A Typology of Informal Credit Suppliers: Community Groups

"When Banks turn the other way: How do the poor manage?"
Probably the most significant of all informal credit market initiatives is that of a community organizing itself into a group and generating finance at the community level. There is a wide range of such initiatives ranging from, for example, a small informal group of women who help each other in times of financial need, to that of registered community level societies that offer savings and credit services to its members, and are linked with external groups such as NGOs and commercial banks. The significance of such community financial activity has to be understood from the larger perspective of solidarity and community development: of low-income groups being able to help each other; of resource generated by the group and for the group; of community organization, leadership identification and training, education and skill development and other related issues. Of particular importance is the involvement of the whole community in collective decision making in matters that directly affect them.
Literature Review of Community Groups

Issue Discussion References
Other names for Community Groups People's Organizations, Self-Help Groups, community-based organization Srinivas, 1991.

Advantages of Community Groups
Savings
- The group provides an opportunity for its members to save, however small an amount, and in intervals suited to them: daily, weekly or monthly.
- Returns on such saved amounts are sometimes better than those available from other formal institutions.
- Savings in some cases is compulsory, where loans are given as a multiple of the saved amount, encouraging thrift among the members.
Credit-
- Small loans for short periods are available on terms and conditions that are acceptable by the borrowers (which are also decided by them).
- The terms and conditions of such loans are usually flexible, allowing for unforseen delays in repayment.
Decision-making-
- The process of decision-making within the groups is democratic and is arrived at by consensus and agreement. This means that all benefits from any activity is equally shared by all members
- Leaders of such groups are usually identified through a process of extensive community participation and meetings.
Community organization-
- The decisions and smooth functioning of all activities are carried out by leaders and community volunteers who are, in many cases, trained by NGOs and other external agencies. This increases the efficiency and yield of such activities.
- The participatory approach that is adopted by community groups is a useful experience that can be adopted to various other fields such as education, health etc.
Trust and confidence building -
- Bringing the community together for savings and credit activity also increases the process of community networking and sharing of resources.
- The united' front put forth by such organizations and its members builds trust and confidence in external agencies: for e.g., the government and banks.
- Trust and confidence building also ensures that the resources generated lead to overall economic development of its members and the community as a whole.
Disadvantages of Community Groups

Limited internal resources -
- The amount of financial resources that communities can mobilize on their own is quite limited. Most overcome such shortcomings by networking with NGOs, banks and other external agencies.
Vested interests -
- Despite consensus and collective decision-making processes, community groups are sometimes plagued by vested interests and other unscrupulous persons.

Growth and development of a Community Groups The growth and development of a Community Group is usually done in four stages -

Formation -
- Identifying residents and leaders through participatory activities
- Evolving group norms and bylaws, electing leaders, training, awareness building
- Regularizing group meeting schedules
- Decisions on the mode and method of savings and loan activities
- Pooling of savings, issue and collection of small loans.
Stabilization -
- Leadership development and stabilization
- Handling of group level transactions from NGO.
- Cluster/community interaction activities
- Initiation of related income-generating programmes.
- Linkages with banks, cluster ROSCAs etc.
Growth -
- Establishing extended links with banks and individual loans to members.
- Increased community development programmes.
Expansion -
- Expansion of assets at the group level for various activities
- Increased linkages with other communities, networks at the regional, national and international levels.

Types of Community Groups

Community groups
Women's groups
Youth groups
Political groups
Special-interest groups
Groups aligned along ethnic and other minority lines.

Factors affecting formation of Community Groups

Size and physical limits of the community
Ethnicity - religion, language, place of origin etc.
Socio-economic profile - age-groups, income levels, place and type of employment, investment in housing and infrastructure, tenure, civil status etc.
In general, attributes of homogeneity in the community help in group formation and cohesion, ensuring commitment and participation; attributes of heterogeneity enhances the functioning of the groups itself by providing mutual insurance capacity and strong leadership, transparency in the savings and credit activity.
Key Implications of Community Groups

Need for strong community groups with trusted and trained leaders and other officials.
Need for both savings and credit activities for generating local resources as well as confidence building for participation of external institutions such as banks.
Need for NGOs and other external developmental agencies for training and mobilization of both members and leaders.
Linking savings and credit activities with other development programmes that enhance participation and solidarity building within the community.
Participation in other community networks for sharing of experiences and ideas so as to enhance efficiency and overall economic development of its members.

