National Traveller MABS
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National Traveller MABS nge House MAB |
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The
2 examples I present of interest free credit schemes, demonstrate how such
exclusion can be addressed and how viable it is. This may be important for
the further development of the credit union philosophy of social
responsibility. During the course of this chapter, it will also become
clear, that in order to implement an interest free credit scheme, there must
be an intersectoral approach in the operation of the facility. Such an
approach, I will argue is economically viable. Suffice to say, that its
viability must not just be proven in an economic sense, but also in a
socio-cultural and institutional one. Interest free credit it will be seen,
needs to be sustained on a platform of social conscience as opposed to
earnings from interest. By developing such a system of sustainability, it
will be less likely that interest free schemes will be forced to compete
with the mainstream banking sector on the terms and values of such a sector.
I feel both the credit schemes I present, and the credit union structure
presented in chapter 2, have a lot to offer and learn from each other and
this I will detail throughout chapter 4. I
have chosen to present chapter 4, by briefly detailing the background to the
two case studies. I then move
on to draw on some of their strengths and weaknesses by addressing the
questions; Is access to non-exploitative credit achieved? and Is
such non-exploitative credit sustainable? By reflecting on both the
above questions, I will identify whether any failings of credit unions I
highlighted in Chapter 2 are addressed and the proposals of Chapter 3
implemented. The
2 case studies, JAK
Membership Bank (JAK) in Sweden, and the Coolie Credit Funds (CCFs)[2]
in India, are diametrically opposite in the geographical, social and
cultural sense. By contrasting these essential elements, it becomes clear,
that interest free credit schemes can be adapted in different contexts.
However it must be noted, that while both case studies are presented, it was
more difficult to obtain answers from JAK
for the questions I was addressing in this chapter. This was due to their
lack of written information in English.
Therefore in areas, The CCFs will be highlighted more. This is not to
say that JAK
is any less successful, and its inclusion in the chapter proves its
importance in reflecting a varied view of interest free credit. JAK
in Sweden is a non-profit making, non religious, politically neutral,
savings-and-loan co-operative which operates without interest. JAK
short for “Jord, Arbebe, Kapital” translates to mean “Land, Labour and
Capital, (Hofford:1998:1). It has been in operation since 1965, having been
inspired by JAK
in Denmark, which grew after the Great Depression of the 1930's. Today JAK
in Sweden, consists of approximately 18,000 members, and since December
1997, can boast a national banking license. JAK
believes that interest is inimical to a stable economy, causing
unemployment, inflation and the movement of money in the long term from the
poor to the rich. JAK’s ultimate aim is to relieve people from the yoke of
interest debt. It aims to achieve this by educating its members and the
public on the negative effects of interest by abolishing it and replacing it
with more people friendly instruments in borrowing and saving.
Like
credit unions, JAK promotes the idea of compulsory savings, and all
borrowers must have saved for a minimum of 6 months. JAK grants loans in
relation to the amount and length of time saved. No interest is charged on
savings and only a self-cost administration fee is taken for loans. In the
past JAK membership has been almost totally consumer related, especially in
the area of house purchase, (90% of loans). This it is felt by JAK
was due to the compulsory savings required before the granting of a
loan, for example, entrepreneurs are unlikely to want to wait 1-2 years
until they have accumulated a savings base before being granted a loan.
However as we will see later, JAK is presently looking into the introduction
of a profit-loss sharing scheme for production loans. The
CCFs, in India exist in over 600 villages in the Bagepalli region of the
country. They offer interest
fee production and consumption loans to members by way of a revolving fund.
They are non-profit making and in this way, like JAK
follow the philosophy of the credit unions in promoting a more socially
conscious system of banking. The
CCFs were planned in 1985 with the assistance of the “Agricultural
Development and Training Society”, (ADATS), a local NGDO,
as part of the Coolies’, (landless labourers and small landed peasants)
efforts to take control of their own lives. This was in opposition to their dependence on landlords for
credit, which kept them in a permanent state of pauperdom, bondage and
alienation. ADATS
and the Coolies involved in the CCFs, believe that credit controlled from
within can be used as a learning and enabling tool to assist them
in strengthening their base in society.
This base they recognise, has been weakened by the caste culture,
neo-capitalism and the introduction of a Structural Adjustment Programme,
which reduces the input of government initiatives on tackling welfare and
poverty issues. Nevertheless ADATS
and the Coolies do not reject the existence of capitalism, but see it rather
as a reality which they have to work within, and believe that while
capitalism is normally guided very purposely from the top, it can also be
shaped and moulded from the bottom. The
Coolies attempt to do this by using the CCFs as the chief instrument to
effect necessary change in their lifestyle, thereby enabling them to compete
in the surrounding market economy. The
CCFs are part of larger community organisations known as The Coolie Sangha
Units (CSUs). These units deal
with not just micro-credit, but health, gender and other related empowerment
issues. Their slogan “to become rich in 3 years!", describes not just
economic emancipation, but also spiritual, societal and political, and
reflects the socio-political stance the Coolies take in their own process of
development and empowerment. The CCFs are financed from an initial grant of
R5,000 from ADATS
and donor partners. This grant is not doled out indiscriminately, but is
rather revolved among CSU
members in a large number of villages.
Members who receive loans, contribute 10% of it towards the building
of a CSU
fund. All members are
encouraged to take loans as not only does it benefit them in achieving a
better standard of living by investing in either production or consumption,
but the 10% contribution will accumulate the more borrowers there are. This
will allow for an accumulation of capital in the Sangha Fund to be used in
the expansion of the power base of the Coolies.
