Microfinance and Cooperatives for Sustainable Solutions

Micro-finance is being increasingly recognized as a sustainable solution for developmental interventions. In fact, the success of some innovative experiments to alleviate poverty in countries has proved that small credit given to the poor can effectively increase their income-level through entrepreneurship and skill support development. In addition to this, it has also been noted that catalyst agencies such

as NGOs also benefit from this new practices of sustainable development. NGOs are not seen merely as passing on the donor agenda to the community in a micro-insurance project; they are, in fact, looked upon as professional change makers, actively delivering services to the poor and benefiting from them. The benefit not only motivates them for extending the services, but also improves their own sustainability. There are many examples like SPANDANA in India and Grameen Bank in Bangladesh, which have not only succeeded in providing innovative and sustainable services to the poor, but also helped themselves in creating sustainable service-oriented outlets. NGOs, who have gained profits by providing microcredit services to the poor, have managed to build resources for their own organization in such a manner that they are now funding their own developmental projects, without being dependent upon donor agencies.

Microfinance can evolve further into new business directions for the NGOs. The end-result of all microfinance operations is the establishment of a strong and sustainable community-based organization. In order to manage this organization, cooperative management education can be introduce by the NGO for greyer sustainability and expansion of the services. Further to cooperatives, we have micro-insurance that is slowly gaining the momentum to become another big community-based enterprise in developing countries. Here we discuss the ways and means to develop Microfinance, Cooperatives and Micro-insurance development in a community.

Goal of the Microfinance and Cooperative Strategy

The goal of a microfinance and cooperative strategy can be to enhance easily accessible, cost effective and sustainable financial services to the people living in the project area that would enable increased investment in income generating activities resulting in an increase of their income levels. The strategy would specifically:

• Enhance accessibility of financial services
• Enhance women’s participation and decision in policy making-processes at all levels
• Enhance the capacities of people in the area of money management

The results of the strategy can be:

• Targeted households are able to access basic micro-financial services that include savings and credit.
• Increase their income levels by investing in both farm and off farm enterprises.
• Leverage funds from formal financial institutions
• Enhance their capacity in cooperative management.

Cooperatives as a Means to Promote Sustainable Livelihoods

Cooperatives play a crucial role in promoting values of self-reliance, good governance, equity and transparency. The concept of cooperatives is based upon the ethical values of openness, honesty and social responsibility. They are organized by a group of persons voluntarily coming together to meet their common social, economic and cultural needs. They are owned and controlled by members in a democratic manner. Active participation of all the members is ensured without any kind of social, racial, political, gender or religious discrimination.

A cooperative is an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned democratically controlled enterprise.

The guiding principles of cooperatives are:

• Voluntary and Open Membership
• Democratic Member Control
• Members’ economic participation
• Autonomy and Independence
• Education, Training and Information
• Cooperation among Cooperatives
• Concern for Community.

These principles were developed by the International Cooperative Alliance (ICA)

The promotion of sustainable livelihoods is strongly linked with income-generation activities for the community. Cooperatives play a major role in enhancing such activities and satisfying the basic community needs. They provide opportunities to people to organize services – such as financial services, agricultural extension and marketing services, input supply etc – collectively by pooling their resources without depending upon the government or other agencies.

Self-Help Groups (SHGs)

The project will compile an inventory of the existing SHGs (Self-Help Groups) in the project area in the beginning. This information will help the project to assess the existing SHGs and their capacities. The existing SHGs can be assessed applying the following criteria:

Criteria:

1. Age of the group ( at least one year old)
2. Number of members (10 or more)
3. Cumulative savings
4. Internal lending and the amount
5. Loan repayment history
6. Whether the group has a bank account
7. Amount of loan availed from the bank
8. Whether any subsidy received from the government and its usage
9. Group cohesiveness
10. Promoter (NGO/Self promoted/Government/any other)
11. Members’ perception about the group
12. Willingness of the promoters as well as the members to affiliate the group to the cooperative

This activity will help avoid duplication and confusion in the villages since SHGs are created by many different institutions. Based on the above assessment, the existing groups can be adapted and their capacities can be strengthened through training and exposure. In the villages/hamlets where there are no SHGs or where earlier SHGs have become defunct, new SHGs can be created.

