Village Banking Model: An Innovative Approach of FFO
Farmers Friend Organization (FFO) is a specialized microfinance provider working for the socio-economic development of the marginalized communities in Pakistan. To achieve this innovative purpose, the organization provides financial services to poor households in an efficient and effective manner.
About 67.5% of the nation’s population lives in rural areas and a dominant portion of the rural people are poor. To enhance the rural poor’s access to the required set of financial services, FFO has initiated an innovative model of ‘Village Banking Program’. This program entails the establishment and strengthening of rural cooperatives or self-help groups called ‘Village Banks’. The Village Banks are semi-formal financial institutions that create access to basic banking services on a sustainable basis by utilizing the community’s rules, customs, relationships, knowledge, solidarity and resources combined with formal financial methods and concepts. A bank is initiated, owned and managed by the villagers themselves.
Outline of FFO’s Village Banking Model
The following is an outline of the concept and methodology of FFO’s Village Banking:
- A village is selected for the establishment of a Village Bank
- Making use of the common tools and techniques of social mobilization, a Community Development Organization (CDO) is established in the village to work as a Village Bank (VB).
- The CDO/VB is provided technical support to evolve its structure, develop by-laws, get the legal status through registration and design procedures to work as a financial intermediary
- After certain interventions of CDO/VB strengthening and capacity building interventions, an agreement is signed between FFO and the VB
- The VB accumulates its own financial resources through members’ savings, membership fees, and grants. After a VB accumulates the required level of internally generated funds as per the criteria, FFO will provide the VB a line of credit
- The Village Bank selects its borrowers; borrowers are selected by the VB members. FFO staff does not conduct loan analysis
- The VB’s Credit Management Committee (CMC) is responsible for the overall performance of the banking activities.
- FFO keeps playing the role of a facilitator on a continuous basis. Monitoring and evaluation process also remains an integral activity on the part of FFO
Innovative and Distinctive Characteristics of the Village Banking
Following unique characteristics make the Village Banking a preferred model:
Reaches the poorest: Since Village Banks do not rely on collateral to guarantee loans, they can serve those lacking land or other assets.
Places emphasis on savings: New loan sizes are based on the previous loan size plus the amount saved in previous loan periods.
Uses members of the village bank to guarantee loans: Members may not get a new loan unless fellow members are up to date on their payments. Social pressure substitutes for collateral.
Foster a democratic and community ownership process: Village Bank members participate in the decisions most likely to affect them. They create their by-laws and are given choices about their services. Because members are involved in key decisions, they feel that the Village Bank and its future belong to them.
Sustainable and able to reach scale: Village Bank loans are issued to borrowers at market rates. The interest charged covers the cost of Village Banks and providing services to more people. The village banking model reaches many individual borrowers through forming large groups and thus allows a program to reach a nun limited number of the rural self-employed. Reaching tens of thousands of clients is entirely possible in a well-managed village banking program.
Outreach and Achievements to the Last Mile
The following figures reflect the FFO’s cumulative outreach under the microfinance program of the Village Banking Program:
No of District 1
No of Tehsil 8
No of Union Council 30
No of Clients Served 41,155
Total No of Male clients 873
Total No of Female Clients 40,282
Total Amount Disbursed 952,450,000