Injecting varieties of credit into a comprehensive, people-led development process
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.
Loans from CODI have a few distinctive characteristics:
- 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.
- 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.
- 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.
- 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.
- 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:
- 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.
- 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.
- 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.
- 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.
CODI loan figures (as of July 2018)
Loan approvals: Since 1992 up to the end of July 2018, CODI has approved loans to 963 community organizations totaling 10,652 million baht (US$ 332.88 million). These loans have benefited about 405,210 families, in more than 6,180 urban and rural communities throughout the country. Housing loans under the Baan Mankong Program have accounted for almost 90% of CODI’s loan portfolio.
Loan repayment: As of July 31, 2018, loans of about 4,816 million baht (US$ 151 million) remain outstanding, while the rest have been repaid. About 88% of this amount is considered as normal loans, and about 12% have missed their repayment schedule for more than three months. Although a 12% loan delinquency might seem high, by the standards of commercial banking, the comparison may be misleading. CODI loans are meant to nurture people in the lowest income group, who are unable to access any credit from the formal financial market. The 88% of these people who have set aside a portion of their low and irregular incomes to repay their CODI loans diligently are proof that CODI loans can successfully enable the poor to overcome the challenging hurdle of finance.