MicroStart: A Guide for Planning, Starting and Managing a Microfinance Programme.
CHAPTER TWO
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E. FORMING CREDIT GROUPS

1. The Role of the Credit Group
2. The Role of the Field Agent
3. Group Development Meetings
4. Questions for Group Bylaws
5. Duties of Group Officers
6. Loan Application Meeting
7. Sample Loan Application
8. Site Visits
9. Sample Site Visit Form
10. Credit Group Certification

The key to effective group formation is ensuring that the group members have self-selected each other. The responsibility of forming the groups rests primarily with the members. The Field Agent should act only as a facilitator. Credit Groups play a critical role in reviewing, approving, and guaranteeing loans.

(1) The Role of the Credit Group

The purpose of a group is to:

(2) The Role of the Field Agent

The Field Agent's role is to facilitate the group formation process. A successful Field Agent will follow these guidelines:

(3) Group Development Meetings

The purpose of Group Development meetings is to organize 5 to 15 members of a community into an effective Credit Group. Groups may be able to cover all three agenda items in a single meeting.

SAMPLE AGENDA

Welcome: Field Agent welcomes the group, reviews the rules and bylaw guidelines presented during the Information Meeting, and responds to questions.
CHOOSING A NAME
Naming: The Field Agent asks the group to choose a name for the group. Names can be serious, humorous, short or long.
Paperwork: The Field Agent logs the name of the group in a log book and records the name of each of the members. (The Field Agent later opens a Group File labelled by the group name.)
CREATING BYLAWS
Bylaws: The Field Agent facilitates the bylaw process and notes the responses on paper. (See following section, E.4, Questions for Groups Bylaws.)
Paperwork: The Field Agent records the bylaws and places one copy in the Group File and returns one to the Group Leader at the end of the next meeting.
ELECTING OFFICIALS
Officers' Duties: The Field Agent describes the duties of a Group leader and Group Treasurer.
Election: The Group Members vote for officers.
Paperwork: The Field Agent notes the names of the Group Officers in the Group File.
Scheduling: The Field Agent sets the time for the Application Meeting.


(4) Questions for Group Bylaws

Many programmes do not rely on group-determined bylaws, preferring to establish basic conditions themselves. Frequency of meetings, size of groups, interest rates, basic rules on guarantees (see item #5), and other factors are often preset by these programmes. However, you may wish to give groups more leeway in these matters, except for interest rates and guarantees, and discuss the following:

  1. What is the process for removing a member? Under what conditions would a member be asked to leave? Note: The member must stay with the group if s/he still has a loan out. When the cycle has ended, s/he may leave.

  2. How will your group approve loans? Note: All members should vote. Will approval be granted if the majority approves, or must every member approve?

  3. What will the group do if a member cannot make a payment on time? Note: the group should have a very specific course of action planned in advance.

  4. Will the group create a 'Buffer Fund'? A buffer fund is money the group puts aside in case a member is late. How much money will the group set aside in the fund? What is each member's contribution? When will payments to the buffer fund be made? Will cash be returned to members once a loan cycle is complete?

  5. When will your Group hold meetings? Where? How often? How many meetings may a member miss with no penalty? What are the penalties for missed meetings?

  6. What is the policy for electing Group Officers? How often will you hold elections? How long can each officer serve? Will you have other officers besides a Group Leader and Treasurer? What will be their duties?

  7. Does the group wish to establish some common goals, statements, or codes of conduct that should be reiterated at every meeting? Note: Grameen replications usually have a set of common goals stated at each meeting.

(5) Duties of Group Officers

    Group leader
  • acts as a spokesperson for the group
  • ensures payments have been made to the Group Treasurer
  • ensures that the Group Treasurer makes payments to the Field Agent
  • advises the Field Agent if a payment is late
  • works with the group to immediately resolve a late payment problem
  • makes sure members regularly review and amend (if needed) group bylaws
  • schedules meetings, creates an agenda, and facilitates meetings

    Group Treasurer
  • collects payments
  • records payments and issues a group payment to the Field Agent.

(6) Loan Application Meeting

The purpose of Loan Application meetings is for members to complete the Loan Application Form. Using the bylaws as a guide, members then vote on whether to approve or reject a loan. In some cases, members may not want to completely reject a loan but would rather the applicant modify the application. We encourage this. The objectives of the Loan Application Meeting are:

for each member to understand loan policies and procedures;

for the Field Agent to help members complete paperwork;

for each member to understand each applicant's business before voting on loan approval; ;

for members to approve or reject loans.

SAMPLE AGENDA: LOAN APPLICATION
Welcome: The Field Agent reviews lending policies and procedures and reviews the loan approval section of the Group Bylaws.
Application: The Field Agent passes out loan Applications and asks applicants if they need assistance. If so, the Field Agent interviews the applicants and completes the applications.
Presentation: The Field Agent asks applicants to describe their activities to the group, how they intend to use their first loans, how they expect the loans to help their activities grow, and how they intend to repay. Each applicant then responds to questions.
Approval: Members vote on each applicant's loan.
Scheduling: The Field Agent schedules site visits to each applicant to verify information.
Paperwork: After the meeting, the Field Agent takes approved applications for processing.

