After contacting the Director of the NGO about village banking last week, I realized that the organization she is working with has implemented a program in Suriname that blends conventional financial relief from donors with the concepts of both microfinance and village banking. This NGO is using money donated from an outside source to start banks in villages where women’s groups are already established. The funds that are donated are kept in a traditional financial institution such as a bank or credit union. However, the administration of the bank such as loan distribution takes place within the village. In this version of village banking, savings is not a component. Women are only allowed to take out loans and repay those loans with 10% interest added.
This form of village banking is much different from the type that Village Savings and Loan Associates (VSLA) and other groups implement in developing countries around the world. VSLA’s version calls for members to save a certain amount of money each month whereas in the NGO’s version savings is not a component. VSLA also requires the banking funds to come from the participating group collectively and not from an outside source. In some cases though, funds from Microfinance Institutions are allowed. Those funds then remain under lock and key within the village rather than in a bank or credit union. In villages where village banks are implemented by groups such as VSLA, financial institutions are not readily available. This is why the money remains in the village. Travel to a financial institution for day to day operations of the bank would be too costly.
There are some similarities among these forms of village banking. For instance, both types require that participants be responsible for managing the funds and the administration of the loans, not a bank. In addition, they both require that a consensus be reached amongst members concerning the operations of the bank such as the interest rate for loans.
There is no one set formula to implement a village bank. Organizations typically adapt their program to the community where it is being put into action. Given the concerns that many people have regarding distrust amongst villagers, the NGO’s version of village banking may prove to be a more successful model for the country of Suriname. Leaving out the savings component and not intermingling villagers personal funds takes away many of the misgivings people may have about each other.
Personally, I believe that funds for this type of project should come from the community collectively. I feel that programs are more sustainable in a community when that community has a financial stake in the program. It is feasible in a village savings and loan program for villagers to operate separate but equally therefore minimizing some of the skepticism. Villagers can manage their own savings and loans independently but work collectively to ensure that all members meet the requirements for membership such as repayment of loans.
I have a meeting this week with a village where I plan on implementing a village bank based mostly on the Village Savings and Loan Associate’s model. I will be meeting with the Director of the NGO toward the end of this month to learn more about the model her organization is using. I hope to find a happy medium between the two models in order for this village bank to be a success.
This form of village banking is much different from the type that Village Savings and Loan Associates (VSLA) and other groups implement in developing countries around the world. VSLA’s version calls for members to save a certain amount of money each month whereas in the NGO’s version savings is not a component. VSLA also requires the banking funds to come from the participating group collectively and not from an outside source. In some cases though, funds from Microfinance Institutions are allowed. Those funds then remain under lock and key within the village rather than in a bank or credit union. In villages where village banks are implemented by groups such as VSLA, financial institutions are not readily available. This is why the money remains in the village. Travel to a financial institution for day to day operations of the bank would be too costly.
There are some similarities among these forms of village banking. For instance, both types require that participants be responsible for managing the funds and the administration of the loans, not a bank. In addition, they both require that a consensus be reached amongst members concerning the operations of the bank such as the interest rate for loans.
There is no one set formula to implement a village bank. Organizations typically adapt their program to the community where it is being put into action. Given the concerns that many people have regarding distrust amongst villagers, the NGO’s version of village banking may prove to be a more successful model for the country of Suriname. Leaving out the savings component and not intermingling villagers personal funds takes away many of the misgivings people may have about each other.
Personally, I believe that funds for this type of project should come from the community collectively. I feel that programs are more sustainable in a community when that community has a financial stake in the program. It is feasible in a village savings and loan program for villagers to operate separate but equally therefore minimizing some of the skepticism. Villagers can manage their own savings and loans independently but work collectively to ensure that all members meet the requirements for membership such as repayment of loans.
I have a meeting this week with a village where I plan on implementing a village bank based mostly on the Village Savings and Loan Associate’s model. I will be meeting with the Director of the NGO toward the end of this month to learn more about the model her organization is using. I hope to find a happy medium between the two models in order for this village bank to be a success.
1 comment:
I'd like to get back to basics...I don't know how you help people in developing countries develop the concept of banking if you don't teach the basics...it's your neighborhood bank, your financial institution, your village bank...call them what you want...but they should all have two functions...Savings & Loans. The NGO that only wants to make loans is like a loan shark... with a fair interest rate...If they don't promote saving then they can be assured that the villagers will be back to borrow again...and again.They will always be dependent on NGO...
You know...Make some money...pay some interest... spend the money...go back and borrow some money.
Based on this little ditty...I like the VSLA approach . There requirement to save give responsibility to the villagers and perpetuates a source of funds to lend out at, hopefully at as reasonable rate as the NGO.(I wonder if the low interest rate on what I will assume, will be small loans...will cover the administration cost,.Just a thought or maybe the funders will take care of that...until their funds run out or they find a new cause). I find that NGO's projects are not sustainable.At least not here in Suriname.
Question...do you need a bank in every village??? Why not a bank in a very nearby "Center of Commerce". Say Atjoni ( Sarah knows)...Now digging deep into my memory...I recall the insurance man coming to my parents apartment each week to collect the $0.25 premium on my Dads life insurance policy...Why couldn't there be a bank agent... who goes out to the communities and collects each villager's savings...making a notation in their very own bank book. He then brings the money back to a secure safe... where it sits awaiting a new... interest paying... borrower.
Now... I would like to address the similarities of the two programs...it appears that both expect the participants...I assume they mean "the borrowers"... to be responsible for the administration of the loan...doesn't sound like a great idea to me... are the villages going to become fund managers and loan officers at the same time as they are trying to understand the concept of banking...I don't think so....
This old guy would like to get the basics down first....Saving...Loans...they go together like...Love & Marriage
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