I have been in the field with EDAPROSPO for six weeks now, but I just now have completely understood how their “communal bank” system works with group loans. In Spanish, the term is “communal piggy bank” (alcancía comunal), which I think is more descriptive. When you see a group of borrowers from EDAPROSPO pictured on the Kiva website, you are actually seeing a self-governed group that has the ability to lend internally among its members. Let me explain.
The term “bank” within communal bank is what confused me the most. I assumed that a third-party bank needed to be involved in order to help form the groups and administer the group’s savings. Not so. The communal bank is officially overseen by the MFI (EDAPROSPO), but is mainly self-administered. The group members elect their own president, secretary and treasurer. The mandatory savings each month (usually 3.5% of the amount borrowed) are managed by the group and mainly used to make internal loans to other group members who may need a little extra help with certain payments. Effectively, the group members earn a high rate of interest on these savings (through internal loans) and this is the part of the communal bank methodology that the clients (at least anecdotally) value the most.
I have been to about fifteen communal bank meetings and I am always impressed by how seriously the groups take these gatherings. At a group member’s house, at the dining room table, the treasurer calls each member up to present his or her monthly payment. The borrower carefully counts the bills and coins and gives them to the treasurer. Each group member has a balance book in which he or she keeps track of payments, interest, internal loans, etc. The social pressure and group responsibility involved in a communal bank loan are really what make it work. Imagine the embarrassment of not being able to make a payment, in front of your friends and neighbors, all of whom are responsible for this loan. There are, of course, extenuating circumstances and sometimes borrowers are late with a payment, but from what I have seen, groups are understanding and that’s where the internal loans become so useful (and profitable) for the group members themselves.
The communal banking groups typically borrow together for at least three years, with a new loan every four to six months. At the end of three years, the savings become liquid and are returned to the members. Many groups continue to borrow together for years – I have met a few groups who have borrowed together for more than ten years. They are friends and neighbors sharing in the ups and downs of microenterprise and improving their lives one microloan at a time.
Sarah Benjamin is a Kiva Fellow living in Lima, Peru. She spends her days taking minibuses on unpaved roads to meet with borrowers and makes sure to wear her hiking boots.