Some of this capital will eventually be ploughed back into the CCFs
to help bridge the gap between the real and nominal values of CCF
capital. Once the initial grant
of R2,000 from ADATS
is utilised and repaid, a further matching grant is given.
Following a repeat in utilisation and repayment, a grant of R4,000 is
distributed, and this continues until the target of R500 per member is
reached. Therefore a CSU
with 50 members will receive a total of R25,000 from ADATS
to help in the setting up of a fully operational local interest free banking
system. As
part of their efforts to address the gender imbalance which they see in
existence within their communities, the CSUs hold weekly women only Manila
meetings, where one female member of each family attends to discuss current
issues in health, education and credit.
The basis of the Manila meetings lies in women’s
power of veto over decisions such as the allocation of loans.
The importance of the Manila meetings in relation to the CCFs will be
looked at in more detail later. Having
looked briefly at the background to both JAK
and the CCFs, I now propose to identify whether they have succeeded in
allowing access to credit for marginalised communities. Is
access to non- exploitative credit achieved?
Access
to credit by all members of the community is an essential element in
ensuring sustainability in development.
Access can be looked at from many aspects, but for the purpose of
this dissertation, I have chosen to focus on the issues of gender,
geographical location, time constraints, and the criteria used in the
granting of loans. GenderMost
development theorists and practitioners would agree that women tend to carry
the burden of poverty in marginalised communities. Such a feminisation of
poverty, is evident in both the urban/rural, and North/South divides
world-wide. The problem is compounded by the fact that often access to
credit is denied to women, unless they have permission from their male
partner or guardian. It is therefore essential that the issue of gender is
looked at when dealing with access to credit. The Grameen banks in
Bangladesh, which run along similar lines to credit unions, set about
addressing this problem by implementing a policy of reverse discrimination,
where loans were granted only to women.
However such a policy caused consternation among the male members of
the community, who very often redressed this problem by forcing women to
borrow for them. By
alienating men in order to rebalance inequality, cultural and social norms
are upset. Men must maintain a
role in communities. In very many marginalised urban communities in the
northern hemisphere, as unemployment and single parent families increase,
the role of men in the family declines at both emotional and economic
levels. As this occurs, many development theorists feel that the answer to
poverty lies in allowing more women access to micro-finance and businesses
in order that they maintain some form of family structure.
However I feel it is essential that the issue of men be addressed,
where their roles are also redefined within the context of the community. Equity
therefore, I feel, is an essential element of sustainable development.
Credit should not be administered on the basis of gender, whether it
be to counteract gender imbalance, or to maintain stereotypical roles.
Rather it should be given on an individual basis. JAK,
does not seem to have a strict policy on gender. While this may be the case,
and if so be frowned on by many, the lack of emphasis on such a policy may
simply be due to Sweden's national policy on gender. Such a policy is more
advanced than most other nations of the world. Maybe therefore making
reference to gender equity is not such a pressing subject as is often the
case in other contexts. At
the onset of the CCFs, the Coolies themselves decided that in order for both
the individual and the community to develop, there must be more or less
uniform development for all with the more needy, such as the elderly and
single women, being helped first. This
the Coolies felt would improve their overall economy and stop the less
economically viable being a drain on the rest of the community. The CCFs,
while recognising that women occupy “a lesser status and suffer serious
impediments as a result of historic and universal sexual
discrimination", (ADATS:1996), chose not to redress this imbalance with
the reverse discrimination policy the Grameen banks adopted.
Instead while CCFs do lend to men, women play a major role in the
decision making process. While
applications for CCF
loans are made to the CSU,
the Manila meetings have the power to veto loans to men if they feel that
men are borrowing before discussing with, or are borrowing for reasons that
will not benefit women family members. This policy, some may feel places
power in the hands of women only. However I would see it as simply allowing
women access to a voice in their family finances. The
Vokkaku Sanchi Duddu, which
literally means “pouch to keep a beetle leaf in", is another element
of gender awareness to improve access to credit, practised by the Coolies
which incorporates local wisdom with modern management, (ADATS:1997:3).
Traditionally women in the rural areas where the CCFs
operate, hid small amounts of money for day-to-day unexpected expenses.
In keeping with this, and in recognising that obtaining a CCF
loan can be a somewhat lengthy process in a time of emergency, the women’s
meetings are given a provision of R5,000 by ADATS
to lend out as they see fit to women in need of emergency consumption loans.
Such a recognition of the importance of consumption loans, I believe,
ensures that people’s interest is kept in the CCFs, where women see it as
not just a force imposed from outside to encourage them to produce, but
rather it is an internal decision making body, which recognises their daily
needs and assists in easing them. Access
however should not just be concerned with the issue of gender.
The ease to which members and potential members can access
information both geographically and in relation to time, is also an
essential element that needs to be addressed when reflecting on the
viability of credit for marginalised communities. Attention must also be given to whether or not loans are
granted on their own merit or on the financial record of their applicant. Geographical location, time constraints and the criteria used in the granting of loansJAK
operates in Sweden and is open to anyone who shares a common bond of a
belief in a more socially and economically equitable environment. From my
research I have not found any emphasis on the building up of a close knit
community where all members know each other. This may reflect a similar
problem to that faced by the credit unions, of anonymity where loans may be
administered on the basis of peoples history as opposed to their potential.
Loans are granted in relation to savings, as will be discussed later.
