Village Bank Operations Manual

Women in Business Village Bank Operations Manual

Table of Contents Page I. What Is a Village Bank?... 1 How is a village bank different from a regular savings and credit group?... 1 Who can join?... 2 Why does a village bank need to have 20 to 35 members?... 3 How are new members trained?... 3 What are solidarity groups?... 4 Why do village bank members have to learn to read and write?... 4 Why should women contribute to the cost of the Women in Business manuals?... 5 Why are all the village bank members supposed to have a business?... 6 What about savings?... 6 What about loans?... 7 Why are loans given for only one to six months, and not for a whole year?... 9 Why are village bank loans small at first?... 9 Why are village bank loans paid back in weekly installments?... 10 What kinds of rules do village banks have?... 10 What are the rules for safe money handling?... 11 What kinds of things can go wrong in a village bank?... 12 How do we know if a village bank is healthy?... 13 II. How Does a Village Bank Operate?... 15 What are the duties of the village bank members?... 15 Who are the officers of the village bank and what do they do?... 16 The management committee... 16 The treasurer... 16 The chairperson... 17 The controller... 17 The secretary... 18 Assistant officers... 18 How are the village bank officers elected?... 19 How do the officers get trained?... 20 What is a village bank cycle?... 20 Who screens the loan applications?... 21 What about larger and longer loans?... 21 Why do some women have trouble repaying their loans?... 22 How does the management committee solve collection problems?... 23 What does it mean to reschedule a loan?... 24 What does it mean to refinance a loan?... 24 How can a village bank increase the dividends it pays?... 24 Increasing earnings... 24 Reducing costs... 25 How do group income-generating activities work?... 25 What kind of venue, equipment and supplies does a village bank need?... 25 What happens at the bank meeting?... 27 Before the bank meeting... 27 During the bank meeting... 28 After the bank meeting... 29 Between bank meetings... 29

III. The Village Bank Accounting System... 31 How does the village bank accounting system work?... 31 Attendance and payment record... 33 Savings passbook... 34 Savings journal... 35 Loan passbook... 36 What is a loan equation?... 37 Loan journal... 38 Debtor s agreement... 39 Description of personal collateral... 40 Cash control sheet... 41 Summary transaction sheet... 42 How are group activity expenses and group earnings recorded?... 43 Cash book... 44 Commercial bank passbook... 46 Why do village banks need to open an account at a commercial bank?... 47 Financial statement... 47 Balance sheet... 49 What are arrears? And what does it mean that a loan is at risk?... 50 How do you calculate arrears?... 50 What is default? And what is bad debt?... 51 How does the village bank record an external loan?... 51 How does the treasurer calculate the balance sheet?... 51 Loan statistics form... 53 How does the management committee close the cycle?... 56 What is the end-of-cycle balance sheet?... 57 How are dividends calculated?... 59 How do you round to the nearest dollar?... 60 What is an end-of-cycle audit?... 60 IV. Developing Your Microenterprise... 61 Can village bank loans be used for anything?... 61 How big a loan should I take?... 61 Don t we need training to go into business?... 61 What kind of businesses can we do?... 61 What if women in our culture have never done business?... 62 What can we do with these small village bank loans?... 62 How can we pay our loans back in just six months?... 63 How can we pay our loans back in weekly installments?... 63 How can we find good business ideas?... 63 What about our families?... 64 How can I earn money all year around?... 64 What does it mean to be an entrepreneur?... 64 How can we improve our businesses?... 64 How can we find a selling advantage?... 65 What is profit?... 67 How much can I earn?... 67 How do I keep track of my earnings and expenses?... 68 What is working capital?... 68 Don t let working capital leak out of your business... 68

A business health check... 69 Glossary of Terms... 71

I. What Is a Village Bank? How is a village bank different from a regular savings and credit group? A village bank is a group of 20 to 35 women who come together because they want to increase their income and improve their lives. Although a village bank is a bit like a traditional Rotating Savings and Credit Association (ROSCA), it has many features that make it different from a regular savings and credit group. For example: Bank meetings are held once a week. The members give their village bank a name. The members of the village bank elect a management committee. The management committee is elected by secret ballot. The management committee serves for a term of one to two years. There are four officers who make up the management committee: a treasurer, a chairperson, a secretary and a controller. All financial transactions, such as collection of savings and disbursal of loans, are done at the bank meetings, in front of the entire group. The management committee keeps detailed records of every financial transaction. That way everyone knows where every bit of the bank s money is at any time. The management committee knows how to prepare an income statement and a balance sheet. They do this after every bank meeting. Every village bank has a calculator and all the members learn how to use it. Every village bank has a cash box with three padlocks. Three different officers keep the keys to the locks. The fourth officer keeps the box between meetings. Many village banks open a savings account at a commercial bank in town. Whenever there is more than 10 dollars in the cash box, all but $5 is deposited in the commercial bank account for safekeeping. Village bank women always have access to credit. But instead of giving each member one big loan, the village bank gives women a series of small, shortterm loans. As soon as a woman pays back one loan, she can take another. The small, short-term loans are designed to help women get started in business or to grow the businesses they already have. In credit programs where loans are provided by an outside agency, interest payments go back to the agency to pay for staff salaries and other costs. But in a village bank, the interest earned on loans remains in the group fund as profits and creates wealth in the community. Village bank members know how much of the group s money belongs to individual women in the form of savings. And they also know how much profit the bank has earned from interest on loans, fees and other sources. 1

The village bank runs in six-month cycles. Every twenty-four weeks the management committee closes the cycle and divides up the bank s profits among the members in the form of dividends. Dividends are paid according to how much savings each person has. A person who has more savings gets a bigger dividend. In a village bank the members form solidarity groups. The solidarity groups carry out group income-generating activities to earn extra money for their fund. The village bank is actually a business itself. Whenever it makes a profit the members benefit, because dividends are increased. Village banks hold at least one family gathering every cycle, where the members invite their husbands or fathers and other family members to hear about the village bank. Through these gatherings the whole family becomes positive and supportive. These are just some of the ways that a village bank is different from an ordinary savings and credit group. Village bank members learn how to keep accurate accounts, just like a real bank. They learn how to keep their bank growing and active, how to handle money safely, and how to avoid corruption. But the village bank is not just a place for carrying out financial transactions. It is also a place where women learn to read and write, where they discuss new ideas and practice management skills, where they find support and encouragement for their business activities, and where they can plan programs to serve their community. The main purpose of the village bank is to increase women s income. But participating in a village bank also helps women grow personally, become more confident, and take better care of their families. In fact, the village bank can help the entire community develop and become more prosperous. Who can join? As in many savings groups, members of a village bank should be at least 18 years old, be honest and trustworthy, and they should be residents of the community. But unlike most other groups: Village bank members must be committed to learning how to read and write and do simple arithmetic. They should be open to working with women of all religions, castes and ethnic groups. They should agree to avoid gossiping and backbiting or bringing politics into the village bank meetings. They should be willing to attend meetings regularly, save, and abide by the village bank s rules. They should be willing to get into business themselves and not take loans for others. They should have supportive families who will encourage them to participate in the village bank and allow them to have their own businesses. 2

When you join a village bank you have to put in many hours of hard work. You also have to contribute to the cost of the books that teach you how to read and how to operate your village bank. Village bank members expect one another to be trustworthy, cooperative and open to new ideas. Village bank women do not blindly follow the old ways passed down by their mothers and grandmothers. They look honestly at the traditions and practices around them, and they are ready to change those traditions that are holding them back and adopt modern practices that will help them and their families progress. Being part of a village bank takes a lot of effort. But without dedication and sacrifice how can women advance? Unless they learn new ways, how can their lives improve? Village bank women want their children to be healthy, educated and well cared for. They are willing to work hard and try new ideas because they want to be good examples for their children. The village bank offers each member the support and confidence that come from consultation, friendship, shared goals and working together. As a group the members consider what steps will help them make a better future for themselves, their families and their community. Why does a village bank need to have 20 to 35 members? Village banks may start out small, with only 15 or 20 members. But in order to be profitable and active a village bank should grow to around 20 to 35 members. More members mean more savings and more people using the group fund for their businesses. That means more women benefiting, more profits for the village bank and bigger dividends for the members. The village bank is not just a comfortable place where a few friends save and sometimes take a loan. It is an institution that can serve many women in the community. There will always be new women asking to join. Also, women may get married and move away, or they may leave the village bank for other reasons. Those women will have to be replaced. That s why the village bank has to be able to accept new members and grow. How are new members trained? New members may join the village bank at any time. Usually new members have a sponsor, who is one of the current members of the village bank. The sponsor vouches for the new member s character and explains to her how the village bank works. If the new member cannot read or write, the sponsor might help her or find her a volunteer teacher. This is why some village banks like to admit new members at the beginning of a cycle. That way, all the new members can learn to read in a group and study the Women in Business manuals together. Some of the well-established village banks have a training committee. The committee consists of three or four experienced members who can explain to new women how the village bank works and what their responsibilities are. 3

New members have to buy their books or borrow them from older members of the bank. They should pay an entrance fee and start bringing their weekly mandatory savings to the bank meetings. New members are not eligible for loans until they have attended four bank meetings and saved four times. Because their savings are small, their loans will be small at first and so will their dividends. If the village bank grows to 35 members and still more women want to join, the group should help the new women form their own village bank. Once membership grows to more than 35, the bank meetings can take a long time. What are solidarity groups? In many village banks the members form solidarity groups. Solidarity groups are four to six women, often neighbors or friends, who provide support and encouragement to each other. Sometimes they help each other with their businesses. Solidarity groups also carry out income-generating activities to raise money for the village bank. Sometimes solidarity groups study the Women in Business manuals or other reading materials together. In some village banks the solidarity group members screen each other s loan proposals and give suggestions. They can recommend to the management committee whether or not a loan should be granted. If one of the members of a solidarity group is having a problem with her business the others might help her make her loan payment. Or if one of the members has to go to the market for buying or selling, another member might look after her children. Since the women in a solidarity group know each other well they can turn to one another for help or advice. Solidarity groups are informal and flexible. They do not have officers. They can add members any time or replace members who leave the bank. Why do village bank members have to learn to read and write? Reading and writing open up the opportunity for self-learning. Although women may learn many things about village banking from observing another group or by inviting someone from an experienced village bank to show them how to keep their records, no one has the time to teach them every detail about managing a village bank. But women can learn those details by reading about them in the Women in Business manuals. When reading the Women in Business manuals, it is best to read and do the exercises in a group. No matter how well a person reads, it is always useful to discuss the ideas in the books and to think about how to use them. If the whole village bank cannot find a time to get together to read the manuals, smaller groups of women can meet in different people s homes at times that are convenient to them. In addition to their bank meeting, village bank members should try to meet at least twice a week to study the Women in Business manuals. That s at least three meetings a week. Many groups meet even more often. Sometimes new readers meet six times a 4

week to study the manuals. Those who are better readers can help the new readers understand the material. And if there are new words or ideas, the more heads trying to understand them the better! Then at the bank meeting everyone can ask questions and discuss any difficult parts. Being able to read the manuals and do simple arithmetic make it possible for all of the village bank members, not just the management committee, to understand how the village bank works. Every member can add up her savings, figure out her loan equation and even calculate her dividend. It is difficult to cheat people when they know what s going on. That is why village bank members learn how to be money smart. They learn how to recognize money, how to add and subtract it and how to count change. They know how to examine the village bank s records to make sure money is not being misused. And they know how to calculate whether or not they are making a profit in their own businesses. Later, once women learn how to read, they can find out about good health practices, how to take even better care of their children, about their legal rights, or about how to find good business ideas, all on their own and in their groups. They do not have to wait for an outside agency to come to their village and offer them training. Women who are literate can progress at their own pace and learn as much as they want to. They are independent. They can stand on their own feet. They are empowered! Why should women contribute to the cost of the Women in Business manuals? The purpose of the village bank is to help women stand on their own feet. This will never happen if women are always dependent on outsiders, if they always wait for others to provide things before they can go forward. From the very beginning the women in the village banking program learn how to do things for themselves and how to pay for the goods and services that they value. Like learning to read and write, a healthy attitude about paying for services, and not waiting for things to be provided for free, makes women independent and puts them in control of their own future. An attitude that we can do it, and a willingness to take responsibility for one s own development, are important if the village bank is to be sustainable and move women forward. This is why the members of the village bank begin by taking responsibility for their own literacy classes. In the literacy programs run by the government and by NGOs, usually everything is provided a teacher, books, lanterns, kerosene, a blackboard, even pencils and notebooks. But a woman has to wait for a provider to come to her neighborhood before she can join a class. And if enough women cannot be found who are willing to join a literacy class, her community might not get a class at all! But women in village banks find their own volunteer teachers. If only a few women are illiterate, they can learn together in a small group. If none of the members of the economic group can read or write, one of the school-going children can act as the volunteer tutor. By managing their own class, women learn that with just two simple books and each other s help, they do not need to depend on any outside agency to make them literate! 5

This understanding is important because women need to realize that their fate lies in their own hands and not in the hands of others. If they need pencils or paper or even some kind of technical assistance or training, they learn how to raise money and go out and get it. In addition to paying for books, women usually pay a small entrance fee to join the village bank. This fee may range from $.25 to $1, depending on what the group decides. The entrance fees provide the village bank with a certain amount of cash so the group can buy some necessary supplies, like a cash box, a calculator and accounting forms. Why are all the village bank members supposed to have a business? It is very possible that a woman, when joining the village bank, has no business experience. But one of the purposes of the village bank is to raise the economic condition of its members. For that reason, even if a woman has no previous business experience, she should be someone who is interested in finding a business idea, is willing to go out and try it, and who is ready to overcome her fears and inhibitions about selling. It is easy to just sit home and save. But without effort there can be no progress. The village bank is for women who want to move forward, who want to be an example for their children, who want to earn more so their children can get educated, can get the medicine they need, can dress well and eat better food. We need to learn how to make money as well as save it. The village bank is designed for women who want to see their families get on the road to prosperity. That should be made clear to anyone who wants to join the village bank. That is the reason why village bank members do not take loans for others. It is fine if other members of the family help them with their businesses, but they must be themselves the owners and managers. Otherwise women will be stuck paying off a loan that someone else is using. What about savings? At each bank meeting, just like in a traditional savings group, the members deposit a certain amount of mandatory savings. The exact amount is discussed in the group and agreed upon by all. But women try to save as much as they can in order to build up their group fund quickly. Mandatory savings for each member may range from $.10 to $.50 a week. But in most village banks the rate is $.20 a week. In addition to mandatory savings, each member should try to deposit as much voluntary savings as she can. One interesting thing about the village bank is that all the members do not have to have the same amount of savings. That way, women can deposit different amounts of voluntary savings. Also, women who join the group later can simply start bringing their weekly mandatory savings. They do not have to match the amount saved by everyone else. Every member has a passbook to keep track of how much she has 6

saved. At the end of each cycle you earn dividends based on the amount of your savings. Those with more savings get bigger dividends. For the first three years mandatory savings cannot be withdrawn unless a woman leaves the village bank. But once the members feel that their group fund is big enough to satisfy everyone s credit needs, they may decide that women can withdraw some of their mandatory savings without having to leave the bank. Voluntary savings, on the other hand, may be withdrawn at any time. Often women keep some voluntary savings in the bank for emergencies or to pay for family expenses such as school fees or household repairs. Many women feel it is difficult to save. But if you could save even one penny a day, in just six months you would have $1.80 in savings. If the village bank gives you a loan worth five times your savings, you could then begin taking a series of short-term loans from the village bank starting with a loan of $9.00. That would be enough to get you started in a small business. Once you are in business and have regular income you will not have trouble saving even two pennies a day. By the end of a year you could have $7.20 in savings. Then you could get loans of up to $36.00 from the village bank to grow your business. This is how a woman starting with very little can gradually improve her economic situation. If a woman is really poor, you may think, how can she save even one penny a day? People should look at saving as one of their regular necessary expenses. Just as everyone has to buy salt and spices, village bank women have to save. You can look at your present expenses and try to cut back on things that are unnecessary. Smoking cigarettes is an example. Sometimes you may have to ask other family members for help. But without sacrifice it will not be possible to accumulate even a little bit of wealth. Village bank women and their families make sacrifices because they know that this is the way to a better future. In some communities there may be very poor women who want to join the village bank. Perhaps they cannot afford to pay as much mandatory savings as the other bank members are ready to pay. In such cases the bank members may agree to let the poor women save at a lower rate until their businesses become established and they can earn enough to save like the others. Women with smaller savings will get smaller dividends and will be eligible only for smaller loans, but at least they will have a chance to get started on the road to better income. What about loans? To be able to take a loan from the village bank you have to be a responsible member of the group. Members who are in good standing have priority when it comes to getting loans. To be in good standing, a member must attend bank meetings and save regularly, make her loan payments on time and abide by the bank s rules. Here are some other special features about village bank loans: Village bank loans are not given for household consumption things like paying for weddings or funerals or for repairing your roof. Women may have trouble paying such loans back. Village bank loans are given to help women 7

carry out all kinds of business activities. If you put the money you borrow into a good business you will have no problem paying it back. Village bank loans should not be passed on to other family members. Family members may help a woman with her business, but she, herself, should be the owner and manager. A woman who passes her loan on to others has no control over how the money is used, yet she is responsible for paying it back Before taking a loan a woman must present her business idea to the group. The group will know if the woman really has a business and if the size of the loan is appropriate. Village bank loans are usually small at first. But they get bigger as a woman proves she is capable of managing her money and paying back her loans on time. Village bank loans are given for short periods of time, from one to six months at first. These short-term loans encourage women to look for incomegenerating activities that are more profitable than traditional agricultural or livestock work. Village bank loans are paid back in weekly installments. This way women begin to look for business activities that turn money over quickly. Businesses that involve frequent selling are the surest and quickest way to increase family income. Also, weekly installments are small and easier to manage for women who are just getting into business. When women repay their loans in weekly installments it means that every week money is coming back into the bank. That way other women can get loans quickly. Also the more actively the group fund is rotated, the more profit the bank will make and the bigger everyone s dividend will be. Interest on a village bank loan is usually $2 per hundred (or 2%) per month, which is the same as 24% a year. Interest is taken out at the time the loan is given. The initial loan disbursement is the principal minus interest. Once the group fund is large enough to meet all of the members needs, the group may decide to allow some women to make their loan payments monthly. But women who make monthly payments should pay 2.5% interest per month, because they are keeping the group s money out for a longer time and others cannot use it. After all the credit needs of the members are satisfied, a village bank may make loans to non-members. These loans can be made to men or to women, but the borrowers should be trustworthy and well known to the village bank members. Such loans are usually given at 3% per month. Most village banks make a rule that a loan cannot be more than five times a person s savings. A woman with $10 in savings, for example, could get a loan up to $50. But a woman with only $2 in savings could borrow only $10. No loan to any individual, whether a member of the village bank or an outsider, should be worth more than 10% of the group s fund. Before taking a loan women must sign a debtor s agreement, which is a piece of paper acknowledging her debt and promising to repay her loan. Women also sign a personal collateral form on which they promise to hand over something of value to the bank if they do not repay their loan on time. 8