(7) Sample Loan Application

The Loan Application is filled out by the applicant with help from the Field Agent. The following is a completed sample Loan Application.

PERSONAL INFORMATION
Name of Applicant Maylin Ton
Home Address Jasmina Road 16
Business Location Jasmina Road across from temple
National ID Number 2205678-4
Age 30
Gender Female
Highest Level of Education Reached
ECONOMIC ACTIVITY OF THE BORROWER
What is your main income activity? Weaving mats and other items
How long have you been doing it? 4 years
How many months a year? All year
How many hours per day/week do you do this activity? 8/48
Where do you do this activity? At home
Describe your products or services. Small and large mats for floor coverings
What are your sales on a good day? $20
... on a slow day? 0
... on a regular day? $8
What is your average monthly income from this activity? $35
Do you pay anyone outside your household to help you? How many and how much do you pay them? No
What are your average monthly expenses (materials)? $15
what plans do you have for your activity in the future? To sell in another market
ECONOMIC ACTIVITY OF THE HOUSEHOLD
How many people are there in your household? 4
Do your family members help? In your household, what are the different activities conducted by all members? Please stipulate frequency and estimated income. yes
CREDIT
How will you use your loan? To buy special material for mats which the vendors tell me their customers want,
How much do you want to borrow? $100
What is the loan term? 5 months
>From what other sources have you borrowed money? None
How many times have you borrowed before from this project? None
Were your payments on time or sometimes late? No
Did you experience difficulties in paying back your loan. If yes, why? No
ASSETS/SAVINGS
How much do you have in savings (cash and in-kind)? None
Where are the savings located?
Do you own land? How much? Is it arable? No
What equipment used for your economic activity do you own? Weaving instruments (est. value is $50)
APPROVAL
The Field Agent must read aloud the loan guarantee to each member of the Credit Group. We, by signing below, agree that we are responsible for the payment of any and all principal and interest owed by this applicant to Riceland MicroStart. If the borrower cannot or will not repay a We , by sign ing b a re respons i le f and a 1 pri ncl pa 1 th is a pplicant to loan, we agree to make the payments and understand that we are not eligible for any new loans until ail outstanding debts of the borrower to MicroStart are paid in full.
signed: signed:
signed: signed:
signed: signed:
Field Agent verifies information is accurate signed:
SUMMARY
Loan Amount $100
Loan Term 5 months (10 bi-weekly payments)
Interest Rate Per Month 4%
Loan Payment $12.00
Frequency every two weeks
Please see attachment IV of the Tool Kit.

(8) Site Visits

The purpose of the site visit is to give the Field Agent an opportunity to verify information given in the applications. (Refer to section B.4. in Chapter 1: Planning, on Understanding Your Market. Here it is acceptable to ask specific questions about in- come.)

Since the Field Agent will not actu- ally approve loans, this step is essential so that the Field Agent has an opportunity to express reservations about the individual applicant to the Loan Manager if the Loan Manager has the same reservations, s/he does not have to certify the group to borrow.

The Field Agent takes a few simple but essential steps in conducting a site visit and reporting to the Loan Manager The Field Agent:

(9) Sample Site Visit Form

Name: ____________________________
Economic Activity: ____________________________
ASSETS
Land Ownership: ____________________________
Business Equipment ____________________________
Does the household own a means
of transportation? 		____________________________
Household Data ____________________________
Number of rooms: ____________________________
Condition of roof: ____________________________
Condition of floor: ____________________________
Is there electricity in the area? In the house? ____________________________
Does the household have access to a
clean source of water? 		____________________________
Is there a school in the area and do
the children of the household attend? 		____________________________
MARKET INFORMATION
Does the household have access to markets? ____________________________
Does the household have
access to raw materials? 		____________________________
Other Concerns/Comments ____________________________


(10) Credit Group Certification

Certifying a Credit Group to borrow is a chance for the Loan Manager to visit each group in the field. This activity is important because:

  • the Loan Manager can evaluate the work of the Field Agent;.

  • visits keep the Loan Manager in touch with the realities of the field;

  • the Loan Manager can reject a group if the Field Agent has reservations but does not want to be the one to make a rejection.

The Group Certification process requires the Field Agent and the Loan Manager to work closely together to ensure that only strong, well-trained groups are certified. The Field Agent arranges for the Loan Manager to attend a group meeting. At the meeting, the Loan Manager interviews the group as a whole and asks the following kinds of questions:

  • Tell me about your economic activities and how you will use your loans.

  • What are the main economic problems of your community?

  • Will the leader please review the bylaws and explain the important ones?

  • Which ones took the most time to formulate?

  • What do you plan to do if one of your members cannot make a loan payment?

The Loan Manager observes the group and looks for harmony or tension among members. if the Loan Manager is satisfied that the Credit Group will be strong, s/he presents the Group Leader with a certificate and congratulates the members. The certification should later be noted in the Group File.

if the Loan Manager is not satisfied with the group, s/he may choose to make site visits, to talk to community leaders, or take some other action. The Loan Manager should discuss the decision to reject a group with the Field Agent and other staff prior to advising the group.

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