However members can assist each other in obtaining loans, by transferring
what each member calls "savings points". Loans are administered
depending on the fulfillment of savings obligations, the length of time
saved and the amount saved. Potential borrowers are sent an application form
for a loan. The form contains information on requirements to obtain loans
and loan repayment options. It can take up to one month for loan
applications to be administered. This is in contrast to one week with the
CCFs, and reflects the different scale both organisations operate under. In
relation to the CCFs, as the CSUs operate within villages in the Bagepalli
region of India, and as they are run by the people with the temporary
assistance of ADATS
staff, geographically all members of the CSU
have access to both the CSUs and CCFs.
All partake in the running of its activities. This can be seen in the Manila meetings, as well as the
weekly cluster meetings which are open to all members. The importance of keeping minutes is stressed, and with this
the realisation on the part of the Coolies of not only taking responsibility
for what they have said but also of their right and importance as both
individual human beings and as part of a effective minority within a larger
community. As meetings occur so
regularly, members can be assured that their requests for loans are dealt
with speedily. Loans are
granted on their own merit, or under a policy of “Truth in Lending” and
not on the previous financial records of the applicant.
This is unlike the policy imposed by mainstream banks and is in
keeping with the beliefs of the credit unions, although, as I noted in
Chapter 3, this is not always reflected in the operation of larger credit
unions. Is
such non-exploitative credit sustainable?
As
I believe the projects in question are attempting to offer non-exploitative
credit, the question then needs to be addressed as to whether such credit is
sustainable. The areas that
need to be looked at in order to gain a comprehensive answer to the question
are numerous. I have therefore
chosen to look at the issue of sustainability under certain headings,
namely:
Do the projects seek to empower all participants through education and awareness raising?For
a project to be sustainable, it must seek to empower and strengthen its
members by offering them a voice, and building a spirit of community. Empowerment of the individual and the community must come
through education, and education through experience. As I discussed
previously, this is part of the philosophy of the credit union movement
which prides itself on educating its members on sustainable investment,
through attainable borrowing. JAK,
as we have noted already, seeks to educate people on the benefits of
interest free credit through its promotion of the "ill-effects" of
interest, and its practice of an interest free system of banking. It
endeavors to empower by allowing people access to such information and
action. This is achieved through the dedication of 80 local representatives
throughout the country, who hold lectures, study circles, exhibitions and
fairs, and staff local offices to help members and encourage non-members.
However presently JAK bases most of its efforts on the building of a
financially sustainable banking system. It therefore does not offer
financial or legal counseling, skills training or networking. Such issues
need to be addressed if JAK is to remain rooted in ordinary peoples lives. The
CCFs under the guidance of the CSUs also place a forceful emphasis on the
promotion of education for the empowerment of the individual and the
community. This is seen through
the use of community volunteers in the running of the CSUs and the CCFs. The fact that the decision making process regarding the
allocation of loans is kept strictly within the community, promotes an
understanding of attainable borrowing and socially influenced lending. The
community, knowing each individual and being aware of their ability to
repay, grant loans for both production and consumption, on personal merit
rather than on people’s financial standing.
This is evident by looking at the case of some members of CCFs, for
example, Marappa from Inminchenahalli, a nomad who begged for a livelihood. After joining the Coolie Sangha, he took a loan
for Rs2,500 and began selling photo frames.
His profit was so good that he took out a further loan to begin a
cloth business in addition to his initial loan.
In 1996, the family were reported to have stopped begging and were
making a living from both the businesses, (ADATS:1998:3).
The case of Rathnamma of Doddadasenahalli CSU
is also worth noting. After
losing her husband, 2 children and cattle when her house collapsed during
the monsoon, her CCF
decided to lend her money instead of giving her charity.
Some members withdrew their applications for loans in order to leave
enough money for her. Rathnamma
bought a cow and armed with a long term repayment plan has now set about
rebuilding her life, (ADATS:1998:3). Such cases reflect not simply a sense
of co-operation among the members but also a growth in the idea of self
help. Such an idea of self-help
feeds into ADATS
philosophy that every action within the CSUs should be determined by
“Coolie perception and Coolie appreciation of Coolie problems”,
(ADATS:1997). The
CSUs do not simply promote individual borrowing from the CCFs for community
development. They also place a
huge emphasis on the need for a community fund in order to promote
participation, self-confidence and sustainability through self-financing.
Ram Esteves, Director of ADATS,
compares the 10% contribution from borrowing by each member to the Sangha
Funds, to the compulsory tax of 5% levied in Islamic communities.
However whereas Islam generally views such a tax as charity for the
poor, Esteves rather likens the Sangha Funds to “local taxation that
somehow completes the circle in the creation of civic society", by
building up a decentralised self-financing mechanism for the Coolie Sangha
as a whole, (Esteves:1998). Nevertheless
it is also worth noting that the 10% charge on CCF
loans can work out quite expensive for the borrower, for example a loan of 6
months will end up costing an “indirect interest rate” of 20%.
However as loan repayments are negotiated on an individual
basis by both the CCFs and the borrower, loans can be repaid over a longer
period of time, thereby cutting the indirect interest rate to 5% p.a., if
paid over 2 years. This lends
to the philosophy of social justice promoted by the CSUs, where loans can
not only be negotiated initially by the borrower, but can be renegotiated to
be paid back over a longer period if circumstances change.
In addition to this, should a particular borrower fail to repay, all
the remaining members contribute to cover their debt. This sense of
community ensures a greater viability
and sustainability of such a lending scheme Such
a charge on borrowing is replicated by JAK who, charge a “loan fee” on
borrowing to cover administration expenses of 3.5% of the loan plus 0.6% for
each repayment year. Longer repayment time results in lower costs when
calculated as a percentage. However as each year accumulates a .6% fee,
borrowers are encouraged to repay as soon as possible thus allowing for a
revolving fund of savings for borrowing. Such
a system of “taxation” I feel promotes a sense of belonging and
ownership, as members realise that they are not just on the receiving end of
the CCFs or JAK, but are also giving a proportion of their capital not
simply in cash but also in kind for the benefit of all.
