Women in Business - Village Bank Operations Manual potx

Women in Business Village Bank Operations Manual Table of Contents Page I. What Is a Village Bank? 1 How is a village bank different from a regular savings and credit group? 1 Who can join? 2 Why does a village bank need to have 20 to 35 members? 3 How are new members trained? 3 What are solidarity groups? 4 Why do village bank members have to learn to read and write? 4 Why should women contribute to the cost of the Women in Business manuals? 5 Why are all the village bank members supposed to have a business? 6 What about savings? 6 What about loans? 7 Why are loans given for only one to six months, and not for a whole year? 9 Why are village bank loans small at first? 9 Why are village bank loans paid back in weekly installments? 10 What kinds of rules do village banks have? 10 What are the rules for safe money handling? 11 What kinds of things can go wrong in a village bank? 12 How do we know if a village bank is healthy? 13 II. How Does a Village Bank Operate? 15 What are the duties of the village bank members? 15 Who are the officers of the village bank and what do they do? 16 The management committee 16 The treasurer 16 The chairperson 17 The controller 17 The secretary 18 Assistant officers 18 How are the village bank officers elected? 19 How do the officers get trained? 20 What is a village bank cycle? 20 Who screens the loan applications? 21 What about larger and longer loans? 21 Why do some women have trouble repaying their loans? 22 How does the management committee solve collection problems? 23 What does it mean to reschedule a loan? 24 What does it mean to refinance a loan? 24 How can a village bank increase the dividends it pays? 24 Increasing earnings 24 Reducing costs 25 How do group income-generating activities work? 25 What kind of venue, equipment and supplies does a village bank need? 25 What happens at the bank meeting? 27 Before the bank meeting 27 During the bank meeting 28 After the bank meeting 29 Between bank meetings 29 III. The Village Bank Accounting System 31 How does the village bank accounting system work? 31 Attendance and payment record 33 Savings passbook 34 Savings journal 35 Loan passbook 36 What is a loan equation? 37 Loan journal 38 Debtor’s agreement 39 Description of personal collateral 40 Cash control sheet 41 Summary transaction sheet 42 How are group activity expenses and group earnings recorded? 43 Cash book 44 Commercial bank passbook 46 Why do village banks need to open an account at a commercial bank? 47 Financial statement 47 Balance sheet 49 What are arrears? And what does it mean that a loan is “at risk?” 50 How do you calculate arrears? 50 What is default? And what is bad debt? 51 How does the village bank record an external loan? 51 How does the treasurer calculate the balance sheet? 51 Loan statistics form 53 How does the management committee close the cycle? 56 What is the “end-of-cycle” balance sheet? 57 How are dividends calculated? 59 How do you round to the nearest dollar? 60 What is an end-of-cycle audit? 60 IV. Developing Your Microenterprise 61 Can village bank loans be used for anything? 61 How big a loan should I take? 61 Don’t we need training to go into business? 61 What kind of businesses can we do? 61 What if women in our culture have never done business? 62 What can we do with these small village bank loans? 62 How can we pay our loans back in just six months? 63 How can we pay our loans back in weekly installments? 63 How can we find good business ideas? 63 What about our families? 64 How can I earn money all year around? 64 What does it mean to be an entrepreneur? 64 How can we improve our businesses? 64 How can we find a selling advantage? 65 What is profit? 67 How much can I earn? 67 How do I keep track of my earnings and expenses? 68 What is working capital? 68 Don’t let working capital leak out of your business 68 A business health check 69 Glossary of Terms 71 1 I. What Is a Village Bank? How is a village bank different from a regular savings and credit group? A village bank is a group of 20 to 35 women who come together because they want to increase their income and improve their lives. Although a village bank is a bit like a traditional Rotating Savings and Credit Association (ROSCA), it has many features that make it different from a regular savings and credit group. For example: Bank meetings are held once a week. The members give their village bank a name. The members of the village bank elect a management committee. The management committee is elected by secret ballot. The management committee serves for a term of one to two years. There are four officers who make up the management committee: a treasurer, a chairperson, a secretary and a controller. All financial transactions, such as collection of savings and disbursal of loans, are done at the bank meetings, in front of the entire group. The management committee keeps detailed records of every financial transaction. That way everyone knows where every bit of the bank’s money is at any time. The management committee knows how to prepare an income statement and a balance sheet. They do this after every bank meeting. Every village bank has a calculator and all the members learn how to use it. Every village bank has a cash box with three padlocks. Three different officers keep the keys to the locks. The fourth officer keeps the box between meetings. Many village banks open a savings account at a commercial bank in town. Whenever there is more than 10 dollars in the cash box, all but $5 is deposited in the commercial bank account for safekeeping. Village bank women always have access to credit. But instead of giving each member one big loan, the village bank gives women a series of small, short- term loans. As soon as a woman pays back one loan, she can take another. The small, short-term loans are designed to help women get started in business or to grow the businesses they already have. In credit programs where loans are provided by an outside agency, interest payments go back to the agency to pay for staff salaries and other costs. But in a village bank, the interest earned on loans remains in the group fund as profits and creates wealth in the community. Village bank members know how much of the group’s money belongs to individual women in the form of savings. And they also know how much profit the bank has earned from interest on loans, fees and other sources. 