Microfinance

Beneficiaries who have received small loans from CRS partner Thanakea Phun Cambodia have been able to start small businesses.

Beneficiaries who have received small loans from CRS partner Thanakea Phun Cambodia have been able to start small businesses and break the grip of poverty. Photo courtesy of Thanakea Phun Cambodia

Catholic Relief Services is working with partners around the world to help families to increase their income and improve their diets. To achieve these objectives, the our microfince projects focus on developing five basic skills among the participating families: innovation and learning, sustainable agriculture, savings and lending, marketing, and group management and organization. The project puts special emphasis on women and youth since they are increasingly more prone to unemployment, emigration and violence. CRS provides training to small-scale producers in processes that increase the economic value and consumer appeal of agricultural commodities.

Smallholders can reap great benefits from acquiring skills in basic financial education. Financial education refers to the set of skills and knowledge that allow individuals to plan and manage their money. CRS provides tools that enable smallholder farmers to make good financial choices regarding income, expenses, saving and borrowing. Through the creation of a budget, farmers can track their cash flow, identify patterns in both income and expenses, explore ways to reduce unnecessary expenses, and plan for future needs. Examining savings strategies and options will help farmers take the steps towards building assets for a future investment and becoming less vulnerable to economic shocks. Knowledge on financial instruments and loan sources provides insight into available financial tools, enabling farmers to select the tools that are most appropriate for their needs.

Savings and Internal Lending (SILC) groups have proven very effective in CRS programs. A SILC group is a group of self-selected people who come together, form a SILC group and save money, which is the source of loan capital from which they can borrow. The main purpose of a SILC is to provide savings and simple loan and insurance facilities to community members who do not have access to formal sector financial services. SILCs are autonomous and self-managing. This principle is fundamental and cannot be compromised, because a SILC's goal is institutional and financial independence.

SILC Group Components:

  1. SILC groups have between 15 and 25 members. The members are self-selected and usually from the adult population. SILCs agree on a set of rules, or a Constitution, to guide their activities. A SILC Constitution does two things: it provides a framework for governance, dispute resolution and disciplinary action, and it specifies how the group's two funds (Loan Fund and Social Fund) will be managed.
  2. All transactions are carried out at meetings in front of the SILC, to ensure transparency and accountability. To ensure that transactions do not take place outside SILC meetings, unused funds and group records are kept in a lockable cash box between meetings. SILC members meet regularly and contribute to a SILC fund in the form of a fixed minimum sum.
  3. The SILCs set loan terms which can range from three months to six months. During the first cycle, loan terms usually do not exceed six months. The size of a loan available to a member can be linked to the total value of his/her savings. The SILC may decide that the amount a member can borrow may be no more than a multiple of the total face value of their savings.

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