Micro Credit Lending Experiences
Reprinted from Crafts News Spring/Summer 1995 Vol. 6, Issue 24
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In November 1995 representatives from 30 agencies and 20 countries met in Guatemala for the First International Conference on Village Banking. Participants sought to develop a set of principles and standards that could help effective village banking programs. The interaction and understanding of common concerns at this conference will serve as the basis for future collaboration on village banking issues.
Village banking provides a model which enables poor communities to establish their own credit and saving associations in village banks. The sponsoring agency makes one loan to one village bank which then makes loans to its members, guaranteeing the loans and relying on peer pressure and support among members to help ensure repayment. Borrowers start with an extremely small loan and work their way up to an established ceiling. Credit is linked to savings and loan sizes to the amount saved by each borrower. Members' savings are held by the village bank as an internal account and forms one capital the bank can lead or otherwise invest to increase its resource base.
Now village banking is being implemented in over 25 countries in Latin America, Africa and Asia. Over 3000 banks serve close to 84,000 members, 92 percent of which are women. The active collective portfolio stands at about $8.5 million with an average loan size of $80 and a 97 percent repayment rate.
Although savings mobilization is still key for capitalizing village banks the motivation to save is changing. Most implementing agencies have had to strike balance between empowering village borrowers to create their own management systems and providing sufficient oversight to assume accountability. These programs have made great investments in accounting training to improve banks management. This is often supplemented with literacy training.
Village banking has changed from a financial service model to an integrated provider of credit and savings with education, health, nutrition, environment, and general community development.
Village banks, originally projecting three years to autonomy, in practice find their capital accumulation slowed by member demands for greater access to saving, lower rates and fluctuating membership. Programs are exploring a number of options for ensuring members' ongoing access to financial services, including the diversification of loan products and linking either banks or their individual members to other financial institutions.
Evaluation of village banking programs indicate that their benefits are both economic and social with positive impact on banks, members, and their communities. Borrowers increase incomes, diversify and expand activities, and participate in the group and its democratic process. Some members have increased their knowledge and improved practices in management, literacy, nutrition, and health.
The Small Enterprise Education and Promotion Network (SEEP) will publish a monograph on village banking this summer. For further information please contact SEEP, 777 United Nations Plaza, New York, New York 10017, 212-697-6222 (phone) or 212-692-9748 (fax).
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