Director,
T.E.(Terry)
Manning,
Schoener 50,
1771 ED
Wieringerwerf,
The Netherlands.
Tel:
0031-227-604128
Homepage:
http://www.flowman.nl
E-mail:
(nameatendofline)@xs4all.nl : bakensverzet
and
"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,
“Poverty is created scarcity”
Wahu Kaara, point 8 of the Global Call to Action Against Poverty, 58th
annual NGO Conference, United Nations,
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
Illustration of the micro-credits system.
How the original grant of seed-loan is used.
Illustration of the interest-free loan cycle.
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.
10.Encourage inclusiveness.
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. ”
Micro-credit
workshop.
One Moraisian
workshop will be held to prepare the Fund structures.
Indicative
participation
The Moraisian
trainers.
A member of the project coordination team.
General consultant.
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.
400 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
- statutes
- rules
- professional and administrative structures
- financial aspects
- relations with the LETS local money systems
b) Physical aspects
- land
- office
- safety
- communications
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
c) Coordination
- 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.
Next file :
05.31 Units for the production of items made
from gyspum composites.
Back to:
05.21
Interest-free cooperative local money structures.
