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Community Savings

Community Savings

Thailand has a long and rich history of community-managed finance systems that enable poor communities, in both rural and urban areas, to save together and access credit from their pooled savings.  Self-managed credit unions, savings cooperatives, village banks, Buddhist savings groups and village funds have long enabled rural communities to pool resources and finance their own development initiatives, using both their own resources and additional government capital.  In urban areas, poor communities have also used savings and finance systems they control themselves to link vulnerable households and collectively address a variety of needs.

Community savings and credit:  the mother of Thailand’s community-driven development

Since 1992, CODI has energetically promoted community savings and credit as a key strategy for building a community-driven development process, in which poor people work out their own solutions to the serious problems they face.  Besides helping set up new savings groups, already-existing community savings systems around the country were invited to join the savings process.  The emphasis was on spreading this new opportunity by making it easy for people to start savings groups and to get access to loans from the CODI fund.  Scale was seen as being important for several reasons.  The scale of urban and rural poverty called for solutions at a matching scale.  Plus, large scale savings activities generate more possibilities, more connections and more dynamism, as groups begin linking and learning from each other.

In 2003, the savings process got a big boost when CODI’s Baan Mankong national housing program was launched.  The program required communities to organize savings groups and collectively save at least ten percent of the amount they borrowed from the CODI fund for their housing projects.  The savings groups were also crucial financial management systems in these informal communities, which enabled them to collectively and transparently manage large, complex housing projects and project budgets – and later loan repayments.  Most of these groups are linked to CODI, through the community networks that bring together communities together within certain constituencies or around common issues.

Community savings in urban Thailand:

According to A Study on Community Finance in Five Asian Countries (ACHR, June SANYO DIGITAL CAMERA 2017)there were 1,903 savings groups in 345 cities in Thailand, with about 850,000 members and total savings of some 3.2 billion baht (US$ 102 million).

CODI Loans

Since 1992, CODI has offered several kinds of credit to community organizations, which make all decisions about loans to members and manage repayments.  Savings and credit is a first step in building a community’s ability to manage money collectively and to take care of its own development needs, first on a small scale using their collective savings, and later on a larger scale as they tap external credit from CODI.  Later on, access to loans in increasing quantities helps communities tackle problems at increasing scale and becomes a means to build the group’s strength and capacities.

Injecting varieties of credit into a comprehensive, people-led development process

Loans from CODI have a few distinctive characteristics:

  1. CODI loans are all collective, not individual. Every CODI borrower must be part of a group of low income people who live together in the same community, or in adjacent communities, and who have come together to form a savings group.  The members of each savings group set their own mutually agreed-upon terms for how to save and how their collective savings are to be used.  Usually, the savings funds are loaned to members to address their individual needs, like livelihood, emergencies, health care or school expenses.  As the savings group grows stronger, the credit needs invariably grow larger and include more than just individual needs.  There might be a need for improved pathways in the settlement, for example, or for a community enterprise – or to upgrade the housing in the entire settlement.  In such cases, that savings group may seek external funds to fulfill development needs that are too big to finance with their own resources.  That is where CODI loans come into play.  CODI provides loans only to groups, not to individuals.  An established community savings group could apply, or if the community is planning a housing project, they can register as a legal housing cooperative.  Either way, there must be designated leaders and a committee who will act on behalf of the group members with regard to the legal documents and loan contracts between the group and CODI.  The loan could be for a community-wide development project (like housing) or for a collection of individual projects (like income generation or housing improvements), but either way, it is the community savings group or housing cooperative which collectively manages the loan and the repayment to CODI.
  1. CODI’s loan process involves community people at every stage. From the beginning, a loan proposal has to be screened by both a city committee and a regional committee, both of which comprise community representatives (other than the borrowing community) and local government representatives from each city and region.  Then the loan proposal is forwarded to CODI’s national loan committee, which also comprises representatives from CODI, other government banks and community leaders.  The process ensures transparency and that the proposed project receives endorsement from other communities as well.
  2. CODI loan terms are designed to accommodate the realities of low-income people’s lives. CODI usually sets interest rates a few percentages points lower than the lending rates of commercial banks.  More importantly, interest rates are fixed throughout the loan period.  There are different loan repayment terms, depending on the type of loan.  CODI housing loans, for example, have a 20-year term, while revolving loans must be repaid in only three years.  Repayment of all loans is monthly and on an equal installment basis.  These loan terms and conditions fit in with community people’s realities and way of life, so that they know in advance how much to save each month for their loan repayments.
  3. Community organizations can add a margin of 2% or 3% on top of the CODI interest rate, when they on-lend to their members, to cover their management expenses and to create a buffer fund to cover late loan repayments.
  4. All designated community leaders and community committee members provide personal guarantee on the loan. No other assets or collateral are necessary, if not available.  This security requirement implies that each community representative is fully committed to the project, as they have personal liability as well.  For loans for housing and land, though, CODI requires that land and housing in the project should be mortgaged with CODI during the loan repayment term.

