Community Credit Allows Women to Work

Without land as collateral, most women in developing countries are ineligible for credit. Yet without loans, few women are able to improve their standard of living. Community banks offer these women a solution to their credit problems by providing small working capital loans at market rates, using community solidarity as collateral, with frequent and small capital repayments. Community banking increases local resources through the provision of credit, transfer of skills (like accounting), creation of local savings mechanisms and strengthening of small businesses. Testimonials from women around the world who are members of community banking groups tell of substantial improvements for their families and communities in living conditions, health, nutrition, education and political voice.

The Katalysis North/South Development Partnership, based in Stockton, California, creates partnerships with local non-governmental organizations (NGOs) in Central America which in turn provide services for microenterprise development, sustainable agriculture and community banking to low-income participants. After four years of operation they have been highly successful with a 98.4-percent repayment rate. Katalysis currently has four partner agencies: the organization for Women's Enterprise Development (ODEF) in Honduras, the Belize Enterprise for Sustained Technology (BEST), the Cooperative Association for Western Rural Development (CDRO) and Women in Development (MUDE) both in Guatemala. Katalysis institutional support includes training in strategic planning, employee management, board development and fundraising. The four local partner NGOs provide programmatic and technical assistance.

Who Are The Bankers?

Katalysis, in cooperation with ODEF, introduced the first bank in Honduras in 1989. To date 47 banks have been started by the network (see table 1). Of the total, 43 are women's banks. A typical community bank member lives in a village of about 1,000 people. Women members tend to be in their mid-30s or 40s with five to seven children. They are frequently single heads of households with low incomes and few assets. All members have some previous experience in managing a microbusiness, such as growing and selling food in the market.

Building a Bank

Members must be from the same or adjoining villages. Local NGO partners screen and provide orientations for women with experience in small enterprise who self-select into committed and reliable groups. The minimum number of members to start a bank is 15; average membership is 19. The initial training for bank members lasts from four days (MUDE) to two weeks (ODEF). NGO staff members provide training in human resource development and group organization, feasibility studies for small businesses, marketing for small businesses, tools for small business administration (basic record keeping), and credit and savings management.

At the end of the training, women elect a board of directors and set the rules of governance. The board members--President, Vice President, Secretary, Treasurer and one or two additional members--receive individual training. The board manages the bank, oversees meetings (weekly or biweekly), collects loans and savings payments and works to resolve problems as they arise.

After forming a board, the bank receives its first loan from the partner NGO. The treasurer and the president, with the assistance of an NGO staff member, disburse loans to bank members. Bank treasurers are responsible for financial administration of individual loans, but these are also tracked by partner staff. Interest has already been deducted from the loans that members receive. Loans are used for working capital or invested in other fixed assets.

Members make their loan payments at regular membership meetings. The banks then pay the partner NGO on a monthly basis. The first loan cycle lasts for 16 to 24 weeks depending on the NGO. Once bank members fully repay their loan capital, and the bank repays the partner NGO, the bank become eligible for a second cycle loan.

Saving for Security

In addition to paying back the original loan, community bank members are required to make savings payments of between 20 and 34 percent of the original loan at their regular meetings. Savings cannot be used to repay the loan or for family emergencies except in extenuating circumstances. Individual members cannot withdraw savings until they leave the bank. In practice, some banks have not followed these rules, causing low membership morale, diminished savings and factionalism.

Banks invest their savings in a variety of ways depending on what risks board members will take. Risk-taking banks lend to community bank members and other local individuals or groups at commercial interest rates. More conservative banks put their savings in group savings accounts at local commercial banks.

Ideally, at the end of the loan cycles (approximately three years), each bank will have built up enough savings (at least as much as the last loan received), to become an independent financial institution, with members' savings as the bank capital. The bank can then decide to terminate activities, continue as a self-managed and independent community bank, or move into a higher-level credit program.

Ongoing Training

Throughout each loan cycle, bank members receive additional technical assistance and training from partner NGOs. ODEF offers training in the cultivation of organic family gardens, which allow women to reduce household expenses, improve community environmental practices and enhance family nutrition. Maria Petronila Suate, a community bank member in Honduras, received training in community organization. Using her new leadership skills, she now participates in latrine and home gardens projects in her community. She states, "through group participation within our bank we have learned how to identify and solve the common problems we face as women in our communities and in our business activities." Members pay a nominal fee for NGO training, which does not cover the costs. Banks keep their costs to a minimum by relying on the volunteer time of board members to administer bank business.

Weekly meetings provide more than an opportunity to collect payments and savings; they are a forum for group exchange, self-evaluation and ongoing training. For many women, the meetings are the most important aspect of the community bank. At meetings, women get to know their neighbors and form an alternative support network. They also gain leadership and organizational skills.

Impact: Beyond Economics

Forty-seven community banks now serve 1,100 members with credit and savings. Savings in the network currently total US$39,889. Repayment rates have dropped somewhat, but remain impressive at 98.4 percent.

Evaluations conducted in 1992 and 1993 show positive results. All bank members interviewed at ODEF and MUDE stated that their training had been useful; 64 percent could cite tangible ways in which they applied their training. Of those interviewed at ODEF, 55 percent were keeping an up-to-date financial register and, at MUDE, 27 percent. These results fall short of targets but reflect a significant change in the lives of women, most of whom have limited literacy and numeracy skills. Interviews at ODEF show that the average increase in women's income since they joined the project was 48 percent. At MUDE, the increase was 62 percent. In both agencies, 14 percent of members either lost or did not gain income.

All women interviewed said the savings plan was useful. Many were saving for the first time. Internal surveys revealed that women tend to spend their savings to improve family nutrition, purchase medicine, ameliorate sanitary conditions in their homes and send young children to school. Many women reported gaining more respect from family and community members as a result of their newfound skills. This respect has in turn led to higher levels of community involvement and action. A number of women have now become members of school boards and community councils, or have organized around specific community issues such as clean-up campaigns or reforestation projects.

Brown, K. and Doub, M. 1993. A Case Study in Community Banking: Katalysis North/South Development Partnership. Presented at the Inter'l Conference on Sustainable Village-Based Development, Colorado State U., Ft. Collins, CO USA 1993.


Marian Doub
Katalysis North/South Development Partnership
827 Valencia St., Suite 102
San Francisco, CA 94110 USA.
Tel: (415) 824-2243
Fax: (415) 824-8387