Savings and Credit: Management Control Systems

In a developing environment, integrated development programmes occupy a pivotal role. Income enhancement is a positive and important indicator of poverty alleviation to which all development activities are addresses. A programme involving savings and credit is an important component of this activity.


Savings and credit are interrelated. It is somewhat similar to the chicken and egg dilemma. But in the context of development with emphasis on income enhancement and poverty alleviation, savings follow credit. Funding agencies in their quest for assisting the needy provide funds for the purpose of deploying them in activities which lead to:
    • Income generation
    • Gainful employment
    • Inculcation of savings habit
    • Enhancement of social status
    • Increased opportunities for enhanced credit
    • Asset creation and ownership
    • Less dependence on other high-interest forms of credit

Credit is provided for an activity which involves and needs:
    • Proper selection of activity
    • Sources of funding
    • Detailed planning
    • Implementation
    • Savings component
    • Evaluation

The procedural requisites of a practical and sound credit programme on the assumption that all necessary work has been done, are:
    • Selection of activity
    • Selection of beneficiary and other criteria
    • Amount of credit
    • Terms of disbursement/payment
    • Backup/follow-up support
    • Repayment terms (amount and duration)
    • Savings
    • Regular programme review
    • Procedure for write-off, if necessary

Application for assistance - a well documented application should inter alia contain:
    • Name of the applicant with full address
    • Type of assistance and the purpose
    • Details of assets and/or net worth
    • Amount of assistance and duration
    • Type of follow-up support required
    • Terms of repayment (amount and time/installments)
    • Rate of interest and method of computing interest
    • Recommendation of the competent authority
    • Approval of the competent authority

    • A register/ledger to record all assistance approved
    • An authorization to release funds in terms of sanction
    • Actual payment (cash or cheque)
    • Loan ledger (containing individual accounts)
    • Regular posting and balancing
    • Loan ledger (containing individual accounts)
    • Regular posting and balancing

In environments where even minimum banking facilities are not available, proper care for cash handling and accounting should be taken. A systematized cash control should have:
    • Clear defined authority to receive cash
    • Receipt books are printed, prenumbered and with adequate copies
    • Proper authorized acknowledgement at each stage for funds received/handled
    • Individual pass books
    • Maximum period within which cash must be banked or handed over to the next in chain (to be fixed on a sase by case basis depending on location, nearest bank, means of transportation available etc.)
    • A proper system for flow of documents
    • Controlled movement (issue and return) of receipt books
    • Regular independent audit
    • Insurance cover for cash in transit
    • Fidelity insurance cover for persons handling cash
and monitoring

Credits after being extended needs to be closely monitored. A sound monitoring system should encompass:
    • Regular review of credits availed and used
    • Regular reports on credits extended, returned and outstanding
    • Analysis of causes for outstandings and remedial action proposed.

A short checklist for audit of a savings and credit programme should include:
    • Cash is approved by authorized person
    • Nomination of person(s) with limits if any to approve credits
    • Operation of separate bank accounts if necessary and that they have proper authority
    • Procedures laid down for release of credit are followed
    • Cross verification with individual pass book
    • Regular reconciliation of funds collected and accounted
    • Detailed reports for discussion and action at review meetings
    • Programme review as per approved budget
    • Savings as per plan
Abstracted from:
"Savings and Credit: Management Control Systems" in Savings and Credit - The NGO Factor. Bangalore: ActionAid (India), 1992.

Hari Srinivas -
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