Since non-member borrowers have no savings at the village bank, they must deposit personal collateral, equal to the value of their loan, with the treasurer. Non-members also sign a debtor s agreement and pay their loans back in weekly installments, but they are not required to attend the bank meetings. Loans made at the beginning of a cycle may be for 24 weeks. But loans made later in the cycle are for 20 weeks, 16 weeks, 12 weeks, 8 weeks or 4 weeks. This is because all loans should be repaid by the end of the cycle so the management committee can close the cycle and distribute dividends. During the first two 24-week cycles the management committee has to learn the accounting system and the members must learn to repay their loans on time. If the village bank can close two cycles successfully, the bank may begin to offer deserving women bigger and longer loans, for up to 8 or 10 months. These are called cross-cycle loans. Deserving women are those who are active and regular members of the village bank, who have a growing business, and who have repaid at least three loans on time. Why are loans given for only one to six months, and not for a whole year? One of the purposes of the village bank is to encourage women to think hard about ways to earn money. It may be easy to raise a goat or to plant corn, but these traditional activities do not generate a lot of income and they are not going to make women prosperous. To really make a change in their economic condition women have to break out of these traditional kinds of work. Village banks make short loans to encourage women to speed up their selling. With a four-month loan a woman can buy a small goat rather than a newborn, and fatten it for two or three months, and sell it for a profit. Meantime she can sell snacks to make her weekly payments. She can grow vegetables. But while her vegetables are growing she can also buy vegetables from local farmers and sell them. By taking and repaying several short loans a woman can earn more than she can from one big, long loan. Once a woman has more business experience and has proven that she can pay back her loans on time, it is possible for the village bank to offer her longer loans perhaps for eight months. These are called cross-cycle loans because they do not have to be paid back by the end of the cycle. But these longer loans have to make sense for the kind of business the woman is doing. Why are village bank loans small at first? Village bank loans start out small for several reasons. First of all, the group fund is built up from the savings of the members. In the beginning the group fund is probably quite small. Also, women need to have experience putting borrowed money to work and paying it back before taking on the responsibility of using bigger loans. Small loans may not be good for buying expensive fixed assets like a kiosk or a cow. They are better used for working capital. A woman can use a small loan to buy things for resale or to buy things that she can work on and add value to, like turning fruit into chutney, milk into candies, or raw rice into beaten rice. 9

Women in village banks do not get big loans until their group fund has grown and everyone s credit needs are being met. Rather than getting a loan, they get a line of credit. That means as soon as one loan is paid off they get another and possibly a bigger one. As long as they are in good standing, they always have access to credit from the village bank. Their loans get gradually bigger and bigger as their businesses grow and they gain more experience. Once the group fund is big enough and a member has proved that she is creditworthy, because she has borrowed many times and always repaid her loans on time, then the village bank can give her a bigger loan for a longer period of time. Why are village bank loans paid back in weekly installments? Weekly installments may be hard to manage at first, but they have several advantages. One advantage is that the loan installments are small. If installments were once a month they would be four times as big! It might be difficult to come up with so much cash at a time. When loans are paid back in weekly installments there is always money coming back into the village bank. That way other members do not have to wait for such a long time to get their loans. And as more loans are given out the village bank earns more interest. That means bigger profits for the bank and bigger dividends for the members. The village bank is like a second business for the members. To make their village bank profitable, the members have to rotate their fund as actively as possible. More importantly, weekly loan payments mean women have to have weekly income. They have to do activities that involve frequent selling, and these kinds of businesses are the most profitable. To be in business you have to sell, and the more frequently you sell the better. Women who sell regularly have no trouble paying their loans back in weekly installments. After three or four cycles, when the group fund is big enough to satisfy everyone s credit needs, a village bank may decide to allow women to repay their loans in monthly installments. But that means the women are keeping their money out of the bank for longer periods of time and others will have to wait longer to get their loans. For that reason village banks usually charge a higher interest rate, say $2.50 per hundred (2.5%) each month, for loans that are paid back in monthly installments. What kinds of rules do village banks have? Village bank members are serious about making a better future for themselves. In order to ensure good discipline, many village banks have strict rules that the members all agree to abide by. Most village banks impose fines on people who break the rules. Here are some of the rules that you will find in most village banks: People who miss a bank meeting without a good excuse or without sending advance notice to the secretary must pay a $.05 fine. If anyone is more than 15 minutes late to a bank meeting she must pay a $.01 fine. If anyone misses one of the scheduled study classes she has to pay a $.01 fine. 10

If anyone fails to bring or send her mandatory savings to the bank meeting she has to pay a $.03 fine. In some banks the chairperson reads out the names of all the borrowers who are behind in their loan payments. In some village banks women have to pay a $.05 fine if they are late making a loan payment. If they are late again the fine goes up to $.10 for every missed payment. If a loan is not fully repaid by the due date, the bank may use the person s savings to pay off as much of the loan as possible. If the woman s savings are not sufficient she must turn her personal collateral over to the bank treasurer. If a woman cannot fully repay her loan by the due date because of some misfortune, the bank may decide to give her extra time to pay without penalty. This is called rescheduling a loan. If a woman has a big loss due to some misfortune, but she is a member in good standing, the bank may decide to give her an additional loan to pay back her first loan and re-establish her business. This is called refinancing a loan. Since dividends are based on how much savings a person has, if a woman has to use her savings to pay off her loan she may not get a dividend. Any bank officer who misuses the bank s money must repay the money and should be removed from her office. Any woman who abuses the bank or acts irresponsibly can be kicked out. Usually the secretary reads out the rules at the beginning of every bank meeting. Most of the members appreciate the rules and the need to pay fines, because the rules protect their money and the fines go into their group fund. Members that consistently miss meetings, break the rules or do not pay their loans back on time may have to wait longer to get a loan, or they may get smaller loans. If they persist they might be asked to leave the bank. What are the rules for safe money handling? For everyone s protection the village bank should have strict rules for safe money handling. Here are 10 rules that many village banks have to ensure their money will not be misused or lost. 1. All banking transactions should be made during the bank meeting in front of the whole group. 2. Only members of the management committee may open the cash box outside of the bank meeting. They may need to take money out for deposit in the commercial bank or for administrative expenses. 3. Only members of the management committee may authorize or pay administrative expenses for the village bank. These must be reasonable and receipts should be gotten whenever possible. 4. Only the treasurer handles cash during the meeting. If any cash is missing she is responsible and must make up the difference herself. 5. If there is $10 or more in the cash box at the end of a bank meeting, a deposit should be made in the commercial bank account within 24 hours. All money in excess of $5 should be deposited, leaving only $5 in the cash box. 11

6. At least two members of the village bank must go to deposit or withdraw money at the commercial bank. If the treasurer cannot go, she should prepare the bank deposit slip. The deposit slip and bank passbook should be returned to the management committee the same day, properly filled out and stamped by the bank. 7. At the start of every bank meeting the members should inspect the commercial bank passbook and deposit slip to see that the money was deposited within 24 hours. 8. The cash box should have three locks and different members of the management committee should keep the keys. The fourth management committee member keeps the box. 9. All entries on forms, journals and passbooks should be neat, accurate, honest and up-to-date. 10. If any member of the management committee is found to have made personal use of group funds, she should be removed from office. What kinds of things can go wrong in a village bank? There are four bad things that can happen to a village bank: corruption, stagnation, indiscipline and incompetence. Corruption happens when someone steals money from the village bank or uses the village bank s money for personal profit. Every village bank has rules for safe money handling. But sometimes the officers become lax. What if an officer does not deposit the bank s excess cash in the commercial bank immediately, but borrows it for her own personal use? What if the treasurer accepts a savings payment outside of the bank meeting and just pockets the money and does not record it? Everyone should carefully follow the rules for safe money handling. The management committee must be honest and transparent in its dealings. It must be able to resist pressure by members, leaders and even outsiders. Stagnation happens when membership declines rather than grows, when members leave the bank and are not replaced. Stagnation also happens when savings taper off, or when members start using their mandatory savings to make loan payments. It happens, too, when the group fund is not fully utilized and some of the money sits idle. When things like this happen dividends decline. In a healthy bank all these things should be growing. To bring a stagnant bank back to health, sometimes a change in leadership is required. Also the women may need to recruit new members who will work hard to keep the bank active and growing. Indiscipline is the situation when members start missing meetings or coming to the meetings late, or when they get into the habit of making their loan payments late. Late payments reduce the bank s earnings because the money cannot be lent out to others. If a member becomes careless the bank may decide to stop lending to her until she straightens out. If she does not, she might be asked to leave the bank. 12

Incompetence means that the management committee and the members cannot manage the bank meetings properly. Perhaps the management committee cannot fill out the accounting forms on time or keep track of the funds. What if the committee cannot calculate dividends or open and close a cycle correctly? What if there is disunity in the group and the management committee cannot provide a unified and caring environment for all of the members? When the management committee feels it is over its head in problems it should visit another village bank. It should watch how they conduct their bank meeting and ask the officers questions. How do we know if a village bank is healthy? At the end of every cycle the village bank should perform a health check. The health check involves looking at all of the parts of the village bank and seeing which parts everyone is satisfied with and where there is room for improvement. The health check can be simple, involving just a yes or no answer to a series of questions. If the members find weak areas that they want to improve, they can work on those areas during the next cycle. Here are the kinds of questions that can tell us if a village bank is healthy: Participation 1. The attendance and payment record is kept up to date. (Yes or no?) 2. All or almost all of the members attended the last bank meeting. 3. Bank members consult and vote on issues important to the bank. 4. Members are active in group income-generating activities to raise money for the village bank. Rules 1. The village bank has rules about attendance and payment of savings. The rules are enforced. 2. The village bank has rules about safe money handling. The rules are carefully observed. 3. The village bank has rules about repayment of loans. The rules are enforced. 4. Members of the management committee abide by the bank s rules. 5. Members are aware of the bank s rules and the schedule of fines. Fines are collected. Bookkeeping 1. The management committee is able to calculate a financial statement and a balance sheet at the end of every bank meeting. 2. The members have savings and loan passbooks and the bank has savings and loan journals. The passbooks and journals are kept up-to-date. 3. The village bank has a cash book and it is kept up-to-date. 4. The village bank is able to calculate loan statistics at the end of every bank meeting. 5. The village bank officers are able to calculate dividends at the end of a cycle. 6. The village bank officers are able to close one cycle and open the next one within one week. 13

Savings 1. Each member has a plan for mandatory and voluntary savings. 2. Each member makes savings deposits at every bank meeting. 3. All or almost all of the members deposited savings at the last bank meeting. Loan Repayment 1. All or almost all of the members pay their loan installments on time. 2. Fines are imposed on members who make late payments. 3. The village bank keeps a debtor s agreement and a list of personal collateral for each borrower. 4. The names of all those who are behind in their payments are read out at the bank meeting. 5. During the last cycle the village bank had no loans that were 30 days or more overdue. 6. Members who have poor attendance or irregular savings have low priority for receiving loans. 7. The management committee follows up immediately on all loans that are overdue. Growth 1. The village bank has plans to increase its membership to at least 25 or 35. 2. During the last cycle the village bank added new members. 3. Members are involved in at least two income-generating activities per cycle to raise money for the village bank. Money Handling 1. The village bank has a commercial bank account. 2. The commercial bank passbook and deposit slip are shown to the members after every deposit. 3. The members know how to check the date and the amount of the commercial bank deposit. 4. No one but the treasurer handles the village bank s money during the bank meeting. 5. No village bank transactions are made outside of the meeting except by the management committee. 14

II. How Does a Village Bank Operate? What are the duties of the village bank members? Any member might be elected as an officer of the village bank. So it is important that all of the members study the Women in Business manuals, understand how the village bank works, and have a clear idea of what each officer does. In addition to understanding how the village bank works, every woman should try her best to be an active and responsible member. This means: attending the meetings regularly; having both mandatory and voluntary savings; paying your loan installments on time; learning how to read and write and do simple arithmetic; being able to fill out your own savings passbook and loan passbook; having a business and working hard to improve the quality of life for your family. Most active bank members belong to solidarity groups. These are groups of four to six women who help each other with their businesses. Often solidarity groups study the Women in Business manuals together. Sometimes they may even help each other make loan payments if someone is having a problem. Or they can look after each other s children when someone has to be away. Also, each solidarity group plans at least two income-generating activities per cycle to raise money for the village bank. All members must agree to abide by the village bank rules. That means: paying fees and fines when they are due; signing a debtor s agreement and a personal collateral form before taking a loan; turning over your personal collateral if you have not fully repaid your loan by the due date. All members are responsible for: preserving the unity and dignity of the village bank by not gossiping, backbiting or forming cliques; inspecting the commercial bank passbook and deposit slip to verify that excess cash was deposited at the commercial bank within 24 hours of the last bank meeting; helping screen loan applications, so that the village bank s money is lent out wisely and put to productive use; taking time from their busy days to help others learn how to read or to participate in community service projects that the village bank initiates; keeping the village bank active and growing by recruiting new members who are honest, hard working, and who genuinely want to improve their lives. 15