The Sangha Fund, I believe is similar to a community savings account.
While the CCFs do not promote individual savings, instead focusing on
lending, ADATS
and the Coolies, like JAK nevertheless recognise the importance of saving in
order to develop self-help capabilities among the Coolies. Savings, ADATS
believes, allow the Coolies particularly the landless to invest in
income-generating activities. However
sustainability can not just be achieved from success in one area of the
development spectrum. Development
must be intersectoral, and in order for this to occur, it must address also
the issues of socio-cultural responsibility and institutional and economic
viability. The credit union
movement has proved itself to be very strong on these elements, thus
accounting for its success world-wide.
Nevertheless it does isolate certain members of society, for example
as we saw in chapter 2, due to its emphasis on compulsory savings and its
charging of interest rates. I
now propose to examine whether the 2 case studies in question redress any of
these weaknesses, thus improving on what credit unions have achieved for the
economically marginalised within our societies. Is the issue of socio-cultural responsibility addressed?JAK
by the very basis of its beliefs in a social and environmentally friendly
banking environment, has accepted its role of responsibility in a
socio-cultural context. Its promotion of investment in environmentally
friendly, educational and health projects reflects this. The efforts of
volunteers, all members of JAK, to
promote the beliefs of JAK are further evidence of its social standing in
society. Its policy on lending, which allows for the transfer of saving
points, from one member to another, assists in the development of a strong
sense of community for the benefit of all. This ensures that although loans
are dependent on savings, borrowing is not monopolised by the better off.
Its self reliance through a strong capital base ensures savings from
all are encouraged. The
question of whether or not the CSUs and the CCFs address peoples
socio-cultural, as well as their financial needs is seen as imperative by ADATS
if the Coolies are to gain a place within the society as an effective
minority. Such a socio-cultural
responsibility and acceptance can only be founded on interaction based on
justice and co-operation between all within the community.
Within the CSUs and the CCFs this is evident, where workers in all
possible cases belong to the community. Those who do not, are in effect
working themselves out of a job by training people of the community to
replace them. This together
with the professional expertise that ADATS
contributes to the Units, helps ensure that the traditional and cultural
voice of the community is heard alongside that of the external experts.
The emphasis that the Coolies and ADATS
place on socio-cultural values is evident from the level of community
participation in the CCFs and the CSUs. Although it is often the more economically marginalised
within the community who are targeted for involvement in the CCFs, there is
also a history of the better off within the community availing of loans.
This is evident from a report by ADATS
in 1997, of 17 villages in the Bagepalli region which recorded around 13%
distribution of loan funds to members who had a land holding of 5.1 acres or
more, (ADATS:1998:3). While
this allows for an improvement in their standard of living which would
hopefully have a domino effect on economically weaker members, is it worth
noting that in the same report, those holding between approximately 1/10 and
3 acres of land, benefited from the majority, (on average 49%) of loan
funds. However the report also
noted that the most economically disadvantaged within these 17 regions
accounted for approximately only 3% of loans administered.
It was believed that the lack of interest by the economically weaker
members of society in applying for loans was largely due to the fact that a
large proportion of loans were distributed for the purchase of seed,
seedlings or livestock for production purposes, and these members had no
land to grow crops or graze cattle on.
Also ADATS
noted an opinion among the landless about their own credit unworthiness.
This raises the importance of the necessity for a long-term focus on
promoting a sense of awareness and self confidence among the landless. The danger of economically better-off members availing of all
the benefits needs to be avoided
if the CSUs and the CCFs are to remain accessible to all. This
issue of a monopolisation on borrowing by the economically better off, has
been partly addressed within the CCFs by the promotion of transparency in
loan administration. Such
transparency ensures that all members are entitled to a full and frank
sharing of the financial position of a loan applicant, as well as having
access to the financial records of their CCF.
This develops an awareness of the accessibility for all in partaking in the
CCFs. As all members play an active and effective role in the supervision of
the utilisation and repayment of loans, and as loans are administered in a
revolving manner, it is very difficult for members to avoid this social
control. Such social control ensures community interest in
investigating loan administration, as it is in the interest of all to ensure
that loans are used for not only the good of the individual but also for the
benefit of the community. This
necessity of strict supervision by all is further promoted by the fact that
should a member default on repayment, it is up to the other members to repay
their debt to the CCF.
Such a system solidifies the sense of social responsibility, where
each member takes an interest in the daily life of their fellow members both
before and after borrowing. However
it is also important to note that loan repayments are renegotiable should a
member find themselves facing unexpected difficulty. While some members join
simply to borrow and then default, the vast majority of those who face
difficulty in repaying, will succeed in returning the money borrowed, once
their problems are discussed and the loan repayments rescheduled. This draws
attention to the importance of clearly
laid out and achievable individual repayment plan being drawn up for each
borrower. It is also felt by ADATS,
that the lessons learnt by the Coolies from such experience regarding
repayment plans will act to strengthen the Coolies sense of management and
administration, thus equipping them with the means to empowerment
(ADATS:1998:3). This is in contrast to the workings of the credit union
movement where bad debts remain the responsibility of the individual, and
while loans repayment can be renegotiated within the credit union, interest
rates remain a burden to the borrower.
