Microfinance Institutes (MFIs) provide valuable services to the underserved. However, “in the developing world, they are most successful in economically dynamic urban areas, where investment opportunities abound; the borrowing requirements of small-scale enterprises are high, income streams are regular and diverse, and the cost of reaching clients is low” (VSL Programme Guide – Field Operations Manual).
In Suriname’s capital city of Paramaribo and along the coast where these conditions are met, MFIs could succeed in meeting the microfinance needs of the Hindustani and Creole population who make up the majority of the underserved households in urban areas. (Assessment of the Supply and Demand of Microfinance Services for Very-Low Income Populations in Guyana and Suriname) However, in the rural interior where conditions are not as favorable for MFIs, Maroons, or escaped slaves, who constitute the majority of the underserved households are in need of “financial services that help them manage their household cash-flow and provide useful lump sums for life-cycle events – which may or may not include income generation” (VSL Programme Guide – Field Operations Manual). One viable method of answering this call for financial assistance in rural areas is through Village Savings and Loan Associations (VSLAs).
Much like MFIs, VSLAs are an effective way to provide small capital to those in need of loans. VSLAs are informal associations that promote financial savings and management in rural or remote areas where formal financial institutions are not accessible. A group of self-selected and trusted village members come together to form a financial support group that functions much like a bank. However, the association operates with collective funds accumulated by its members.
Depending on the constitution outlined by the association, regular meetings are held where all members must attend, be on time and attentive or suffer financial penalties. The penalties are added to the collective funds and redistributed amongst members at the end of the time bound cycle of savings and lending. During the meetings, each member is required to save a certain amount of money in the form of shares as well as payback a set percentage of any loan taken from the collective funds with a service charge added. An elected management committee and general assembly manage operations of the association and ensure that all rules and regulations are adhered to. At the end of the cycle of savings and lending which is determined by the association, all loans must be paid in full and savings along with fees and penalties collected are redistributed to members according to share holdings. After the completion of the cycle, if the group agrees, a new cycle may begin.
In Suriname, the Maroon population living in the interior jungle is estimated to make up 30% of potential microentrepreneurs and has a percentage of poor that amounts to 86%. In addition, a small population of Amerindians lives in the interior and has a percentage of poor that amounts to 75% (Assessment of the Supply and Demand of Microfinance Services for Very-Low Income Populations in Guyana and Suriname). Both of these poor communities could benefit greatly from the financial ramifications of VSLAs.
Between the interior of the country and urban areas where lending entities exist, transportation is costly and cumbersome. Microentrepreneurs in need of small loans certainly cannot afford to make costly trips for regular financial transactions such as savings and loan repayment. Likewise, potential MFIs would find it difficult to conduct business in such hard to reach locals as well as depletive of valuable financial resources. Therefore, having community based organizations like VSLAs for Maroons and Amerindians that address financial matters among its members is a more feasible solution than MFIs.
Independently of each other, MFIs and VSLAs are proving useful vehicles for small amounts of financial capital to the world’s undersreved. Some relief organizations are bridging the gap between microfinance and village banking, though, by making the two approaches complementary to one another. One group in particular, FINCA International, is lending individuals small amounts of working capital for their microenterprises, and because they have little to offer for collateral, are using the VSLAs to guarantee the loans (http://www.villagebanking.org/).
Sadly, classic MFIs such as FINCA do not currently exist in Suriname which leaves the development and administration of MFIs and VSLAs to local groups. On a positive note, there are organizations in Suriname such as the National Women’s Movement that do recognize the need for these types of programs and have even begun implementing them.
In the coming months I will be exploring the existence of village banks in Suriname more in-depth. I will be talking with financial institutions, NGO’s, as well as Peace Corps volunteers living in interior villages. I hypothesize that VSLAs will prove to be a viable solution to the financial needs of interior communities. Conversely, I foresee many issues such as trust and commitment from village members being detrimental to the development of these institutions.
In Suriname’s capital city of Paramaribo and along the coast where these conditions are met, MFIs could succeed in meeting the microfinance needs of the Hindustani and Creole population who make up the majority of the underserved households in urban areas. (Assessment of the Supply and Demand of Microfinance Services for Very-Low Income Populations in Guyana and Suriname) However, in the rural interior where conditions are not as favorable for MFIs, Maroons, or escaped slaves, who constitute the majority of the underserved households are in need of “financial services that help them manage their household cash-flow and provide useful lump sums for life-cycle events – which may or may not include income generation” (VSL Programme Guide – Field Operations Manual). One viable method of answering this call for financial assistance in rural areas is through Village Savings and Loan Associations (VSLAs).
Much like MFIs, VSLAs are an effective way to provide small capital to those in need of loans. VSLAs are informal associations that promote financial savings and management in rural or remote areas where formal financial institutions are not accessible. A group of self-selected and trusted village members come together to form a financial support group that functions much like a bank. However, the association operates with collective funds accumulated by its members.
Depending on the constitution outlined by the association, regular meetings are held where all members must attend, be on time and attentive or suffer financial penalties. The penalties are added to the collective funds and redistributed amongst members at the end of the time bound cycle of savings and lending. During the meetings, each member is required to save a certain amount of money in the form of shares as well as payback a set percentage of any loan taken from the collective funds with a service charge added. An elected management committee and general assembly manage operations of the association and ensure that all rules and regulations are adhered to. At the end of the cycle of savings and lending which is determined by the association, all loans must be paid in full and savings along with fees and penalties collected are redistributed to members according to share holdings. After the completion of the cycle, if the group agrees, a new cycle may begin.
