Rural Banking and Microfinance Part I Section 1

Rural Banking and Microfinance Part. I – Section (1 b) History of Rural Banking Community Banks, Trust Banks and Rural Banks U Myin Maung Htun Chairman Union of Monetary Co-op Ltd

Community Banks, Trust Banks or Rural Banks • • • Rural Banking or Village Banking Concepts Microcredit and Microcredit plus Microenterprise Development Microfinance Institutions Social Services Small Loan Small Group Short Terms Frequent Payment Potential future, Larger Loans

Rural Banking or Village Banking Concept The method used most often to dispense microcredit and related services. These function as small, community credit unions. In most cases borrowers and borrower groups coguarantee loans. In many of these groups, the borrowers also perform most of the loan administration. Barefoot banking may sound quaint but do not under estimate its importance of power. Microcredit has an impressive reward of changing lives. Peer pressure within groups of borrowers’ guarantees that everyone pay on time. All financial transaction take place in open at regular group meeting. This approach ensures mutual accountability and builds trust quickly in communities. These grass-root financial institution are generally referred to as community or village banks.

Microcredit Microloans and any other form of small credit. “Is a small amount of money loaned to a client by a bank or other institution. Microcredit can be offered, often without collateral, to an individual or through group lending. Group lending also known as solidarity lending, is a mechanism that allows a number of individuals to provide collateral of guarantee a loan through a group repayment. The incentive to repay is based on peer pressure “If one person in the group default, the other group members make up the payment amount, individual lending, in contrast, focuses on one client and does not require other people to provide collateral or guarantee a loan.

Microcredit Plus The term to describe situations where any other financial, business development, or social service is provided along with microloans. Microenterprise Development Microfinance activities with the addition of business development services such as training, marketing, and market intelligence, which are primarily used to develop a borrower’s micro business. Services could also include social intermediation skills such as group interaction skills, leadership training, and group learning.

Microfinance This is a broader category than microcredit. It includes microloans and other financial services such as savings, transferred services and insurance. Microfinance Institutions (MFIs) Formal, government-registered financial organizations that provide microloans and may provide other MED functions to borrowers. In short, attaining MFI status often means becoming a bank. MFIs must provide adequate administration services and also raise money to fund all of their activities. MFIs can be non-governmental organizations, savings and loan cooperatives, government banks, or commercial banks.

Social Services that may be included in addition to the microcredit process. These may include literacy training, health and nutrition skills, and faith-sharing activities. Provision of these social services may be a major goal of lenders and/or borrowers.

The Nuts and Bolts of Rural Banking Barefoot banking may be simple, but it operates according to proven, well-documented principle. The following are a few of the guiding principles that are the norm in the microfinance industry. Small Loan • Depending on the economic level of the country. • One of the most important characteristics of a good microfinance organization is having the local knowledge to make loans that are neither too big nor too small.

Small Groups • Entrepreneurs cross-guarantee one another’s loans • Peer pressure and peer support are more effective than collateral in ensuring loan repayment. • Members patronize are another’s businesses and work together to ensure that everyone succeeds. Short terms • Help how to use it and be responsible. • Initial terms of 4 to 6 months keep borrowers from becoming complacent and allow the community bank to cycle the money into new loans more often.

Frequent Payment • Create financial discipline and keep the borrowers falling behind. • Making daily, weekly, bi-weekly, monthly or seasonal payments due to the situation of their businesses. • Weekly meetings are usually mandatory. Potential future, larger loans • Motivate borrowers to pay back their loans. • Graduating up the scale also helps members expand their micro businesses. • It is common to see successful borrowers.