Western policymakers looking to strengthen the credit union movement could take lessons from the developing world, where in some countries microcredit is the cornerstone of the financial system.
The biggest and most famous micro-credit organisation, Grameen Bank in Bangladesh, started in 1976, specialising in awarding small, collateral-free loans. Since then it has handed out loans totalling $2,2-billion and now has 2,2-million borrowers.
Christian Aid is involved in promoting credit unions and innovative financial models aimed at including the poor across India.
In the villages around Madurai, a town in Tamil Nadu, a scheme run by Society of People’s Education and Economic Change (Speech) operates a not-for-profit credit card, which has improved the lot of local women.
The “security card” allows people whose financial situation would usually put a credit card beyond their reach to use a relatively modest up-front sum, rather than a big salary, as security. Holders must have savings of 750 rupees (around R230) before they are issued a card to the value of 1 000 rupees. They also have to be female, because this project is about empowerment as well as finance.
The amount spent is repaid over three months, together with a 4% interest charge. The credit limit is raised after one year of successful repayment. Speech negotiates with local shops to accept the card and give discounts on bulk purchases. So far 500 cards have been issued and the repayment failure rate has been zero.
“The card has made tremendous changes in the life of rural women,” says Arun Odayam of Speech. “Now that they have started buying material in bulk, they can make savings and so are able to afford quality food.”
There has also been an important effect on the role of women: “The security card is also boosting their self-esteem. Women have started deciding the family expenditure, while when it was the men doing the buying, they used to spend the money on drink and entertainment.”
In the north-east Indian state of Orissa, Gram Vikas runs a credit union with a difference. It provides not only a way to save, but also a construction and clean water programme, a land reclamation scheme and even a working model for the democratic process.
Labour as well as cash is contributed to the common pot. As a result 5 000 villages now have drinking water, sanitation and employment opportunities.
Villagers collect a “corpus” fund, into which every family must contribute 1 000 rupees. The fund is then deposited in a bank and the interest is used to build new facilities and to train people in masonry, plumbing and other maintenance skills. The money is also used to secure cheap loans.
Joe Madiath, director of Gram Vikas, says: “The whole village is involved in the decision-making process about how the money is spent. A visit to one of the villages makes three things clear: the people are proud of their achievements; they have a clear vision of the future; and the process of change gathers momentum and affects several different aspects of the villagers’ lives.”
Liz Stuart works for Christian Aid