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Archive for the ‘Financial cooperatives’ Category

Combating Elite Capture: F.W. Raiffeisen

Posted in Financial cooperatives, History, Microfinance, The village, tagged , , , , on March 25, 2012| 2 Comments »

If elite capture is such a serious threat, how was it dealt with during the microfinance revolution in Europe? F.W. Raiffeisen addressed this risk directly: he asked village elites to play leadership roles in the cooperatives – but to derive no material benefit from them.

In speeches he emphasized religious duties of charity and responsibility to community, and encouraged the villagers to elect leading individuals to the board, conditional on their character. Board positions received no compensation. Raiffeisen (more…)

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Elite Capture (2)

Posted in Financial cooperatives, History, Microfinance, tagged , , , , , on March 2, 2012| Leave a Comment »

By 1979 only 61 of the 400 Comilla cooperatives were still functioning.  One observer attributes this result to four factors:  fraud/lack of internal controls, stagnation, diversion of funds, and ineffective external supervision. The central problem of fraud and weak controls “was possible not only because of individual dishonesty, but because the people were not made aware of their rights, and were not in a position to voice their rights (Aditee Nag Chowdhury, Let Grassroots Speak, p. 54).

Partly as a result of Dr. Khan’s experience, later Bangladeshi practitioners in microfinance, such as Dr. Muhammad Yunus and Fazle Hasan Abed, (more…)

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Elite Capture: Comilla

Posted in Financial cooperatives, History, Microfinance, Uncategorized, tagged , , , , on March 1, 2012| Leave a Comment »

The ‘cooperative wave’ of microfinance gave way to the ‘microcredit’ wave in the 1970s. ‘Elite capture’ severely damaged the cooperative wave in the South. The story of the transition from the Comilla model to Grameen Bank, at the inflection point between the movements, is exemplary.

The ‘Comilla Model’ was initiated in East Pakistan by Dr. Akhter Hameed Khan in 1959. Khan drew inspiration from the Raiffeisen credit unions of rural Germany. He envisioned ‘vigorous local institutions’ that could provide credit and access to markets for the farmers of Comilla district. The cooperatives (more…)

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The First Wave of Microfinance

Posted in Financial cooperatives, History, Microfinance, tagged , , , on February 13, 2012| 4 Comments »

Two rallying cries propelled the second wave of microfinance. First, in the 1970s it was ‘proved’ that poor people repay their loans; and second, we ‘learned’ that you can lend money to poor people and make money doing it. These statements may motivate people, but they are impoverished reflections of history.

The first wave of microfinance began in 1864, and rapidly spread over much of Europe, delivering both credit and savings in villages the banks would not touch. Reflecting on nearly 50 years of village finance practice, the journalist Henry W. Wolff wrote in 1910 that “… there has been found to be no more regular and more scrupulous repayer than the small man.” (People’s Banks, p. 27)

(more…)

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Rural Market Failure — Interest Rates

Posted in Financial cooperatives, History, Microfinance, tagged , , , , , on January 18, 2012| 1 Comment »

Krong Pailin, Cambodia. In the rainy season a 1-2 km trip can take much of the day.

Rural microcredit rates have risen sharply since the dawn of the microfinance revolution. Most modern rates range from 12-60% annually, with unsubsidized rates below 12% being extremely rare. The alternative for most poor borrowers is either no credit at all, or much higher informal rates.

At the dawn of the microfinance revolution, during the 1860s-90s, the Raiffeisen banks of rural Germany charged 5½% (per annum, declining balance) on small farmers’ loans, (more…)

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Investing in People

Posted in Financial cooperatives, Microfinance, tagged , , on November 21, 2011| 1 Comment »

Arusha Women's Market. Villagers save at home from one harvest to the next, losing a lot of their savings.

The second afternoon of a three-day strategic planning workshop for a rural credit union in Kilimanjaro region. Five board members and the manager have just completed a pilot market survey in their village. Their board room is spacious and airy – though one wall is missing, and a kid goat sits comfortably under the manager’s chair.

They report back on what they have learned.

(more…)

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The Road ‘Less Traveled’

Posted in Financial cooperatives, History, Microfinance, tagged , , , , , , , on May 29, 2011| Leave a Comment »

I shall be telling this with a sigh
Somewhere ages and ages hence:
Two roads diverged in a wood,
and I, I took the one less traveled by,
And that has made all the difference.
— Robert Frost

Some three decades ago the experts announced that only one source of funds could deliver microfinance services sustainably to billions of the world’s poorest people. That source was Western capital markets and the profit-maximizing investors participating in them.

When F.W. Raiffeisen launched the first microfinance revolution (1864-1945) he used a different source of funds: (more…)

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Why Study Village Finance?

Posted in Financial cooperatives, Microfinance, tagged , , , , , , on May 21, 2011| Leave a Comment »

Field portion, village finance auditing course, Cambodia, 2007

About 8 years ago I visited a small credit cooperative in Cambodia. Its chairman was a cheerful farmer with greying hair and callouses who wore neat business clothes with a krama (a square checked Khmer cloth) flung jauntily over his shoulder. He presented a sheaf of neat hand-written financials to me, with his signature and the treasurer’s jumping boldly off the bottom.

As we visited borrowers (more…)

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Be Wary of Assumptions

Posted in Financial cooperatives, Microfinance, Orality, tagged , , , , , on May 3, 2011| 5 Comments »

During one of my quarterly visits to the Far North Credit Union, I was intrigued to discover the note “QF” next to several loans recorded in the cash book.  I was told these were “quick fire” loans, made without any written record and no collateral, to a maximum of $50.  When I asked where the idea had come from, I was told it had been given to them by New Zealand’s credit union pioneer — Colin Smith — during a training workshop.

Formal speaking is a powerful living tradition

Horrified at the idea of a loan of any size being made without a signed contract (and the subsequent default levels!) — and knowing that Colin, a chartered accountant, would never countenance such a thing — I tracked down the origins of their innovation to a presentation he had given on improving members’ experience of the loan

(more…)

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