Micro credit system
05.22 PRINCIPLES OF THE MICRO-CREDIT STRUCTURES TO BE CREATED.
Multiple re-cycled interest-free micro-credits will provide formal money needed to develop local production capacity. The rest of the development will be done with the LETS systems.
The capital available for re-cycling in the form of micro-credits is made of:
a) Part of the initial seed money until it is needed for the project.
b) Seed loan repayments.
c) Micro-credit repayments.
d) The long term maintenance fund.
e) The system capital replacement fund which will be built up after the ten years' seed loan has been fully repaid.
For instance, a woman may need a sewing machine to be able to make clothes. She will need "formal" currency to buy the sewing machine. That money will be available in the form of an interest-free micro credit. She will sell outside the local LETS system some of the clothes she makes to earn the "formal" money she needs to repay her loan. The rest of the clothes can be sold within the local currency LETS system.
As she repays her loan, the repaid capital can be loaned again for another interest free micro-credit project, so the available seed money repeatedly re-circulates within the local economy.
The micro-credit structure will provide each family, on an average, with a total of at least Euro 1500 in micro-credits for productivity purposes during each period of operation of ten years.
MICRO CREDIT SYSTEM STRUCTURES
The Cooperative Local Development Fund will manage formal currency funds necessary for running the project, acting on instructions of the project coordinator given on receipt of the indications received from those responsible at tank commission level. The funds do not belong to the Fund, which will intervene only in the practical management and transfer of the funds. The decisions are taken by the users' structures set up under the project. The Fund formally belong to the users. Where seed funding is by way of an interest-free loan, the seed money reverts to financing parties at the expiry of the 10 years' interest-free credit term. The interests of the financing parties are protected by their representatives (if any) nominated to the auditing commission, auditing procedures, and the on-going monitoring carried out by the project NGO, who will be invited to participate in the workshop.
The Cooperative Local Development Fund will be formed during the capacitation workshop.
The services of the Fund will be paid in local LETS monies at a fixed rate per transaction to be set during the workshop. The Fund can then use its LETS credits to pay its staff, and if it so wishes, to purchase goods and services inside the project area and sell them for formal money outside the project area to cover any formal money costs.
Micro-credits will be granted at tank-commission, well-commission, and central management levels. How much will be distributed at each level will be decided during the capacitation workshop.
Loans at tank commission level will be handled during a fixed agenda-point at each tank-commission meeting, during which monthly contributions and loan repayments are collected, and new loans distributed. Credit balances are transmitted to the local well-commission. Each tank commission has a micro-credits delegate and a substitute.
Loans at well commission level will be handled during a fixed agenda-point at each well-commission meeting, during which loan repayments are collected, and new loans distributed. Credit balances are transmitted to the central management group. Each well commission has a micro-credits delegate and a substitute.
Loans at project level will be handled during a
fixed agenda-point at each micro-credit management meeting, during which loan repayments are collected, new loans distributed, and statistics and policy decisions discussed.
SOME BASIC PRINCIPLES APPLYING TO MICRO-CREDITS
Rules for the organisation of the Micro-Credit meetings will be set up during phase two of the various project applications with the full participation of the beneficiary communities. These rules must lay down the general principles behind the systems. These would. for example. presumably include the following principles.
1) All loans are to enable the beneficiary to extend his /her LETS and formal currency income by producing more goods and services
2) The goods and services must benefit the general interests of the community and encourage exchanges under the local LETS systems.
3) Some of the goods and services must be saleable outside the LETS systems to earn formal currency to repay the micro-loans.
4) The Micro-Credit loans must promote the rapid circulation of formal money within the beneficiary communities. For example. using formal currency to build a clinic or hospital would not qualify for micro-credits because the capital invested cannot be re-circulated. On the other hand, buying equipment for testing water quality ( foreseen in the Model) would qualify. as the formal currency cost can be recovered by charging in formal currency for water analyses conducted for users outside the project area until the micro loan has been repaid.
5) Special priority will be given in the first instance to micro-loans to start the collection and transport of compost, urine, and grey water, and establish the recycling centres that will collect. store, and export non-organic waste products from the project area. The formal currency micro-loans will be recovered by sale of the waste outside the project areas.
6) Beneficiaries will provide at least 3 family members and/ or friends to guarantee the timely repayments of the micro-credit loans.
7) Beneficiaries will provide due backup for their micro-credits to ensure continuation of their investments and repayments in case of disability or death caused by accident or illness. ( With thanks to Ms Angela Eikhout, Eindhoven, Netherlands for her contribution .)
Some do’s and don’ts .
Indian micro-finance banker Harishchandra Sukhdeve wrote the following contribution to the Micro-Finance Gateway resources list on 26 th September 2007. His words have been edited with his permission for inclusion in this Model.
“ Group formation and its nurturing in a right way is a key to not only poverty alleviation but also conflict resolution and women’s empowerment.
Women’s groups are found to be more efficient and professional.
01.Inter act with people through village level meetings.
02.Encourage groups to hold regular meetings.
03.Educate them about community living. public hygiene. education. nutrition. etc.
06.Promote farmers groups for collective farming.
07.Promote share-croppers ' groups.
08.Ensure/ facilitate appropriate training for entrepreneurship development.
09.Encourage innovation and self regulation by the groups.
11.Encourage young volunteers to promote the culture of the groups.
A list of don'ts :
01.Do not allow groups to be formed of the same family members except for farmer’s groups for collective farming.
02.Do not allow groups to finance to non-members.
03.Do not allow one person to become member of more than one group.
04.Discourage control of groups by any single person.
05.Do not try to regulate the groups too much as this may hamper their ingenuity.
06.Do not stretch hand-holding for too long a period. ”
One Moraisian workshop will be held to prepare the Fund structures.
Indicative participationSource: www.flowman.nl
Category: Payday loans