villagefinance

Children playing in an Isabel village. Saving in wood (left).

In a 2002 speech Sir Dudley Tuti described as ‘quite tormenting’ the state of rural credit unions in the Solomon Islands. The Paramount Chief of Isabel Province, Sir Tuti had pioneered the national credit union movement two decades earlier. He had secured national legislation and formed the Solomon Islands Credit Union League (SICUL). By 1994 the SICUL reported 121 credit unions with 16,588 members: reaching almost a quarter of the nation’s households.

The Solomons are a natural laboratory for community-based finance: most people live in isolated villages on a thousand islands dotting the Pacific northeast of Australia. Since independence in 1978, cash has seeped (and occasionally flooded) in and out of these villages via commercial logging and fishing operations, land settlements, and small industries like copra (a by-product of coconut). The population has doubled since 1995. More and more villagers want things that only money can buy: outboard motors, higher education for their children, solar panels.

But challenges of scale and capacity haunt the Solomons. Villages often have less than 50 households, literacy is very low, and villages far apart. The law permits CUs to form with as few as 15 members, but SICUL refused to register those with less than 50. Smaller ones were dubbed ‘savings clubs’.

In his 1995 PhD thesis Atkin Zaku, a Tuti protégé and early SICUL manager, observed that credit union directors rarely understood their roles. Credit union planning, budgeting and internal auditing were not executed effectively, and loans were inadequately tracked. These are literate skills, misaligned with an oral village.

The capacity gap had predictable results: delinquencies would stack up and the village credit unions would drift — unable to plan for the future and unaware of their actual condition — until a major issue emerged and tore them apart.

Credit union records, Koghe.

Last year, while on assignment with the Pacific Financial Inclusion Programme of UNCDF, I visited Koghe, a village some 15 kms from Sir Tuti’s home in Jejevo, Isabel. The credit union there ran from 1987-2000, and reached nearly 150 members before folding. The ledgers and loan contracts were meticulous. But due to very low literacy they would have been beyond the understanding of most members and even most directors. Text can only support separation of duties and internal controls when it matches local capabilities.

Oral information management (OIM) tools may offer a solution to this challenge. By expanding member awareness of the meaning of governance tasks, OIM tools may strengthen the institutional controls within small credit unions. This could lengthen their lives, and help them function as effective platforms for the distribution of mobile money in remote areas.

In his 2002 speech, Tuti spoke not just of his torment but of possible solutions. He saw ‘savings clubs’ as essential. He believed in villagers, and felt that if the rules and records were simpler, these savings clubs could play a vital role in village modernization, linking to credit unions based in larger towns. In the event, ill health and his death in 2006 left Tuti’s renewed vision unrealized, but not forgotten.