For
many in Asia the financial crash of 1997 was a disaster. For the poor communities in Thailand and UCDO it became an
asset as they used the crash to learn more about development through
savings and loans, refining their systems to make them stronger and
better able to meet the needs of the poor.
A survey conducted by the community networks of their members
(who are among lowest ten per cent of income earners) found that 64 per
cent of families had seen their incomes fall between 1997 and 1998 with
the average decline being 24 per cent of the pre-crisis average housing
income. Fifty six per cent
of the sample had too little income to meet their basic needs.
In
the immediate aftermath, there were many problems in UCDO.
The percentage of groups with repayment difficulties rose from 2
% in 1997 to 7% in 1999. For a financial institution, that might suggest a disaster
but for the staff of UCDO and the community leaders it was an indicator
that the systems involved in the savings and loan processes needed to be
stronger. They
believed that the major problem they faced was not the economic impacts
of the crisis (although these were real enough) but understanding the
management problems internal to groups such as corruption or poor
management, and strengthening the groups to address these problems.
Problem loans, staff told themselves, were a very good indicator
of a bad organisation or something wrong with the organisation - not
only with the financial management system, but with the political
structure inside the community. Poor
loan repayments may reflect an individual seeking to control power in
the group, or differences between two leaders. In some cases, the availability of loans had attracted people
to the groups who just wanted the loans but who were not really willing
to pay back. When the
crisis hit, these problems became evident.
To change this process required a process of understanding and
analysis of the problems, and then of learning new skills and building
new capacities.
The
staff of UCDO and the community networks developed the strategy of loan
restructuring in order to assist groups to manage their internal
problems and secure their loan repayments.
Loan restructuring offered the groups with most difficulties in
loan repayment the chance to take very low-interest
whilst they sorted out their difficulties.
This prevented interest charges increasing their repayment
problems. Whilst one objective of loan restructuring was to reduce the
cost of loan repayments, more critically loan restructuring sought to
change the way that the group was working.
A number of strategies have been used to effect these
improvements:
·
rebuild
the strength of the group through daily saving and loan repayments
·
support
the group to analyse the problem and correct their practice
·
decrease
required monthly repayments to UCDO to give the group time
(“a breathing space”) without making them feel they have failed
·
restructure
repayments within the group letting some members (who have perhaps
overextended themselves) pay less for a period whilst others continue to
repay as before
·
separate
loan contracts if some communities have loans for housing, land and
income generation. It may
be the case that some activities are managed well and others have
problems. Separating the
contracts helps identify the problems
·
provide
small (up to US $2500) low interest loans to the group to enable them to
rebuild their activities and increase participation
·
offer
communities a committee of people from outside the community with
experience of correcting loan problems in their own communities
·
divide
the community into those who are paying and those who are not in order
to put pressure on the second group and better support the first.
All
these activities aimed to strengthen communities and help them address
the problems that they face in managing loans successfully and in so
doing to better manage their opportunities for development.
Unlike a traditional bank, UCDO was clear that the solution to
bad debt was not to stop lending, which would only further weaken
participation in collective activities and increase those without any
support for their basic needs. However
if the vulnerability of the poor was not to be increased in these
circumstances, solutions needed to be developed that strengthened the
ability of the group to manage loan repayments for all their members.
The
strategies summarised above have not completely solved the problem of
non-repayment but they have reduced it.
In September 1998 there were 65 groups out of 484 member groups
with problems. By June
2000, this number had been reduced to 58 groups whilst the number of
membership groups had increased to 852.
As importantly, savings have continued to grow throughout this
period, demonstrating that the poor themselves are continuing to invest
in the process.
