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.

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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.

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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.

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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

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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!

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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

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saved. At the end of each cycle you earn dividends based on the amount of your
savings. Those with more savings get bigger dividends.

For the first three years mandatory savings cannot be withdrawn unless a woman
leaves the village bank. But once the members feel that their group fund is big enough
to satisfy everyone’s credit needs, they may decide that women can withdraw some of
their mandatory savings without having to leave the bank. Voluntary savings, on the
other hand, may be withdrawn at any time. Often women keep some voluntary
savings in the bank for emergencies or to pay for family expenses such as school fees
or household repairs.

Many women feel it is difficult to save. But if you could save even one penny a day,
in just six months you would have $1.80 in savings. If the village bank gives you a
loan worth five times your savings, you could then begin taking a series of short-term
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 can gradually
improve her economic situation.

If a woman is really poor, you may think, how can she save even one penny a day?
People should look at saving as one of their regular necessary expenses. Just as
everyone has to buy salt and spices, village bank women have to save. You can look
at your present expenses and try to cut back on things that are unnecessary. Smoking
cigarettes is an example. Sometimes you may have to ask other family members for
help. But without sacrifice it will not be possible to accumulate even a little bit of
wealth. Village bank women and their families make sacrifices because they know

that this is the way to a better future.

In some communities there may be very poor women who want to join the village
bank. Perhaps they cannot afford to pay as much mandatory savings as the other bank
members are ready to pay. In such cases the bank members may agree to let the poor
women save at a lower rate until their businesses become established and they can
earn enough to save like the others. Women with smaller savings will get smaller
dividends and will be eligible only for smaller loans, but at least they will have a
chance to get started on the road to better income.

What about loans?

To be able to take a loan from the village bank you have to be a responsible member
of the group. Members who are in good standing have priority when it comes to
getting loans. To be in good standing, a member must attend bank meetings and save
regularly, make her loan payments on time and abide by the bank’s rules.

Here are some other special features about village bank loans:
Village bank loans are not given for household consumption—things like
paying for weddings or funerals or for repairing your roof. Women may have
trouble paying such loans back. Village bank loans are given to help women

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carry out all kinds of business activities. If you put the money you borrow into
a good business you will have no problem paying it back.
Village bank loans should not be passed on to other family members. Family
members may help a woman with her business, but she, herself, should be the
owner and manager. A woman who passes her loan on to others has no control
over how the money is used, yet she is responsible for paying it back
Before taking a loan a woman must present her business idea to the group. The

group will know if the woman really has a business and if the size of the loan
is appropriate.
Village bank loans are usually small at first. But they get bigger as a woman
proves she is capable of managing her money and paying back her loans on
time.
Village bank loans are given for short periods of time, from one to six months
at first. These short-term loans encourage women to look for income-
generating 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 are small and easier to manage for women
who are just getting into business.
When women repay their loans in weekly installments it means that every
week money is coming back into the bank. That way other women can get
loans quickly. Also the more actively the group fund is rotated, the more profit
the bank will make and the bigger everyone’s dividend will be.
Interest on a village bank loan is usually $2 per hundred (or 2%) per month,
which is the same as 24% a year. Interest is taken out at the time the loan is
given. The initial loan disbursement is the principal minus interest.
Once the group fund is large enough to meet all of the members’ needs, the
group may decide to allow some women to make their loan payments
monthly. But women who make monthly payments should pay 2.5% interest
per month, because they are keeping the group’s money out for a longer time
and others cannot use it.
After all the credit needs of the members are satisfied, a village bank may
make loans to non-members. These loans can be made to men or to women,
but the borrowers should be trustworthy and well known to the village bank
members. Such loans are usually given at 3% per month.