The sense of community in the CSUs, is such that success is viewed as
not only success for the individual but for the CSU
as a whole. Accordingly,
interest free credit, by its emphasis on the whole person and its dependence
on a sense of community, ensures that more people gain access to credit, and
in doing so this allows for more to become self sufficient. Such self
sufficiency can only act for the benefit of the community.
This develops the belief of “Truth in Lending” where it is not
simply the financial background of the borrower or the highest financial
return that is important but also the social, environmental and political
effects the choice of lending will have.
By placing such importance on all of these issues, access to credit
is open to more than just those who possess a standard credit rating. This
in itself I believe is an argument in favour of interest free credit unions.
Therefore effort must be put into investigating the cost and its
benefits, and in this way the importance of institutional viability needs to
be recognised. Is
the importance of institutional viability recognised?
It
is essential that the viability of the CSUs and JAK are assured in all
sectors of operation. Not least
of these is the importance of institutional viability.
The credit union movement has clearly showed us how a people’s
bank can work efficiently and effectively if it is run under not just a
policy of social responsibility but also one of strict administrative and
managerial guidelines. JAK in Sweden functions under conventional banking codes. However it is run by a team of socially conscious volunteers and paid staff as opposed to profit driven directors. Nevertheless it has not been without its problems, which were evident in 1992 when a split occurred in the management staff, and a break away group formed to set up a similar organisation, Nordiska Sparlan Ekonomisk Forening. The importance of communication and a strong sense of comradeship is essential in such socially based financial institutions in order to avoid such upheaval and maintain stability. The
CCFs like credit unions, operate under strict organisational guidelines.
The common bond , which is fundamental to credit union philosophy, is
also held in high regard by the CCFs. Such
bonds are based on geographical lines.
Networking is also seen as essential for the healthy existence of
CCFs within communities. In
this way ADATS
promotes from a bottom up viewpoint, the weekly Manila meeting of women
within villages, the weekly meeting of all members in an area in their
cluster groups, and the monthly Bagepalli Coolie Sangha meetings which
brings together representative from all villages.
Such networking ensures that each CSU
not only keeps in touch with their sister CSUs but that they also gain any
assistance they may need from their counterparts. JAK
is however less locally based, choosing instead to appeal to people who
share a common bond of a belief in a more social and environmentally based
economy. Anyone sharing such ideas and willing to fulfill the compulsory
savings criteria is welcome to join. The
training of staff by ADATS
in all aspects of the CCFs is viewed as an essential element in the success
and sustainability of the credit fund.
The extent of ADATS
involvement in the CCFs is therefore dependent on the stage of development
of the particular CCF.
ADATS
aims eventually for the total employment of people within the community in
positions such as Village Level Workers (VLW),
Extension Workers and teachers. VLW
are responsible for the proper utilisation and prompt repayment of CCF
loans. Extension Workers
implement and construct CCFs across areas and ensure that Coolies are given
the necessary skills to run CCFs alone in the shortest possible time.
Added to this training is an emphasis on awareness raising within the
community of social issues and responsibilities.
The success of such awareness raising is evident from an evaluation
carried out on behalf of ADATS,
where it was found that, save for a few
incidences, brought about by the pressure of harvest time, most villages
held meetings continuously for the 8 years that the CSUs had been in
operation, (ADATS:1997). ADATS
recognises the importance of modern technology in the development process
and sees as essential the use of computers in managing the CCFs. Its importance is seen to not simply lie in the assurance of
a more efficient system of information gathering and storage, but also in
the belief that it allows access for more people to such information. This
is in keeping with the beliefs of the modern banking system of which the
credit unions too invest. From ADATS
experience the use of such technology need not only be restricted to the
literate. ADATS
recognises that “semiliterate Coolies are quite capable of handling a
sophisticated Management Information System in order to obtain objective
information, apply their own subjectivity… and come up with very good
political decisions and make good policies”,(ADATS:1998:3:15).
This is evident from the frequent use of computer printouts at not only
central office level, but also village level, to help in decision making
regarding loan sanctions. However
ADATS
also reported some drawbacks related to not having access to such
information, (ADATS:1998:1).
Some CCFs
who could not avail of technology within their village and when wishing to
administer loans or access or record information, had to travel as far as
Bagapelli to complete such work. This
led to inefficiency and often inaccurate recording of information due to,
among other things, a time lag or simply inaccuracies in memory.
Thus the importance of a clear and reliable information system is
essential for the efficient operation of the Coolies credit initiative. The
uses of such technology are being constantly reassessed by the CCFs and it
is hoped that it may soon become more decentralised so that villages will
have access to not only the work of the computer but also to the computer
itself. This ADATS
believes will allow for closer monitoring of trends in both individual and
overall borrowing, even if loans are given out on different terms and
conditions, for different purposes, and with different repayment schedules.
Plans are also under way to make such computer held information
accessible in the local language. This
is something that both banks and many growing credit unions must address if
they are to remain within the parameters of present and potential customers
or members. Access to
information in a language familiar and friendly to people is essential if
empowerment and sustainable development is to take place.
This is an essential element of the whole development process.
It allows people to not only access existing information in a
language familiar to them but it also allows them the power to take part and
contribute in future development debates. CCFs
are managed by the Coolies themselves along strict guidelines. All loans have to be approved by the CSU,
the Manila Women’s groups, and the Cluster meetings. In this way the decision making process is clearly in the
hands of the community. While
CCFs strive to operate on a professional basis, they nevertheless do not
attempt to become self-serving or alienating institutions.
This is born from desire to address the issue of accessibility for
all by integrating the positive techniques used in the mainstream banking
world with that of the people driven principles of the CCFs.