Who are the officers of the village bank and what do they do? The village bank has four officers: a treasurer, a chairperson, a controller and a secretary. These four make up the bank s management committee. The management committee The management committee keeps the bank running smoothly and solves any problems that come up. The officers who make up the management committee make sure the village bank is active and growing. They make sure that the group is unified and supportive of every member. They know that factions, gossip and prejudice can hurt the bank and that members might lose interest and drift away. The management committee also makes sure that the members are disciplined and do not fall behind in their loan payments. Whenever a woman fails to make a loan payment on time it reduces the village bank s earnings because that money cannot be lent out to someone else. The management committee is careful not to let collection problems develop. The management committee also fills out all of the village bank s financial records. For that reason the officers should all be literate, good at math, trustworthy and responsible. They have to give a lot of time to make the bank successful. They have to work hard and set a good example for the others. Each of the village bank officers has special responsibilities: The treasurer The treasurer should be someone who is honest, energetic and good with numbers. She has the hardest job. The treasurer is the only person who handles cash during the bank meeting. If any cash is missing, she is personally responsible and must make up the difference from her own pocket. The treasurer should be someone who will never be tempted to borrow personally from the group s fund. During the bank meeting the treasurer: counts any money coming into the bank and puts it in a cash separator; announces to the management committee each transaction that a member is making; signs each member s savings passbook; makes sure each woman taking a loan signs the debtor s agreement and fills out and signs the personal collateral form; signs each member s loan passbook; fills out the cash control sheet. At the end of the bank meeting the treasurer: balances the meeting with the controller; counts the money in the cash box before adding any cash from the bank meeting; 16

fills out a commercial bank deposit slip if there is over $10 in the cash box, leaving only $5 in the box; fills out the cash book with help from the controller; fills out the financial statement with help from the controller; fills out the balance sheet with help from the controller; takes the cash box home with her. On the day after the bank meeting the treasurer: along with another bank officer, takes any excess cash to the commercial bank for deposit; if the treasurer cannot go herself she gives the excess cash to two other officers or trustworthy members who will deposit it in the commercial bank; receives the bank deposit slip with the commercial bank s stamp and date, showing that the money was deposited. At the end of each 24-week cycle the treasurer: prepares an end-of-cycle balance sheet, setting aside 10% of the bank s profit as a reserve for bank expenses; calculates each member s dividend on the basis of her minimum savings during the last 12 weeks of the cycle; fills out a new savings passbook and new saving journals for each member, adding the member s dividend to her mandatory savings. The treasurer also keeps all of the bank s records in order in clearly marked files. She keeps the files carefully wrapped in plastic to protect them from water or insects. The chairperson The chairperson should be someone who is mature and well respected. She manages the village bank meetings, and during consultation she makes sure every member has a chance to speak. She helps the group make decisions and solve any conflicts that might arise among the members. During the bank meeting the chairperson: makes announcements and helps the group consult on important matters; helps the group make decisions and rules; fills out each member s page of the savings journal and has her sign it. The controller The controller makes sure everyone is following the rules. She helps keep the group disciplined. For that reason she should be respected and someone who is not afraid to be strict. She also helps the treasurer keep track of the financial transactions. So she should be good at arithmetic and able to keep accounts. During the bank meeting the controller: carefully watches each and every transaction; 17

records the details of each and every transaction on the summary transaction sheet; reminds members about any fines they owe. At the end of the bank meeting the controller: balances the meeting with the treasurer; helps the treasurer fill out the cash book, the financial statement and the balance sheet; helps the secretary or the assistant treasurer fill out the loan statistics form. Before the start of each new 24-week cycle the controller works with the secretary to: prepare loan passbooks and loan journals for women taking loans at the start of the next cycle; prepare a personal collateral form and a debtor s agreement for women taking loans at the start of the next cycle. The secretary The secretary should be someone who is good at reading and writing. She receives and writes letters on behalf of the village bank. She keeps a record of decisions and rules in her minutes book. During the bank meeting the secretary: reads out the rules at the beginning of each bank meeting; takes the roll call at the start of each bank meeting and fills out the attendance and payment record; keeps a record of decisions and rules in her minutes book; assists any member to fill out her passbook if the member is having difficulty; prepares a new line on the debtor s agreement for each woman taking a new loan; fills out each member s page of the loan journal and has her sign it. At the end of the bank meeting the secretary: fills out the loan statistics form with help from the controller. Before the start of each new 24-week cycle the secretary works with the controller to: prepare loan passbooks and loan journals for women taking loans at the start of the next cycle; prepare a personal collateral form and a debtor s agreement for women taking loans at the start of the next cycle. Assistant officers Assistant officers may also be needed if the banking transactions take a long time. An assistant treasurer can fill out the cash control sheet while the treasurer is counting the money and making change. Sometimes the village bank chairperson is an older 18

woman who is well respected but whose eyesight is poor. Or perhaps she is weak in math. An assistant chairperson can help her fill out the savings journal. An assistant secretary can help a member with her savings passbook while the secretary fills out her loan journal and marks the attendance and payment record. An assistant controller can keep track of who has to pay a fine at the next meeting. How are the village bank officers elected? The village bank officers should be elected by secret ballot. This is the best way to get the right person for each office. The members should not discuss with anyone who they intend to vote for, nor should they try to encourage others to vote for certain people. Nothing can do more harm to the unity of the group than to have it divided into factions. Before the election each member should think of the qualities that an officer needs to have. Then she should think of each and every one of the group members to see who best exemplifies those qualities. She may consider herself to be the best person for an office. The members vote for one officer at a time, starting with the treasurer. There are six steps in the election. Step One: At the time of the election the members are all given small pieces of paper. They will use these to write their ballots. A lot of ballots are needed for the election, so some pages of a notebook should be torn into small pieces. Step Two: The members vote for one officer at a time. Each member should think of the qualities that that particular officer will need and who in the group has those qualities. She should not discuss her choice with anyone. Step Three: Quietly and in a way that others cannot see, each member writes one name on a piece of paper. She folds the paper and all of the ballots are put in a pile in the middle of the group. Step Four: Two members open up all the ballot papers and put them in different piles according to whose name is written on the ballot. Step Five: The two members count the ballots. The person who receives a majority of votes is elected to that office. A majority means more than half. So in a group of 25 a woman must receive 13 votes to be elected. Step Six: If no one receives a majority, then the members vote again between the top two candidates. As before, voting is done in an atmosphere of quiet reflection. Officers serve in their positions for one year. After two cycles the group should elect new officers. The current officers may be elected to a new post, but are not eligible to serve again in the same post. This gives everyone a chance to learn how to manage the village bank. 19

How do the officers get trained? The duties of the officers are described in detail in the Women in Business manuals. But it is very helpful if an officer from a more experienced village bank gives the management committee some hands-on training on how to conduct a bank meeting. The best way is for the new officers to role-play a banking day and get useful feedback and pointers from the experienced officer. A new village bank may even want to pay someone to come and train them. Another way for a new management committee to get trained is to visit a more experienced village bank and watch how those women conduct their banking day. After all the transactions are completed the new officers can ask detailed questions about things they did not understand in the Women in Business manuals. Once a village bank has trained and experienced officers, it is useful if the group elects the next set of officers half way through the second cycle. Then the new officers can sit beside the current officers and assist them, at the same time learning all the different responsibilities that go with that office. It is especially important that the new officers learn how to open and close a bank cycle. What is a village bank cycle? A cycle is a period of time when certain things happen. It s like planting rice. First you grow the seedlings, then you prepare the land and transplant the seedlings. During the growing season you pull out the weeds. Finally it is time for the harvest. Every year you go through the same steps, from planting to harvest. The village bank also operates in cycles. Each cycle is six months long, which is 24 weeks. At the beginning of the cycle every member gets a new savings passbook. Other accounting forms are also started then. At the beginning of the cycle many loans are given out to the members. But if the loan fund is still small, it may not be possible for every member to get a loan at the beginning. After one week the members start bringing their loan installments along with their savings. Every week, as money comes into the bank, new loans are given out. Loans given out at the beginning of the cycle can be for as long as 24 weeks. But loans given out later are for shorter periods of time, like 20 weeks, 16 weeks, 12 weeks, 8 weeks, or even 4 weeks. This is because all loans must be paid back by the end of the cycle. Here are some of the important things that happen during the village bank cycle: The beginning meeting of the cycle is called the Zero Meeting. This is when the first loans of the cycle are given out. At the end of the first week the first installments on those loans are due. That bank meeting is called Meeting 1. It means one full week of the cycle is complete. Starting with Meeting 1, as savings and loan payments come into the bank, additional loans are given to members who did not get them at the Zero Meeting. 20

At Meetings 2 through 19 all of the bank members get loans and those who have paid their loans back get repeat loans. At Meeting 20 the last four-week loans of the cycle are given out. The management committee also arranges to get all the accounting forms it needs for the next cycle. From Meeting 21 the management committee begins reminding the members to get their loans repaid on time because the end of the cycle is coming up. During Meeting 22 the women discuss who wants a loan for the next cycle and how big a loan each person wants. The demand for loans may be bigger than the money in the group fund. The management committee reviews all the loan requests. At Meeting 23 the list of loans to be given out at the beginning of the next cycle is finalized. Other women will have to wait a week or two until the group fund starts to fill up again with loan installments and more savings. Meeting 24 marks the end of the cycle. At that meeting all loans are repaid and the cycle is closed. Who screens the loan applications? The village bank members themselves screen loan applications. They are the managers and it is their money that is being lent out. They want to be sure they will get it back. When screening loan applications the members want to be sure the borrower is trustworthy and will repay her loan on time. They will look at her past repayment record, her attendance and whether or not she saves regularly. What about the woman s business? The members will want to be sure the borrower is not going to pass her loan on to somebody else. Does she have a business already, or at least does she have a good business idea? Does she have experience with the business she plans to do? Is she going to use her loan for production and not consumption? What is she going to buy with the loan? What does she plan to sell? Where? Who are her customers? And what about her savings? Is the loan she is requesting not more than five times her savings? Is her collateral worth as much as the loan? The whole group may be involved in screening loans, or it may be done by the members of a solidarity group, or by the management committee. Once a woman has borrowed several times and her business is well known, screening becomes routine. What about larger and longer loans? After the village bank has closed two 24-week cycles successfully, it can start offering cross-cycle loans to women who are active bank members and who have a good record of making payments on time. Cross-cycle loans can be for more than 24 weeks and they can be given out at any time during the cycle. A woman who has a crosscycle loan will get her share of the dividends so long as her payments are up-to-date at 21

Meeting 24, when the cycle is closed. These longer and larger loans may be for as much as $100 or $150 if the group fund has grown sufficiently. But before a village bank gives out longer and larger loans it needs to make sure that all the members who want shorter and smaller loans get their loans first. A member who has a cross-cycle loan can get a dividend at the end of the cycle if her loan payments are up-to-date. If she has arrears she may have to use her savings to make the payments. But that will reduce her dividends. A woman taking a larger loan will have to sign a new personal collateral agreement, promising to hand over to the bank something that is worth at least as much as the new loan in the event she fails to pay it back. She also needs to sign a new debtor s agreement. Even if a woman gets a larger and longer loan, her loan should not be more than five times her savings. And a woman with a cross-cycle loan may not get another loan until her first loan is paid off. Why do some women have trouble repaying their loans? If a woman passes her loan on to someone else she may have trouble making her payments. If she is not in control of the business, she will be stuck making the payments while someone else is using her money. This is why the village bank should make sure that every borrower has a business and is the owner and manager of her business. If a woman is just getting started she should be given fairly small loans until her business gets going. As for women who take loans for their businesses, there are three main reasons why they might fall behind in their payments: misfortune, lack of technical know-how, and bad character. Misfortune Sometimes people have bad luck. A flood or fire could ruin a woman s business, or she could get sick. In such cases, the village bank will try to help the member get back on her feet. The members of her solidarity group might help her make her loan payments. The bank members might do an income-generating activity to help her get her business going again. The management committee might give her more time to repay her loan without having to pay a fine. This is called rescheduling a loan. If a woman is honest, saves regularly and is an active bank member, the management committee may consider giving her a new loan to pay back her first loan and to get her business going again. This is called refinancing a loan. Lack of technical know-how Sometimes a woman may start a business she does not know very much about. Or she starts in a big way before she has learned how to do the business properly. Perhaps she ordered a lot of materials and they got spoiled. Perhaps she invested in livestock and the animals died. Perhaps no one knows how to repair the tools she needs to do her work, or the spare parts are not available locally. Perhaps she does not know how 22

to find customers or cannot produce as good quality as others who have more experience. Perhaps she used part of her loan for household consumption and now she can t make the payments. Most of these are technical problems that people might face when they start a new business. In some cases people just make bad decisions. That is why it is important to begin with something you know how to do and to start small and grow gradually. Women who make bad decisions usually have to pay a fine for missing their loan payments. In some cases, if her business idea is basically good, the management committee might decide to reschedule her loan. But it is unlikely that the village bank would want to refinance such a loan. It is not a good idea to throw good money after bad! Bad character Sometimes we come across people who are irresponsible and do not care what others think. They only want to do things their way. They behave as though the bank rules do not apply to them. Every village bank must be prepared for the rotten mangoes that refuse to pay their loans back. Rotten mangoes are not just women who are having trouble making payments. They are women who refuse to pay or who try to take advantage of the bank s money in some other way. These are the most difficult cases to deal with, and people like that deserve little sympathy. They don t deserve to be members and should be expelled from the village bank. How does the management committee solve collection problems? All the members of the village bank should be committed to making their loan payments on time. The management committee has to watch carefully to make sure people do not fall behind in their loan installments. There are two ways a loan can be overdue. One way is when a borrower falls behind in her weekly loan payments. The other way is when the loan has not been repaid by the due date the date when the loan was supposed to be repaid in full. One of the jobs of the management committee is to encourage people who are behind in their loan installments to get back on a payment schedule. It is always better to take action before the borrower falls too far behind. If a borrower has missed two payments the management committee should meet with her to find out what the problem is. It is unhealthy for the borrower and for the village bank to let debt accumulate. Village banks have strict rules to deal with people who are careless about repaying their loans on time. At the start of every bank meeting they announce the names of any members who have missed one or more payments. Most village banks also impose a fine for missing a loan installment $.05 if a payment is missed once, and $.10 for each meeting it is missed after that. If a borrower is consistently late making her payments she will have low priority when it comes to getting her next loan. She may have to wait until others have taken their loans or she may get a smaller loan. 23

If no payment has been made on a loan for 30 days, the loan is said to be in default. In such cases, or if the loan has not been fully repaid by the due date, the village bank may ask the borrower to use her mandatory and voluntary savings to cancel as much of the loan as possible. In most cases there will be enough savings to complete the payments. But if money is still owed, the borrower should hand her personal collateral over to the bank. If no payment has been made on a loan for 90 days the loan is said to be bad debt. In such cases the village bank may have to sell the borrower s personal collateral to make the loan payments. What does it mean to reschedule a loan? Rescheduling a loan means giving a borrower more time to pay, usually because of some setback or misfortune that was not her fault. Usually when a loan is rescheduled the borrower does not have to pay a fine. But she does have to pay interest on the unpaid balance for the extra weeks she is given. Before a loan is rescheduled the borrower signs a new debtor s agreement. Also the village bank collects her personal collateral and holds it until the loan is paid off. What does it mean to refinance a loan? Refinancing means giving more money to a borrower who still has an outstanding loan. This is mainly done in the case of a woman who is honest and hard working, but who is facing difficulties because of some misfortune that was not her fault. For example, a woman s business might suffer because of fire, flood or illness. The new loan will enable her to pay off her old loan and get her business back on its feet. Since a borrower cannot have two loans from the village bank at the same time, the first thing the woman must do with her new loan is pay off the balance of her first loan. Then with the rest of the money she can get her business going again. How can a village bank increase the dividends it pays? For a village bank to give dividends it must have a surplus or a profit. There are two ways to build up a surplus. One way is to increase earnings. The other way is to reduce costs. Increasing earnings To increase earnings, the group fund should be lent out all the time. Interest on loans is the main source of income for the village bank. The group s money should never sit idle. It should always be rotating. That is why, after successfully closing two cycles, many village banks start giving cross-cycle loans. These are loans that do not have to be paid back by the end of the cycle. Women who are in good standing, who have at least three loans and paid them back on time, are eligible for cross-cycle loans. The village bank also earns money from fees and fines. It is important that fees and fines be collected. 24

Another way to increase the village bank s earnings is to bring in new members. This will increase the size of the fund and add new borrowers to keep the fund rotating. Earnings can also be increased if all the solidarity groups do income-generating activities to raise money for the village bank. Reducing costs To reduce costs the village bank has to be properly managed. First of all, it is important that all of the village bank members be disciplined and not fall behind in their loan payments. Whenever a member fails to make her loan payment it costs the bank money because that money cannot be lent out to someone else. The management committee must not let collection problems develop. Secondly, the management committee has to solve any organizational problems that might lead to disunity or cause members to become apathetic or even leave the group. The village bank must be unified and supportive of every member. How do group income-generating activities work? A group of four to six members, who are friends or neighbors, can form a solidarity group. In some village banks all of the members are divided up into five or six solidarity groups. Each cycle these groups carry out one or two income-generating activities for the village bank. Usually the solidarity groups carry out short-term activities. They do not have to be very complex or very expensive to run. Most group income-generating activities can be organized in a week or two and can be done in one day. Solidarity groups can prepare snacks to sell at a fair or a sporting event. They can vaccinate animals or put on a cultural show. Some solidarity groups plant a garden or fatten an animal for the village bank. There was one solidarity group that organized a raffle of goats and chickens and earned $400 for the bank! Usually the solidarity group borrows money from the village bank to carry out its project. When the project is finished the members return the advance plus the earnings to the village bank. The women who contribute their time to the project do not take any salary for their work. This is their volunteer service. But in many village banks half of the profit goes to the village bank, which advanced the money, and half goes to the members who did the work. The members share is added to their mandatory savings. Not only are their savings increased, but their dividends are also bigger because of these group projects. Members of the solidarity group who did not contribute to the project, however, do not get a share of the profit. What kind of venue, equipment and supplies does a village bank need? As for venue: A village bank can operate just about anywhere on someone s porch, in someone s front yard, or in any room where 25-35 women can gather comfortably and walk back and forth to their homes. The management committee needs to be able to sit in a place 25

at the front of the room that is not too crowded. During the bank meeting each member, in turn, comes to the front and gives her money to the treasurer who announces the member s transactions. Money and passbooks should not be passed to the front by other members or tossed at the treasurer from a few rows back in the group! As for equipment: Every village bank needs a calculator to balance the meeting, figure out loan equations and calculate dividends. With a calculator it is easy to do arithmetic and you won t make mistakes. Every village bank needs a cash box with three locks. Different officers should keep the keys to the cash box. The treasurer keeps the cash box. In some village banks the other three officers have the keys. Some cash boxes are actually small tin trunks that are big enough to hold all of the village bank s accounting forms and files. It is easier for the treasurer to make change and keep track of the money if she has a cash separator. A cash separator is a box with sections so the different notes do not get mixed up. There are places for each of the different denominations of notes. As for supplies: All of the officers need good ballpoint pens. The secretary needs a minutes book where she can write down the decisions and rules that are made during the bank meeting. A stapler is useful for keeping forms together that go together. The officers need about 7 file folders for keeping all of the different records, journals and forms. A plastic bag or a piece of plastic is helpful for protecting the forms from insects and dampness. A hole punch may be useful for binding pages together in the file folders. 26

