1771 ED Wieringerwerf,
E-mail: (nameatendofline)@xs4all.nl : bakensverzet
Incorporating innovative social, financial, economic, local administrative and productive structures, numerous renewable energy applications, with an important role for women in poverty alleviation in rural and poor urban environments.
"Money is not the key that opens the gates of the market but the bolt that bars them"
Gesell, Silvio The Natural Economic Order
Revised English edition, Peter Owen, London 1958, page 228
Edition 13: 07 December, 2007
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
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.
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 26th 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.
However, while forming groups certain Do's and Don'ts are must.
A list of do’s
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.
04.Proactively pass on all legitimate benefits to farmers/villagers.
05.Ensure trouble-free timely finance to farmers as well as other group members.
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.
The Moraisian trainers.
The project coordinator.
2 Representatives of the project NGO.
Representative of the Finance Ministry.
Representative of the Rural Development ministry.
At least 5 observers (possible coordinators for future projects).
At least 6 qualified persons, 3 indicated by the NGO and 3 by the project coordinator.
350 persons, indicated by the tank commissions, interested in participating with responsibility for credit arrangements at tank commission, well-commission and central management levels.
Duration of the workshop: about six weeks.
The Workshop will be expected to produce the following structures:
a) Definition of the social form
- professional and administrative structures
- financial aspects
- relations with the LETS local money systems
b) Physical aspects
c) Financial aspects (Definition of initiatives at each structural level. How much money is to be distributed at each level?)
- funding of initiatives at general project level
(recycling structures, important productivity initiatives, public works)
- funding of initiatives at intermediate, well commission, level
- funding of initiatives at local tank commission level
- funding of socially based initiatives (clubs, interest groups etc)
- traditional banking activities
a) Central structure
b) De-centralised structure
- Preparation operators
- Meetings at tank commission level
- With LETS structures
- With tank commissions
- With project coordinator
d) Financing of specific projects
- Relations with financiers
e) Communications structure
-Vertical, at project level (project coordinator, transactions operators, tank commission level operators, end users)
Commercial, radio, website
THE MICRO-CREDIT FUND AND EMERGENCIES.
How would the cooperative micro-credit fund work in conditions of extended drought or other emergencies? The project creates social, financial, productive and service structures. These structures are permanent. They are run by the management cooperative set up for the purpose, and they remain in place as long as people continue to live in the project area. This is so even where inhabitants return to the project area after a temporary migration outside of the project area for survival purposes.
The situation with the Cooperative Local Development Fund at any given point of time depends on the decisions taken by those chosen to manage it. It is reasonable to expect that in times of extended drought and similar crisis conditions that families have difficulties making their monthly contributions to the Fund and that beneficiaries (and their guarantors) have problems repaying the micro-credit loans they have received.
The micro-credit fund is cooperative. Should a point be reached where as a result of Act of God outside the control of the parties, families are unable to make their monthly payments or beneficiaries are unable to repay their debts, the managers of the Fund may decide to waive payments of contributions meantime or to leave it up to the families whether to make their payments or not. In any case the Fund would remain intact. It would continue to be systematically recycled interest-free. But the total amount in the Fund would not continue to increase as it would otherwise have done. In case of projects financed by interest-free ten year credits, the situation could arise that the monies collected in Fund turn out to be insufficient to pay the whole of the original loan back at the close of the first ten year period. On the other hand, where a productive period follows one of extended drought or crisis, the Fund management could require an increase in the monthly contribution of families to reinstate the Fund in time for repayment at the end of the ten year period.
In times of drought and scarcity, beneficiaries and those guaranteeing them may also face great difficulty in making repayments of their micro-credits. What happens in such a situation depends on the decision of the Fund management which is chosen by the Central Committee of the Project. Logic would suggest in such situations to grant more time to beneficiaries and those guaranteeing them to make their payments. This would lead to a slowing down in the rate of recycling of the monies in the funds, and therefore to a (temporary) slow-down in the rate of development in the project area. However, the capital in the Fund would still remain intact.
Yet another situation which might arise is that the drought or other environmental condition in the project area is so serious that the Fund management team decide to gradually reimburse the monies in the Fund to the inhabitants to supplement their extra costs for purchase of drinking water or food supplies for survival purposes. In practice this means that as monies are (with great difficulty) repaid by beneficiaries into the Fund, the repayments are for a period of time re-distributed amongst all of the inhabitants, or amongst the most needy. The cooperative local development fund would in this case operate as an Emergency Fund. The consequences of this use would depend on the reactions of donors and funding organisations and on the real and just possibilities of subsequent recovery taking the cooperative nature of the Fund into account. In the worst imaginable situation, the Fund might find itself without any capital left. However, even in that case the structure of the Fund would remain in place. Upon improvement in the climatic situation, families would recommence making their monthly contributions to the Fund, which would build up to full strength again after ten years.
Refer also to section 4.15 The effects of inflation on the Cooperative Local Development Fund and gift content and to section 4.16 Project insurance and forfeit in the form of gift in case of loss of capital structures.