Therefore a strict code of book-keeping together with the latest
possible technology is promoted by the CCFs, to ensure viability in not just
a social sense but also a financial one.
The CCFs therefore operate a personalised system of lending and
repayments, where the borrower decides alongside the CCF
on the rate and length of
repayment. This adds weight to
the necessity, in such an interest free system, of a proper system of
banking funds in order to maintain a clear and concise account of all
transactions. All CCF
transactions are recorded in proper bank accounts which are opened in the
names of each village level CCF
and are seen as branch accounts of the Bagepalli Coolie Sangha. However as such banks accounts carry interest, it must be
noted that this is in conflict with the ideas of interest free banking which
I detailed in chapter 3. While
such banking does not directly effect the issue of exclusion for some
members of the community, it may in the long-term due to CCFs transference
of their banking charges onto their members.
Whether there is an alternative and whether such an issue can be
looked at for improvement is unfortunately beyond the scope of this
dissertation, but is one that both the Coolies and ADATS
must reflect upon. All
CCF
loan transactions are done by cheque, and while ADATS
initially retains a cheque signatory control, as soon as fiscal,
institutional and managerial discipline has been achieved and a proven track
record is evident within the CCF,
ADATS
hands over control of the cheque signatory to the CCFs.
Desk Workers within the villages maintain the CCF
account books, pass books and cheque books at the Taluk Headquarters.
It is the job of the Extension Workers to supply updates to the
executive assistance on the repayment patterns of the CCFs, and to ensure
that all mutually agreed upon procedures are met and acted upon.
This they do with the help of the Village level workers, the
Community Workers and the Field Workers.
While some such workers may not be members of the community, as the
Coolies become familiar with the institution, they will slowly replace
members of ADATS
who have been brought in from outside, to assist in the formation phase of
the CSUs. Credit
unions promote the idea of compulsory savings and repayment with continued
savings in order to both encourage the idea of saving among members and
build up the credit union capital base.
Some may argue that this places a lot of pressure on people who not
only have to deal with repayment but also the pressure of committed savings.
This, it is felt, excludes the more economically disadvantaged, as it
puts a greater financial burden on the borrower.
Thus access to credit may be hindered. JAK
too promotes the idea of compulsory savings. All members must have saved in
a common pool for at least 6 months, before borrowing. The amount a member
is permitted to borrow is determined by the amount of savings, how promptly
they can repay and how much money is available in the common pool. However
an “extra loan” which is in effect larger than a members entitlement can
be granted provided “after
savings” are increased to meet the debt. Unlike the credit union, no
interest is paid on savings, which keeps in line with JAK policy of no
interest charged on borrowing. Nevertheless the issue of compulsory savings
has according to Hofford excluded potential productive loans borrowers who,
she feels, are not willing to have to save
for an extended period of time, before gaining access to credit,
(1998). JAK recognises the importance, as does Islamic banking, of
attracting savings in order to build up a capital base. Its policy of
compulsory savings allows for the build up of a capital base which in itself
assists in its aims as an alternative to mainstream banking and its hope of
self-sustainability. However Islamic teaching also promotes the idea that in
times of high demand for capital, entrepreneurs should offer the bank a
higher profit-share, thus encouraging savings from members who in effect
will receive a share of such profit. In times of a low demand for capital,
the process should be reversed thereby reducing the supply. While JAK has
not yet developed its productive loan process to include such a policy, it
has however developed a system, whereby long term savings achieve maximum
borrowing rights. This, in view of the fact that borrowing is interest free,
is in itself an attractive package for both consumption and production
loans. JAK
also allows members to earmark their savings for particular lending, such as
environmentally friendly, educational, or mental or physical health
projects. However JAK
recognises the weakness in compulsory savings in relation to the exclusion
of those who cannot afford to save. It proposes to tackle this by
introducing a greater than normal total savings performance in order that a
self-generating fund can be built up to help the less financially viable.
Also as collateral is normally used as insurance against borrowing, JAK
plans to introduce a loan insurance programme, where people pay a premium in
order to cover against losses, for those potential borrowers who lack
collateral. An exceptional part of JAK policy in relation to savings, is the
transfer of borrowing rights, by loan or as a gift. This allows members to
assist each other in obtaining loans. Additionally members can to some
extent choose who they wish their savings to be lent to. This allows for
true community savings and credit, and reflects clearly the Islamic system
of Mudarabah. CCFs
on the other hand do not promote compulsory savings, believing instead in
offering people the quickest chance to make money and repay borrowing.