Most village banks make a rule that a loan cannot be more than five times a
person’s savings. A woman with $10 in savings, for example, could get a loan
up to $50. But a woman with only $2 in savings could borrow only $10.
No loan to any individual, whether a member of the village bank or an
outsider, should be worth more than 10% of the group’s fund.
Before taking a loan women must sign a debtor’s agreement, which is a piece
of paper acknowledging her debt and promising to repay her loan. Women
also sign a personal collateral form on which they promise to hand over
something of value to the bank if they do not repay their loan on time.

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Since non-member borrowers have no savings at the village bank, they must
deposit personal collateral, equal to the value of their loan, with the treasurer.
Non-members also sign a debtor’s agreement and pay their loans back in
weekly installments, but they are not required to attend the bank meetings.
Loans made at the beginning of a cycle may be for 24 weeks. But loans made
later in the cycle are for 20 weeks, 16 weeks, 12 weeks, 8 weeks or 4 weeks.
This is because all loans should be repaid by the end of the cycle so the
management committee can close the cycle and distribute dividends.
During the first two 24-week cycles the management committee has to learn
the accounting system and the members must learn to repay their loans on
time. If the village bank can close two cycles successfully, the bank may begin
to offer deserving women bigger and longer loans, for up to 8 or 10 months.
These are called cross-cycle loans. Deserving women are those who are active
and regular members of the village bank, who have a growing business, and
who have repaid at least three loans on time.

Why are loans given for only one to six months, and not for a whole year?

One of the purposes of the village bank is to encourage women to think hard about

ways to earn money. It may be easy to raise a goat or to plant corn, but these
traditional activities do not generate a lot of income and they are not going to make
women prosperous. To really make a change in their economic condition women have
to break out of these traditional kinds of work.

Village banks make short loans to encourage women to speed up their selling. With a
four-month loan a woman can buy a small goat rather than a newborn, and fatten it for
two or three months, and sell it for a profit. Meantime she can sell snacks to make her
weekly payments. She can grow vegetables. But while her vegetables are growing she
can also buy vegetables from local farmers and sell them. By taking and repaying
several short loans a woman can earn more than she can from one big, long loan.

Once a woman has more business experience and has proven that she can pay back
her loans on time, it is possible for the village bank to offer her longer loans—perhaps
for eight months. These are called cross-cycle loans because they do not have to be
paid back by the end of the cycle. But these longer loans have to make sense for the
kind of business the woman is doing.

Why are village bank loans small at first?

Village bank loans start out small for several reasons. First of all, the group fund is
built up from the savings of the members. In the beginning the group fund is probably
quite small. Also, women need to have experience putting borrowed money to work
and paying it back before taking on the responsibility of using bigger loans.

Small loans may not be good for buying expensive fixed assets like a kiosk or a cow.
They are better used for working capital. A woman can use a small loan to buy things
for resale or to buy things that she can work on and add value to, like turning fruit into
chutney, milk into candies, or raw rice into beaten rice.

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Women in village banks do not get big loans until their group fund has grown and
everyone’s credit needs are being met. Rather than getting ―a loan,‖ they get a ―line of
credit.‖ That means as soon as one loan is paid off they get another and possibly a
bigger one. As long as they are in good standing, they always have access to credit
from the village bank. Their loans get gradually bigger and bigger as their businesses
grow and they gain more experience. Once the group fund is big enough and a
member has proved that she is creditworthy, because she has borrowed many times
and always repaid her loans on time, then the village bank can give her a bigger loan
for a longer period of time.

Why are village bank loans paid back in weekly installments?

Weekly installments may be hard to manage at first, but they have several advantages.
One advantage is that the loan installments are small. If installments were once a
month they would be four times as big! It might be difficult to come up with so much
cash at a time.

When loans are paid back in weekly installments there is always money coming back
into the village bank. That way other members do not have to wait for such a long
time to get their loans. And as more loans are given out the village bank earns more
interest. That means bigger profits for the bank and bigger dividends for the members.
The village bank is like a second business for the members. To make their village
bank profitable, the members have to rotate their fund as actively as possible.

