Pilot Innovations > Micro Credit through Savings Plus Model
(CrediCapaz)
Desired Outcome:
Informal groups and/or local community organizations will have learned how to establish savings-based community banks and will
have received the technical and administrative support necessary to operate effectively and efficiently in order to spur intelligent and
appropriate economic growth on a grassroots level.
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The Need:
It is our assumption that the majority of poor families and individuals have limited
available affordable financial services. In many rural areas banks, savings and
loan associations, and credit unions are nonexistent. The formal financial
institutions that do exist do not consider the poor creditworthy, because the poor
lack collateral to secure loans. It is our assumption through our experience that
the majority of low –income families and individuals in rural areas have limited
availability to comprehensive financial services. In many rural areas banks,
savings and loan associations, and credit unions are nonexistent. Oftentimes the
formal financial institutions that do exist do not consider the poor creditworthy,
because the poor lack collateral to secure loans. This is especially true of
women, who oftentimes own no property or fixed assets due to legal restraints or
cultural norms. Many financial institutions (including micro finance institutions
that can be found in abundance in many regions) that do offer credit to
economically active low income individuals charge high rates of interest and/or
do not provide the adequate financial management counseling necessary to help
those that receive credit. Savings accounts also are problematic; the savings of
poor people are often of little interest to banks. Transaction costs decrease the
profitability of small accounts. Minimum balance requirements, complicated
procedures to open accounts or withdraw savings, and a lack of trust discourage
the poor from putting their money in banks. Illiteracy is another barrier to
accessing formal financial institutions. It is impossible to fill out a savings or loan
document if you cannot read or write. Again, women are impacted
disproportionately as their illiteracy rate exceeds the rate for men.
The majority of the world’s poor are working families. Women head many of these families or are relied on for an important additional
source of income. Most women are self-employed, struggling to ensure the survival of their families through multiple economic
pursuits that yield marginal returns. This is a large contributor to the cycle of poverty.
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Description:
The contemplated SolCom program “CrediCapaz" seeks to offer an opportunity to receive training and support to help informal and
formal groups form of saving -based community banks so that they can create a new or additional financing and counseling mechanism to generate family income. CrediCapaz will begin operations by analyzing the applicability to two forms of accepted
savings-based micro finance; the ROSCA and the ASCA.
The contemplated SolCom program “CrediCapaz" (Credit Able) seeks to offer low-income women an opportunity to receive training
and support to help informal and formal groups form of saving -based community banks so that they can create a new and/or
additional financing and counseling mechanism to generate family income. Savings are an asset, not a liability, and therefore reduce
livelihood risk. It has been found that a majority of individuals use savings to provide a buffer against unexpected shocks, or to plan
for predictable expenses. Once this degree of security is assured they are far more likely to make productive investments than if
these savings did not exist. It is too often heard that credit is needed to help people invest productively: more often savings will do
the trick, or provide the basis on which a collateral credit program can operate with confidence. In short, low income individuals tend
to be much more comfortable investing what they already own rather than increasing their level of liability by taking out a loan. This
logic is central to understanding the vital contribution to household livelihood security made by savings based micro finance
programs. CrediCapaz will begin operations by analyzing the applicability to two forms of accepted savings-based micro finance; the
ROSCA and the ASCA.
CrediCapaz hopes to encourage the habit of saving, investing in appropriate enterprises and to create a mechanism whereby
beneficiaries will have a mechanism that de facto enhances their small business start-up and management knowledge. As well,
building a safe, easily available financial cushion to soften the blow of life’s unexpected emergencies is extremely valuable to the
poor in improving their economic condition. The contemplated solution should not only provide a method which combines a savings
system and a credit system, but built-in educational programs to help assure that the community will be able to learn how to self-
manage itself. If the community bank is able to self-administer itself and provide a consistent manner of providing loans and savings
to the bank members, it will reach self-sustainability, the goal of all economic development projects.
The key to success of a contemplated CrediCapaz program will be in self-management or self-administration of the community bank.
The group develops its own rules, based on suggestions made through the guidance of a SolCom promoter. The CrediCapaz group
manages its own funds, unlike other intermediary based micro finance programs where individuals have to pay interest to an
institution for the use of their money (the loan) in the contemplated CrediCapaz structure loans come from the same savings the
group contributes and the group keeps all profits. The group decides what they will do with money from the funds generated with the
assistance of ideas and concepts taught by SolCom field leadership, CC’s and community partners.
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Benefits:
- Provide families with the ability to survive economic crises
- Encourage people to look beyond daily or weekly income cycles and think about how to use money for long-term goals
- Allow for risk taking. With even a minimal increase in security, a poor woman can think about diversifying some of her
activities to generate income
- When managed by a group, become a vehicle for bringing members together to talk about both personal and community
issues
- Give people some control over their lives
- Enhance the welfare of children. Women’s income is most often spent on improving the lives of their children. The sense of
security derived from having some savings is passed on to the children.
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