In all, Opportunity International arranges for more than 1 million small business loans a year. In 2004, the lender distributed $242 million worth of collateral-free financing, backed only by its clients' stellar credit history. Many borrowers average repayment rates of 98 percent, with some regions maintaining an astonishing 100 percent payback rate.

The terms of microcredit loans tend to be straightforward. Opportunity International, for instance, usually provides credit at market-based interest rates on four-month to six-month terms. The lender uses the interest to cover the operating costs of partners and loan officers. First-time loans often require mandatory small-business training.

The training pays off. Take the example of Beatrice Kitaara, an entrepreneur from Uganda who has learned to budget her money and use it more productively to expand her agricultural business. A client of Opportunity International, she used an initial loan of $115, and a second of $170, to set up shop selling vegetables, ground nuts and grains, and milk, while her husband worked on a farm. They use the profits to feed and school their nine children, who are between the ages of six months and 18 years old.

"My family's health has improved because their nutrition has improved," remarks Kitaara, who says she hopes to further expand the business by adding to her stable of cows. Likewise, Susan Okepa — another entrepreneur from Uganda, and a client of Village Enterprise — says that growing and selling vegetables has provided her family with "food, pigs and goats, a new brick house, and an [account] at the Women's Savings Bank in Tororo."

Very few clients renege on their business-plan promises, says Lehnen, who operates Village Enterprise out of San Carlos, California. Although he says there are many barriers to entry in starting a business in poor communities — lack of money and business know-how, to name two — there's little competition. That's one reason that businesses propped up with microcredit financing succeed.

Another secret of their success is the way programs are structured. For example, Village Enterprises bases its grant repayments on an incentive system. Half of the grant total — which averages between $100 and $150 — is released to clients for the purpose of demonstrating their ideas' viability. Once the business is up and running, the balance is released.

Village Enterprises also provides larger loans — up to $15,000 to groups of about 25 — for community projects. The projects have included trucking business, maize mills, and commercial bakeries.

Opportunity International's Reed says his organization's most successful structures are groups of 20 to 30 local small-business people called "trust banks." The groups usually consist of women because their repayment rate is better than that of men, and they tend to focus more on the community and children, according to Reed. The clients elect leaders and apply for a group loan that's collectively guaranteed by trust-bank members. The funds are distributed according to individual business-plan needs, and if one client defaults on payment, the others in the trust are obligated to repay the debt.

The size of trust-bank credit offerings varies from country to country, but first-time loans can be as small as $50 and usually top out at $125. Groups can apply for future loans after paying off existing balances, and members can graduate to larger individual loans with longer terms.

In the Clear
As it is for virtually all lenders, financial reporting transparency among borrowers is a major issue for microcredit organizations, which must show existing and potential donors how their money is being spent.

Village Enterprise does most of this disclosure in its annual report, which covers general accounting information filed with the Internal Revenue Service as well as more-specific data about where funds are being spent and how the grants and loans are fostering changes in people's lives. Much of the non-financial reporting is collected by Lehnen, who has visited with 600 of the organization's 1,800 clients so far. Village Enterprise serves the contiguous countries of Kenya, Uganda, and Tanzania.

To report financial results on a quarterly basis, Lehnen's staff of three full-time employees and two interns use Quicken accounting software. Most of the financial tracking involves monitoring the 100 to 200 grant applications that each country's office submits every year, and distributing funds to the approved projects.

Opportunity International requires more muscle in it financial reporting because the operation has blossomed so quickly. Indeed, the lender's loan portfolio has expanded at a compounded annual growth rate of 36 percent over the past five years. To help cope with that rapid expansion, last year services manager Tim Head rolled out a Web-based accounting software system donated by Hyperion Solutions Corp. (AnswerThink Inc. donated information-technology consulting services as well.)

Previously, Head gathered financial data by exchanging Excel spreadsheets with country partners, today he uses the Hyperion software, which he also uses to monitor such metrics as the number of loans offered, the number of clients, and repayment rates. He analyzes the results to help CEO Reed and Opportunity International's board set broad development initiatives. One goal: serve 2 million clients by 2010.

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