Some rubber bands and paper clips may be useful for holding money and papers together. Every cycle the village bank needs all of the accounting forms for the full 24 weeks. These forms will have to be purchased or they can be photocopied or drawn by hand. A group of 30 women would need the following forms: Attendance and payment record 2 per cycle Savings passbooks 1 per member and 5 extras for new members Savings journal pages same number as savings passbooks Loan passbooks 3 per member and 10 extras for new members Loan journal pages same number as loan passbooks Treasurer s cash control sheet 2 per cycle Controller s summary transaction sheet 28 per cycle (This includes a sheet for the Zero Meeting and three extras for between-cycle meetings.) Cash book about 10 pages Financial statement and balance sheet 28 per cycle (This includes a sheet for the Zero Meeting and three extras for between-cycle meetings.) Loan statistics form 1 per cycle Debtor s agreement 2 per cycle Description of personal collateral 2 per cycle The savings passbooks and loan passbooks are kept by the individual members. The attendance and payment record, the treasurer s cash control sheet, and the loan statistics form can be kept together in one file. The debtor s agreement and the personal collateral form can be kept together in another file. But the savings journals, the loan journals, the summary transaction sheets, the cash book pages and the financial statements should all be kept in their own separate files. In some village banks the forms are kept in four files, depending on which management committee officer is responsible for each form. What happens at the bank meeting? Bank meetings are held once a week. After three or four cycles, once the members have studied the Women in Business manuals and have a clear understanding of how the village bank works, and as their microenterprises begin to grow and take up more of their time, the members may decide to have bank meetings every other week. If the members decide to meet every second week, the mandatory savings rate will double. Instead of weekly loan payments there will be biweekly payments. The interest rate on loans will remain the same. Before the bank meeting If loans are to be given out at the bank meeting, and if cash has to be brought from the commercial bank, the treasurer and another officer, or two trustworthy members, must go to the commercial bank the day of the bank meeting and withdraw the money. To do this the treasurer must prepare a check or withdrawal slip. Even before the bank meeting begins the members of the management committee may want to meet for half an hour or so to discuss any issues they need to resolve in order to keep the village bank healthy. 27

During the bank meeting Bank meetings start on time. Women have busy schedules and it is not fair for those who arrive on time to have to wait for latecomers. If anyone is more than 15 minutes late to the bank meeting she should pay a fine. At the start of the meeting the secretary reviews the village bank rules and reads the roll call. On the attendance and payment record she marks a P next to the name of every member who is present. Later she will mark an L next to the names of members who come more than 15 minutes late. At the end of the meeting she will mark an A next to the names of members who were absent. If a deposit was made in the commercial bank the previous week, the treasurer will pass the commercial bank passbook and the stamped and dated deposit slip to the members so they can verify that the money was deposited within 24 hours of the last bank meeting. The chairperson makes any announcements or brings up matters that need to be discussed. Then there is time for general consultation, when any member of the bank can share news or bring up an issue for the group to consider. The chairperson facilitates the consultation, making sure that it does not drag on too long, but also giving everyone a chance to speak. She helps the group come to a decision if that is required. After the consultation the transactions begin. The four officers who make up the management committee sit together at the front of the group. The controller sits to one side where she can keep her eye on all of the transactions. All village bank transactions are done at the bank meeting, in front of the whole group. If any women have completed a group income-generating activity during the week, they hand the earnings from the activity over to the treasurer at the start. After that, the members come, one by one, to the front to do their transactions. In some village banks the first women to arrive for the meeting get to do their transactions first. But if some members have handed over earnings from a group income-generating activity, they might go first. This will make it easy for the treasurer to enter the members share of the profit in all the various forms and journals. At the Zero Meeting, when the bank is giving out the first loans of a new cycle, loans may be distributed before savings are collected. At all other bank meetings loans are given out after all the savings and loan payments have been collected. As each woman comes to the front she hands the treasurer her savings passbook and loan passbook and announces her transactions. The treasurer repeats each one so that the other officers can hear. Normal transactions include payment of mandatory savings, payment or withdrawal of voluntary savings, payment of fines or fees, payment of loan installments, and payment of arrears. If a member has trouble filling out any of her forms, she may ask the secretary to help her. Only the treasurer handles cash during the bank meeting. She also signs each member s savings passbook and loan passbook. 28

The members verify and sign the savings journal (which is filled out by the chairperson) and the loan journal (which is filled out by the secretary). During the transactions the treasurer fills out a cash control sheet on which she writes the net amount of each member s transactions. The controller writes down the details of each and every transaction on her summary transaction sheet. After each member makes her savings payment, the secretary puts a check next to her name on the attendance and payment record. At most bank meetings, after all the money has been collected, the management committee is able to make one or more new loans. The women receiving loans come to the front, one at a time, and sign the debtor s agreement. They also fill out and sign the personal collateral form if they have not already done so. Along with their initial disbursement they receive a new loan passbook. They must also sign a new page in the loan journal. If one or more of the solidarity groups proposes to do an income-generating activity to raise money for the village bank, and if the group requires some cash from the bank, this can be given at the end of the transactions. One of the members of the solidarity group signs a receipt for the money. After the bank meeting At the end of the bank meeting the members may go home, but the management committee must stay to balance the meeting and complete the forms. First the treasurer and the controller add up the totals on the cash control sheet and the summary transaction sheet and balance the meeting by checking to see if their sums are the same. If their figures do not agree, they must go back, member by member, and find where they made a mistake. Once the treasurer and the controller agree on the amount of money that came into the bank during the meeting, they count the cash in the cash separator. The officers open the cash box with three locks and the treasurer counts the cash inside to make sure that the amount is the same as shown on last week s balance sheet. Then she places the cash from that day s bank meeting in the cash box and the box is closed. Using the figures on the summary transaction sheet, and with the assistance of the other committee members, the treasurer fills out the cash book and the financial statement. If there is over $10 in cash, the treasurer prepares a deposit slip for the commercial bank for all of the excess cash beyond $5. Only $5 will be left in the cash box. The cash to be deposited is counted out and tied together with the commercial bank deposit slip, using a rubber band. Starting with the previous week s balance sheet, the treasurer uses the figures on today s financial statement to prepare a new balance sheet. Between bank meetings Between bank meetings the treasurer keeps the cash box and the village bank s financial records. If excess cash is to be deposited in the commercial bank, this should be done within 24 hours of the bank meeting. Two officers or two members should 29

take the money to the bank and on the same day return the deposit slip, stamped and dated, to the treasurer. 30

III. The Village Bank Accounting System How does the village bank accounting system work? There are eleven forms that make up the village bank accounting system. These forms all provide important pieces of information that give a clear picture of where the bank s money is and how well the bank is doing. The different parts of the accounting system form a building, like a house. At the foundation of the house are the forms that record each member s attendance and how much she has saved or borrowed. Another set of forms brings all of the individual and group transactions together. These are like the walls of the house. Finally there are two forms that summarize all of the information. The financial statement and the balance sheet are like the roof of the house. They give an overall picture of how the village bank stands at any given moment. There are three other important forms that are not strictly part of the accounting system. The debtor s agreement and the description of personal collateral protect the group s money in the event a borrower cannot repay her loan. While the balance sheet tells how the village bank is doing at a particular moment, the loan statistics form shows how the bank is doing over time. Is it improving or is it slipping into bad habits? 31

The following section describes each of the eleven accounting forms and the three additional forms, and explains who fills them out and how to fill them out. 32

Attendance and payment record The attendance and payment record lists the names of all of the members of the village bank. It is filled out by the secretary. There are two columns for each bank meeting one column for attendance and one for payment of mandatory savings. At the top of each column the secretary writes the date of the meeting. In the attendance column she writes P for present, A for absent, or L for late. In the payment column she puts a check mark next to a member s name if she brings or sends her mandatory savings. Otherwise she leaves the space blank. At the end of each meeting the controller should make a list of the members who owe fines. She should make sure that the fines are paid at the next bank meeting. At the end of the cycle the secretary can add up the total number of meetings a member was present and the number of times she deposited her mandatory savings. Women who attend and save regularly may be given preference for bigger and longer loans. The attendance and payment record should be put in a file and kept by the treasurer along with the other financial records. [Include copy of partially filled out attendance and payment record here.] 33

Savings passbook Each member of the village bank has a savings passbook, where savings deposits and withdrawals are recorded. Women should be able to fill out their own passbooks, but if they have trouble, they may ask the village bank secretary for help. Once the figures in the passbook have been verified and the money has been deposited or withdrawn, the passbook must be signed by the treasurer. Members get a new savings passbook at the time they join the village bank, and after that, at the Zero Meeting of each new cycle. The front of the savings passbook has places for the name of the village bank, the member s name, the mandatory savings rate and the starting date of the cycle. On the first line of the passbook there is a box to write the year. Then in the shaded boxes, next to the words Opening Balance, the treasurer writes the ending balance from the member s previous savings passbook for mandatory savings, voluntary savings, and total savings. If it is a new member and she has no savings, the treasurer writes 0 (zero) in each of these boxes. The treasurer also signs the box at the end of the row to show she has checked the figures and approved them. The rest of the passbook has lines to show new savings deposits or withdrawals and current totals. Any money deposited or withdrawn should be written in the white boxes. The shaded boxes are for new totals. At the left there is a box to show the date of the transaction. At the right there is a box for the treasurer to sign once she has verified the transaction and the totals. On the second line, in the date box, the treasurer should write the date that the last cycle was closed (the date on the end-of-cycle balance sheet) and the word dividend. Then she writes the amount of dividend the member earned in the box for Mandatory Savings and again in the box for Total Savings. In the box for Voluntary Savings she writes a zero, because dividends are only added to mandatory savings. The previous balance and the dividend are then added and the new totals are written in the shaded boxes. After entering the figures the treasurer signs the box at the right. Starting with the Zero Meeting the member should fill in the date and the amount of mandatory savings, voluntary savings and total savings she is depositing at each bank meeting. She should also find the new balances and write them in the shaded boxes. The balances can be checked by adding horizontally and vertically. The treasurer will verify these sums at the bank meeting. In the event that a member wants to withdraw savings, the amount to be withdrawn should be written in brackets ( ). When adding a series of numbers, one way to indicate that a number should be subtracted is to write it in brackets. [Include copy of partially filled out savings passbook here.] 34

Savings journal The savings journal is similar to the savings passbook. It is the village bank s record of each member s savings. The savings journal has a separate page for each member of the village bank. The chairperson prepares a new page of the savings journal when a member joins the village bank. After that, a new page is prepared for each member at the beginning of every cycle. The savings journal is filled out during the bank meeting by the chairperson or her assistant. The amounts and totals shown in the savings journal should correspond exactly to what is written in the member s passbook. Once the treasurer has signed the passbook, the member should check the savings journal to verify that the figures written there are the same as those in her passbook. If the figures are correct, the member should sign the savings journal in the space provided. All of the savings journal pages should be put together in a file and kept by the treasurer along with the other financial records. [Include copy of partially filled out savings journal here.] 35

Loan passbook A new loan passbook is prepared by the treasurer for every loan given out by the village bank. The loan passbook is given to the borrower at the time the loan is given. It is kept by the borrower. On the front of the loan passbook there is a place for the member s name and the name of the village bank. There are also places to write the amount of the loan (the principal), the interest and the total amount the member has to pay (principal plus interest). There are also places to write the term of the loan (how many weeks it is for), the number of installments, and the initial disbursement. (The initial disbursement is the amount of the loan less the interest, which is taken out at the beginning.) Finally the front of the loan passbook shows how much the member s weekly loan installment is, what her weekly mandatory savings payment is and how much money she needs to bring to each bank meeting. In addition to this amount, she may also bring as much voluntary savings as she likes. All this information is filled out by the treasurer. On the inside of the passbook there is a place for the date of the loan and a box to write the year. In the shaded box, next to the words Amount of Loan, the treasurer should write the amount of the loan principal and she should sign in the box on the right. Women should be able to fill out the remaining parts of their loan passbooks themselves, recording the amount of each loan payment and the balance remaining. But if a member has trouble, she may ask the village bank secretary for help. Once the figures in the loan passbook are verified and the loan payment is made, the treasurer should sign the passbook. At the next bank meeting the member should write the date of the meeting, and in the white space between the brackets ( ), she should write the amount of her loan installment. The brackets mean the installment is to be subtracted from the previous loan balance. The member should subtract the amount of the installment and write her new loan balance in the shaded box. At the bank meeting the member will hand her loan passbook and her money to the treasurer. The treasurer will count the money and check the member s calculations. If they are correct she will sign the loan passbook. [Include copy of partially filled out loan passbook here.] 36

What is a loan equation? A village bank member pays interest on her loan. The longer she keeps the loan the more interest she has to pay. In a village bank, the interest is taken out at the time the loan is given. The principal is paid back in a series of equal weekly installments. The loan equation tells a woman how much interest she has to pay for the amount of money she wants to borrow and for the time she is given to pay it back. It also tells her what her initial disbursement is, and what her weekly payments will be. In order to calculate a loan equation you need to know three things: 1. The loan principal, which is the amount of the loan. 2. The term of the loan, which is how many weeks the borrower has to pay it back. 3. The rate of interest, which is usually expressed in terms of a certain percent a month. Most village banks charge 2% a month, which is $2 per hundred. To find the monthly interest, multiply the loan amount times the interest rate. For example, the monthly interest on a loan of $5 at 2% would be $.10. $5 x 2% = $.10 To find the total interest, to be paid multiply the monthly interest times the number of months. For example, a loan for 2 months would be $.20. $.10 x 2 = $.20 To find the total amount to be paid, add the interest to the principal. For example, $5 principal plus $.20 interest make a total of $5.20. $5 + $.20 = $5.20 To find the initial disbursement, subtract the interest from the principal. That means a woman taking a $5 loan for 2 months would get $4.80, but have to pay back $5. This is because the interest is taken out at the time the loan is given. $5 $.20 = $4.80 To find the weekly loan installment, divide the principal by the number of weeks in the loan term. Two months is the same as 8 weeks, since there are 4 weeks to a month in the village bank. So weekly installments would be $.63. $5 8 = $.63 That is the basic loan equation. But in addition to bringing her loan installment a village bank member must also continue bringing her weekly mandatory savings. So just as a reminder, the front of the loan passbook has a place to write mandatory savings and the total weekly payment, which is the amount of money the member must bring to the bank meeting while she is paying off the loan. If mandatory savings is $.20 a week, the member with the 8-week $5 loan would have to bring $.83. $.63 + $.20 = $.83 37

Loan journal The loan journal is similar to the loan passbook, except it is kept by the village bank. The loan journal has a separate page for each and every loan. The secretary prepares a new page of the loan journal whenever a member takes a loan. The loan journal is filled out during the bank meeting by the secretary. The amounts and totals shown in the loan journal should correspond exactly to what is written in the member s loan passbook. Once the treasurer has signed the passbook, the member should check the loan journal to verify that the figures written there are the same as those in her passbook. If the figures are correct, the member should sign the loan journal in the space provided. All of the loan journal pages should be put together in a file and kept by the treasurer along with the other financial records. [Include copy of partially filled out loan journal here.] 38

Debtor s agreement The debtor s agreement is a piece of paper that each borrower signs acknowledging her debt and promising to repay her loan. The debtor s agreement shows each borrower s name, the date of her loan, the principal, interest and the total loan amount, the term of the loan, and the due date. The due date is the date by which the loan should be completely repaid. The debtor s agreement is signed by the borrower. The debtor s agreement is not strictly a part of the accounting system, but it helps protect the group s fund. If a member refuses to repay her loan, the debtor s agreement will allow the management committee to take legal action if required. [Include copy of a filled out debtor s agreement here.] 39