In Suriname, the Maroon population living in the interior jungle is estimated to make up 30% of potential microentrepreneurs and has a percentage of poor that amounts to 86%. In addition, a small population of Amerindians lives in the interior and has a percentage of poor that amounts to 75% (Assessment of the Supply and Demand of Microfinance Services for Very-Low Income Populations in Guyana and Suriname). Both of these poor communities could benefit greatly from the financial ramifications of VSLAs.
Between the interior of the country and urban areas where lending entities exist, transportation is costly and cumbersome. Microentrepreneurs in need of small loans certainly cannot afford to make costly trips for regular financial transactions such as savings and loan repayment. Likewise, potential MFIs would find it difficult to conduct business in such hard to reach locals as well as depletive of valuable financial resources. Therefore, having community based organizations like VSLAs for Maroons and Amerindians that address financial matters among its members is a more feasible solution than MFIs.
Independently of each other, MFIs and VSLAs are proving useful vehicles for small amounts of financial capital to the world’s undersreved. Some relief organizations are bridging the gap between microfinance and village banking, though, by making the two approaches complementary to one another. One group in particular, FINCA International, is lending individuals small amounts of working capital for their microenterprises, and because they have little to offer for collateral, are using the VSLAs to guarantee the loans (http://www.villagebanking.org/).
Sadly, classic MFIs such as FINCA do not currently exist in Suriname which leaves the development and administration of MFIs and VSLAs to local groups. On a positive note, there are organizations in Suriname such as the National Women’s Movement that do recognize the need for these types of programs and have even begun implementing them.
In the coming months I will be exploring the existence of village banks in Suriname more in-depth. I will be talking with financial institutions, NGO’s, as well as Peace Corps volunteers living in interior villages. I hypothesize that VSLAs will prove to be a viable solution to the financial needs of interior communities. Conversely, I foresee many issues such as trust and commitment from village members being detrimental to the development of these institutions.
4 comments:
In the interior of Suriname where a large portion of the population is poor by any world standard, they are not in as desperate shape as those in other counties of the third world. There may not be electricity but, there is no starvation. You may have to wash at the river but, you have a roof over your head every night. Therefore,there is a limited need for bank loans. Most of the micro enterprises are community based and usually funded by NGO’s. (a form of community welfare). We have not found that many of these enterprises are successful. In my opinion, in order to have successful development, of community and/or private entrepreneurial enterprises, there needs to be centers of commerce. Trade centers, where the infusion of borrowed capitol can generate new and additional incomes. Only then would loans be needed and only then would loans be repaid.
In addition, I tend to agree with the quote regarding how loans are used by those entrenched in poverty “to pay off old debts or to buy consumer goods, not to generate income.” This is certainly true in Suriname.
Every developing country has its own issues to deal with be it starvation, plague, or drought. I consider any case where people are losing theirs lives when prevention of their death is easily attained a dire circumstance regardless of what is happening in other countries. In Suriname, the poorest areas such as the interior may not be starving but there is definitely malnutrition, sanitation issues and diarrhea that have all been known to cause disease and death. Giving these people the opportunity to develop or expand income generating opportunities through Microfinance or Village Savings and Loan Asssoctions also gives them an opportunity to improved quality of life by making funds available to afford more nutritional foods, to improving sanitary conditions by buying Duro tanks, and consequently decreasing the incidents of diarrhea through these improvements.
Loans should not be distributed willy-nilly. Rather, mandatory classes on a lower level addressing issues such as the importance of return on investment should have to be attended by those taking the loans. In addition, borrowers should present a plan on how the loan would be utilized to obtain loan approval. I think centers for commerce are a great way to manage and bring microentrpreneurs together in order to bring businesses to another level. However, I think business education on development and sustainability needs to be addressed first in order for these centers to succeed. This education can be given in unison with the loans distributed.
I think in stating that the borrowing requirements of small scale enterprises are high, it might be interpreted that for medium and larger enterprises the requirements are less high- however that's not the case the requirements are the same but it's more difficult for small scale enterprises to meet those requirements for all sorts of reasons.
In Suriname there's a third category of people being affected by borrowing restrictions/possibilities: these are people living for generation of families in what is known for the old Plantation Structure. Because there's have never been a division of property people have difficulties borrowing large sums of money i.e. Coronie, Para, Commewijne and maybe Saramacca and Wanica.
The statement " In meeting the microfinance needs of the Hindustani and creole population who make up the majority of the porr in urban areas" could be refrased unless you have statistics to prove that. I am not sure about what is staed in there. in terems of being appreciative I would envourage also to use the term "underserved" rather than "poor" also beacuse what looks poor to me may not be for somebody else unless you define "poor". especially since this is a scientific research you're doing.
In talking about trade centers I feel that we should elaborate moer on that with regards to the structure etc cause this si also a new concept that you're bringing to Suriname. What would be a trade center like for Suriname mainly the interior an is the economic activity and potential there to let it flourish?
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