To effectively equip the poor to overcome chronic hunger and poverty, the financial and non-financial components of integrated services must be sustainable and tailored for the poor—designed to meet their needs, resources and livelihood strategies.  In particular, appropriate credit and savings are crucial. 

Group Structure

Experience has shown that group-based mechanisms are appropriate and highly effective means to deliver financial services to the poor.  Accordingly, Freedom from Hunger has worked closely with implementing organizations since 1989 to develop, adapt and hone group-based approaches to integrated service delivery.  The most common group structure is the Credit Association, originally based on a methodology developed by FINCA International. Also called “credit and savings association,” “community bank” or “village bank,” a Credit Association is composed of 20–40 community members, typically poor women.  Another common group structure is the center, comprised of 30 people, based on the Grameen Bank methodology.  Other group structures include self-help groups, which are traditional structures that range widely in number of members and are found all over the world.  Regardless of group structure, group members are typically trained by the implementing organization to manage their group and meet regularly to

• access credit and make regular repayments on loan principal and interest;

• make regular deposits of personal savings; and

• participate in learning sessions, training or other non-financial services. 

Credit

The credit process begins with a group loan to the Credit Association (or other group structure) from the implementing organization. The Credit Association, in turn, on-lends to its members with small individual loans (initially US$60–$80) to finance income-generating activities.  Loans are typically peer-guaranteed; that is, members guarantee repayment of each other’s loans.  To do so, all members must agree that each borrower is capable of making sufficient profit from the proposed income-generating activity to repay the Credit Association loan with interest.  While the group guarantee is a highly effective approach for many poor clients, a number of implementing organizations are also experimenting with individual liability.

Borrowers usually invest their loans in working capital for activities in which they are already skilled and need no technical assistance, such as food processing and selling, raising chickens, operating a small shop, and making or buying and selling clothing.  Loan size, loan duration and repayment frequency are suited to the scale and cash flows of these types of businesses.  Thus, members make regular (weekly, biweekly or monthly), small, fixed repayments over the course of the 4- to 8-month loan cycle. 

If the group repays its entire loan to the implementing organization, on time and with interest, it becomes eligible to immediately receive a new, usually larger, loan.  In turn, members may receive larger loans as their business needs grow and their comfort and capability to manage larger loans increases.

Savings

The opportunity for members to save in a safe place and to save for a variety of purposes is another important service that implementing organizations can provide to the poor.  Savings help the poor to make important investments in their businesses or personal lives, plan for the future and cushion against shocks—be they illness or death in the family, business problems or natural catastrophe.  Savings also serve as a guarantee for loan repayment for many implementing organizations.

The savings options that implementing organizations offer depend on the regulatory framework of the country of operation, the legal status of the organization and the needs of their clients.  For instance, savings may be managed by the organization or by the groups themselves.  Savings may be voluntary or compulsory.  Savings may openly be accessed—at any time in any amount—or be accessed at designated times in designated amounts.  Finally, savings may be for general use or for designated purposes such as health, school costs, and death in the family or business cycle expenses.

Typically, though, members are encouraged to save in the way that is easiest for them—in small regular amounts, along with their loan payment, during group meetings.  Members who choose not to take a loan during a particular cycle still deposit weekly savings and attend meetings.