Description of personal collateral Collateral is something that belongs to you that you promise to hand over to the village bank if you do not repay your loan by the due date. The due date is the date by which the loan should be completely repaid. Collateral must be worth as much as the value of the loan and should be something that can be easily sold. Usually village bank women offer a piece of jewelry or maybe a radio or a sewing machine as collateral. At the beginning of every cycle each member of the village bank writes a description of her personal collateral on a list, along with its estimated value, and signs it. In a village bank a member does not actually hand over her personal collateral unless she has not made any loan payment for 30 days or the due date for her loan has passed and she has not repaid the loan in full. The treasurer will keep the collateral until the loan is paid off. If no payments on the loan are made for 90 days the village bank may sell the collateral. The description of personal collateral is not strictly a part of the accounting system, but it helps protect the group s fund. It gives the group a way to recover loans that cannot be repaid. [Include copy of a filled out personal collateral list here.] 40

Cash control sheet The cash control sheet is filled out by the treasurer during the bank meeting. It records how much cash went into the bank or came out of the bank during the meeting. There is a separate column on the sheet for every bank meeting. At the top of each column there is a place to write the date of the meeting. Then there are spaces to write any cash that was brought to the meeting from the commercial bank account, the village bank s share of any earnings from group income-generating activities, and a place to record any village bank expenses. Expenses are usually paid out during the bank meeting. But in some cases the management committee might have expenses between meetings. If so, these are noted down and they are recorded on the cash control sheet at the bank meeting. The treasurer should have a signed receipt for every village bank expense. Later these receipts can be stapled to the controller s summary transaction sheet. The space to record expenses on the cash control sheet is in brackets ( ) to show that this is money that went out of the village bank. Below these three lines the treasurer lists the names of all the members of the village bank. During the bank meeting, if a member is taking a new loan, the treasurer will need to write two figures next to that member s name. One figure will be the initial disbursement on the new loan. The other figure will be the member s regular savings and other transactions. For all other members the treasurer will write just one figure, which is the net amount of money that came into the bank or went out as a result of that member s transactions. Initial disbursements should be written in brackets to show that the figure represents money going out of the village bank. At the Zero Meeting there may be many loans disbursed. But after that only a few loans will be given out at each meeting. Finding the net amount of a member s regular transactions means that the treasurer must add the member s savings, fines and loan installment and subtract any withdrawal of voluntary savings. The treasurer may want to use a calculator or a separate sheet of paper to find the member s net. At the end of the meeting the treasurer adds up all the figures in the column, subtracting any numbers in brackets. She will compare her bank meeting net with the total calculated by the controller on her summary transaction sheet. If their totals do not agree, the treasurer and the controller must go back, member by member, to find out where they made a mistake. Once the treasurer and the controller agree on how much money came into the bank at the meeting, the treasurer counts the money in the cash separator to make sure that the correct amount is there. It can happen that more money goes out of the bank meeting than comes in. In such cases the bank meeting net will be a negative number and should be written in brackets. In order to pay out more money than comes in, since the cash separator will be empty, the officers must take money from the cash box. [Include copy of partially filled out cash control sheet here.] 41

Summary transaction sheet The summary transaction sheet is filled out by the controller during the bank meeting. She uses a separate summary transaction sheet for each bank meeting. The controller records the exact value of each and every transaction on the sheet. At the top of the summary transaction sheet there is a place to write the date of the bank meeting, the cycle number and the meeting number. The rest of the summary transaction sheet is in four parts. Part 1 is for individual member transactions. Part 2 is for group transactions. Part 3 is for calculating the net amount of money coming into or going out of that day s bank meeting. In the fourth part the controller makes a list of each member who is behind in her loan payments and the amount of money she should have paid (arrears). In Part 1: Member Transactions, the controller makes a list of each member s name. The names should be written in the same order as the list of names on the treasurer s cash control sheet. After the column for members names there are separate columns for every type of transaction. The money coming into the bank is divided into six categories: mandatory savings, voluntary savings, loan principal payments, loan interest payments, fines and fees, and payment of arrears. Money going out of the village bank is divided into two columns: savings withdrawals and loans paid out. At the end of the bank meeting, after all of the members have completed their transactions, the controller should add up each of the columns. In Part 2: Group Transactions, there are places for the controller to write the amount of any money that was brought to the meeting from the commercial bank account, a place to write the bank s share of any group income-generating activities, and a place to record village bank expenses. These are the same figures that the treasurer writes at the top of her cash control sheet. In Part 3: Bank Meeting Net, the controller adds up all the totals of money coming into the bank meeting and writes the sum in the box for Cash in. Then she adds up the three totals of money going out of the bank meeting (savings withdrawals, loans paid out, and village bank expenses) and writes that sum in the box for Cash out. She finds the bank meeting net by subtracting the cash out from the cash in. This figure should agree with the total the treasurer calculated on her cash control sheet. If the figures do not agree, the controller and the treasurer must go back, member by member, to find out where they made a mistake. Once the controller and the treasurer agree on how much money came into the bank at the meeting, the treasurer counts the money in the cash separator to make sure that the correct amount is there. In the last part of the summary transaction sheet the controller writes the name of every member who missed a loan payment during that day s meeting. These missed loan payments are called arrears. This is where the controller keeps a record of which loan payments were supposed to come into the bank that day but did not. [Include copy of partially filled out summary transaction sheet here.] 42

How are group activity expenses and group earnings recorded? Occasionally the members of solidarity groups in a village bank carry out group income-generating activities to raise money for their fund. Often the village bank makes an advance in the form of a donation to purchase materials for the activity. This advance is recovered after the activity is completed. One member of the solidarity group signs a receipt for the advance. The amount is recorded on the cash control sheet and the summary transaction sheet under village bank expenses. It is recorded in the cash book and on the financial statement as group activity expenses. [Show an example of a receipt. Also show how group activity expenses are recorded on the cash control sheet, summary transaction sheet, cash book, and financial statement. See pages 110 111 of VB Entrepreneurs.] When the activity is completed, the village bank recovers the money it advanced and, in most cases, takes half of the profit from the activity. The women who carried out the project are allowed to divide the other half of the profit among themselves and have the money added to their mandatory savings. At the bank meeting after the completion of the activity, the gross earnings are handed over to the treasurer at the beginning of the meeting. Gross earnings are all of the money received from the income-generating activity (less any money paid by the women out of their own pockets). If the village bank has advanced money to buy supplies, this amount is deducted from the gross earnings to calculate the profit. The treasurer divides the profit in half. She records one half of the profit, along with the advance, on her cash control sheet on the line for Village bank earnings. This part belongs to the village bank as a whole. [Show how group earnings are recorded on the cash control sheet, summary transaction sheet, cash book, and financial statement. See examples on pages 110 111 of VB Entrepreneurs.] Using her calculator the treasurer divides up the other half of the profit among the members who carried out the activity. Each member s share will be added to her mandatory savings. Members who did not participate in the activity do not get a share of the profit. To make things simple for the treasurer, the members who participated in the group income-generating activity should be the first to do their transactions. Each one should hand over her regular savings, fines and loan installments to the treasurer. But when announcing the member s transactions, the treasurer adds that member s share of the profit from the income-generating activity to her mandatory savings. The treasurer already has that money, but this is how the other half of the profit is allocated among the members who participated in the project. The members portion is recorded in their savings passbooks, the savings journals, the treasurer s cash control sheet and the controller s summary transaction sheet. [Show how a member s share of the profit is added to her mandatory savings.] 43

Cash book The cash book is a record of the money going into and coming out of the cash box. The amount of money shown in the cash book should always be the same as the amount of money in the cash box. The treasurer fills out the cash book at the end of the bank meeting, after she and the controller have balanced the meeting and counted the cash in the cash separator. The cash book has five columns: The first column gives the date of the transaction. The second column is used to record the details of the transaction why money went in or out of the cash box. The third column is used only to record amounts of money that come IN to the cash box. The fourth column is used only to record money that goes OUT of the cash box. The fifth column gives the current balance after an IN item has been added or an OUT item has been subtracted. The figures for what cash came into the village bank and what cash went out can be found on the controller s summary transaction sheet. Money coming into the village bank includes: mandatory savings, voluntary savings, loan principal payments, loan interest payments, fines and fees, payments of arrears and group earnings. Group earnings include the return of any advance made previously by the village bank for a group income-generating activity plus half of the profits of the activity. (The other half of the profits would have been recorded as mandatory savings in the names of the members who carried out the activity.) Money going out of the village bank includes: Savings withdrawals, Loans paid out, Administrative expenses and Group activity expenses. Group activity expenses include any money advanced to a solidarity group to carry out an income-generating activity to raise money for the village bank. This money 44

will be returned to the bank after the income generating activity is completed. When it is returned it will be entered as group earnings. If the bank officers plan to make a deposit in the commercial bank the day after the bank meeting, the amount to be deposited can be counted out and wrapped up with a rubber band along with a completed commercial bank deposit slip. The amount to be taken out of the cash box can be recorded at the end of the bank meeting as a deposit to the commercial bank. There is an easy way to check whether you have added up the figures in the cash book correctly. Add the figures in the IN column to the beginning balance. Then add the figures in the OUT column to the closing balance. They should add up to the same number. (Beginning balance + IN) = (Closing balance + OUT) [Include copy of partially filled out cash book here.] 45

Commercial bank passbook If there is a commercial bank nearby it is always a good idea for the officers to open an account in their names. It is advisable for two signatures to be required in order to withdraw money from the account. The treasurer can be one of the signatories and any one of the other officers can be the other. If the amount of money in the cash box reaches $10, then all of the excess cash over $5 should be deposited in the commercial bank account, leaving only $5 in the cash box. This will keep the group s money safe. The commercial bank will provide the management committee with all of the forms required to open and maintain an account. These include deposit slips for depositing money in the commercial bank, checks for withdrawing money from the bank, and a passbook that records deposits and withdrawals and shows the current balance. Deposits to the commercial bank should be made within 24 hours after the village bank meeting, provided the commercial bank is open. If the next day is a bank holiday the money should be deposited on the first day that the commercial bank is open. Two officers or two trustworthy members should take the money to the commercial bank. The deposit should not be entrusted to anyone outside of the village bank. At the next bank meeting the officers should show the deposit slip and the commercial bank passbook to the group, stamped and dated by the commercial bank, so that everyone can see that the deposit was made on time. If the group s money is kept in a savings account it may earn interest from the commercial bank. Also, the commercial bank may charge a fee if the balance goes below a certain amount of money. These earnings and expenses will be shown in the commercial bank passbook. [Include copy of a filled out deposit slip and a partially filled out commercial bank cash book here.] 46

Why do village banks need to open an account at a commercial bank? The reason for opening a commercial bank account is to keep the village bank s money safe. Too much money in the cash box may pose a danger and it may not be possible for all of the village bank s money to be lent out all the time. The management committee should not make unwise loans to women who do not have a business idea, or large loans that do not conform to the village bank rules, just to keep the balance in the cash box low. When the balance in the cash box reaches $10, all excess cash beyond $5 should be deposited in the commercial bank account for safekeeping. If there is no commercial bank, perhaps a trustworthy shopkeeper can keep the cash box in a safe. If the cash box is too big for the safe, the treasurer should count the money, wrap it in a rubber band or put it in an envelope, and get a receipt from the shopkeeper. Financial statement The financial statement, sometimes called an income statement, identifies what money came into the group fund and what money went out of the group fund during a certain period of time. It is filled out by the treasurer, with help from the controller, at the end of every bank meeting. At the top of the financial statement there is a place to write the beginning date and the ending date for the financial statement. The beginning date should be the date of the last financial statement and the ending date should be today s bank meeting. There are also places to write the cycle number and the meeting number. After balancing the meeting and counting today s cash the officers should open the cash box. Before adding today s cash, the treasurer should count the money in the cash box and write that figure on the top line of the financial statement under Beginning Balance in the space for Cash in Cash Box. This should be the same amount as shown on last week s balance sheet, with the following exceptions: If money was taken from the commercial bank account and added to the cash box at the beginning of the meeting, there would be more cash in the cash box than what was shown on last week s balance sheet. In this case, the figure for Cash in Cash Box should include last week s money plus whatever cash was brought from the commercial bank. The total beginning balance would not change. There would just be more cash in the cash box and less in the commercial bank account. If the management committee took money from the cash box during the week to pay for village bank expense, the amount in the cash box will be less than the amount shown on last week s balance sheet. These expenses would have been recorded on today s cash control sheet and summary transaction sheet. In such a case the figure from last week s balance sheet should be used as the beginning balance rather than the actual amount of cash in the cash box. The amount of cash in the commercial bank is shown in the commercial bank passbook. That amount should be written on the next line. If there were earnings from 47

the commercial bank since the last bank meeting, or commercial bank expenses, the balance BEFORE these earnings or expenses should be recorded here. The commercial bank earnings or expenses must first be recorded in the sections for Income and Expenses on the financial statement. The new commercial bank balance will then be reflected on the balance sheet. After finding the beginning cash in the cash box (including any money brought from the commercial bank to the meeting) and the beginning balance in the commercial bank (before any earnings or expenses), these two figures should be added and the total written in the box for Total Beginning Balance. In the next section of the financial statement any money coming into the bank since the last financial statement should be recorded. Most of these figures can be found on the controller s summary transaction sheet. The controller can tell the treasurer exactly how much mandatory savings, voluntary savings, loan principal payments, loan interest payments, fines and fees, payments of arrears and group earnings (advances plus half of profits) came into today s meeting. If commercial bank interest was earned during the week, that figure can be found in the commercial bank passbook. All these figures should be recorded and added up and the total should be written in the box for Total Income. The next section of the financial statement records village bank expenses for the period. Again, the controller s summary transaction sheet gives most of the information needed, such as savings withdrawals, loans paid out and group activity expenses. (Any money advanced for group income-generating activities should be recorded under group activity expenses. Later this amount will be deducted from earnings and returned to the village bank before calculating the profit from the activity.) Commercial bank expenses, if any, will be found in the commercial bank passbook. All these figures should be recorded and added up and the total should be written in the box for Total Expenses. Finally the net cash for the period can be found by adding the beginning balance and the income and then subtracting the expenses. Beginning balance + Income Expenses = Net cash [Include copy of filled out financial statement here.] 48

Balance sheet The balance sheet gives a picture of the village bank s health on a particular day. It is filled out by the treasurer at the end of every bank meeting. The left side of the balance sheet is used to calculate what assets the group has and in what form they are held. Assets that are hot, that is, easy to convert into cash, are listed first. Assets that are cold, that is, harder to convert into cash, are listed last. A village bank usually has the following kinds of assets: cash in the cash box cash in the commercial bank loans outstanding arrears Loans outstanding are the bank s property, which is being temporarily borrowed by the members. Arrears are part of loans outstanding, but since they represent installments that were not paid at the time they were supposed to be, they are considered harder to collect and therefore a cold asset. (Arrears that are 30 days old are considered to be very cold. Arrears that are 90 days old are so cold they are considered dead and uncollectible. These very old arrears are called bad debt and should no longer be counted as one of the bank s assets. They should be subtracted from arrears and also from group earnings on the other side of the balance sheet.) The right side of the balance sheet tells who owns the assets. Assets which are lent to the group by an outside agency or program are called liabilities. These have to be paid back. Assets owned by the group members are called equity. Equity consists of member savings and group earnings. Savings may be mandatory and voluntary and belong to the individual members. Group earnings come from interest earned on loans, fines and fees, and group income-generating activities. These are the village bank s surplus, or profit, and belong to the group as a whole. Group earnings are increased if the members pay their loan installments on time and if the fund continually earns interest. But group earnings are decreased if members do not make their payments on time, if the group fund sits idle, if the bank has big expenses, or if loans cannot be collected. Arrears that are more than 90 days old (bad debt) must be dropped and the same amount deducted from group earnings. [Include copy of filled out balance sheet here.] 49

What are arrears? And what does it mean that a loan is at risk? Arrears is what we call any loan payment that is due but that has not been paid. When a payment is missed, we say that the loan is in arrears. This is the first indication that the borrower may be in trouble and that there is a possibility that the loan might not be repaid. For that reason we say that the unpaid balance of the loan is at risk. Say a woman borrows $8 for 8 weeks. She makes two payments of $1. So she has $6 left to pay on her loan. Then imagine that she misses a payment. Her loan is now in arrears. The missed payment of $1 is the arrears, and the balance of the loan, $5, is at risk. How do you calculate arrears? To calculate how much of the bank s money is in the form of arrears, you must start by finding the total amount of money that is in the hands of borrowers. [Include copy of a filled out arrears calculation worksheet here.] (See VB Lending, page 184. Figures from page 125 can be used.) 50

