability to repay. For this reason, Kiútprogram signed
agreements toward the end of the pilot enabling some clients whose business was operational to
pay on deferred terms.
Actively support potential clients identify business opportunities for which there is
demonstrated demand. One of the lessons from the Kiútprogram cucumber project experience is
the need to have prospective borrowers use the loan for activities for which there is a
demonstrated demand in the market; i.e. a clear market chain in which the funded activities fit.
Kiútprogram helped broker an agreement between a large cucumber buyer and program
borrowers, effectively securing a market for their produce.
Following the completion of the pilot phase, Kiútprogram has continued on a smaller scale with
private resources, applying these lessons. The so called “cucumber-growing” project has had good
initial results, which attracted considerable interest in the surrounding villages and has brought in 90 new
clients in 7 settlements.
29
The careful documentation of the Kiútprogram experience demonstrates valuable operational
lessons for financial services targeted at the poor. There are several useful global resources
supporting greater evidence based policy making more broadly around financial inclusion, including
(a) the World Bank’s financial inclusion program – www.worldbank.org/financialinclusion; and, (b) the
financial inclusion (FINDEX) database - http://datatopics.worldbank.org/financialinclusion. For example,
FINDEX measures how people save, borrow, make payments, and manage risk. The Financial Capability
Survey (CPFC) survey captures the way people manage their money, their ability to budget and to stick to
the budget, to plan ahead, to make provisions for their retirement age as well as for expected and
unexpected expenses and by identifying how people chose financial products and to which financial
products and services people have access. Another resource is the (c) the Global Financial Inclusion
initiative at Innovations for Poverty Action - http://www.poverty-action.org/financialinclusion - , which
‘manages two research funds seeking to test, evaluate and replicate interventions to improve products,
delivery channels, and tools to help users make the most of their financial portfolios.’ This includes
rigorous randomized counterfactual evaluations, or social policy experiments.
Finally, while Kiútprogram was successful in continuing the project on small scale beyond the pilot
phase with the support of private funding, there is currently no clear instrument supporting this
kind of ‘social’ microcredit in Europe. Kiútprogram it experienced difficulty in identifying sources of
financial support that fit the broader ‘social microcredit’ approach to self-employment. A main obstacle
for this type of program is that ‘sustainability’ of microcredit operations is currently a prerequisite for
existing microcredit instruments. These instruments’ target groups include existing enterprises, or th ose
who are very close to being “bankable”: such sustainability requires a clientele with higher social status
than the target group of social microcredit.
30