As they do not envisage themselves competing against the mainstream
banking sector, their focus on building up a capital base is not that
strong. Their capital base
resource comes via ADATS
from their northern NGO
partners. Not insisting on
compulsory savings, they believe ensures the speedy turnover of and quick
repayment to the revolving fund, thereby turning the wheels of their own
prosperity, and allowing access to more people, particularly the more
economically marginalised. However, if CCFs were interested in becoming self
sustainable, both the credit union and JAK's idea of compulsory savings is
worth considering and maybe adapting. It
would allow for the build up of a capital base that was not determined by
the charity of NGO
partners. Likewise for a speedy
form of repayment that enables more lending, the credit union and JAK might
consider not insisting on compulsory savings, both before and during
borrowing. Such
issues lead me on to the fourth and final area that I feel needs to be
addressed in order to reflect on the viability of interest free credit
unions. Together with those already discussed, I believe the economic
viability of such a system must be proven. I have already touched on areas
of economic viability above. However, I
now propose to further reflect and discuss the importance of this. Is the Importance of Economic viability recognised?In
Chapter 3, I discussed how interest free credit schemes are economically
viable and promote a belief in the integration of an economic, institutional
and social based policy on lending for the good of not just the individual
but also the community at large. Having
already discussed the role of both JAK
and the CCFs regarding their policies on socio-cultural responsibility and
institutional viability, I now propose to reflect on the economic viability
of these 2 case studies by drawing on the elements of interest free credit
that was detailed in the previous chapter. As detailed earlier the majority
of JAK loans are administered for consumption purposes, 90% of them being
for house purchases. This has allowed for the build up of long term
services. JAK charges a fee to cover administration expenses which can be
paid in installments over the repayment period. However JAK does have plans
to introduce an interest free profit and loss sharing loan instrument
specifically geared towards financing businesses. This JAK feels will have
an indirect impact on unemployment by allowing businesses to redirect the
money normally used on interest payments to the purchase of more goods and
the employment of more people. If a business fails, JAK believes it must
carry the burden of losing the loan while the entrepreneur loses all their
work. JAK believes this to be fair in view of the fact that no business
venture can be 100% safe. JAK hopes to invest in environmentally sound
projects, thus promoting the idea of a social based lending system, that
until now mainstream banks up have tended to ignore in favour of high yield
large scale projects, such as the building of nuclear plants. Credit,
the Coolies argue is needed for both investment and daily living expenses.
Lending for production helps directly to build up capital thus
allowing for the eventual enterprise in more mainstream markets.
Consumption loans allow people the ability to acquire basic
necessities in life. The Coolies place as much emphasis on consumption loans
as production loans. However
it is a familiar pattern in all CCFs for the greatest percentage of loans to
be administered for production purposes.
Investment in cattle rearing and crop growth comprises the greatest
use of loans. As noted earlier,
in general the poorest of the Coolies borrow the least and this borrowing is
usually for consumption purposes. In
addition to this, the 10% donation to the Sangha Funds adds quite a burden
to the borrower. This must be
worth noting and maybe investigating if interest free credit unions are to
offer accessibility to, and viable for all.
Consideration of the suggestions made in chapter 3 of possible
methods of covering the costs of consumption loans are worth examining by
the CSUs. One such suggestion is that in a system where profit-and-risk
sharing for production loans is implemented, profits should be used to cover
the costs of consumption. The
idea of profit-and-risk sharing (Mudarabah and Musharakah in Islam), has
been considered by ADATS
and the Coolies, in relation to the CCFs.
Ram Esteves, Director of ADATS,
believes that the Coolies by the very fact that they promote the idea of the
development of the whole village / society, actually share risks and profits
in each venture that the CCFs sponsor, (1998).
This can be seen when indirectly the whole village benefits if one
member of a CCF
prospers from a venture they have borrowed for. The social responsibility
that the CCFs undertake is further evident from the insurance that they
place on all sheep bought through CCF
loans. In addition purchase
committees exist to assist in such purchases in order to help minimise
exploitation of members. The willingness to renegotiate loans if the borrower finds
themselves in difficulty or the very fact that members cover defaulted
debts, also highlights the belief by the Coolies in communal risk sharing.
However CCFs, unlike Islamic banking, do not negotiate a profit-share
for both parties before a loan is given.
This practice may be based on the overall aim of CCFs, which is not
built on the idea of self-sufficiency, but is rather aimed at strengthening
the economic base of the Coolies in order that they can enter the
“mainstream reality of institutional finance”, (Esteves:1998).
Such an absence of emphasis on self-sufficiency, draws into
question the long-term viability of the CCFs.
However, I believe that their success, which we see evident in the
short term, can become long-term by the implementation of some of the
proposals in Chapter 3. Presently
however the CCFs, while partially covering their costs, such as
depreciation, inflation and bad-debts, from the donations of members to the
Sangha funds, are by and large financed through ADATS
by northern NGO
partners. This needs to be
addressed if the CCFs are to stand as an example of the long-term viability
of interest free credit. ADATS
however, as already mentioned, see the mainstream banking sector as too
strong to compete against. The CCFs are therefore seen more as an instrument
in “weaning first time entrepreneurs through their initial enterprises”,
(Esteves:1998). Capitalism they believe can be improvised to develop a
bottom up approach to development thus remoulding the present system to suit
the emerging needs of the more marginalised members of society.
This argument in itself reflects the strengths of an interest free
system, where access to such a system allows the build up of an economic
power base within a sustainable economy, for those previously at an
economic, and consequently social disadvantage in society.
I believe that if such a system can operate with such success in the
short-term, that there is no reason why it cannot do so in the long-term.
By developing the idea of profit-sharing on production loans and
charging a fixed fee on consumption loans, I believe this can be achieved. JAK
on the other hand, recognises the inequalities that exist with capitalism,
and the effects it has on the quality of people’s lives both financially
and environmentally. They therefore aim to act as an alternative to
mainstream banking, by working towards a sustainable system of
self-financing interest free credit. To achieve this, they recognise the
difficulties of covering costs, particularly when existing
in a world of erratic inflationary trends and unstable money markets.
This was reflected by the closure of JAK in Denmark in 1973, when inflation
became so high that demands for loans grew dramatically
alongside an equally dramatic fall in savings. JAK Sweden realised
from this, and the huge demand for loans in the mid 1990's due to high
inflation, that savings are an essential element in sustainability and the
covering of expenses. Such savings JAK divided into pre and post borrowing
savings, the latter being paid alongside the loan. This, like the credit
union, helps sustain a capital base, thus assisting in the assurance of
financial sustainability. Having
reflected on the merits and weaknesses of such interest free systems it
remains to be seen whether or not there has been an overall improvement in
the lives of those participating. Such
improvements should not simply be measured in economical or financial terms,
but also in the social quality of peoples lives. JAK
unlike CCFs, has placed more of an emphasis on the financial sustainability
and viability side of its organisation, as opposed to the CCFs emphasis on
the conscientisation of its members and the build up of an economic base of
its people in order that they may compete in the capitalist market.
