Credit unions for savings and loans
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CTA. 2008. Credit unions for savings and loans. Rural Radio Resource Pack 08/4. Wageningen, The Netherlands: CTA.
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The importance of saving, and how credit unions can serve the rural poor.
Credit unions for savings and loans Cue: If you earn some extra money, what do you do with it? Spend it straight away? Put it in a bank, or keep it in a safe place at home? Investing the money with a savings and credit group might be another option. In Ghana these groups, known locally as credit unions, are a popular way for people, especially in rural areas, to save money without having a bank account. They also provide credit to borrowers, and at a much lower interest rate than commercial banks. There are over 340 credit unions in Ghana that are regulated by the Ghana Credit Union Association. Some have been operating for more than 50 years. Emmanuel Darko is the General Manager of the Association and he told Kofi Adu Domfeh about the principles behind the credit union concept. IN: ?When you talk about financial independence ? OUT: ? goodly guy in a credit union.? DUR?N: 4?40? BACK ANNOUNCEMENT: Emmanuel Darko, general manager of the Ghana Credit Union Association. The interview comes from a resource pack produced by CTA. Transcript Darko When you talk about financial independence, financial security, it means savings. So we emphasise more on savings. It doesn?t matter how much you put there. If you put even 50 cents, by 2 or 3 years you are a changed person. And after saving for no less than six months you start to apply for loans. Sometimes you find microfinance institutions only financing business loans, so when they go to villages they assume that everybody is looking for business loans. But you find that when the money is given, it is diverted for funerals, for marriage, for other things. So the demands of the poor is not limited to business. But we support every sector. Domfeh We are talking about the rural poor. How involved are agriculturists in the unions and what form of support is often extended to members in that sector? Darko In the agriculture sector, you find out that they take loans to finance their farms, they take loans to educate their children, they take loans to improve their housing, they take loans to do other things. For example, if a farmer loses a close relative, you know they become more disturbed, they can even pledge a big farm for a small amount, for say 5 years. It doesn?t happen if a credit union is operating. They rush to the credit union, take a loan, bury their dead, and come and pay, without pledging their farms. When a child passes the university exam, what to do? Sometimes if they don?t want to pledge their farm for a loan, they just advise them to follow them, to become a farmer. But now it is not so. We educate the members to also help educate their children, and they do, and they take loans and they educate their children and they begin to feel proud. Domfeh So what would you say are some of the comparative advantages of credit unions to other alternatives like the commercial banks? Darko The commercial banks they are a bit alien to the African. Moving from a far area to the bank and then going through that documentation embarrasses them, and they feel that they should keep their money at home, and manage themselves instead of going there. But when you come to the credit union, it is the people themselves who find out that they need this service, and they will go there and organise for them. They feel that it belongs to them. They rent their own office, employ their own staff, and the profit belongs to them. So there is a sense of belongingness. And also banks, the minimum savings most of them could not afford, but in a credit union it is so low, because the majority of businessmen and women are on a small scale, and the money that they get per day is not enough for them to go to a bank to save. They will prefer keeping them at home. But with a credit union, any amount that you have can be saved and can be accepted. Domfeh High interest rates on loans often discourage people to access credit from other microfinance institutions. What is the comparative advantage for members of a credit union? Darko Banks are always there as a profit making institution, and the credit union is there to develop a human being. So we may be doing similar things but our objectives may not be the same. And when banks were charging even 54% interest rate in Ghana, credit unions were still charging 19.5% interest rate. Our objective is not to allow the credit union to die but to charge an interest rate that will make the credit union to sustain itself, that is one, and also to build up its reserve, that is set part of the profit aside for cushioning the capital, and then exist as an ongoing concern. But the motive itself is not profit making, the motive is to help the poor in a particular area, to alleviate or get themselves out of poverty. Domfeh Can I safely say that the survival of the credit union is dependent on the credibility of the individual members? Darko Yes, people are required to be sincere, and also they should be committed to the development of mankind. But in a credit union, those who are sincere, those who are godly, those who want to contribute towards humanity, they look at what a person is going to use the money for. And I can say in summary that they help bury the dead, educate the uneducated, house the homeless and also visit the sick. So if you are not sincere and you are not committed and you don?t have love for people and you are somehow arrogant, egoistic and you are selfish, you cannot manage or become a goodly guy in a credit union. End of track.