What is default? And what is bad debt? If a loan payment is 30 days in arrears, it is really worrisome. If a woman goes 30 days without making any payment at all, we say that the loan is in default. Once a loan is in default the borrower should hand over her personal collateral to the village bank treasurer. The management committee should talk to the woman and try to get her back on a payment schedule. If a loan is not fully repaid by the due date, the borrower may have to use her savings to cancel as much of the loan as possible. If a loan goes 90 days without any payments being made, we call the unpaid loan balance bad debt. That means the loan is uncollectible and has to be deducted from the village bank s group earnings. That is bad for everyone, because it means dividends will be reduced. In order to recover the cost of the loan the management committee may have to sell the borrower s personal collateral. How does the village bank record an external loan? A village bank may borrow money from another village bank that has excess capital that it cannot lend out to its members. Or a village bank may get a loan from an NGO or another agency. The village bank, in turn, will lend this money out to its members. If loans are given by outside agencies to individual women, they generally do not show up in the village bank s accounting system. There are some exceptions, however, where loans are made by outside agencies to individual women but the village bank is asked to collect the loan installments. If this is the case, another set of accounts will be required to keep track of these external loans. The agency making the loans will train the village bank management committee how to keep track of them. External loans to the village bank are liabilities. They must be paid back to the organization that lent the money. Interest will also have to be paid on an external loan. If the village bank is lucky, it may be able to borrow money at 18% or less ($1.50 per hundred per month) and then lend it out to its members at 24% ($2 per hundred per month). Although the village bank does not earn as much profit from external loans as it does from its own money, nevertheless it may be able to earn something and the members will have access to more loans and bigger loans. External loans are especially helpful when the group fund is small and cannot meet the demand of the members. But if the group fund cannot be fully lent out it makes no sense for a village bank to take an external loan. The organization lending money to the village bank may allow the village bank to keep the money for the entire cycle or even longer. But it may want the village bank to pay interest on the loan every month. Interest should be charged as a village bank expense and will come from group earnings. How does the treasurer calculate the balance sheet? 51

To calculate the balance sheet the treasurer starts with last week s balance sheet. Then she looks at today s financial statement and thinks carefully how the income and expenses recorded there have changed the figures on last week s balance sheet. Cash in cash box. To determine the amount of cash in the cash box the treasurer starts with the amount in the cash box according to last week s balance sheet. She adds any cash brought to the meeting from the commercial bank. She adds today s income as shown on the financial statement (except for commercial bank interest, if there is any, because it does not go into the cash box). Then she subtracts the expenses shown on the financial statement (except for commercial bank expenses, which do not come out of the cash box). Finally, she subtracts any excess cash set aside for deposit in the commercial bank. The amount should be the same as the figure shown in the cash book. Cash in commercial bank. The treasurer begins with the cash in the commercial bank according to last week s balance sheet. She subtracts any cash withdrawn for today s bank meeting. She adds any commercial bank interest and subtracts any commercial bank expenses. (She would have found out about the interest and the expenses when she went to withdraw the money for the bank meeting. The interest and expenses would be written in the commercial bank passbook.) She adds any excess cash set aside at the end of the meeting for deposit in the commercial bank. The same amount will be shown in the commercial bank passbook once the officers have deposited the excess cash. Adding the cash in the cash box and the cash in the commercial bank gives the same figure as the Net Cash shown on the financial statement. Loans outstanding and arrears. Money that has been lent by the village bank is of two types: a good type and a bad type. The good type of loan is money that the borrowers are paying on time in weekly installments. This type of money is one of the bank s good assets and is called loans outstanding. The bad type of loan is money that should have been paid back but wasn't because a borrower missed one or more of her payments. This money is called arrears. It is a much weaker asset for the bank. It is important that the village bank keep an accurate record of its strong assets and its weak ones so the management committee can take appropriate action to make sure the weak ones are not lost. The treasurer starts by finding the total amount of the bank s money that is in the hands of different borrowers. She begins with the loans outstanding on last week s balance sheet. She adds the arrears on last week s balance sheet. She subtracts today s loan principal payments, which can be found on today s financial statement. She subtracts today s payments of arrears, also found on today s financial statement. Finally she adds new loans paid out today (the total loans, not just the initial disbursements). These also can be found on today s financial statement. Now she knows the total amount of money that has been lent out by the bank. How much of this money is in the form of arrears? The treasurer begins with the arrears on last week s balance sheet. She subtracts any payment of arrears today, which can be found on the financial statement. Then she adds today s new arrears, which are recorded on the controller s summary transaction sheet. The total arrears are then 52

subtracted from the total loans to find the amount for loans outstanding. With this information the treasurer can fill in the lines for loans outstanding and arrears. Total Assets. The treasurer adds all of the assets together to get the Total Assets. Liabilities. Money that is lent to the group by an outside agency, an NGO or another village bank is called a liability. This money does not belong to the group and must be repaid. If the group has received a loan from outside, the amount of the principal (but not the interest that is owed) should be written here. Interest on an outside loan is a village bank expense and is paid from group earnings. Equity. Money that belongs to the members is called equity. In a village bank there are two kinds of equity: member savings and group earnings. Member savings. To find this week s member savings the treasurer starts with the member savings on last week s balance sheet. To this she adds today s mandatory savings and today s voluntary savings. She also subtracts any savings withdrawals, including savings that were withdrawn in order to make a loan payment. All of these figures can be found on the financial statement Group earnings. To find today s group earnings the treasurer starts with last week s group earnings. To this she adds today s loan interest payments, fines and fees, commercial bank interest and group earnings. All of these can be found in the Income section of the financial statement. Then she subtracts any administrative expenses, commercial bank expenses or any new group activity expenses. These can all be found in the Expenses section of the financial statement. Liabilities + equity. The treasurer adds the liabilities and the equity (member savings plus group earnings) to get the Liabilities + Equity. This figure should be the same as the Total Assets. When the total on the left side of the balance sheet equals the total on the right side, the amounts balance and are correct. If the totals do not balance, one of the figures is wrong. The officers should help the treasurer recheck all of the figures to find the mistake. Loan statistics form The longer a loan goes unpaid, the less chance there is that it will ever be collected. The loan statistics form helps a village bank keep track of all its loans. With a loan statistics form the members can see how many loans the bank has made, and the exact value of those loans. They can see how many loans are in arrears and the exact value of the arrears. That way they know how much money should have been paid back to the bank but wasn t because of missed payments. They can also see the value of missed loan payments that are over 30 days old and the amount of these loans that are at risk. A new loan statistics form should be filled out for each cycle. The form is updated after each bank meeting by the secretary or by an assistant treasurer. 53

At the top of the form there is a place to write the number of the cycle. Below there are ten columns. The first column is for recording the dates of the bank meetings, beginning with the Zero Meeting. The second column keeps track of the number of members in the village bank. This number includes the entire membership, not just those who attended that day s bank meeting. Every time a new member joins the bank or an old member resigns, this number changes. This column tells the management committee if membership is growing or declining over time. The third column records the number of loans outstanding at the end of that day s bank meeting. Some of these will be old loans and some new ones just given out. The number of outstanding loans can be found by taking the number of loans last week, subtracting the number of loans that were fully repaid and cancelled this week, and adding any new loans that were given out this week. This number will go up and down as people pay off old loans and take new ones. The fourth column gives the value of the outstanding loans. This is found by taking the value of last week s loans, subtracting any loan payments, and adding any new loans. When adding new loans the full value of the loan should be added, not just the initial disbursement. This is the same number that will appear as Loans Outstanding on the balance sheet for that day s meeting. The number may go up or down as people repay their loans and take new ones. The fifth column is cumulative. It tells how many loans have been given out since the very beginning. This number only goes up, or it may stay the same. It does not go down. At every bank meeting the number of new loans made is added to the number from the previous meeting. The sixth column records the total value of all the loans made by the village bank from the beginning. These numbers are also cumulative. That means the numbers only go up or stay the same. They do not go down. Every time new loans are made at a bank meeting the full value of those loans (not the initial disbursements) should be added to the previous week s value. The last four columns track the village bank s health. The seventh column records the number of loans in arrears at that day s bank meeting. This includes old loans in arrears from the previous meeting, if payments were not brought up to date, plus any new loans in arrears. This number will go up and down. The eighth column records the value of all the arrears as of that banking day. This means the total amount of money that should have been paid back to the bank by that banking day but wasn t. It includes old arrears and new arrears. It is the same number that the treasurer records as Arrears on the balance sheet. Once arrears are paid they are no longer included in this column. For this reason these numbers go up and down. 54

The ninth column records the value of any arrears that are over 30 days past due. That means loan payments that are at least four bank meetings overdue. This number will alert the management committee that there is at least one loan that is in default. The tenth column gives the value of the loans that are at risk. For each loan that is in arrears, the person filling out the loan statistics form must find out what the unpaid balance of that loan is. The unpaid balance is made up of two parts: arrears and the value of the loan that is at risk. The value of the loan that is at risk can be found by subtracting all the arrears (the sum of all the overdue payments) from the unpaid balance. This information will alert the management committee as to how much of the group fund is in danger of not being repaid. [Include copy of partially filled out loan statistics form here.] 55

How does the management committee close the cycle? Toward the end of the cycle, from week 20, the management committee begins preparations to close the cycle. The village bank gives out the last 4-week loans of the cycle so it can close the cycle at the end of 24 weeks. The management committee arranges to get the accounting forms it needs for the next cycle. The officers begin reminding the members to get their payments in on time and they start following up with members who are behind in their loan payments. The members start thinking about who will get the first loans in the next cycle. After Meeting 24 the cycle is closed. It usually takes a week to close one cycle and open a new one. During that week the management committee is very busy. Several things happen: If any member has not been able to completely repay her loan by the end of the cycle (provided it is not a cross-cycle loan) the management committee must decide what action to take. Usually the member s savings are taken to pay off as much as the loan as possible. At the same time the member must turn over her personal collateral to the bank. It may be sold after some time if she cannot pay off the rest of her loan. If the member could not repay her loan because of some misfortune, the management committee may decide to reschedule her loan or even to refinance it. If the payments are over 90 days past due, the loan is considered bad debt and uncollectible. In that case, whatever portion of the loan could not be cancelled by the woman s savings or by selling her personal collateral must be taken from the village bank s group earnings. If the village bank has any debts, these must be paid before dividends are calculated. If the bank has a loan from outside it may owe interest on that loan. Interest is paid from group earnings. If the organization that gave the loan wants it returned at the end of the cycle, that money must also be paid. A new financial statement should be prepared to show any money leaving the village bank. The cash book should also reflect these changes. If the village bank still has a surplus after paying its debts and resolving its loan problems, it can pay dividends to its members. But first, a small amount (10% of the group earnings) should be set aside for possible village bank expenses. This amount is the village bank s reserve fund. The rest of the surplus (90% of group earnings) is the village bank s profit for the cycle. The village bank profits are divided up among the members as dividends. Dividends are paid in proportion to each member s minimum savings during the last eight weeks of the cycle. Dividends are added to mandatory savings. The treasurer takes the Meeting 24 balance sheet and modifies it to reflect these adjustments. This is called the end-of-cycle balance sheet. It will be used as the reference for preparing the first balance sheet of the next cycle. Before the first meeting of the new cycle, the Zero Meeting, the members of the management committee must prepare the following documents: 56

- a new savings passbook for each member, showing her dividend and new savings total (treasurer) - a new savings journal for each member (treasurer) - a new loan passbook for those taking loans at the Zero Meeting with loan equations calculated and details filled in (secretary and controller) - a new loan journal for each new loan (secretary and controller) - a new debtor s agreement listing the new loans (secretary and controller) - a new description of personal collateral list (secretary and controller) - a new attendance and payment record with everyone s name (secretary) - a new cash control sheet with everyone s name (treasurer) - a new loan statistics form (secretary) Before the Zero Meeting the village bank officers must go to the commercial bank and withdraw the cash needed to make the first loans of the new cycle. Many village banks have an outside person come at this time to do an end-ofcycle audit of the village bank s accounts. What is the end-of-cycle balance sheet? The balance sheet for Meeting 24 shows the group s total assets and its liabilities and equity at the end of the cycle. The end-of-cycle balance sheet adjusts these values. If there are any arrears, these are canceled, to the extent possible, by taking money from the savings of the members who are behind in their payments. This will reduce the amount of arrears shown on one side of the balance sheet, but it will also reduce the amount of member savings on the other side. If any loan balances are over 90 days old, this amount is called bad debt. Since the member who owes this money has already had her savings taken, the remaining amount must be canceled either by selling the woman s personal collateral or by taking money from group earnings. Whatever bad debt is left after selling the person s collateral should be subtracted from assets and the same amount should be subtracted from group earnings. If the village bank has any outstanding debts, including interest to pay on an outside loan, these must be paid from group earnings. This will reduce cash on one side of the balance sheet and group earnings on the other side. If the organization that lent money to the village bank wants it back at the end of the cycle, that amount must also be paid. This will also reduce cash on one side of the balance sheet and reduce or eliminate the liabilities on the other. If there is still a surplus in group earnings after all of these adjustments, the village bank can distribute dividends to the members. A small amount of group earnings (10%) should not be distributed in case the bank has some emergency expenses. The village bank should not be left without any cash. This amount is called a reserve fund. If 10% of the profit does not work out to be a whole number, round the number off to the nearest whole number. 57

The remainder of group earnings (90%) is the village bank s profit for the cycle. It should be transferred to member savings and allocated to each member in proportion to her savings. The end-of-cycle balance sheet becomes the beginning balance sheet of the next cycle. [Show a week 24 balance sheet and an end-of-cycle balance sheet for comparison.] 58

How are dividends calculated? Members receive dividends in proportion to the amount of savings they have in the village bank. Dividends are calculated on each member s minimum balance during the last eight weeks of the cycle. Why the minimum balance? This is so a member cannot put a lot of money into her voluntary savings on the last day of the cycle just to get a bigger dividend. Also, by basing dividends on the minimum balance, members are less likely to take their savings out during the last eight weeks of the cycle. Why not base dividends on a member s minimum savings during the entire cycle? By using the minimum balance after Week 16, members will be encouraged to save as much as they can during the first half of the cycle. Also, if a member has had to use her savings to pay off a loan at the end of one cycle, she will have a chance to build her savings back up so she can earn a good dividend at the end of the next cycle. At the end of the cycle the officers make a list of all of the village bank members with two columns after each name: one for minimum savings and one for dividends. Then the officers check the savings journals and write down each member s minimum savings during the last eight weeks of the cycle. These amounts are all added up to make a minimum savings total. Use a calculator to find each member s dividend. Divide the member s minimum savings by the minimum savings total and multiply by the amount of the bank s profit. In most cases the profit is 90% of group earnings. The resulting figure should be rounded to the nearest whole number. member s minimum savings / minimum savings total x bank s profit = member s dividend (Round to the nearest whole number.) [Give an example of how to calculate a dividend. See VB Lending, page 143.] The officers should write each member s dividend on the same list, next to her name and minimum savings. After all the dividends have been calculated the officers should add them up. The sum should be just about equal to the amount of the bank s profit. If it is just slightly more or less, that is due to rounding. If it is more than one or two numbers off, there has probably been a calculation error. The officers should go back and recheck all of the figures. If the sum of the dividends is one or two MORE than the profit, subtract one from one or two of the biggest dividends. If the sum of the dividends is one or two LESS than the bank s surplus, add one to one or two of the smallest dividends. The sum of the dividends must exactly equal the bank s profit. When the management committee prepares new savings passbooks for the next cycle, each member s old balance should be entered on the first line and the amount of her dividend on the second line, under mandatory savings, with a new savings total. 59

How do you round to the nearest dollar? If you have a sum of money that includes dollars and cents, it is sometimes useful to round the amount to the nearest dollar. That means finding the nearest dollar. If the amount of money has 50 or more cents, round up to the next dollar. For example, you would round $23.75 up to $24, or $2.50 to $3. If the amount of money has 49 cents or less, keep the number of dollars the same. For example, $104.25 would be rounded to $104, or $2.41 to $2. What is an end-of-cycle audit? An audit is a review of the village bank s records. It should be done by an outsider, not by one of the bank s officers or members. The person should be honest and someone who does not stand to benefit from the village bank s business. It could be a person from an NGO or from another village bank. Auditors look at the balance sheet to see how much money the bank has. Then they check the cash box and the commercial bank passbook to see if the money is all there. They look at the different accounts to see if the officers are keeping the bank s records properly. They also look to see if the bank is being properly managed. Are loans collected on time? Are payment problems being solved? Is excess cash being deposited in the commercial bank? Are the accounts neat, accurate and up-to-date? If the management committee has made mistakes, the auditor s job is to show the officers how to correct them and to make suggestions for doing a better job. An endof-cycle audit is a good way to keep the village bank healthy. 60

