The Mutual Credit Suppliers

Chit funds, credit societies and people's organizations have been grouped under this category because credit supply is mutual - that is, a give-and-take situation exists here. While for one period a participant may be a lender, during another period, he may be a borrower. Therefore participants are typically support each other for credit needs in a mutual faction. Some of the main characteristics found in mutual suppliers are:

Savings-linked credit:
Credit supplied by this group is typically savings linked. Only if the capacity to save has been demonstrated and a specified amount saved, is a loan given to the participant.

Interchangability of participants:
Members are typically suppliers at one point of the process and demanders at another. The money "supplied" or saved by some participants is "lent" or borrowed by some other participants.

Equal benefits:
The benefits of the operation are mutual to all participants and equally distributed. Profit or greed is not a motivating factor here.

Regular operations:
Operations of mutual suppliers are fairly regular and organized, though transactions may be more widely spaced in time compared to other suppliers.

Internal funds:
Funds for lending or borrowing are typically generated from within the participants of the organization (though some organization may use the funds generated internally as security for formal bank loans).

Borrower evaluation:
Trust and social/cultural and religious links are very important criteria for evaluation.

Enforcement of terms and conditions:
Terms and conditions are typically enforced in a strict manner and default is very rare, especially since borrowers are properly screened before their participation is accepted.

Flexible operational characteristics:
Operational characteristics are usually kept flexible to suit participants needs and wishes, especially since these are decided by the participants themselves. For example, the mode of selection of the "pot" in a chit fund may be by lottery, bidding or other means, and this mode is previously decided by the participants.

Availability of credit:
Housing finance is typically an immediate necessity and credit from mutual suppliers may not be available at the time of need since the borrower has to wait for his chance. But borrower usually overcomes these shortcomings by obtaining a loan from a money lender using the money saved in the chit fund as a security.

To summarize, the central idea of mutual credit suppliers is that they encourage savings from the participants. A savings-linked loan system is more advantageous to all parties concerned and makes full use of all financial resources available to the maximum extent, besides reducing the dependence on external sources of finance.

Hari Srinivas -
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