More importantly, weekly loan payments mean women have to have weekly income.
They have to do activities that involve frequent selling, and these kinds of businesses
are the most profitable. To be in business you have to sell, and the more frequently
you sell the better. Women who sell regularly have no trouble paying their loans back

in weekly installments.

After three or four cycles, when the group fund is big enough to satisfy everyone’s
credit needs, a village bank may decide to allow women to repay their loans in
monthly installments. But that means the women are keeping their money out of the
bank for longer periods of time and others will have to wait longer to get their loans.
For that reason village banks usually charge a higher interest rate, say $2.50 per
hundred (2.5%) each month, for loans that are paid back in monthly installments.

What 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 excuse or without sending
advance notice to the secretary must pay a $.05 fine.
If anyone is more than 15 minutes late to a bank meeting she must pay a $.01
fine.
If anyone misses one of the scheduled study classes she has to pay a $.01 fine.

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If anyone fails to bring or send her mandatory savings to the bank meeting she
has to pay a $.03 fine.
In some banks the chairperson reads out the names of all the borrowers who
are behind in their loan payments.
In some village banks women have to pay a $.05 fine if they are late making a
loan payment. If they are late again the fine goes up to $.10 for every missed
payment.

If a loan is not fully repaid by the due date, the bank may use the person’s
savings to pay off as much of the loan as possible. If the woman’s savings are
not sufficient she must turn her personal collateral over to the bank treasurer.
If a woman cannot fully repay her loan by the due date because of some
misfortune, the bank may decide to give her extra time to pay without penalty.
This is called ―rescheduling a loan.‖
If a woman has a big loss due to some misfortune, but she is a member in good
standing, the bank may decide to give her an additional loan to pay back her
first loan and re-establish her business. This is called ―refinancing a loan.‖
Since dividends are based on how much savings a person has, if a woman has
to use her savings to pay off her loan she may not get a dividend.
Any bank officer who misuses the bank’s money must repay the money and
should be removed from her office.
Any woman who abuses the bank or acts irresponsibly can be kicked out.

Usually the secretary reads out the rules at the beginning of every bank meeting. Most
of the members appreciate the rules and the need to pay fines, because the rules
protect their money and the fines go into their group fund. Members that consistently
miss meetings, break the rules or do not pay their loans back on time may have to wait
longer to get a loan, or they may get smaller loans. If they persist they might be asked
to leave the bank.

What are the rules for safe money handling?

For everyone’s protection the village bank should have strict rules for safe money
handling. Here are 10 rules that many village banks have to ensure their money will
not be misused or lost.
1. All banking transactions should be made during the bank meeting in front of
the whole group.
2. Only members of the management committee may open the cash box outside

of the bank meeting. They may need to take money out for deposit in the
commercial bank or for administrative expenses.
3. Only members of the management committee may authorize or pay
administrative expenses for the village bank. These must be reasonable and
receipts should be gotten whenever possible.
4. Only the treasurer handles cash during the meeting. If any cash is missing she
is responsible and must make up the difference herself.
5. If there is $10 or more in the cash box at the end of a bank meeting, a deposit
should be made in the commercial bank account within 24 hours. All money in
excess of $5 should be deposited, leaving only $5 in the cash box.

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6. At least two members of the village bank must go to deposit or withdraw
money at the commercial bank. If the treasurer cannot go, she should prepare
the bank deposit slip. The deposit slip and bank passbook should be returned
to the management committee the same day, properly filled out and stamped
by the bank.
7. At the start of every bank meeting the members should inspect the commercial
bank passbook and deposit slip to see that the money was deposited within 24
hours.
8. The cash box should have three locks and different members of the
management committee should keep the keys. The fourth management
committee member keeps the box.
9. All entries on forms, journals and passbooks should be neat, accurate, honest
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 money for personal profit. Every village bank has rules for safe money
handling. But sometimes the officers become lax. What if an officer does not deposit
the bank’s excess cash in the commercial bank immediately, but ―borrows‖ it for her
own personal use? What if the treasurer accepts a savings payment outside of the bank
meeting and just pockets the money and does not record it?