IV. Developing Your Microenterprise Can village bank loans be used for anything? Village bank loans should be used productively. That means they should be used only for activities that earn money. Borrowed money is expensive because we have to pay interest on it. So we should only borrow money if we can earn more than the interest we have to pay. Village bank loans should not be passed on to other family members. It is always good to get help from our families, but the person who borrows the money should be directly involved in the business herself. If you take a loan for others you don t know what they will do with the money or when they will pay it back. And you will be stuck making the payments for them! Also we should not borrow for consumption things like shopping, weddings, funerals, school fees or household repairs. It can be very hard to pay those loans back. If we know we are going to have big expenses like that, we should put some money aside in voluntary savings. If we take a loan from the village bank we should put it into our business, to expand our inventory or buy the tools and equipment we need to improve our business. How big a loan should I take? You should not take more money than you know how to manage. If you are comfortable working with $10 or $20, take that much and not $50, even if it is available. You can work up to a larger loan once you have more experience. But you don t want to let borrowed money sit idle. Why pay interest on money you can t put to good use? Don t we need training to go into business? Of course it is always good to learn more. But it is not always possible. And women don t have to be idle until the day a trainer comes along. All of us know about shopping. And we know why we like to go to certain shops. Perhaps the shops we like are conveniently located, or they are open at certain times when we like to go shopping, or the salesperson is friendly, or perhaps she has a good selection of the kinds of things we want to buy. We need to think about why some people are good at selling and then put what we already know into action. Being in business is not about getting trained or having a skill. It s about selling. Selling is like a muscle. The more we exercise it the stronger it gets. The important thing is to start with what we know, start small, and grow gradually as we gain experience. What kind of businesses can we do? Women can do all kinds of businesses. But the most important thing to remember is that a business means selling. You can get trained, you can produce something, you can take a loan, you can even keep good business records, but if you do not sell, you will not be successful in business. 61

Remember. A business is a business because it sells. If a woman has traditional skills, like sewing or weaving or basket making, she can turn these skills into a business. But most women have no particular skills. For them the best way to start is doing petty trade. A woman can prepare things at home and sell them, or buy them in the village and sell them in the town or at the weekly market. Each time she sells she earns a little profit. Then she can buy more things to sell, and gradually build her business up. The secret to success in business is to sell frequently. People always need to buy things. For example: Women buy household things like oil, spices, sugar, salt and kerosene. Sometimes they buy fresh fruit and vegetables. They also buy things like bangles, scarves and combs. Men buy tea and cold drinks. They buy batteries, beetle nut and lots of other things. Sometimes they buy meat or eggs. Children buy snacks and sweets. Sometimes they need to buy pencils and notebooks for school. At festivals people like to buy new clothes and special sweets. Everybody needs to buy things. If you go to the weekly market or to town you will see the kinds of things that people buy. You just need to think about it. What if women in our culture have never done business? It is always comfortable to stick to traditions. It means we don t have to change. But unless women change they will always be poor and powerless. Women need to sharpen their skills and put them to use. They need to set a good example for their children. If they want to climb out of poverty they have to start thinking modern. They have to break out of the ideas and habits that limit them. Women have always been hard working. They know how to be mothers and homemakers and farmers. They can learn to be savers and even bankers. The next step is to become entrepreneurs. Women need to be creative and courageous and overcome their fears about selling. The village bank is not designed to make people comfortable. You can sit home and do that! Change is never easy, but as the old saying goes, No pain, no gain! It is natural that some women are shy about selling. They don t have experience. They worry about what people will say. It s part of the culture. But if someone is successful, everyone will praise her and respect her. What can we do with these small village bank loans? When a group is just getting started the village bank loans are too small to buy big fixed assets like a kiosk or a cow. They are working capital loans. That means they provide you with enough cash to buy some things that you can take to another place 62

and sell, or that you can use to prepare something that you can sell. For example, you can buy vegetables in the village and sell them at the weekly market in town. Or you can buy fruits and sugar and turn them into sweets or jams. How can we pay our loans back in just six months? A six-month loan is not good for raising a newborn goat and selling it when it is mature. But you could buy a small goat and fatten it for a few months and sell it for a profit. Also a six-month loan may not be long enough for growing most agricultural products. But you can buy things from farmers and sell them at a profit. How can we pay our loans back in weekly installments? The important thing is to sell frequently and not tie your money up for a long time in an animal or a crop. The more your money rotates, the more frequently you buy and sell, the greater your earnings will be. It is fine to grow vegetables or to raise a goat, but you have to find other things to sell while your vegetables or your goat are growing. You have to sell eggs or make snack foods and sell those things in order to make your weekly loan payments. How can we find good business ideas? Having a good business idea means knowing what people want to buy, how to prepare it, and where to find customers on a regular basis. The more frequently we sell, the more money we can earn. When we first go into business we may not have much experience. We need to think carefully about our experience and our resources. What do we know how to do? Do we know how to take care of animals? Do we know how to make any really tasty foods? Do we have any skills like sewing or weaving? If there is something we are good at or that we like to do, how can we turn it into a business idea? What resources do we have? Do we have a piece of land where we can grow things? Do we have a forest nearby? Do we have access to water? Are we near a road or a town or a school where we could find customers? How can we turn our resources into a good business idea? We should not have just one way to earn but several ways. If we are already raising goats, we could add ducks or chickens or even pigs. Instead of selling live goats we could sell meat. You can always earn more selling meat to many customers than you can selling a whole live animal to one person. Usually when women are first starting out in business they might not hit on the magic idea that will provide them with year-round employment. Many women change their business ideas as they get more experience. That is another reason why we should think of several ways to earn throughout the year. That way, if one activity slows down, we can do something else. 63

You can grow vegetables in one season, sell your labor in another, and weave mats at another time of year. That way you can earn money throughout the year. Pretty soon you will find that one of your business ideas earns more than the others. Then you can begin to build that one up as your main business. What about our families? When choosing a business idea we need to think about our family commitments. If we have small children at home we need to find a business that we can do mostly at home. If we have older children, they may be able to help us with our business. Everyone in the family appreciates the extra income. It makes it possible to have better food and clothing and to send all of our children to school. Our husbands can help us a lot. It is always good to get full support from our families for the businesses we do. How can I earn money all year around? It is better to have several ways to earn throughout the year, so that you can keep earning even as the seasons change. Some women sell their labor during the planting and harvest season. What does it mean to be an entrepreneur? Some women just take things as they come. They leave it all to chance and call it fate. But an entrepreneur is serious about succeeding. She plans ahead. If something isn t working out as she expected, she doesn t just keep doing it the same way. She solves problems. If one thing isn t selling well, she changes it. She is always looking for ways to expand her business. How can we improve our businesses? Know your markets A market is really just an occasion for buying and selling. Some markets are places, like a shop or a roadside or a weekly market. But some markets are occasions, like a holiday, a festival or another special time of the year. People buy different things in the cold season and in the rainy season. When thinking about what to sell you also have to think about the two kinds of markets: where to sell and when to sell. Look for customers You will sell more and sell faster if you are in a place where many people pass by. Good places to sell are on the roadside, at a bus stop, at the weekly market, in town, and in front of a school. But if you cannot leave your home because you have small children, you may even be able to sell at your own doorstep. Another way to find customers is to take orders from your friends and neighbors who may not be able to go to town. You can buy things and take them directly to their houses. Be original 64

One mistake women often make when going into business is they copy what everyone else is doing. They don t come up with their own original ideas. An entrepreneur looks for market opportunities. She sees the gaps. What could she sell that no one else is selling, or at a time or place that no one else is selling? Look for special markets such as holidays or festivals During holidays and festivals people are always more inclined to buy things. Also there are special foods and other things that people buy on those occasions. As a business person you have to be ready at those special times with a big supply of things to sell. You can earn a lot in a short period of time. Invest in your business to build it up As you earn extra money you should build up your business. Add new things to your stock to sell. Build a bigger shed to keep your animals in. Buy better tools to help you with your work. Use your profits to rent a kiosk or a shop. Add new products. Extend your working hours. That way you will expand the number of customers you can serve. Cut down on costs Look for ways to save money. Find suppliers who will provide the same quality goods at a cheaper price. Buy in larger quantities and get a discount. Try to save on fuel or transportation costs. Make use of your by-products. Reach higher value markets If you are a skilled craftsperson, you can reach higher value markets in the big cities. To do this you have to be able to produce many pieces, all of the exact size and quality specified by the buyer. The buyer will give you a purchase order for a certain number of pieces to be produced by a certain time for a fixed price. The quality of workmanship must be very high for those big-city markets. People there won t buy any defective pieces. Everything has to be clean, pure and well finished. You can use only the best materials and you have to work with clean hands. You also have to follow the designs that the buyers specify. They know what those people in the big cities will buy. You have to be very organized to fill a purchase order. It is a bit complicated, but you can get a much higher price if you can sell in those markets. How can we find a selling advantage? Keep yourself and the place where you sell clean Don t sell in a place that is dirty, noisy or smelly. Keep your selling area clean and wear clean clothes. Be courteous to your customers Treat your customers with respect, whether they are adults or children. Look at your business through the eyes of your customers Are you offering things that you would like to buy? Are they clean? Are they good quality? Are they nicely displayed? Is the size convenient? Is the price fair? 65

Look for ways to add value If your goods are fresh, clean, pure, convenient, tasty, nicely finished and if the price is good, you can sell them easily. But if your goods are dirty, bruised, contaminated, smelly, undersized, overpriced or if pieces are missing, you will have trouble selling them. Have an attractive display Keep you merchandise neat and attractive. Keep it free of dirt and dust. Cut, chop, peel or shell your produce If you cut big vegetables into pieces you can sell the pieces for more than the whole vegetable. And people who do not want the whole thing will pay a bit more for the convenience of getting just the amount they need. You can shell peas and sell them in plastic bags. You can buy in bulk at a cheaper price and then make small packages to sell to your customers. Process foods By processing foods you add value to them. You can earn more from beaten rice or ground grains than from raw rice or grains. If you smoke fish you can keep it for several days. You can earn more from jellies and chutneys than from fruits. Use the best ingredients Make products that people will want to come back for. Also, if you use the best ingredients you can charge higher prices. Use labels and mark your prices Labels can add value, especially if they tell where the product is from, and that it is pure. Since you know how to read and write you can make little signs to show your prices. If the prices are marked your customers will know you are not trying to cheat them. An attractive package will make your product different from others. When your product is just like everyone else s you have to sell it at the going market rate. But if your product is a little different you can be a price-maker instead of a price-taker! Grade you merchandise Try to stock the freshest items. Pull out the biggest and best and sell them for a higher price. People who are looking for quality will pay the higher price. Those who are looking mainly at price will buy the cheaper items. Never try to sell your spoiled or damaged goods for the same price as your best merchandise. Try to sell when no one else is selling Be the first one in the market to carry items that are just coming into season. Or be the last one to still have these items after the season has passed. Sell what others are not selling Sometimes people like special fruits or vegetables. You can sometimes attract customers if you carry items that are hard to get and that are not commonly available in the market. Get ideas from your customers about things they would like to buy. 66

Guarantee your products. Offer to take your products back if people are not satisfied. This way you will build up a base of loyal customers. Keep change on hand If you have change, people will not be discouraged from buying even small things. Make receipts Don t try to write receipts on the back of a box. Have a receipt pad so you can write out proper receipts for customers who want them. Write clearly so people can read the receipt. What is profit? When you are in business you have revenue and you have expenses. Revenue is all the money that comes into your business. Expenses are all of the costs that you need to pay in order to do the business. One of your costs is your time. You need to think of your business as something separate from yourself. It has a life of its own. Your business money and your personal money are not the same thing, even if you are the owner and the only person dong the business. Since your business is earning money, and since you are spending time to manage it, your business should pay you a wage. That is one of the expenses that your business has to pay. Your profit is what is left of your revenue after all of your expenses, including your wage, have been paid. Revenue Expenses = Profit The profit of your business is not your personal money. The wage you earn is your personal money. But the profit belongs to the business. It should be left in the business and used to build the business up. Be sure not to confuse revenue with profit. Just because you have money in your purse at the end of the day does not mean that you have made a profit. [Give an example of finding profit. See VB Entrepreneurs, page 53.] How much can I earn? At the beginning, when you are just getting started, your wage may be quite small. It is important not to be greedy. You should never take a bigger wage than your business can afford. A new business is just like a new baby. It needs to be looked after and nurtured. Just like a mother, you may need to devote a lot of time and effort to making your business healthy. But once your business can stand on its own feet and you are making a healthy profit, you can increase your wage. When thinking about how much you can earn, you need to set a reasonable wage for yourself. Your business needs to earn enough to cover all of its costs, including your wage, and also make a profit of 10 to 15 percent. 67

If you know how much you earn on each item you sell, you can calculate how many pieces or how many kilos you need to sell in order to cover your costs and earn your wage. Then if you want to increase your wage, you have to look for ways to cut costs or expand your business to a level where you can routinely sell enough to cover your costs, earn the wage you want, and make a 10% to 15% profit. How do I keep track of my earnings and expenses? The best way to keep track of earnings and expenses, and to find out if you are making a profit over time, is to keep a cashbook. It is also useful to have a cash box to keep your business money in and a calculator to help you with addition and subtraction. The cashbook tells you how much cash your business has at any time. It has five columns. The first column is for the date. The second column is where you write a description of any money coming into the business or money going out of the business. The third column is for writing the amounts coming IN to the business and the fourth column is for writing amounts going OUT of the business, like your expenses and wage. The fifth column is for writing the cash balance after an IN item has been added or an OUT item has been subtracted. [Show picture of a cashbook here. See VB Entrepreneurs page 60. ] If you sell many of the same items it is not necessary to write each and every one down in the cashbook. You can keep a piece of paper and make a note and every now and again you can calculate how many you sold, multiply it by the price per item, and write the subtotal in the cashbook. What is working capital? Working capital is the money and goods that belong to your business, as opposed to your own money and the things that belong to you. If you manage a business it is important that you make sure the working capital that belongs to your business is protected. Neither you nor your customers nor your family should take anything that belongs to your business without paying for it. Some women keep two purses. One is for their own money and the other is for the money that belongs to their businesses. Your business pays you a wage. If you want something from your business you should pay for it with your personal money, even if you are the owner and manager of the business! Don t let working capital leak out of your business If working capital is not protected, there are many ways it can leak out of a business. It is like losing blood. If a business loses too much working capital it may fail. Here are some ways that working capital can leak out: In a small business there is always a danger that the owner may take too much money out of the business herself. If she doesn t keep track of her profits she may pay herself a bigger wage than the business can afford. 68

A small shopkeeper must be careful not to take goods or not to let her family take goods without paying for them. She should teach her family to respect the business. A business woman should always keep her personal money and her business money separate. If you keep animals and don t know how to take care of them or treat them when they are ill, they might get sick or die. If your animal dies or if your hens stop laying eggs, that is just like losing your working capital. If insects damage things you have in storage, or if they get eaten by rats or stolen by thieves, that is a loss of working capital. Don t waste. Try to find a use for all of your by-products. Selling on credit takes working capital out of your business. You are just giving someone else a free loan while you are paying interest on your loan. And you have to spend your time chasing after people to pay you the money they owe. Small business people cannot afford to sell on credit. Don t tie up your working capital in semi-finished goods that are only half made and can t be sold. This happens to people who manufacture things, like shoemakers or tailors. Don t stock up on slow-moving items. If things sit on your shelf for a long time it ties up working capital that could have been used to buy fast moving items. Carry what sells best and sells fastest. If you have spoiled or damaged goods, sell them cheap. Don t let them sit around until they are worth nothing. At least try to earn something from them. But never sell spoiled or damaged goods for the same price as your best merchandise. Your customers will be dissatisfied and your business will suffer. The biggest risk to a small business is the owner herself. She must take care of her new business and not abuse it. It is like a new baby that needs nurturing and attention. A business health check Here are some questions to ask about your own business. You can ask these questions every six months or so to see if you are improving. The more Yes answers, the better. I save regularly. (Yes or No) I am able to take and use a business loan. I use the loans I receive only for production. I have a business idea and I am always looking for ways to improve it. I have several ways to earn income throughout the year. I sell regularly and always think of where to find new customers. I keep my selling area clean and display what I sell attractively. I do things to make my business different from others. I keep my business money and my personal money separate. My family and I do not take goods or money from my business. I am steadily increasing my working capital. 69

I can calculate how much profit I earn each week. When I calculate profit I include all my costs, even my wage. 70