2 The village bank runs in six-month cycles. Every twenty-four weeks the management committee closes the cycle and divides up the bank’s profits among the members in the form of dividends. Dividends are paid according to how much savings each person has. A person who has more savings gets a bigger dividend. In a village bank the members form solidarity groups. The solidarity groups carry out group income-generating activities to earn extra money for their fund. The village bank is actually a business itself. Whenever it makes a profit the members benefit, because dividends are increased. Village banks hold at least one family gathering every cycle, where the members invite their husbands or fathers and other family members to hear about the village bank. Through these gatherings the whole family becomes positive and supportive. These are just some of the ways that a village bank is different from an ordinary savings and credit group. Village bank members learn how to keep accurate accounts, just like a real bank. They learn how to keep their bank growing and active, how to handle money safely, and how to avoid corruption. But the village bank is not just a place for carrying out financial transactions. It is also a place where women learn to read and write, where they discuss new ideas and practice management skills, where they find support and encouragement for their business activities, and where they can plan programs to serve their community. The main purpose of the village bank is to increase women’s income. But participating in a village bank also helps women grow personally, become more confident, and take better care of their families. In fact, the village bank can help the entire community develop and become more prosperous. Who can join? As in many savings groups, members of a village bank should be at least 18 years old, be honest and trustworthy, and they should be residents of the community. But unlike most other groups: Village bank members must be committed to learning how to read and write and do simple arithmetic. They should be open to working with women of all religions, castes and ethnic groups. They should agree to avoid gossiping and backbiting or bringing politics into the village bank meetings. They should be willing to attend meetings regularly, save, and abide by the village bank’s rules. They should be willing to get into business themselves and not take loans for others. They should have supportive families who will encourage them to participate in the village bank and allow them to have their own businesses. 3 When you join a village bank you have to put in many hours of hard work. You also have to contribute to the cost of the books that teach you how to read and how to operate your village bank. Village bank members expect one another to be trustworthy, cooperative and open to new ideas. Village bank women do not blindly follow the old ways passed down by their mothers and grandmothers. They look honestly at the traditions and practices around them, and they are ready to change those traditions that are holding them back and adopt modern practices that will help them and their families progress. Being part of a village bank takes a lot of effort. But without dedication and sacrifice how can women advance? Unless they learn new ways, how can their lives improve? Village bank women want their children to be healthy, educated and well cared for. They are willing to work hard and try new ideas because they want to be good examples for their children. The village bank offers each member the support and confidence that come from consultation, friendship, shared goals and working together. As a group the members consider what steps will help them make a better future for themselves, their families and their community. Why does a village bank need to have 20 to 35 members? Village banks may start out small, with only 15 or 20 members. But in order to be profitable and active a village bank should grow to around 20 to 35 members. More members mean more savings and more people using the group fund for their businesses. That means more women benefiting, more profits for the village bank and bigger dividends for the members. The village bank is not just a comfortable place where a few friends save and sometimes take a loan. It is an institution that can serve many women in the community. There will always be new women asking to join. Also, women may get married and move away, or they may leave the village bank for other reasons. Those women will have to be replaced. That’s why the village bank has to be able to accept new members and grow. How are new members trained? New members may join the village bank at any time. Usually new members have a sponsor, who is one of the current members of the village bank. The sponsor vouches for the new member’s character and explains to her how the village bank works. If the new member cannot read or write, the sponsor might help her or find her a volunteer teacher. This is why some village banks like to admit new members at the beginning of a cycle. That way, all the new members can learn to read in a group and study the Women in Business manuals together. Some of the well-established village banks have a training committee. The committee consists of three or four experienced members who can explain to new women how the village bank works and what their responsibilities are. 4 New members have to buy their books or borrow them from older members of the bank. They should pay an entrance fee and start bringing their weekly mandatory savings to the bank meetings. New members are not eligible for loans until they have attended four bank meetings and saved four times. Because their savings are small, their loans will be small at first and so will their dividends. If the village bank grows to 35 members and still more women want to join, the group should help the new women form their own village bank. Once membership grows to more than 35, the bank meetings can take a long time. What are solidarity groups? In many village banks the members form solidarity groups. Solidarity groups are four to six women, often neighbors