Everyone should carefully follow the rules for safe money handling. The management
committee must be honest and transparent in its dealings. It must be able to resist
pressure by members, leaders and even outsiders.

Stagnation happens when membership declines rather than grows, when members
leave the bank and are not replaced. Stagnation also happens when savings taper off,
or when members start using their mandatory savings to make loan payments. It
happens, too, when the group fund is not fully utilized and some of the money sits
idle. When 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 the habit of making their loan payments late. Late
payments reduce the bank’s earnings because the money cannot be lent out to others.

If a member becomes careless the bank may decide to stop lending to her until she

straightens out. If she does not, she might be asked to leave the bank.


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Incompetence means that the management committee and the members cannot
manage the bank meetings properly. Perhaps the management committee cannot fill
out the accounting forms on time or keep track of the funds. What if the committee
cannot calculate dividends or open and close a cycle correctly? What if there is
disunity in the group and the management committee cannot provide a unified and
caring environment for all of the members?

When the management committee feels it is over its head in problems it should visit
another village bank. It should watch how they conduct their bank meeting and ask
the officers questions.

How do we know if a village bank is healthy?

At the end of every cycle the village bank should perform a health check. The health
check involves looking at all of the parts of the village bank and seeing which parts
everyone is satisfied with and where there is room for improvement. The health check
can be simple, involving just a ―yes‖ or ―no‖ answer to a series of questions. If the
members find weak areas that they want to improve, they can work on those areas
during the next cycle. Here are the kinds of questions that can tell us if a village bank
is healthy:

Participation
1. The attendance and payment record is kept up to date. (Yes or no?)
2. All or almost all of the members attended the last bank meeting.
3. Bank members consult and vote on issues important to the bank.
4. Members are active in group income-generating activities to raise money for

the village bank.

Rules
1. The village bank has rules about attendance and payment of savings. The rules
are enforced.
2. The village bank has rules about safe money handling. The rules are carefully
observed.
3. The village bank has rules about repayment of loans. The rules are enforced.
4. Members of the management committee abide by the bank’s rules.
5. Members are aware of 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 bank is able to calculate loan statistics at the end of every bank
meeting.
5. The village bank officers are able to calculate dividends at the end of a cycle.
6. The village bank officers are able to close one cycle and open the next one
within one week.


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Savings
1. Each member has a plan for mandatory and voluntary savings.
2. Each member makes savings deposits at every bank meeting.
3. All or almost all of the members deposited savings at the last bank meeting.

Loan Repayment
1. All or almost all of the members pay their loan installments on time.
2. Fines are imposed on members who make late payments.
3. The village bank keeps a debtor’s agreement and a list of personal collateral for
each borrower.
4. The names of all those who are behind in their payments are read out at the
bank meeting.
5. During the last cycle the village bank had no loans that were 30 days or more
overdue.
6. Members who have poor attendance or irregular savings have low priority for
receiving loans.
7. The management committee follows up immediately on all loans that are
overdue.

Growth
1. The village bank has plans to increase its membership to at least 25 or 35.
2. During the last cycle the village bank added new members.
3. Members are involved in at least two income-generating activities per cycle to
raise money for the village bank.

Money Handling
1. The village bank has a commercial bank account.
2. The commercial bank passbook and deposit slip are shown to the members
after every deposit.
3. The members know how to check the date and the amount of the commercial
bank deposit.
4. No one but the treasurer handles the village bank’s money during the bank
meeting.
5. No village bank transactions are made outside of the meeting except by the

management committee.

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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 try her
best to be an active and responsible member. This means:
attending the meetings regularly;
having both mandatory and voluntary savings;
paying your loan installments on time;
learning how to read and write and do simple arithmetic;
being able to fill out your own savings passbook and loan passbook;
having a business and working hard to improve the quality of life for your
family.

