Loans to districts for income generation
The need for credit by small entrepreneurs in Phnom Penh is very big. After the implementation of the prahok loans, SUPF members in other districts were all asking for UPDF loans for income generation. The big question was how to open up the fund for income generation loans in a way that would allow large numbers of people to benefit, but would also create a new system in which communities work as a group, not in isolation. The experiment began in May 2000. Each of the federation's seven Khan Units were invited to propose income-generation loans up to a ceiling of US$5,000 per khan. Loans would be issued to each Khan Unit to help establish a revolving fund, from which savings groups in that khan could borrow, to on-lend to their members in short-term income generation loans.
The power of a little outside money can really help get things going, even if it's not very much money. When people know an outside resource like this is available to them, it works as an incentive to pull them together to work as a group. And because they are the ones setting the systems and making the decisions - not professionals or bankers - they're free to do it in ways that fit their needs and suit their realities.
It took three months of hard work and three big public workshops to get these district loan funds off the ground. Each district made its own survey, gathered all the loan requests together and presented its proposal to the UPDF in public meetings, with all the other districts sitting there. Each district set its own systems for managing the loan and repayment process, interest rates and loan terms, and deciding how the members, savings groups and the district would interact. Khan Don Penh, for example, charges borrowers 12% annual interest, which includes 4% which goes back to UPDF, 4% to subsidize the khan's administrative costs, 2% to the community's savings fund, and 2% stays in the district fund for emergencies.
4. Using the fund to build a community in difficult circumstance where no community exists yet
Food production loans
UPDF's most recent loans are a response to the urgent needs of hundreds of families who have lost their houses, belongings, jobs and support systems in a series of terrible fires which destroyed their inner-city settlements recently and triggered large-scale evictions of informal communities. Most had no choice but to accept the government's offer of un-serviced plots in large relocation colonies outside the city, where they are now struggling to survive in bad conditions.
People urgently need to produce food to feed themselves and to sell for income, and both SUPF and UPDF have been looking for ways to help. A set of food-production projects were quickly gathered, budgeted and submitted to the UPDF board.
These projects included a wide variety of pig and chicken raising, vegetable gardening and fish farming, all involving different amounts of money and different loan terms, and added up to a hefty $30,000. Here were the same problems with individual loans as with the earlier income generation loans, in which loans will become something people feel they have a right to, rather than something which comes from a very limited resource which belongs to them, but has to be shared.
So instead of making individual loans, which would be impossible for UPDF to manage, it was decided to make bulk loans as a revolving fund to the communities, and then let them hold meetings, carry out surveys and go into all the complications of setting up their own collective system for giving and managing small loans for food production projects.
A loan ceiling of $3,000 per community was proposed to start, with very flexible repayment conditions which give the communities room to develop their systems and to use this loan as their own revolving fund.
The ceiling is very small, given the scale of need in these resettlement colonies, but it is a start. Besides boosting food production and incomes, this loan mechanism uses a common need as a mechanism to get people to know each other, work together and start developing their own self-support systems.
In this process, people are building up a community out there, in very difficult circumstances, where scattered people from around the city have been dumped, and where no real community yet exists.
