Guidelines for financial management of a savings and credit group

The following guidelines are a result of the wide ranging experiences of an Indian NGO, Myrada, in savings and credit programmes and self-help groups in rural and urban areas of southern India.

I. COMMON FUND

What to Promote:
Frequent rotation of the common fund for loans
A balance needs to be maintained between the members savings and matching funds from the savings and credit project (1:3 can be a limit).
All financial transactions should take place during a group meeting.
All acounts should be in the name of the group and not in the name of one or more members. Signatories to the group account must be rotated periodically.
All decisions regarding fund management and utilization should be recorded and be verifiable through the minutes of the group.
Fund management tends to improve if groups display charts showing lists of member loans, recoveries, overdue balances and other activities.

What to Discourage:
Large sums of money lying unutilized for long periods represent "process blocks", the reasons have to be analysed and addressed.
Large amounts of money for infrastructure, community programmes, or even credit management should not be routed through the group since this can distort the working of the group to fund-monitor rather than fund-manage; besides such groups spend most of their time and energies implementing external programmes.
No money transaction should be conducted outside the meetings, whether it relates to loan disbursals, collection of savings and replayments, or decisions with regard to using funds for community programmes; no group member or office bearer should hold cash balances at any time, with the possible exception of finds for emergencies.
The programme implementing NGO or their staff should not handle money; they should not function as group office bearers; they should not accept (even informally) to perform those functions that are expected to be performed by group members.

II. SAVINGS

What to Promote:
Encourage the savings habit as a value in itself and not just as a means of increasing the group's fund position. It builds up the habit of thrift and controls unnecessary consumption.
There are seasonal variations in the amounts saved by a member. Many groups take such seasonal variations into account in fixing the minimum monthly savings expected from members.Encourage the practice of fixing a minimum amount to be saved each month.
Every group needs a policy on how to manage the savings of members who one, leave the group voluntarily and two, are asked to leave for some reason.
Payment of interest to members on savings deposited in the common fund is still not a widespread practice, but one that is worth considering and promoting.
Many groups permit their members to save for a particular purpose - eg. weekly savings to build up a Bank loan installment when it falls due. Such practices should be encouraged.

What to Discourage:
The practice in some groups of requiring equal savings by all members each month regardless of the fact that some members may at times be in a position to save more has to be discouraged.
Several groups make a distinction between members savings and contributions to its common fund. While contributions are non-refundable, the practice of withholding savings of members leaving the group (either voluntarily or forcibly) should be discouraged. There are instances where such a decision has resulted in a drop in savings among other members who fear the same consequences.

III. LOANS

What to Promote:
All loan applications must be addressed to the group or to the office bearers of the group and must be srcutinised and approved, modified or rejected in group meetings only and minuted accordingly.
Repayment schedules must be finilised and minuted when loans are disbursed.
Service/interest charges on loans must be clearly seperated from replyments.
Promissory notes obtained by many groups for large loans should be between the group and the member.
Loans (cash or cheques) must be disbursed only at the group meetings.
The practice of giving a second loan before the first is repaid should be carefully assessed, particularly if there are overdue installments.
When the Banks advance loans they should be given to the group on the basis of its performance and not made out in the names of the individual members. Care should be taken to ensure that the Bank loan is considered by the members as "their" money, as a part of their common fund.

What to Discourage:
Care should be taken to ensure that few members do not monopolose all loans.
Large loans for a single member must be avoided until the group is financially strong and has systems of adinistration that are adequate to motivate and guide members and impose sanctions for deviant behaviour.
The tendency to first decide on who should get a loan and then to assess how much money there is in the group and if there is a deficit to ask external sources such as the implementing NGO or a donor to meet it, is not credit management; it should be discouraged at all costs.
Loans must not be disbursed to persons (substitutes) other than the group member who has actually applied for it.

IV. TRAINING

What to Promote:
Training needs of groups should be periodically assessed by apex groups, the implementing NGOs and project staff and appropriate training provided.
Project staff in general and the group account in particular must give priority to training group members in maintaining their own books and documents.

What to Discourage:
The practice of paying compensatory wages for group members attending training programmes should be firmly discouraged. Instead, if necessary, a contribution can be made to the group common fund to which the member belongs.

V. BOOK KEEPING

What to Promote:
All groups require training to keep basic books and documents; all records must be kept in a safe box with the group either in the meeting place or with or with one of the office bearers.
All books must be kept up to date, with transactions being recorded as soon as they occur.
All groups must close the books by the end of the calendar financial year.
Groups must be helped to develop and maintain their own (appropriate) systems and records for book keeping.

What to Discourage:
The practice of keeping books with the implementing NGO staff or in the NGO's office should be discouraged.
Money for purchase of books and stationary may come initially from the NGO, but not on a permanent basis.
If the group retains a person on a honorarium/wage basis to keep accounts/minutes, the money will have to be generated by the group and not expected from the NGO.

VI. AUDITING

What to Promote:
Accounts must be audited at least once a year.
Auditors must ensure that concerned staff and group representatives are present at the time of audit.
Audit reports must be presented to the group in a language in which they can be understood by all members.
Audit reports should be taken note of for immediate and appripriate followup action. A regular recorded system should be established by the Project officers/Apex group to follow up audit remarks.

What to Discourage:
Disposal of group owned assets cannot be undertaken without the approval of members and appropriate documentation.
Members who have purchased assets with the group assistance cannot dispose off the same while loan installments are still due, without adequate reasons that have the approval of other members.

Abstracted from:
Fernandez, Aloysius Prakash, "The MYRADA Experience: Alternate Management Systems for Savings and Credit". Bangalore: MYRADA,1994.

Address of MYRADA:
MYRADA,
No.2, Service Road,
Domlur Layout
Bangalore - 560 071, India
Hari Srinivas - hsrinivas@gdrc.org
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