Bank Guarantees :
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As the name suggests, a bank guarantee is used to obtain a loan from a
commercial bank. This guarantee may be arranged externally (through a
donor/donation, government agency etc.) or internally (using member savings).
Loans obtained may be given directly to an individual, or they may be given
to a self-formed group.
Bank Guarantee is a form of capital guarantee scheme. Guaranteed funds may be
used for various purposes, including loan recovery and insurance claims.
Several international and UN organizations have been creating international
guarantee funds that banks and NGOs can subscribe to, to on lend or start
micro credit programmes.
Community Banking :
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The Community Banking model essentially treats the whole community as one
unit, and establishes semi-formal or formal institutions through which
micro finance is dispensed. Such institutions are usually formed by extensive
help from NGOs and other organizations, who also train the community members
in various financial activities of the community bank. These institutions may
have savings components and other income-generating projects included in
their structure. In many cases, community banks are also part of larger
community development programmes which use finance as an inducement for
action.
Cooperatives :
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A co-operative is an autonomous association of persons united voluntarily to
meet their common economic, social, and cultural needs and aspirations
through a jointly-owned and democratically-controlled enterprise. Some
cooperatives include member-financing and savings activities in their
mandate.
Credit Unions :
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A credit union is a unique member-driven, self-help financial institution. It
is organized by and comprised of members of a particular group or organization,
who agree to save their money together and to make loans to each other at
reasonable rates of interest.
The members are people of some common bond: working for the same employer;
belonging to the same church, labor union, social fraternity, etc.; or
living/working in the same community. A credit union's membership is open to
all who belong to the group, regardless of race, religion, color or creed.
A credit union is a democratic, not-for-profit financial cooperative. Each is
owned and governed by its members, with members having a vote in the election
of directors and committee representatives.
Grameen :
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The Grameen model emerged from the poor-focussed grassroots institution,
Grameen Bank, started by Prof. Mohammed Yunus in Bangladesh. It essentially
adopts the following methodology:
A bank unit is set up with a Field Manager and a number of bank workers,
covering an area of about 15 to 22 villages. The manager and workers start by
visiting villages to familiarise themselves with the local milieu in which
they will be operating and identify prospective clientele, as well as explain
the purpose, functions, and mode of operation of the bank to the local
population. Groups of five prospective borrowers are formed; in the first
stage, only two of them are eligible for, and receive, a loan. The group is
observed for a month to see if the members are conforming to rules of the
bank. Only if the first two borrowers repay the principal plus interest over
a period of fifty weeks do other members of the group become eligible
themselves for a loan. Because of these restrictions, there is substantial
group pressure to keep individual records clear. In this sense , collective
responsibility of the group serves as collateral on the loan.
Group :
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The Group Model's basic philosophy lies in the fact that shortcomings and
weaknesses at the individual level are overcome by the collective
responsibility and security afforded by the formation of a group of such
individuals.
The collective coming together of individual members is used for a number of
purposes: educating and awareness building, collective bargaining power, peer
pressure etc.
Individual :
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This is a straight forward credit lending model where micro loans are given
directly to the borrower. It does not include the formation of groups, or
generating peer pressures to ensure repayment. The individual model is, in
many cases, a part of a larger 'credit plus' programme, where other
socio-economic services such as skill development, education, and other
outreach services are provided.
Intermediatories :
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Intermediary model of credit lending position is a 'go-between' organization
between the lenders and borrowers. The intermediary plays a critical role of
generating credit awareness and education among the borrowers (including, in
some cases, starting savings programmes. These activities are geared towards
raising the 'credit worthiness' of the borrowers to a level sufficient enough
to make them attractive to the lenders.
The links developed by the intermediaries could cover funding, programme
links, training and education, and research. Such activities can take place
at various levels from international and national to regional, local and
individual levels.
Intermediaries could be individual lenders, NGOs, micro enterprise/micro credit
programmes, and commercial banks (for government financed programmes).
Lenders could be government agencies, commercial banks, international donors,
etc.
Non-Governmental Organizations :
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NGOs have emerged as a key player in the field of micro credit. They have
played the role of intermediary in various dimensions. NGOs have been active
in starting and participating in micro credit programmes. This includes
creating awareness of the importance of micro credit within the community, as
well as various national and international donor agencies. They have
developed resources and tools for communities and micro credit organizations
to monitor progress and identify good practices. They have also created
opportunities to learn about the principles and practice of micro credit. This
includes publications, workshops and seminars, and training programmes.
Peer Pressure :
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Peer pressure uses moral and other linkages between borrowers and project
participants to ensure participation and repayment in micro credit programmes.
Peers could be other members in a borrowers group (where, unless the initial
borrowers in a group repay, the other members do not receive loans. Hence
pressure is put on the initial members to repay); community leaders (usually identified, nurtured and trained by external NGOs); NGOs themselves and their
field officers; banks etc. The 'pressure' applied can be in the form of
frequent visits to the defaulter, community meetings where they are
identified and requested to comply etc.
Rotating Savings and Credit Associations :
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Rotating Savings and Credit Associations (ROSCAs) are essentially a group of
individuals who come together and make regular cyclical contributions to a
common fund, which is then given as a lump sum to one member in each cycle.
For example, a group of 12 persons may contribute Rs. 100 (US$33) per month
for 12 months. The Rs. 1,200 collected each month is given to one member.
Thus, a member will 'lend' money to other members through his regular monthly
contributions. After having received the lump sum amount when it is his turn
(i.e. 'borrow' from the group), he then pays back the amount in
regular/further monthly contributions. Deciding who receives the lump sum is
done by consensus, by lottery, by bidding or other agreed methods.
Small Business :
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The prevailing vision of the 'informal sector' is one of survival, low
productivity and very little value added. But this has been changing, as more
and more importance is placed on small and medium enterprises (SMEs) - for
generating employment, for increasing income and providing services which are
lacking.
Policies have generally focussed on direct interventions in the form of
supporting systems such as training, technical advice, management principles
etc.; and indirect interventions in the form of an enabling policy and market
environment.
A key component that is always incorporated as a sort of common denominator
has been finance, specifically micro credit - in different forms and for
different uses. Micro credit has been provided to SMEs directly, or as a part
of a larger enterprise development programme, along with other inputs.
Village Banking :
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Village banks are community-based credit and savings associations. They
typically consist of 25 to 50 low-income individuals who are seeking to
improve their lives through self-employment activities. Initial loan capital
for the village bank may come from an external source, but the members
themselves run the bank: they choose their members, elect their own officers,
establish their own by-laws, distribute loans to individuals, collect
payments and savings. Their loans are backed, not by goods or property, but
by moral collateral: the promise that the group stands behind each individual
loan.