Most active bank members belong to solidarity groups. These are groups of four to six
women who help each other with their businesses. Often solidarity groups study the
Women in Business manuals together. Sometimes they may even help each other
make loan payments if someone is having a problem. Or they can look after each
other’s children when someone has to be away. Also, each solidarity group plans at
least two income-generating activities per cycle to raise money for the village bank.

All members must agree to abide by the village bank rules. That means:
paying fees and fines when they are due;

signing a debtor’s agreement and a personal collateral form before taking a
loan;
turning over your personal collateral if you have not fully repaid your loan by
the due date.

All members are responsible for:
preserving the unity and dignity of the village bank by not gossiping,
backbiting or forming cliques;
inspecting the commercial bank passbook and deposit slip to verify that excess
cash was deposited at the commercial bank within 24 hours of the last bank
meeting;
helping screen loan applications, so that the village bank’s money is lent out
wisely and put to productive use;
taking time from their busy days to help others learn how to read or to
participate in community service projects that the village bank initiates;
keeping the village bank active and growing by recruiting new members who
are honest, hard working, and who genuinely want to improve their lives.


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Who are the officers of the village bank and what do they do?

The village bank has four officers: a treasurer, a chairperson, a controller and a
secretary. These four make up the bank’s management committee.

The management committee
The management committee keeps the bank running smoothly and solves any
problems that come up. The officers who make up the management committee make
sure the village bank is active and growing. They make sure that the group is unified
and supportive of every member. They know that factions, gossip and prejudice can

hurt the bank and that members might lose interest and drift away.

The management committee also makes sure that the members are disciplined and do
not fall behind in their loan payments. Whenever a woman fails to make a loan
payment on time it reduces the village bank’s earnings because that money cannot be
lent out to someone else. The management committee is careful not to let collection
problems develop.

The management committee also fills out all of the village bank’s financial records.
For that reason the officers should all be literate, good at math, trustworthy and
responsible. They have to give a lot of time to make the bank successful. They have to
work hard and set a good example for the others.

Each of the village bank officers has special responsibilities:

The treasurer
The treasurer should be someone who is honest, energetic and good with numbers.
She has the hardest job. The treasurer is the only person who handles cash during the
bank meeting. If any cash is missing, she is personally responsible and must make up
the difference from her own pocket. The treasurer should be someone who will never
be tempted to borrow personally from the group’s fund.

During the bank meeting the treasurer:
counts any money coming into the bank and puts it in a cash separator;
announces to the management committee each transaction that a member is
making;
signs each member’s savings passbook;
makes sure each woman taking a loan signs the debtor’s agreement and fills
out and signs the personal collateral form;
signs each member’s loan passbook;

fills out the cash control sheet.

At the end of the bank meeting the treasurer:
balances the meeting with the controller;
counts the money in the cash box before adding any cash from the bank
meeting;

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fills out a commercial bank deposit slip if there is over $10 in the cash box,
leaving only $5 in the box;
fills out the cash book with help from the controller;
fills out the financial statement with help from the controller;
fills out the balance sheet with help from the controller;
takes the cash box home with her.

On the day after the bank meeting the treasurer:
along with another bank officer, takes any excess cash to the commercial bank
for deposit;
if the treasurer cannot go herself she gives the excess cash to two other
officers or trustworthy members who will deposit it in the commercial bank;
receives the bank deposit slip with the commercial bank’s stamp and date,
showing that the money was deposited.

At the end of each 24-week cycle the treasurer:
prepares an end-of-cycle balance sheet, setting aside 10% of the bank’s profit
as a reserve for bank expenses;
calculates each member’s dividend on the basis of her minimum savings
during the last 12 weeks of the cycle;
fills out a new savings passbook and new saving journals for each member,
adding the member’s dividend to her mandatory savings.

The treasurer also keeps all of the bank’s records in order in clearly marked files. She
keeps the files carefully wrapped in plastic to protect them from water or insects.