or friends, who provide support and encouragement to each other. Sometimes they help each other with their businesses. Solidarity groups also carry out income-generating activities to raise money for the village bank. Sometimes solidarity groups study the Women in Business manuals or other reading materials together. In some village banks the solidarity group members screen each other’s loan proposals and give suggestions. They can recommend to the management committee whether or not a loan should be granted. If one of the members of a solidarity group is having a problem with her business the others might help her make her loan payment. Or if one of the members has to go to the market for buying or selling, another member might look after her children. Since the women in a solidarity group know each other well they can turn to one another for help or advice. Solidarity groups are informal and flexible. They do not have officers. They can add members any time or replace members who leave the bank. Why do village bank members have to learn to read and write? Reading and writing open up the opportunity for self-learning. Although women may learn many things about village banking from observing another group or by inviting someone from an experienced village bank to show them how to keep their records, no one has the time to teach them every detail about managing a village bank. But women can learn those details by reading about them in the Women in Business manuals. When reading the Women in Business manuals, it is best to read and do the exercises in a group. No matter how well a person reads, it is always useful to discuss the ideas in the books and to think about how to use them. If the whole village bank cannot find a time to get together to read the manuals, smaller groups of women can meet in different people’s homes at times that are convenient to them. In addition to their bank meeting, village bank members should try to meet at least twice a week to study the Women in Business manuals. That’s at least three meetings a week. Many groups meet even more often. Sometimes new readers meet six times a 5 week to study the manuals. Those who are better readers can help the new readers understand the material. And if there are new words or ideas, the more heads trying to understand them the better! Then at the bank meeting everyone can ask questions and discuss any difficult parts. Being able to read the manuals and do simple arithmetic make it possible for all of the village bank members, not just the management committee, to understand how the village bank works. Every member can add up her savings, figure out her loan equation and even calculate her dividend. It is difficult to cheat people when they know what’s going on. That is why village bank members learn how to be money smart. They learn how to recognize money, how to add and subtract it and how to count change. They know how to examine the village bank’s records to make sure money is not being misused. And they know how to calculate whether or not they are making a profit in their own businesses. Later, once women learn how to read, they can find out about good health practices, how to take even better care of their children, about their legal rights, or about how to find good business ideas, all on their own and in their groups. They do not have to wait for an outside agency to come to their village and offer them training. Women who are literate can progress at their own pace and learn as much as they want to. They are independent. They can stand on their own feet. They are empowered! Why should women contribute to the cost of the Women in Business manuals? The purpose of the village bank is to help women stand on their own feet. This will never happen if women are always dependent on outsiders, if they always wait for others to provide things before they can go forward. From the very beginning the women in the village banking program learn how to do things for themselves and how to pay for the goods and services that they value. Like learning to read and write, a healthy attitude about paying for services, and not waiting for things to be provided for free, makes women independent and puts them in control of their own future. An attitude that ―we can do it,‖ and a willingness to take responsibility for one’s own development, are important if the village bank is to be sustainable and move women forward. This is why the members of the village bank begin by taking responsibility for their own literacy classes. In the literacy programs run by the government and by NGOs, usually everything is provided—a teacher, books, lanterns, kerosene, a blackboard, even pencils and notebooks. But a woman has to wait for a provider to come to her neighborhood before she can join a class. And if enough women cannot be found who are willing to join a literacy class, her community might not get a class at all! But women in village banks find their own volunteer teachers. If only a few women are illiterate, they can learn together in a small group. If none of the members of the economic group can read or write, one of the school-going children can act as the volunteer tutor. By managing their own class, women learn that with just two simple books and each other’s help, they do not need to depend on any outside agency to make them literate! 