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Hari Srinivas - hsrinivas@gdrc.org
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Issue	Discussion	References
Other names for Community Groups	People's Organizations, Self-Help Groups, community-based organization	Srinivas, 1991.
Advantages of Community Groups	Savings - The group provides an opportunity for its members to save, however small an amount, and in intervals suited to them: daily, weekly or monthly. - Returns on such saved amounts are sometimes better than those available from other formal institutions. - Savings in some cases is compulsory, where loans are given as a multiple of the saved amount, encouraging thrift among the members. Credit- - Small loans for short periods are available on terms and conditions that are acceptable by the borrowers (which are also decided by them). - The terms and conditions of such loans are usually flexible, allowing for unforseen delays in repayment. Decision-making- - The process of decision-making within the groups is democratic and is arrived at by consensus and agreement. This means that all benefits from any activity is equally shared by all members - Leaders of such groups are usually identified through a process of extensive community participation and meetings. Community organization- - The decisions and smooth functioning of all activities are carried out by leaders and community volunteers who are, in many cases, trained by NGOs and other external agencies. This increases the efficiency and yield of such activities. - The participatory approach that is adopted by community groups is a useful experience that can be adopted to various other fields such as education, health etc. Trust and confidence building - - Bringing the community together for savings and credit activity also increases the process of community networking and sharing of resources. - The united' front put forth by such organizations and its members builds trust and confidence in external agencies: for e.g., the government and banks. - Trust and confidence building also ensures that the resources generated lead to overall economic development of its members and the community as a whole.
Disadvantages of Community Groups	Limited internal resources - - The amount of financial resources that communities can mobilize on their own is quite limited. Most overcome such shortcomings by networking with NGOs, banks and other external agencies. Vested interests - - Despite consensus and collective decision-making processes, community groups are sometimes plagued by vested interests and other unscrupulous persons.
Growth and development of a Community Groups	The growth and development of a Community Group is usually done in four stages - Formation - - Identifying residents and leaders through participatory activities - Evolving group norms and bylaws, electing leaders, training, awareness building - Regularizing group meeting schedules - Decisions on the mode and method of savings and loan activities - Pooling of savings, issue and collection of small loans. Stabilization - - Leadership development and stabilization - Handling of group level transactions from NGO. - Cluster/community interaction activities - Initiation of related income-generating programmes. - Linkages with banks, cluster ROSCAs etc. Growth - - Establishing extended links with banks and individual loans to members. - Increased community development programmes. Expansion - - Expansion of assets at the group level for various activities - Increased linkages with other communities, networks at the regional, national and international levels.
Types of Community Groups	Community groups Women's groups Youth groups Political groups Special-interest groups Groups aligned along ethnic and other minority lines.
Factors affecting formation of Community Groups	Size and physical limits of the community Ethnicity - religion, language, place of origin etc. Socio-economic profile - age-groups, income levels, place and type of employment, investment in housing and infrastructure, tenure, civil status etc. In general, attributes of homogeneity in the community help in group formation and cohesion, ensuring commitment and participation; attributes of heterogeneity enhances the functioning of the groups itself by providing mutual insurance capacity and strong leadership, transparency in the savings and credit activity.
Key Implications of Community Groups	Need for strong community groups with trusted and trained leaders and other officials. Need for both savings and credit activities for generating local resources as well as confidence building for participation of external institutions such as banks. Need for NGOs and other external developmental agencies for training and mobilization of both members and leaders. Linking savings and credit activities with other development programmes that enhance participation and solidarity building within the community. Participation in other community networks for sharing of experiences and ideas so as to enhance efficiency and overall economic development of its members.