NGO
Another Way (Stichting Bakens
Verzet), 1018 AM
01. E-course : Diploma
in Integrated Development (Dip. Int. Dev.)
Edition
04:13 December, 2010
Value: 06
points out of 18 .
Expected work
load: 186 hours out of 504.
The points
are finally awarded only on passing the consolidated exam for Section B :
Solutions to the Problems.
Fourth block:
The structures to be created.
Value : 03 points out of 18
Expected work load: 96 hours
out of 504
The points
are finally awarded only on passing the consolidated exam for Section B :
Solutions to the Problems.
Fourth
block: The structures to be created.
Section 3: Financial
structures.[24 hours]
20.00 hours :Financial structures.
04.00 hours : Preparation report.
Section 3: Financial
structures.[24 hours]
20.00 hours :Financial structures
: analysis.
1. The basic concepts -
introduction. [ 2.5 hours]
2. The basic concepts – more
details. [ 2.5 hours]
3. The local money systems -
introduction [ 2.5 hours]
4. The local money systems –
more details. [ 2.5 hours]
5. The interest-free
micro-credit systems -
introduction.[2.5 hours]
6. The interest-free
micro-credit systems -
more details.[2.5 hours]
7. The cooperative purchasing groups -
introduction. [2.5 hours]
8. The cooperative purchasing
groups – more details. [2.5 hours]
04.00 hours : Preparation report.
Section 3: Financial
structures.[24 hours]
20.00 hours :Financial structures
: analysis.
5. The interest-free
micro-credit systems -
introduction.[ at least 2.5 hours]
The cooperative interest-free micro-credit structures
provided for in integrated development projects are innovative. They are
complementary to the local money structures covered in the preceding sessions,
under the framework of which they are created. They are fundamentally different
from those described by Nobel Prize winner Muhhamad Yunus in his book Banker
to the Poor, (Public Affairs,
“There has been a
collective delusion that microfinance and its link to entrepreneurial activity
is a powerful tool to alleviate poverty despite little evidence to show that
this model works.” (Parminder Bahra,
Microfinance
: Is Grameen Founder Muhammad Yunus a
Bloodsucker of the Poor?, The Source, Wall Street Journal,
Micro-credit loans under the Model are interest-free and free from all
formal money costs, as they are managed under the local money systems set up.
They offer a viable alternative to the business-based micro-finance industry.
This section refers to micro-credit systems in general. The following section 6. Interest-free micro-credit systems : in depth
analysis refers to the actual setting up of the micro-credit structures.
Here is a drawing showing the interest-free micro-credit loans cycle.
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.
MICRO CREDIT
SYSTEM STRUCTURES IN INTEGRATED DEVELOPMENT
PROJECTS.
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 Fund intervenes only in the
practical management and transfer of the funds. Funding decisions are taken by
the users' structures set up under the project. The Fund formally belongs to
the users. In principle, all monies paid into the fund are contributed by the
users themselves. Formal money budget costs (€ 30.000) are needed only to
physically set the micro-credit system structures up.
Where seed funding for a given integrated
development project 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 money to be repaid is collected in the Cooperative Local Development Fund
and continuously recycled for interest-free micro-credits until repayment falls
due. In that case, the interests of the financing parties are protected by
their representatives (if any) nominated to the auditing commission and by
prescribed auditing procedures. On-going monitoring will be carried out by the
Cooperative for the on-going maintenance of project structures.
The Cooperative Local Development Fund will be
formed during the capacitation workshop held in each
project area for that purpose.
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. o:p>
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.
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. ”
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.
1. Research.
Give a
detailed two-page comparison between the micro-credit structures foreseen in
the Model for integrated development projects and those of micro-credit
agencies such as the Grameen Bank. First provide a
short introduction. Then discuss the reasons for high interest rates charged in
traditional systems and how they are eliminated in integrated development
structure. Discuss the contrast between micro-credit loans seen as “business”
and the cooperative system foreseen in integrated development projects. Discuss
the nature and the difference between
the target beneficiaries and the aspects concerning their exclusion
(traditional systems) and non-exclusion (Model) from the system benefits.
Discuss the indirect financial leakage from project areas under traditional
systems and the way this is blocked by
integrated development projects. Draw your conclusions.
2. Opinion.
On two pages take the results of your
research and use them to make a presentation of the Model system to the
representatives of Civil Society in your project area. Make a note of their reactions.
3. Opinion.
>
The previsions in the Model for
integrated development take an average two-year pay-back time into account.
After having spoken to the population in your chosen project area, explain on one
page the average payback time you would foresee in your area and the
consequences this would have on the on-going re-cycling of funds.
4. Research.
Provide a one-page explanation to the
women in your chosen area of a 20 year cycle of management of the Cooperative
Local Development Fund there What are their reactions?
◄ Fourth block : Section 3: Financial structures.
◄ Fourth block : The structures to be created.
◄ Main index for the Diploma in Integrated Development
(Dip. Int. Dev.)
"Money
is not the key that opens the gates of the market but the bolt that bars
them."
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