The chairperson
The chairperson should be someone who is mature and well respected. She manages
the village bank meetings, and during consultation she makes sure every member has
a chance to speak. She helps the group make decisions and solve any conflicts that
might arise among the members.

During the bank meeting the chairperson:
makes announcements and helps the group consult on important matters;
helps the group make decisions and rules;
fills out each member’s page of the savings journal and has her sign it.

The controller
The controller makes sure everyone is following the rules. She helps keep the group
disciplined. For that reason she should be respected and someone who is not afraid to
be strict. She also helps the treasurer keep track of the financial transactions. So she
should be good at arithmetic and able to keep accounts.

During the bank meeting the controller:
carefully watches each and every transaction;

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records the details of each and every transaction on the summary transaction
sheet;
reminds members about any fines they owe.

At the end of the bank meeting the controller:

balances the meeting with the treasurer;
helps the treasurer fill out the cash book, the financial statement and the
balance sheet;
helps the secretary or the assistant treasurer fill out the loan statistics form.

Before the start of each new 24-week cycle the controller works with the secretary to:
prepare loan passbooks and loan journals for women taking loans at the start
of the next cycle;
prepare a personal collateral form and a debtor’s agreement for women taking
loans at the start of the next cycle.

The secretary
The secretary should be someone who is good 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 book;
assists any member to fill out her passbook if the member is having difficulty;
prepares a new line on the debtor’s agreement for each woman taking a new
loan;
fills out each member’s page of the loan journal and has her sign it.

At the end of the bank meeting the secretary:
fills out the loan statistics form with help from the controller.

Before the start of each new 24-week cycle the secretary works with the controller to:

prepare loan passbooks and loan journals for women taking loans at the start
of the next cycle;
prepare a personal collateral form and a debtor’s agreement for women taking
loans at the start of the next cycle.

Assistant officers
Assistant officers may also be needed if the banking transactions take a long time. An
assistant treasurer can fill out the cash control sheet while the treasurer is counting the
money and making change. Sometimes the village bank chairperson is an older

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woman who is well respected but whose eyesight is poor. Or perhaps she is weak in
math. An assistant chairperson can help her fill out the savings journal. An assistant
secretary can help a member with her savings passbook while the secretary fills out
her loan journal and marks the attendance and payment record. An assistant controller
can keep track of who has to pay a fine at the next meeting.

How are the village bank officers elected?

The village bank officers should be elected by secret ballot. This is the best way to get
the right person for each office. The members should not discuss with anyone who
they intend to vote for, nor should they try to encourage others to vote for certain
people. Nothing can do more harm to the unity of the group than to have it divided
into factions.

Before the election each member should think of the qualities that an officer needs to
have. Then she should think of each and every one of the group members to see who
best exemplifies those qualities. She may consider herself to be the best person for an
office.

The members vote for one officer at a time, starting with the treasurer. There are six
steps in the election.

Step One: At the time of the election the members are all given small pieces of paper.
They will use these to write their ballots. A lot of ballots are needed for the election,
so some pages of a notebook should be torn into small pieces.

Step Two: The members vote for one officer at a time. Each member should think of
the qualities that that particular officer will need and who in the group has those
qualities. She should not discuss her choice with anyone.

Step Three: Quietly and in a way that others cannot see, each member writes one
name on a piece of paper. She folds the paper and all of the ballots are put in a pile in
the middle of the group.

Step Four: Two members open up all the ballot papers and put them in different piles
according to whose name is written on the ballot.

Step Five: The two members count the ballots. The person who receives a majority of
votes is elected to that office. A majority means more than half. So in a group of 25 a
woman must receive 13 votes to be elected.

Step Six: If no one receives a majority, then the members vote again between the top
two candidates. As before, voting is done in an atmosphere of quiet reflection.

Officers serve in their positions for one year. After two cycles the group should elect
new officers. The current officers may be elected to a new post, but are not eligible to
serve again in the same post. This gives everyone a chance to learn how to manage
the village bank.

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How do the officers get trained?

The duties of the officers are 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 them.

