You are the manager of a newly-opened Microfinance institution in a small rural community located close to the sea. Your preliminary enquiry about the lifestyle of the people reveals that most of them both males and females depend on the sea for their source of livelihood. Due to how low their average income is, the inhabitants struggle to raise funds in sufficient amounts when needed. When they are unable to secure assistance from their friends and family, they often depend on money lenders for loans which they repay with interest at an agreed rate. However, history indicates that their behaviour towards loan repayment is fickle. Because of previous unpleasant experiences and for the fear of the risk of default in future, a number of the money lenders in the community have completely stopped working or have restricted their services to only those who apply in groups. However, you are optimistic that you can successfully run a loan scheme without making unnecessary losses.

The community is surrounded by two others in which the inhabitants are predominantly crop farmers. Both communities do not have any institutions that formally address their financial needs so you expect to occasionally receive clients from there as well.

Draft an abridged loan policy for your institution. This policy should, among other things, spell out the lending models you intend to use, a realistic appraisal procedure for each of them, the plan for the repayment of the loan and measures that would be put in place to ensure that loans are repaid on time. Remember to take into account, the factors that affect the behaviour of the poor as learnt in class