Regarding its financial status, its emphasis on savings, and in view of the
fact that it has just been granted a banking license, I believe that JAK
will achieve its aim of proving to both members and non-members the
viability of interest free credit. This is further evident from the
statistics available from JAK in January 1998, where it is recorded that in
1990, 1991, 1996 and 1997, 0% of loans defaulted. Between the years 1992 and
1995 on average only 1.5% of loans defaulted. As 90% of these loans were for
housing, it is clear that while one may not be able to relate it to an
overall reduction in poverty, it does allow people access to home ownership
that they may not otherwise have been able to obtain. This in itself assists
in the building of security and stability in society. JAK
recognises its potential for success in being
part of a mainstream
banking network, devoid of the pressure interest brings with it. However, it
was its membership in excess of 1000 people that allowed such a license to
be granted. JAK recognises that its growth in size, as opposed to small
credit co-operatives may act to exclude many. They also recognise the danger
of this putting pressure on them to reduce their emphasis on ideological
work. This they fear could reduce their volunteer base. However JAK are
hopeful that the Swedish government may legislate to allow smaller
institutions licenses, thus taking pressure off them to remain above 1000
members. I am also hopeful that with such strong ideological beliefs JAK
will not be swallowed up by the globalisation of the capitalist banking
system. JAK also recognises the importance of remaining accessible to all
with regards to borrowing and has recognised the danger of compulsory
savings in excluding people. As noted earlier, it has already begun to
address this issue. As
the CCFs are part of a larger movement for Coolie development, namely the
CSUs and the overall umbrella organisation, the Bagapelli Coolie Sangha, it
would be wrong to reflect in isolation, on the sustainability of the CCFs.
The many sub-groups surrounding the movement, for example, the women
only Manila meetings or the Cluster meetings, have led to a decentralised
and grassroot system of management, where all members participate in the
decision making process, and in this way build up a sense of strength and
empowerment from each other. The Coolies now realise that they have the means and
resources to help themselves. The
development of such a close knit sense of community, where the success of
one has a positive impact on others, allows for the continued growth of the
CCFs, and the possibility of their long-term sustainability.
Such a growth in the Coolie’s sense of self worth is evident, when
after only a few months of ADATS
involvement in a village, the Coolies are already discussing how they will
manage after ADATS
involvement has been withdrawn, (ADATS:1998:1). For
many however, the ultimate measure of success is a reduction in poverty. ADATS
highlights many examples of Coolies who have benefited and prospered from CCF
loans, (ADATS:1998:3). They
also make note of some statistics which reflect the impact of the CCFs on
communities in the Bagepalli region of India.
An example of this is the North Kolar district during the period
October 1996 to March 1997. Repayment
rates in this region were over 90%. Such
high rates reflect an ability to repay from profits earned on borrowing.
Only 2% of loans overdue were more than a year late.
The importance of repayment is thus reflected, but together with this
is the ability to repay on time, suggesting that the CCFs are investigating
before lending and are therefore achieving their goal of lending for the
benefit of the individual and the community, (ADATS:1998:3). Such positive
rates of repayment not only encourage more loans to be made, but also
guarantee an added bonus in the form of the 10% donation to the Sangha Funds
by each borrower. In this way
the more members that borrow and repay, the greater the growth in the Sangha
Fund and the speed that funds revolve. This allows for more members to
borrow and thus prosper. This
in itself becomes a spiraling process of continued growth for the community
at large, as people ultimately borrow from each other to assist in each
other’s financial growth. However
the danger of financially poorer members of the community not availing of
credit due to their lack of basic resources is worth noting. The pressure of
compulsory savings in JAK and landless Coolies’ reluctance to borrow
because of a lack of capital, are examples of this. These people must not be
forgotten and their situation must be dealt with if the CCFs and JAK are to
avoid becoming financial institutions that serve to assist the “elite”
of the community only. Therefore
a main point in my findings must be reflected on yet again; that is the
necessity for an intersectoral approach if interest free credit is to be
truly viable for all. Such
intersectoralism includes recognising socio-cultural and economic
differences, particularly when many people possessing no material resources,
find it very difficult to begin to help themselves with loans for productive
purposes, or when compulsory savings are placed on people with irregular
incomes. This must be reflected upon, in order to avoid the possibility of
such a group of people becoming alienated from the opportunity CCFs and JAK
offer, of not only financial but also social prosperity and empowerment. Although
JAK's system of operation varies radically from that of the CCFs, it's view
of a social policy of equity does not. Such a system too operates within the
credit unions. However credit unions, by charging interest exclude some
members of society. Both of the above case studies attempt to address this.
Neither may have got the formula for success completely right. However more
than anything, both have attempted to root themselves in the social and
cultural values and economic climate around them and from this basis have
sought to improvise and develop unique systems of operation suited
specifically to their needs. In
this chapter, I have looked at the viability of interest free savings and
credit by the examination of 2 case studies. My findings reflect the
importance of an intersectoral approach in order that credit schemes be
viable. While credit unions today do address these issues, and for most
people are very successful in doing so, their charging of interest does
exclude some sections of society. The 2 case studies presented reflect that
it is possible for credit unions to consider and implement and interest free
scheme in order that the excluded are included and accessibility for all
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