Glossary of Terms Accounting system: A series of interrelated forms that track how much money the group has, where it is, and who owes what. In the village bank accounting system there are eleven forms: the attendance and payment record, savings passbooks, savings journals, loan passbooks, loan journals, the cash control sheet, the summary transaction sheet, the cash book, the commercial bank passbook, the financial statement and the balance sheet. Administrative expenses: These are the expenses that the village bank must pay in order to do business. Administrative expenses include things like stationery, accounting forms, bus transportation, and the purchase of materials such as a calculator or a cash box. Services such as training fees or an end-of-cycle audit are administrative expenses. If the village bank has to pay interest on a group loan from outside, this should be recorded as an administrative expense. Appraising (a loan request): (See: Screening a loan application.) Arrears: Money that is due on a loan but which has not been paid. If a payment has been missed on a loan, that loan is said to be in arrears. Assets: These are the things that the village bank has and they tell us how much the bank is worth. Assets include cash, money in a bank account, loans outstanding and physical property, like a calculator. Assistant officers: These are women who are elected, just like the village bank officers, to help with the transactions during the bank meeting. Assistant officers can be very helpful if the transactions take a long time. An assistant treasurer, for example, could fill out the cash control sheet while the treasurer counts the money and makes change. Attendance and payment record: The secretary fills this record out at every bank meeting. It has two columns for each meeting one for attendance and one for payment of savings. Audit: Having an outside person check the village bank s records to make sure no mistakes were made. Some village banks have an audit done at the end of every cycle. Bad debt: A loan that cannot be collected. If no payment has been made on a loan for 90 days it is called bad debt. In such a case the village bank may have to sell the woman s personal collateral to cancel the loan. If this is not enough, the remaining balance must be paid from the bank s group earnings. Balance: The amount that is left after money going out has been subtracted from money coming in, as in a cash book. An opening balance or a beginning balance is a previous balance that is entered to start a new record, like a new passbook or a new financial statement. A loan balance is the amount still owed on a loan after one or more payments have been made. Balance sheet: The balance sheet gives a picture of the village bank s value at a particular moment. The left side tells what assets the village bank has and in what form they are held. The right side tells who owns the assets. The treasurer fills out a balance sheet after every bank meeting. Balancing a meeting: At the end of every bank meeting the treasurer adds up all the figures on her cash control sheet and the controller adds up all the transactions on her summary transaction sheet. If they agree on how much money came into or went out of the bank during the meeting, they have balanced the meeting. If they do not agree they must go back, member by member, to see where they made a mistake. 71

Ballot: A piece of paper on which a member writes the name of a village bank officer for whom she is voting. Village bank elections are done by secret ballot. That means there should be no discussion of who you are voting for. Banking day: (See: Bank meeting.) Bank meeting: Usually held once a week, the bank meeting is a time when all of the village bank members gather to carry out their financial transactions. Village bank financial transactions are only done at the bank meeting. Brackets: Sometimes brackets are used to include additional information, as in the following sentence: When writing money you have to write two zeros after the dot (or after the line) to show there are no cents. When adding a column of numbers, putting a number in brackets is one way to show that the number should be subtracted. It is just like putting a minus sign in front of that number. Brackets may also be used to indicate a negative number, as in: 14 20 = (6). Business idea: An activity that a woman knows how to do, has time to do properly, can find the materials she needs to do it, that fits her family situation, and that will enable her to sell frequently. Cancel (a loan): To pay off. If a member does not make any payment on her loan for more than 90 days, the village bank may use her savings or sell her personal collateral to get enough money to cancel (pay off) the loan. Cash box: A box with three locks where the village bank keeps its cash. The cash box is kept by the treasurer. The other three officers each have a key to one of the locks. Cash control sheet: The cash control sheet is filled out by the treasurer during the bank meeting. Next to each member s name she writes the net amount of money that came into the bank or went out as a result of that member s transactions. Cash flow: Cash flow refers to the way money revolves. If you have good cash flow the same money keeps revolving buying and selling buying and selling. Each time you buy and sell you make some profit. Cash book: A book that records what money goes into the cash box and what money comes out. It has five columns. The first column is for the date. The second column is used to record the details of what money went in or came out of the cash box. The third column records amounts that go in. The fourth column records amounts that come out. And the last column gives the current balance of how much money is left in the cash box. Cash separator: A box with several sections to keep monetary notes of the same value together. With a cash separator it is easy to count money and make change. Collateral: Something a borrower owns that she promises to turn over to the village bank if she can t repay her loan on time. Collateral should be worth more than the value of the loan a person takes. It should be something that can be sold easily, such as a piece of jewelry. Column: A line of two or more boxes that go up and down the page. The boxes can be filled with words or numbers. The box at the top is often a label and identifies what kind of information appears in the boxes below. Commercial bank: One of the private or government banks in town, where anyone can open an account. Since village banks are not registered it is better to open an account in the name of the officers. Two signatures should be required to withdraw money from the commercial bank. Commercial bank passbook: The commercial bank provides a passbook to show how much money is in an account. It also provides a few other forms such as deposit slips and checks for depositing or withdrawing money. If the account earns 72

any money or incurs any charges, the bank will write these in the commercial bank passbook. Consumption: Consumption refers to things that cost us money but do not earn money for us things like weddings, funerals, festivals, medicine, school fees, shopping and household repairs. Village bank loans should not be used for consumption. We should build up our voluntary savings for these expenses. Controller: A village bank officer. She helps with the accounts and makes sure the rules are followed. Corruption: Stealing from the village bank or using the village bank s money for personal profit. Creditworthy: Trustworthy and responsible paying the money you owe on time. Cross-cycle loans: Loans that do not have to be paid back by the end of the cycle. Women in good standing, who have paid back several loans on time, may be eligible to get cross-cycle loans. Cycle: A period of time when certain things happen. When one cycle is finished another one begins and everything is repeated. A village bank runs in 24-week cycles. During the cycle loans are given out and paid back in installments. As money comes back new loans are made. At the end of the cycle all loans are repaid and the cycle is closed. The village bank totals up its income and expenses and calculates its profit. The profit is divided among the members as dividends. Debtor s agreement: A legally binding document that each borrower signs, acknowledging her debt and promising to repay her loan. Default: When a borrower has not made any payment on her loan for 30 days, the loan is in default. Once a loan is in default the borrower should turn her personal collateral over to the treasurer to keep until the loan is paid. Deposit: To put money in, as to deposit one s savings at the village bank. The commercial bank provides a deposit slip which is dated and stamped whenever money is put into the commercial bank account. Disburse: To pay out money, as to disburse a loan. In a village bank, the interest on a loan is subtracted from the principal and retained by the bank when the loan is disbursed. Disbursement Chart: (See: Installment chart.) Dividend: A member s share of the village bank s profit. Dividends are distributed at the end of each cycle. A member s dividend is based on her minimum savings during the last eight weeks of the cycle. Due date: The date on which a loan is supposed to be fully repaid. If there is still an outstanding loan balance after the due date the management committee may use the member s voluntary and mandatory savings to cancel as much of the loan as possible. If money is still owed the borrower must deposit her personal collateral with the treasurer until the loan is paid. Dues: A fee that every member pays, for example one penny a week, to raise money to pay for village bank expenses. Election: A method for choosing the village bank officers. Village bank elections are by secret ballot. Members should not discuss with anyone who they are going to vote for. Rather, they should think of the qualities that are required for each office and write down the name of the person who they think has those qualities. Entrepreneur: A person who is serious about succeeding. An entrepreneur knows that success in business is not a matter of fate. It depends on planning and hard work. An entrepreneur is always thinking of how she can improve her business, add new products to sell, and find new customers. 73

Equity: Equity is the portion of the village bank s assets that is owned by the members. It includes member savings and group earnings. Expenses: Money paid out for goods or services. In a microenterprise a woman s wage is one of the expenses. Family gathering: An occasion when the village bank members invite their family members to come and hear what they have accomplished. The purpose is to encourage support for the women s efforts and unity in their families. After some short, formal reports there can be informal discussion. The family gathering can also be a place to discuss ideas for other community activities, such as service projects. The members of the village bank should bring snacks to share at the family gathering. Family gatherings should be held several times a year. Financial statement: Also called an income statement, the financial statement identifies all the money that came into the village bank and all the money that went out during a certain period of time. In most village banks the financial statement covers a period of one week. The treasurer fills out a financial statement after every bank meeting. Good standing: A member is in good standing if she is a regular and active member of the village bank. That means she is honest and trustworthy, attends meetings, comes on time, respects the rules and pays her loans back on time. Members in good standing are eligible for bigger and longer loans. Gross earnings: Also called gross income, this is the total amount of money coming into a business or a village bank. One must subtract expenses from gross earnings to find net income or profit. Group activity expenses: Money given by the village bank to a solidarity group so it can buy materials to do an income-generating activity. When the incomegenerating activity is completed, the solidarity group hands all of the earnings over to the village bank. The group activity expenses must be subtracted from the gross earnings to find out how much profit the activity made. Group earnings: On the financial statement: the village bank s share of the profit from a group income-generating activity, plus any amount previously advanced as group activity expenses. On the balance sheet: any money that belongs to the whole group, such as fees, fines, interest income and the village bank s share of the profit from group income-generating activities. Horizontal: Going across in a straight line. To add numbers horizontally means you add the numbers going across the page, usually from left to right. Income: Money earned or coming into a business or a village bank. Gross income is the total amount coming in. Net income is the amount that is left after subtracting expenses or money going out. Incompetence: A situation where the management committee cannot conduct the bank meeting correctly, does not keep the accounts up-to-date, or cannot keep the members of the village bank unified. Indiscipline: A situation where the village bank members slip into bad habits, such as missing meetings or coming late, failing to make their loan payments on time, or skipping mandatory savings deposits. Initial disbursement: Loan principal minus interest. In a village bank the interest is taken out at the time the borrower receives her loan. If she takes a $1 loan for four weeks and the interest is $.02, her initial disbursement is $.98. Installment: A partial repayment of a loan. Village bankers pay part of their loans back each week. If a woman has an $8 loan for 8 weeks she pays back $1 each week for 8 weeks. Each payment is called an installment. 74

Installment chart: A chart or table in which the loan equation has been calculated for a selected range of loans of different sizes and lengths of time. An installment chart makes it easy to find the interest, initial disbursement and weekly installment without having to do any math. Interest: What it costs to take a loan. In a village bank the interest is usually 2% (two percent) a month, which is $2 per 100. To find the total interest, multiply the interest per month times the number of months. Interest on a loan of $5 for four months would be $5 x 2% x 4 = $.40. Journal: A record kept by the village bank. In the savings journal there is a page for every member. It contains the same information that is shown in her savings passbook. During the bank meeting the chairperson fills out the savings journal. In the loan journal there is a page for every loan. The information is the same as what is shown on the loan passbook that is kept by the member. During the bank meeting the secretary fills out the loan journal. Liabilities: Liabilities are the portion of the village bank s assets that are not owned by the members. For example, any sums of money that are lent to the village bank by an outside agency are liabilities. These sums have to be paid back. Loan application: a request for a loan. Before getting a loan, a woman must present her business idea to the group. The loan application may be a simple verbal explanation. The group will want to know what the borrower intends to buy with the money, what she plans to sell, and where she expects to find customers. Loan equation: A formula used to calculate how much interest you have to pay on a loan, what your initial disbursement will be and how big your weekly installments will be. Add your mandatory savings to your weekly loan installment to find your total weekly payment. Loan statistics: A way to keep track of the number of loans and the value of loans given out by a village bank. It is also a way to keep track of collection problems and how well they are being solved. The information is brought up-to-date on the loan statistics form after every bank meeting by the secretary or the assistant treasurer. Majority: More than half. A member must receive votes from a majority of the members in order to be elected as an officer. That means in a group of 25 a person must receive at least 13 votes. Management committee: The four officers who manage the village bank: the chairperson, the treasurer, the secretary and the controller. They keep the financial records and make sure the village bank is active and growing. Mandatory savings: The minimum amount of savings that every member has agreed to bring to each bank meeting. In most village banks you cannot withdraw mandatory savings unless you leave the bank. In extreme cases the village bank may allow a member to use mandatory savings to make loan payments. Market: A market is where you find customers. It can be a place, such as a bus stop, in front of a school or a town. Or it can be an occasion such as a festival, a national holiday or a sporting event. An entrepreneur looks for both types of markets. Micro-loan: A very small loan. The village bank does not give a member one big loan to keep for a long time. Rather it gives a series of small loans to be paid back in weekly installments. These are called micro-loans. Money smart: Knowing how to recognize money, how to count it, how to keep track of it, and how to make change. Net: Whatever is left of the money coming in after all the money going out has been subtracted. 75

Officers: The four women who are elected to manage the village bank: the chairperson, the treasurer, the secretary and the controller. Operation: A mathematical calculation such as addition, subtraction, multiplication, division or finding a percent. Passbook: A savings passbook is a form on which each member keeps a record of her savings deposits and withdrawals. A loan passbook is a form on which a member keeps track of her loan payments and how much she still owes. Percent: An amount per hundred. $2 per hundred is called 2 percent. We write it like this: 2%. If we have a calculator we can find a percent of any number. For example: How much savings does a woman need to get a loan of $8? Answer: 20% x $8 = $.16. Chairperson: One of the village bank officers. She runs the meetings and helps the group make decisions. Principal: The size of your loan or the amount of money you are borrowing. You must add the interest to find the total amount you have to pay back. Production: Things that earn money. Village bank loans should be used only for production for things that earn more than what it costs to borrow the money. Profit: What is left of revenue after deducting expenses. In a business your wage is an expense. The profit earned by your business is not your money. It belongs to your business and should be left in the business so it can grow. Purchase order: A large order to buy many items of a specific size and design for a fixed price. The items must be clean, well finished, pure, and free of defects. Usually they will be sold by the buyer in a big city market. Refinancing (a loan): Giving another loan on top of a person s old loan. The first thing the borrower must do is pay off her old loan. She can use the rest of the money for her business. Rescheduling (a loan): Giving a borrower more time to pay back her loan. When a loan is rescheduled the borrower does not have to pay a fine for being late, but she does have to pay interest on the amount still owed after the due date. When a loan is rescheduled the borrower has to sign a new debtor s agreement and also turn her personal collateral over to the village bank until the loan is paid off. The balance of the rescheduled loan is treated like a new loan, not as arrears. Reserve fund: Ten percent of the village bank s profit which is not distributed as dividends at the end of a cycle. The reserve fund leaves the village bank some cash for emergency expenses. Revenue: All the money that comes into a business. Same as gross earnings. Risk, at: Whenever a loan payment is missed, the loan is said to be in arrears. The amount overdue is called arrears. The balance of the loan, which is not yet due, is said to be at risk, because there is a danger that it might not be repaid. Rounding: Finding the nearest appropriate number. If you round money to the nearest dollar, you have to round up any amount that has 50 cents or more and round down any amount that has 49 cents or less. For example, you would round $2.70 up to $3. And you would also round $100.50 up to $101. But you would round $50.25 down to $50. Row: A line of two or more boxes that go across the page. The boxes can be filled with words or numbers. The first box at the left is often a label or a description. It tells what the information in the other boxes is or who it applies to. Screening a loan application: Analyzing whether or not to give a loan. In a village bank the members decide whether or not a member should get a loan. They look to see if the borrower already has a business or at least has a reasonable business idea. 76

They want to be sure she is not going to pass her loan on to someone else. Has she repaid her previous loans on time? Is her request for not more than five times her savings? Does she have experience with the business she plans to do? Secretary: A village bank officer. She keeps attendance, writes down any decisions that are made, and reads out the village bank rules. Solidarity group: A group of four to six village bank members who work together. They may advise each other about their businesses, or help each other with their loan payments. They may also do group income-generating activities to raise money for the village bank. Sponsor: A bank member who will vouch for the character of someone who wants to join the village bank. The sponsor can explain to the new member how the village bank works and help her learn to read and write. Stagnation: A situation where the village bank does not grow. Membership may decline if members who leave the bank are not replaced. Savings may taper off if members use mandatory savings to make their loan payments. Earnings may decline if the group fund sits idle. Summary transaction sheet: A form which records the exact value of each and every transaction that a member makes. It is filled out by the controller during the bank meeting. Surplus: (See: Profit.) Statistics: (See: Loan statistics.) Term (of a loan): The number of weeks you have to pay back a loan. Transaction: Any time that money changes hands. Village bank transactions include such things as depositing or withdrawing savings, paying fines, receiving a loan, paying interest on a loan, or paying a loan installment. Treasurer: A village bank officer. She handles the money and keeps the village bank accounts. Vertical: Going up or down in a straight line. To add numbers vertically means you add a number to the one above it or below it. Village bank: A group of 20 to 35 women who want to save and get into business and who manage their own financial transactions. Voluntary savings: Extra savings that a village bank member may wish to deposit beyond her mandatory savings. A member may withdraw voluntary savings at any bank meeting. Wage: Money earned for performing a certain amount of work or for working for a certain period of time. A micro-entrepreneur should pay herself a wage from her business. Withdraw: To take money out, as to withdraw one s voluntary savings from the village bank. The treasurer can withdraw money from the commercial bank account by writing a check. Working capital: Money and goods that belong to a person s business. It should not be mixed with one s personal money. Zero meeting: The bank meeting that opens a new 24-week cycle. New loans are often distributed at the Zero Meeting. Meeting 1, at the end of the first week, is when the first installments on the new loans are due. Meeting 24 marks the end of the cycle. 77