Most bankers would not consider Fredah Seshoka a prime candidate for a loan. A new Bill Gates, she's not. Seshoka, 49, is a functionally illiterate, elementary-school dropout who lives in a one-room house with a grass roof. Her husband died three years ago. She has eight children. She does not earn a paycheck; only a third of the adults in the impoverished northern region of South Africa have regular jobs.
Seshoka provides for her family by selling vegetables, "loose" cigarettes (few can afford a whole pack), and little plastic bags of cooked mopani worms, which are eaten as snacks.
Despite such humble credentials, Seshoka was the perfect candidate for a loan from the Small Enterprise Foundation (SEF), a nonprofit organization that provides microcredit to rural entrepreneurs. Its typical loan is about $200 for five months.
In the last six years, SEF has lent a total of $2.3 million to such impoverished South Africans as Seshoka. It has written off only $231 in bad debt. The successful program is one example of the entrepreneurial spirit in Africa cited by President Clinton, during his six-nation tour of the continent. "People are hungry for loans," said John De Wit, the program's director. "There's nobody else [here] doing this."
The only other credit available is from neighborhood money lenders, who charge 30 percent interest-per month. SEF charges 24 percent per year. In the last three years, SEF loans have allowed Seshoka to increase her stock and boost her sales. With the improved profits, she buys her children more meals and better school uniforms. She also has returned to school and is taking literacy classes.
She even opened savings accounts at the post office and at a bank. She is saving for a metal roof for her house. "I never thought I'd have a bank account," Seshoka said, proudly waving her plastic bank card and reciting the account number from memory. "I thought banks were only for rich people, white people or the educated." Seshoka, like most of the Foundation's loan recipients, is religious about  repaying her debt. Fewer than one-tenth of 1 percent of  SEF's 5,000 clients are in arrears, according to De Wit. The SEF is a model among microcredit organizations, a type of aid program that has become fashionable in the international development community.
USAID funding
US foreign aid grants helped De Wit set up the SEF in 1992 and provided most operating expenses for the organization's first four years. De Wit said he approached local banks and businesses to help fund the organization, but most turned him down. "The business is just too funny for them," he said. Most microcredit organizations are modeled on Bangladesh's Grameen Bank, which pioneered the concept of group lending. Loan applicants organize into small groups of about five people. Each person receives an individual loan, but the group as a whole secures the loans. If one person falls behind, everyone's credit is frozen. The group members support each other-and also form a source of peer pressure. Most loans are aimed at women. Microcredit organizers know that village women are more likely than men to spend their earnings on feeding, clothing and educating their children. De Wit said 97 percent of his program's loans go to women-mostly peddlers, shop owners, dressmakers or brewers of traditional sorghum beer.
Fast expansion
In some countries, programs are being hastily set up to take advantage of donor generosity, but they are growing too fast to administer the loans. Microcredit lenders such as the SEF are under great pressure to become self-sustaining, which means they must generate a portfolio of loans sufficient to bring in interest income to pay for all operating expenses. But even SEF, frequently cited by donors as well-managed with an exceptionally low default rate, still is not operating on a break-even basis six years after its founding. De Wit does not expect to be self-sustaining for another two years. Other microcredit organizations have not been as fortunate.
The Rural Finance Facility in Johannesburg watched its default rate soar before discovering the source: two loan officers were embezzling funds. It  imposed new controls and corrected the problem. South Africa's largest microcredit agency, the Get Ahead Foundation, went through a crisis a few years ago after it over expanded under pressure from its main donor, US AID. A turnover in management also contributed to a delinquency rate that topped 70 percent. The Foundation was reorganized.
Close supervision
SEF loan officer regularly visits borrowers' homes and businesses.  The officer also verifies that group members are close neighbors so they can monitor each other. After the borrowers are trained and receive their loans, the loan officers  also verify that the initiates use the funds to buy something that generates income, rather than spending the money on a relative or luxuries. The groups meet with their loan officers every two weeks at community sessions, where they make their payments and deposit money to their savings accounts. Loan recipients are required to save a minimum of about $2 every  two weeks. "After a while, they have thousands in their own accounts," said Reuben Ngobeni, an SEF officer. He said one group has accumulated $10,000; most have several hundred dollars. Some borrowers, including Seshoka, have started their own personal accounts, too.
Problems
One problem that De Wit discovered was that most of the loans were going to those who already were in business. The poorest members of the community were too intimidated to ask for loans; they thought they could be jailed if they did not repay.
So De Wit devised another program exclusively for those who have no business experience. The loans are smaller and the first is typically under $70� and the borrowers get more intensive monitoring and training. Rebecca Monyela, a loan officer for five years, said that once families get loans, the improvements are subtle. "A family eats two or three times a day instead of once. The children stay in school instead of working," she said. Their health improves. They add rooms to their houses. The women also get a measure of self-confidence and independence, which sometimes unbalances the typical village family relationships. Mapula Margaret Ramatho, who recently used her loan money to buy a 55-gallon plastic barrel to make bigger batches of sorghum beer, described the improvements to her family's life. Meanwhile, her husband stood outside their hut, shouting. "He's not well," she said, spinning her finger at the side of her head, indicating the poor man was crazy. "Don't give my wife any more money!" he cried to his wife's visitors. "It's a problem here," said Monyela, the loan officer. "Some men don't want their women to prosper."

----------------------------------------------------By Andrew Maykuth