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Micro & Small Enterprise Lending Products: Credit Union Innovations

Micro & Small Enterprise Lending Products: Credit Union Innovations. Lucy Ito World Council of Credit Unions, Inc. (WOCCU) Emerging Products for Micro & Small Enterprise Finance World Bank & World Bank Institute March 20, 2001. WOCCU/CUES/Philippines (December 2000) Member-Savers:

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Micro & Small Enterprise Lending Products: Credit Union Innovations

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  1. Micro & Small Enterprise Lending Products:Credit Union Innovations Lucy Ito World Council of Credit Unions, Inc. (WOCCU) Emerging Products for Micro & Small Enterprise Finance World Bank & World Bank Institute March 20, 2001

  2. WOCCU/CUES/Philippines (December 2000) Member-Savers: 147,669 Savings & Shares: $10.5 million Loans Outstanding: $8.1 million WOCCU/Ecuador (September 2000) Member-Savers: 792,255 Savings & Shares: $79.3 million Loans Outstanding: $68.3 million CU Lending Innovations

  3. Model Credit Union (MCUB) Asset-Accumulation Savings-Based Mixed Outreach Financial Disciplines Individual Loans Strategic Needs: New Product Dev’t New Members Credibility/Brand Village-Banking (SCWE) Income Generation Loan-Driven Target: Poor Women Product Discipline Group Loans Strategic Needs: Source of Loan Funds Graduation Options Strong Host MFI WOCCU/CUES/Philippines:A Coupling of Methodologies

  4. MCUB & SCWE • Model Credit Union Building (MCUB) • Financial Disciplines: • Quality Products & Services (Savings & Credit) • Efficiency of Operations • Usage of PEARLS Monitoring System (See: WOCCU International CU Prudential Standards) • Savings & Credit with Education (SCWE) • Introduces a village-banking group loan product to CUES credit unions

  5. Basic Village Banking Model • 5-6 women form a Solidarity Group. • 5 Solidarity Groups form a Credit Association. • Credit Association representing 25-30 women behaves as a single client to host or sponsoring institution. • Transactions and funds within Credit Association are handled internally by Management Committee. • Source of credit funds = external donor funds.

  6. FFH Innovation on Village Banking Product: Credit with Education (CWE) • 5-6 women form a Solidarity Group. • 5 Solidarity Groups form a Credit Association. • Credit Association representing 25-30 women behaves as a single client to host institution. • Transactions and funds within Credit Association are handled internally by Management Committee. • Integrated financial and educational service delivery system. Non-formal education on high impact topics (health, nutrition, other) • Source of credit funds = CU member savings & external donor funds.

  7. WOCCU/CUES Innovation on Village Banking/CWE: Savings & Credit with Education (SCWE) • 5-6 women form a Solidarity Group. • 5 Solidarity Groups form Savings & Credit Association (SCA). • Members may save onlyand skip loan cycle(s). • SCA joins CUas anAssociate Member. • SCA Management Committee handles internal transactions; but, no internal fund. Rather, SCA deposits funds into CU.

  8. WOCCU/CUES Innovation on Village Banking/CWE: Savings & Credit with Education (SCWE) • Source of funds = CU member savings only. • Members may graduate to become individual members in their own right. • Coupled with Model Credit Union Building Methodology. • Automation of manual record-keeping to increase efficiency and reduce cost.

  9. Key SCWE Implementation Elements • Weekly Meetings: • Loan repayment installments made • Voluntary savings made (withdrawable, interest-bearing, convenient) • Money is counted and books are balanced • Other: • Education seminar • Meeting chaired by Management Committee, not the credit union field agent • Management Committee Responsibilities:: • Collects loan repayments. • Collects savings. • Balances the books. • Deposits to the credit union.

  10. Credit Design • Loan Amount: • P 1,500 ($37.50) maximum initial loan • 50% increase per cycle • Up to maximum P 9,000 ($225~$180) • Duration: 16-week cycle • Payment Mode: Weekly at meetings; lump sum to credit union. • Loan Purpose: Income generating projects with weekly income.

  11. CUES/SCWE Results (01/31/01) • 733 active SCAs (11 CUs) • 22,045 SCWE members • Of 147,669 members (15% of CU membership) • 20,480 are borrowers (90%) (10% save only) • Cumulative loans granted: P195.2 M (US$3.9 M) • Loans outstanding: P51.5 M (US$ 1.03 M) • Portfolio at risk (30 days): 0% (7th cycle) • Pure voluntary savings: P7.0 M (US$140,000) • Coop graduation to zero-subsidy: 4 CUs (4/11)

  12. SCWE Demands on Credit Union Resources • Full Capacity: 60 SCAs x 5 x 5 = 1,500 • Staffing: (5) • SCWE Supervisor + 4 Field Agents • Infrastructure: • Liquidity • Product Methodology Training • Information Systems • Fixed Assets (motor bikes)

  13. Overall CU Operationsvs.SCWE

  14. Graduation Opportunity for SCWE Members • Member can simultaneously participate in SCWE and access individual savings and loan services. • Maximum P 9,000 SCWE loan size complements individual CU loan amounts: • SCWE Group Loans: 20,889 • Individual Loans P1-10,000 ($1-200): 26,748 • Individual Loans P10,001-20,000 ($200-400): 8,262 • Individual Loans P20,001-30,000 ($400-600): 6,828 • Individual Loans >P30,000 (>$600): 7,816 • Total No. of Outstanding Loans: 70,543 (of which 67.53% <$200) • Liquidity = 32.43% (Small loan size is not due to queuing.) • See Dec 2000 Summary of Micro-Loans for Batch 1 & 2 Coops.

  15. Graduation Opportunity for SCWE Members • 73% of SCWE members indicate desire to become regular members. • But, graduation to date: <100 • Eliminating Barriers to Entry: • Perceived Minimum Initial Share Capital Requirement: • P100 ($2) vs. P2,500 ($50) • Cf. average savings after 7 cycles P434 (~$9)

  16. Other MFI Innovations Being Used by WOCCU • Credit Scoring & Automatic Loans (from Calpia) • Approval in <5 minutes and lower interest rate. • Removal of Key Barrier For Good Borrower Entry: The Pre-Membership Education Seminar (FENACOAC-Guatemala): • 10-20 minutes vs. 3 days. Effect: attract good borrowers rather than desperado borrowers. • SME Loans Based on Cash Flow (WOCCU/Ecuador) • “Open-End” Lines of Credit • “Interest Free” Supplier Advances • IRnet (WOCCU’s International Remittance Network) • Credit unions can remit funds across 40 different countries for <$10 per US$1,000.

  17. Summary of CUES MCUB Batch 1 Performance

  18. For More Information on WOCCU/CUES/Philippines Lucy Ito Vice President World Council of Credit Unions, Inc. (WOCCU) 5710 Mineral Point Road Madison, WI 53705 USA Email: lito@woccu.org Phone: (608) 231-8871 Fax: (608) 238-8020

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