Saturday, April 25, 2009

Community Banking... a basic group lending

Since people are asking about microfinance, I would like to share from time to time a little bit of the microfinance industry.

The microfinance has four components. They are loans, savings, insurnce and education/training. Out of these, the most fundamental component is loans. Among many types of loans, a group lending is the basic and the original form of micro loans available to the most vulnerable. In group lending, community banking is a form that is most prevalent at most traditional micro financial institutions or MFIs. The recent trend has been doing away with group lending primarily for an operating efficiency purpose, but it is believed to be still the most prevalent form of micro lending.

A group of 20 to 30 is formed. All are microbusiness owners. "What kinds of business?", you may ask. 70-80% of them are selling food stuffs at the market. Most of them carry fruits and vegetables to the market place for sale while some have small stores next to their tin-roofed or grass-thatched homes. Some more fortunate ones may even have stores in commercial districts. Some of them are farmers growing fruits, vegetables, coffee, tea or other cash crops while others may even manufacture products to be sold to wholesalers.

This group, called a trust group, elects its president and treasurer. If they are starting anew, they need to go through the basic training about how to run a business. It takes approximately four weeks. During this training, they also learn about how the loan program works. Individually, the members apply for their loan needs and the group members should agree on the legitimacy of the loan amount. There are other rules for the group to honor, such as loan term, payment frequency. These rules are established for the entire group members to follow because they all will cross-guarantee for each other in case any default occurs. This guarantee is called a social guarantee. No credit checked. No collateral required. No capital required or verified. No cash flow analyzed. Only character is screened through the group dynamics, but mostly it is for anybody who has the will and desire to graduate from poverty.

Initially, the loan payment frequency starts with a weekly schedule. As the loan cycles continues, the loan amount increases, the loan terms lengthens and the payment frequency becomes less frequent.

As times goes by, the profiles and borrowing needs of a group may change. Some members will do better than others and their borrowing needs increase while other members may continue to have the same borrowing needs. The group may be split into two groups with additional members of similar profiles.

As part of the program, members may be requires to set aside part of the money as savings. These savings are contingency funds for their emergency needs with their families or their cash flow for loan payments.

Some successful microbusiness owners graduate to Solidairy Group or even to individual loan program. Meanwhile, they may borrow other ancilary loans, such as village phones, cargo bikes, home improvement loans etc.

Also, the group continues to receive training on various topics during the group meetings. The training topics could be on how to increase sales, how to manage money, how to prepare for emergencies, how to make a business plan, how to prevent HIV/AIDS, how to apply biblical values to running a business etc.

The microfinance is not only a way to provide the poor with capital but also a platform to bring them various education/training programs to help them graduate from chronic poverty. It definitely brings the poor hope for transformation.

As a Christ-centered institution, many Christian MFIs, like UOB, also let the clients know that the microfinance and related training is provided to them 1) because of the call by Jesus Christ to seve the poor and thus 2) in a way to reflect the love of Jesus Christ. Christianity is intentional but not enforced. All poor people are welcome to the trust groups.

The microfinance definitely produces economic transformation in that the poor improve their economic life quality. It also produces social transformation in that people restore their dignity and hope to the original form that the Creator created in the beginning. It also produces spiritual transformation in that people get to know Jesus and commit to their faith in Him while others become more mature in their faith bearing the fruits of good deeds in their life styles.

I am so thankful that the Lord has led me to this wonderful opportunity to be part of the action on site for helping the poor. Thank you, Lord! - Jeffrey

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