The new SHGs can start their functions with regular savings followed by inter lending. Each SHG can open a bank account and maintain the prescribed books and records. Once the SHGs are created or adapted in all the villages, a cluster level cooperative can be formed. This cooperative can function informally on the basis of cooperative concept and principles. If there are existing government legislations where they can get formally registered, then it can be carried out after educating the members about the process.

Entry-Point Activities

Entry-Point Activities are necessary part to orient the community members towards thrift and credit activities. Direct dialogue about the intervention can create a negative attitude among them and hence, some innovative method should be applied to bring about a positive air in the project area. Entry-Point Activities help us manage that. However, these activities cannot be implemented blindly. There has to be some need assessment to be carried out initially to identify the community needs. Need assessment should be followed by community mobilization meetings where consultations from the community can be included again.

In the microfinance development project, the following Entry-Point Activities can be implemented for the Self-Help Groups (SHGs):

• Cash boxes for the SHGs to keep regular savings and loan collections
• Stationary to the SHGs including savings and loan ledgers, cash book, minutes book and member pass books
• Small grant for construction of cooperative office buildings with member contributions
• Furniture for cooperative offices
• Flour mills, fodder-cutting machines etc. to reduce women’s work load
• Storage place for agricultural produce
• Cost effective and indigenous cold storage facilities for fruits and vegetables

Savings and Credit Cooperatives

The strategy can involve development of microfinance through promotional activities at two-levels: SHG and cooperative level. Self-Help Groups cab be promoted at the village/ hamlet level consisting of, say, 10 or more members. The SHGs meet at regular intervals and collect savings from the members and carry out inter-lending among themselves. The Groups will be strengthened through continuous training and capacity building activities. The village-level SHGs function as collection centers and link their members to the cluster-level savings and credit cooperatives. A cluster can be a group of villages and hamlets, say, 4-8 villages making one cluster and one cooperative can be promoted at this level depending upon the geographical extent of the area.

At the cluster level savings and credit cooperatives in the form of a federation of SHGs can be promoted and strengthened. The cooperatives can have a minimum membership of 200 for its viability. Each cluster-level cooperative can have 10-20 SHGs as members. The cooperatives can offer financial services to the members. The cooperatives can mobilize resources from the members in the form of share capital and savings and deposits. They can also access loan funds from the formal financial institutions like banks.

Sustainability of Cooperatives

The strategy can adopt the following ways to promote the cooperatives and ensure their sustainability.

• Building effective management information systems (MIS)
• Reaching large number of clients with vision for growth;
• Promoting savings services and diversify savings products;
• Offering services that fit the clients’ needs and diversify loan products;
• Simplify procedures to reduce operational costs;
• Motivating clients to repay loans and focuses on high repayment;
• Attaining financial sustainability by charging sufficient interest rates and fees;
• Involving clients when designing services;
• Promoting effective governance, – characterized by democratic and transparent decision-making;
• Targeting clients properly;
• Focusing on financial services only;
• Developing institutional linkages;
• Mobilizing internal resources in the form of share capital, long term savings and reserves;
• Offering patronage rebate to members in proportion to the services used;
• Integrating cooperative training and education in the regular services of the cooperative.

Gender in Microfinance and Cooperatives

Gender should an integrated component of all the activities of the strategy. Gender equality should be ensured in all the stages of cooperative formation and strengthening. In order to bring women forward on par with men, special attention should be given to women because ADWAN already formed the Women SHGs. In order to encourage and enhance women’s participation in management and decision making, the Bylaws of the cooperatives ensure at least 50% women members in the managing Committees. In all the savings and credit SHGs as well as cooperatives 75% membership of women should be targeted but this cooperative have 100% women in managing committee. The SHGs as well as cooperative trainings and exposure visits should also target at least 50% women’s participation. Gender sensitization trainings should be planned to sensitize both men and women on gender equality. Loans and savings services designed for the cooperatives should focus to address specific consumption, health, education and other life cycle needs of women in addition to enterprise finance.