Another way for a new management committee to get trained is to visit a more
experienced village bank and watch how those women conduct their banking day.
After all the transactions are completed the new officers can ask detailed questions
about things they did not understand in the Women in Business manuals.

Once a village bank has trained and experienced officers, it is useful if the group
elects the next set of officers half way through the second cycle. Then the new
officers can sit beside the current officers and assist them, at the same time learning
all the different responsibilities that go with that office. It is especially important that
the new officers learn how to open and close a bank cycle.

What is a village bank cycle?

A cycle is a period of time when certain things happen. It’s like planting rice. First
you grow the seedlings, then you prepare the land and transplant the seedlings. During
the growing season you pull out the weeds. Finally it is time for the harvest. Every
year you go through the same steps, from planting to harvest. The village bank also
operates in cycles.

Each cycle is six months long, which is 24 weeks. At the beginning of the cycle every
member gets a new savings passbook. Other accounting forms are also started then.
At the beginning of the cycle many loans are given out to the members. But if the loan
fund is still small, it may not be possible for every member to get a loan at the
beginning.

After one week the members start bringing their loan installments along with their
savings. Every week, as money comes into the bank, new loans are given out. Loans
given out at the beginning of the cycle can be for as long as 24 weeks. But loans given
out later are for shorter periods of time, like 20 weeks, 16 weeks, 12 weeks, 8 weeks,
or even 4 weeks. This is because all loans must be paid back by the end of the cycle.

Here are some of the important things that happen during the village bank cycle:
The beginning meeting of the cycle is called the ―Zero‖ Meeting. This is when
the first loans of the cycle are given out.
At the end of the first week the first installments on those loans are due. That
bank meeting is called Meeting 1. It means one full week of the cycle is
complete.
Starting with Meeting 1, as savings and loan payments come into the bank,
additional loans are given to members who did not get them at the ―Zero‖
Meeting.

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At Meetings 2 through 19 all of the bank members get loans and those who
have paid their loans back get repeat loans.
At Meeting 20 the last four-week loans of the cycle are given out. The
management committee also arranges to get all the accounting forms it needs
for the next cycle.
From Meeting 21 the management committee begins reminding the members
to get their loans repaid on time because the end of the cycle is coming up.

During Meeting 22 the women discuss who wants a loan for the next cycle and
how big a loan each person wants. The demand for loans may be bigger than
the money in the group fund.
The management committee reviews all the loan requests. At Meeting 23 the
list of loans to be given out at the beginning of the next cycle is finalized.
Other women will have to wait a week or two until the group fund starts to fill
up again with loan installments and more savings.
Meeting 24 marks the end of the cycle. At that meeting all loans are repaid and
the cycle is closed.

Who screens the loan applications?

The village bank members themselves screen loan applications. They are the
managers and it is their money that is being lent out. They want to be sure they will
get it back.

When screening loan applications the members want to be sure the borrower is
trustworthy and will repay her loan on time. They will look at her past repayment
record, her attendance and whether or not she saves regularly.

What about the woman’s business? The members will want to be sure the borrower is
not going to pass her loan on to somebody else. Does she have a business already, or
at least does she have a good business idea? Does she have experience with the
business she plans to do? Is she going to use her loan for production and not
consumption? What is she going to buy with the loan? What does she plan to sell?
Where? Who are her customers?

And what about her savings? Is the loan she is requesting not more than five times her
savings? Is her collateral worth as much as the loan?

The whole group may be involved in screening loans, or it may be done by the
members of a solidarity group, or by the management committee. Once a woman has
borrowed several times and her business is well known, screening becomes routine.

What about larger and longer loans?

After the village bank has closed two 24-week cycles successfully, it can start offering
cross-cycle loans to women who are active bank members and who have a good
record of making payments on time. Cross-cycle loans can be for more than 24 weeks
and they can be given out at any time during the cycle. A woman who has a cross-
cycle loan will get her share of the dividends so long as her payments are up-to-date at