6 This understanding is important because women need to realize that their fate lies in their own hands and not in the hands of others. If they need pencils or paper or even some kind of technical assistance or training, they learn how to raise money and go out and get it. In addition to paying for books, women usually pay a small entrance fee to join the village bank. This fee may range from $.25 to $1, depending on what the group decides. The entrance fees provide the village bank with a certain amount of cash so the group can buy some necessary supplies, like a cash box, a calculator and accounting forms. Why are all the village bank members supposed to have a business? It is very possible that a woman, when joining the village bank, has no business experience. But one of the purposes of the village bank is to raise the economic condition of its members. For that reason, even if a woman has no previous business experience, she should be someone who is interested in finding a business idea, is willing to go out and try it, and who is ready to overcome her fears and inhibitions about selling. It is easy to just sit home and save. But without effort there can be no progress. The village bank is for women who want to move forward, who want to be an example for their children, who want to earn more so their children can get educated, can get the medicine they need, can dress well and eat better food. We need to learn how to make money as well as save it. The village bank is designed for women who want to see their families get on the road to prosperity. That should be made clear to anyone who wants to join the village bank. That is the reason why village bank members do not take loans for others. It is fine if other members of the family help them with their businesses, but they must be themselves the owners and managers. Otherwise women will be stuck paying off a loan that someone else is using. What about savings? At each bank meeting, just like in a traditional savings group, the members deposit a certain amount of mandatory savings. The exact amount is discussed in the group and agreed upon by all. But women try to save as much as they can in order to build up their group fund quickly. Mandatory savings for each member may range from $.10 to $.50 a week. But in most village banks the rate is $.20 a week. In addition to mandatory savings, each member should try to deposit as much voluntary savings as she can. One interesting thing about the village bank is that all the members do not have to have the same amount of savings. That way, women can deposit different amounts of voluntary savings. Also, women who join the group later can simply start bringing their weekly mandatory savings. They do not have to match the amount saved by everyone else. Every member has a passbook to keep track of how much she has [...]... described in detail in the Women in Business manuals But it is very helpful if an officer from a more experienced village bank gives the management committee some hands-on training on how to conduct a bank meeting The best way is for the new officers to role-play a banking day and get useful feedback and pointers from the experienced officer A new village bank may even want to pay someone to come and train... things like this happen dividends decline In a healthy bank all these things should be growing To bring a stagnant bank back to health, sometimes a change in leadership is required Also the women may need to recruit new members who will work hard to keep the bank active and growing Indiscipline is the situation when members start missing meetings or coming to the meetings late, or when they get into... short-term loans encourage women to look for incomegenerating activities that are more profitable than traditional agricultural or livestock work Village bank loans are paid back in weekly installments This way women begin to look for business activities that turn money over quickly Businesses that involve frequent selling are the surest and quickest way to increase family income Also, weekly installments... loans from the village bank starting with a loan of $9.00 That would be enough to get you started in a small business Once you are in business and have regular income you will not have trouble saving even two pennies a day By the end of a year you could have $7.20 in savings Then you could get loans of up to $36.00 from the village bank to grow your business This is how a woman starting with very little... kinds of rules do village banks have? Village bank members are serious about making a better future for themselves In order to ensure good discipline, many village banks have strict rules that the members all agree to abide by Most village banks impose fines on people who break the rules Here are some of the rules that you will find in most village banks: People who miss a bank meeting without a good... surplus One way is to increase earnings The other way is to reduce costs Increasing earnings To increase earnings, the group fund should be lent out all the time Interest on loans is the main source of income for the village bank The group’s money should never sit idle It should always be rotating That is why, after successfully closing two cycles, many village banks start giving cross-cycle loans These... the bank s rules and the schedule of fines Fines are collected Bookkeeping 1 The management committee is able to calculate a financial statement and a balance sheet at the end of every bank meeting 2 The members have savings and loan passbooks and the bank has savings and loan journals The passbooks and journals are kept up-to-date 3 The village bank has a cash book and it is kept up-to-date 4 The village. .. management committee 14 II How Does a Village Bank Operate? What are the duties of the village bank members? Any member might be elected as an officer of the village bank So it is important that all of the members study the Women in Business manuals, understand how the village bank works, and have a clear idea of what each officer does In addition to understanding how the village bank works, every woman should... at reading and writing She receives and writes letters on behalf of the village bank She keeps a record of decisions and rules in her minutes book During the bank meeting the secretary: reads out the rules at the beginning of each bank meeting; takes the roll call at the start of each bank meeting and fills out the attendance and payment record; keeps a record of decisions and rules in her minutes... and up-to-date 10 If any member of the management committee is found to have made personal use of group funds, she should be removed from office What kinds of things can go wrong in a village bank? There are four bad things that can happen to a village bank: corruption, stagnation, indiscipline and incompetence Corruption happens when someone steals money from the village bank or uses the village bank s . managing a village bank. But women can learn those details by reading about them in the Women in Business manuals. When reading the Women in Business manuals,. refinance a loan? 24 How can a village bank increase the dividends it pays? 24 Increasing earnings 24 Reducing costs 25 How do group income-generating