held to a joint liability contract signed with ZATAC through the cooperative, thus
conferring the benefits of peer monitoring to the lender. An adaptation of group
lending here is that ZATAC requires that each cooperative signs additional sub-
loan contracts with their respective members, which give the cooperative
monitoring power and authority to impose stiff sanctions or completely cut off
defaulting borrowers. A further adaptation made by ZATAC to the peer selection
process of group lending is that ZATAC’s loan officers assess the credibility of
each cooperative’s selection process by visiting all selected members, focusing on
their potential to profitably produce the commodity chosen and any characteristics
that could affect their ability to do so. The results of these assessments are shared
with all members of the cooperative, who may then take into account these
findings in selecting loan recipients.
2. Use of collateral substitutes for cooperatives : Like many microfinance
institutions, ZATAC does not usually require explicit collateral from cooperatives
for the funds destined to be lent to individual cooperative members. However,
ZATAC holds liens on any plant and equipment and dairy animals purchased
through its loan funds. In addition, ZATAC requires that all equipment and dairy
animals purchased through its loan funds be insured. Due to the cost of insurance,
however, ZATAC does not usually emphasize insurance of buildings. Emphasis
on pre-contracted markets for the agricultural produce before disbursement of
loans to cooperatives also provides some form of insurance allowing for the
easing of collateral requirements. ZATAC itself gets actively involved in assisting
the cooperatives to strike good commodity market deals.
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