CODI currently provides four types of credit:

  1. Loans for housing and land: Loans are available to community organizations (either formally registered as cooperatives or informally linked as savings groups) to purchase land and/or build housing under the Baan Mankong Program.  The maximum loan amount per household is 360,000 baht (US$ 11,250), which should not exceed 90% of total house construction cost.  The annual interest rate on housing loans is fixed at 4%, and the maximum repayment term is 20 years.
  2. Loans for holistic development: The purpose of this type of loan is to enable a community to solve its economic and/or social problems collectively.  To obtain a loan, the community should submit a proposal identifying common problems its members are facing and describing how it will use the loan to tackle the problems together.  For example, a loan could be used to refinance high-interest debts among community members to informal money lenders.  Holistic development loans might also support economic activities or green production of food within the community.  The annual interest rate on this type of loan is 3.5%, and the maximum repayment term is ten years.
  3. Loans for community enterprises: Loans are available for community organizations wishing to set up community owned businesses to generate income for member families.  Community enterprise loans could be used to start a community retail shop or motorcycle repair garage, for example, or to set up a production unit for manufacturing community products of various sorts.  The annual interest rate on these kinds of loans is 4%, and the repayment term should not exceed ten years.
  4. Revolving loans: The purpose of revolving loans is for networks or community groups which require some short term capital to use as bridging finance while building up their internal funds, or to use as working capital for community enterprises.  The annual interest rate on these kinds of loans is 6%, and the repayment term is three years.
National Community Fund

When CODI’s predecessor, UCDO, was established in 1992, it was set up primarily to be a revolving national community development loan fund – a new financial support mechanism designed specifically to reach urban poor communities directly.  The institution itself was not intended to be an implementing agency, like the National Housing Authority or the Welfare Department.  The idea was that with this new fund, poor people could organize themselves, start savings groups, build their own systems of management, initiate their own development projects in housing, settlement improvement and income generation, and then access financial support for these projects from the UCDO fund, in the form of collective loans and some grants.  In the early 1990s, this was highly unusual stuff for a government project.  These kinds of institutional arrangements – in which poor communities did the deciding and the doing, and the UCDO fund supported them with flexible finance – were new to everyone.  It was a big breakthrough for Thailand and represented a first stab at decentralizing a small portion of government development resources to a people-driven process.  The experiment worked, and the CODI fund today continues to channel larger and larger government funds to Thailand’s increasingly sophisticated and large-scale community-driven development processes.

 Fund magic:  The UCDO’s original revolving fund started out in 1992 with a capital of 1,250 million baht (US$ 39 million), and worked with poor communities in only Bangkok and Chiang Mai.  Another 22.7 billion baht (US$ 708 million) from the Thai government‘s yearly budget has been added to the fund’s capital in the 27 years since then.  During that time, 2,000 community savings groups have been set up in towns and cities in all 77 of Thailand’s provinces, with savings which now surpass 3.2 billion baht (US$ 102 million), and hundreds of area-based and issue-based community networks have been set up. 10.7 billion baht (US$ 333 million) has been given in various kinds of loans, more than half of which has been repaid.  And these loans – from both the fund and from the savings groups – have created assets and additional income worth billions of baht – all in the hands of Thailand’s poorest citizens.  And every baht of the CODI Fund is still there, still available, still revolving and helping more people, generating more assets, solving more problems.

In this way, the CODI fund transforms government development budgets into a flexible, accessible finance mechanism that allows communities to link together, examine the problems they face, and use the funds to develop their own strategies to tackle these problems.  In the process, communities become the owners of the process – not the government, not CODI.

Of the 22.7 billion baht (US$ 708 million) of government funds that have gone been added to the original fund’s capital, about 5.70 billion baht (US$ 178 million) has been loaned to communities and 16.97 billion baht (US$ 530 million) has been channeled to communities in the form of grants, to address various problems or respond to opportunities.  48% of these grants (about 8.09 billion baht) were subsidies to communities developing housing projects under the Baan Mankong Program (more details about these subsidies in the Baan Mankong section of the website).  The remaining 8.88 billion baht (US$ 143 million) of grant funding was used to support various projects to strengthen capacities of community people, bolster their economic well-being and address specific issues.  For example, CODI allocated 2.38 billion baht (US$ 74 million) for community capacity-building between 2001 and 2009.  Since 2005, the government has channeled 2.75 billion baht (US$ 86 million) to CODI to support the establishment and strengthening of community welfare funds across the country.  Grants from the CODI fund have also been used to support community-driven projects that address eviction, to rebuild houses in communities affected by disasters (150 million baht) and to strengthen communities in five strife-torn provinces in southern Thailand (2.37 billion baht).

Explanation of Diagram 1 (below):  Verticals and horizontals:  To understand how a more flexible, more urban-poor friendly finance mechanism works, it might be helpful to compare the CODI fund with with other finance systems intended to reach the poor, in the diagram below:

  • Conventional government systems: The first system is the conventional government system (in blue), in which decisions and budgets all flow from the top down, and budgets pass through various ministries, departments, desks and approvals along the way, so it takes time for the money to work its way down.  This top-down bureaucratic system is the norm for government finance in most Asian countries.  And that’s why the real needs of poor people are not so easily addressed by such cumbersome vertical systems.
  • NGO systems: The second system is the NGO system (in green), which is more project-oriented, in most cases.  The individual projects that funding supports may be good, but they are usually too small and too scattered to create enough momentum to make significant change or set a new development direction.
  • Banking systems: The third system is the private sector banking system (in yellow), where market forces determine who can and cannot access the finance.  But the problem is that the market responds to buying power not need, and cannot address all the issues, especially in the informal sector.  So the poor, with their informal, irregular lives and livelihoods, are shut out from that system.

Community development fund systems:  The new system CODI has tried to build (in purple) is a way of turning those verticals into horizontals.  In this system, national government funds are channeled through a flexible community development fund (like the CODI Fund) directly to poor communities, in the form of loans and grants for various purposes.  Poor communities already have strong horizontal systems of connection and support, and this form of finance is designed to build on that horizontal strength in poor communities and community networks.

City Funds

Over the past ten years, community networks in cities around the country have been setting up a variety of local community funds to address various needs:  welfare funds, housing savings funds, children’s savings funds and environmental savings funds.  All these funds gave community members more ways to save, more ways to participate, and more ways to invest in building community-based systems for looking after their immediate needs, using their own pooled resources.  Eventually, a few pioneering community networks felt the need to bring these funds together under the umbrella of a single city-based community development fund (CDF).  CDFs are an independent financial mechanisms which community networks in a city can control themselves, within their own constituencies, and CODI gave its full support to the idea.  A series of national meetings were convened to discuss the issue and to begin exploring ways for networks in each city to financially stand on their own feet, as much as possible.

City-based CDFs, which are managed by community networks and link together all the savings groups in city, are not just a way of making locally-controlled financial systems for the poor, but of pooling local resources, strengthening relations and collaborations with their local governments, and pulling other poor communities into the citywide development process.  CDFs give community networks more flexibility in how they respond to urgent needs within their city and more scope for addressing poverty in their cities in more locally-driven, more long-term and more partnership-based ways.

The first city-based CDFs in Thailand were set up in 2009, by two pioneering community networks in the northeastern town of Chum Phae and in Bangkok’s Bang Khen District, where the smaller funds these networks had already been running were brought together under one umbrella and topped-up with small capital seed grants of $30,000 each, from the Asian Coalition for Housing Rights (ACHR).  CDFs in five more cities followed in 2010, also supported with ACHR seed grants of $20,000 each.  The establishment of these first city funds generated a lot of excitement, and the city fund concept was taken up enthusiastically by community networks across the country.  By January 2019, CDFs were fully functioning in about 60 Thai cities.

When the CDFs started forming, it seemed natural to bring the community-managed welfare funds under their umbrella, and CODI began channeling seed grants of 20,000 baht ($670) per city for community-managed welfare through these new city funds.  This money was very little, but it was sufficient to bring people together to discuss their needs and set up their own community welfare system, using the mechanism of the new city fund.  Community networks also began adding their own regular contributions to these city funds and using them to finance a variety of other community projects, including housing, upgrading, livelihood and community enterprises.

Bridging people’s process and city structures with city-based Community Development Funds (CDFs)

Most of the Thai CDFs are now composed of several distinct funds, for specific purposes (such as housing, welfare, insurance, livelihood and upgrading), which are managed together under the umbrella of one city-level CDF.  In most CDFs, these funds are kept financially separate, with separate community contributions, separate membership, separate accounts and audits, but managed by a single committee, made up of representatives from the communities and networks that are members of the CDF.  Many of the CDFs started with the welfare funds (to which all community member usually contribute one-baht-a-day, or about $1 a month), and many CDFs also have savings funds (in which community savings groups deposit an agreed-upon portion of their monthly community savings and individual savers also invest in shares), and housing insurance funds (in which members of communities that have completed Baan Mankong housing projects contribute 200 baht per year, or about $6).