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Association for Rural Cooperation And Development (ARCAD-Pak) Abbottabad - Pakistan
ARCAD-Pak Community Saving Bank (CSB)
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ARCAD-Pak Community Saving Bank (CSB)

ARCAD-Pak Community Saving Bank
Welcome you


We believe in investment, not in charity!

Nearby 50 million of the about 150 million Pakistanis are officially estimated to be living on less than a 1 dollar per day. More than 70 percent of the poorest live in rural areas. As it is truth that poverty is not just lack of money, but also lack of opportunities, so the provide poor masses opportunities and to support them in uplifting of their living standard and make them active part of society, it has necessitated the formation of a new entity, the ARCAD-Pak, which was registered with the Department of Social Welfare Government of NWFP in October 1992 as a private non-profit organization. Today the Association has a membership of more than 200 individuals representing the community member from Hazara Division. An elected board of 12 prominent Volunteer professionals directs the ARCAD-Pak. These members contribute an amount of Rs. 50 on monthly basis in ARCAD-Paks Account. Later on this amount transferred to CSBs Accounts for loan disbursement.
The Association for Rural Cooperation and Development (ARCAD-Pak) began its banking activities in 1998 as the Community Saving Bank for rural down-trodden communities under the auspices of a group of volunteer professionals, who devoted themselves to upgrade the living standard of their fellow beings. Its objectives were to provide support to the rural communities to generate their own source of living and support private sector, promote the interests of the small business, consolidate business and social ties amongst them, and represent the sector to the government. This concept soon developed to include community service work, as members became involved in building and improving hospitals, schools, and institutions for the elderly.
Initially this programme has been started at village level with the participation of 20-40 women depositing Rs. 50 monthly. Beside their own contribution ARCAD-Pak provided them 100 % loan to continue their saving. After two-year experience ARCAD-Paks Community Saving Bank was born.

Mission:

ARCAD-Paks mission is to support the economic and human transformation of families trapped in poverty through the creation of Community Saving Bank (CSB). These are peer groups of 30 to 50 members-predominately women and youth who receive three critical services:

1. working capital loans to finance self-employment
activities,
2. an effective mechanism for promoting family
savings; and
3. a community-based system which provides mutual
support and encourages self-worth.


What is micro-credit?

Developed over the last three years, micro-credit is one of the most effective tools we have to fight poverty. It's not charity, but investment, and to understand it we need to look at poverty in the world today.

More than one out of five people in the world 1.3 billion people struggle to live on less than $1 a day. They are trapped in poverty so severe they cannot adequately feed, clothe, or shelter themselves or their families. More than half the global population 3.2 billion survive on less than $400 a year per capita.

Steady jobs and income elude the very poor. To get by, many people create and run their own tiny businesses "micro-enterprises" in the unregulated, "informal" sector. They might sell produce at the market, or shine shoes, sewing clothe, weave mats, or knitting/embroidery etc. Micro-enterprises may be small, but their cumulative impact is huge: depending on the area, micro-enterprises employ an estimated 30-80 percent of the working population.

Micro-credit also called "micro-finance" and "micro-lending" means providing small working capital loans to the self-employed poor. Even small amounts of capital typically Rs.5,000 to Rs.10,000 can make the difference between absolute poverty and a thriving little business generating enough income to feed the family, send kids to school, and build decent housing.

What good can Rs. 5,000 or Rs.10,000 do?

To the poorest micro-entrepreneurs in the rural areas, Rs.5000 or 10,000 is a fortune. They can invest that money to make their labors far more productive: they might buy a used sewing machine so that they can make dresses faster than by hand-stitching. They might invest in a used refrigerator to keep the produce they sell from going bad overnight. They might buy thread for weaving in bulk, at wholesale prices, so they make more on every item.


What is a Community Saving Bank?

A Community Saving Bank consists of 30 to 50 neighbors-usually women-who come together to guarantee one another's loans, to administer group lending and saving activities, and to provide mutual support. The amount being collected by communities groups is also considered a part of CSB and 100% loan (@ 3.5% interest) is given on that collection to a person recommended by that community group. Beside, women loan is offered to youth who want to establish small business (small & medium enterprises (SMEs) in their areas. By offering credit, not charity, to these mothers and youth, ARCAD-Pak enables them to start or improve their own small businesses, which provide a steady source of employment and income for themselves and their families. Community Saving Banking activities has to provide thousands of deprived women and youth with the means to improve their families' income, their children's health and nutrition, and theirownself-esteem.

Goals & Objectives:

Goals: To develop and promote existing small and micro enterprises, to raise the income of women and youth, to help the transformation of SMEs from informal to formal, and contribute to solving the problems of unemployment.

o to provide credit, training and technical assistance to
SMEs in ARCAD-PAk and other potential Districts of NWFP
o to provide short-term loans for working capital
initially and later move to longer term fixed asset
lending
o to use local banks for loan disbursement and repayment
o to be managed from a private sector perspective in tune
with the problems faced
o to be business driven and ensure self-sufficiency
o to charge borrowers appropriate commercial interest
rates
o to ensure the size of loan is appropriate for the type
of business and is disbursed at the right time
o to encourage the strongest enterprises graduate to the
formal banking sector


Productivity and Efficiency:

ARCAD-Paks extension professionals are key to the methodology and success. They are responsible for conducting outreach and identifying groups and SMEs that would benefit from the services of the project. They evaluate each enterprise potential for growth, assess its financial and business needs, and determine the appropriate loan size and loan repayment schedule. They then assist with the relevant paperwork, and monitor and collect repayment installments.

The payment of the extension officers represents one of the most innovative aspects of ARCAD-Paks operations: they are volunteer worker and selected from community groups to motivate such groups and to identify right person for assistance. To encourage such volunteers ARCAD-Pak gave them awards and shields and arrange special training session for them, so that they can maintain a superior repayment rate.

The efforts of ARCAD-Pak have translated into the remarkable success of this micro finance operation.

Operational approach

Since lending began in January 1999, ARCAD-Pak has taken a very measured approach in extending its services. All loans are given on an individual basis, without utilizing groups. Most promotion is done by the Extension Officer or by word of mouth from existing clients.

The Extension Officer is the key person in developing new clients. S/he is assigned to a branch office (currently 4). Each branch office has a specific geographic area to cover. The Extension Officer appraises the credit needs and develops the loan application in concert with the potential borrower. Applications duly recommended by the communities groups are then reviewed and approved by the branch loan committee headed by the branch manager. In exceptional cases some applications are referred to ARCAD-Pak control management.

Loan releases are made on scheduled days throughout the months. A schedule is determined at the beginning of the year, showing the dates of loan disbursements. New client loans are disbursed twice monthly, while repeat loans are disbursed four-five times each month.

The operational approach to lending is both innovative and traditional. An approved borrower receives a check in the amount of the loan and signs post-dated checks in the amount of the installments that will come due over the course of the loan. At the respective bank office, the post-dated check is shown as being paid in full. All borrowers who have repaid on time and in full are usually guaranteed subsequent finance and qualify for a larger loan.

For new loans, clients come to the branch office alongwith his community leader to receive their disbursement check and attend a 30-minute briefing/orientation given by the Branch Manager. The Branch Manager explains a detailed purpose of financing and its proper utilization. At the end of this session, disbursement checks are distributed. The briefing session has the following agenda:

Clients introduce themselves and state their enterprise activity.

* Manager explains history and purpose of ARCAD-Pak
CSB.
* Manager emphasizes importance of on time repayment.
* Manager describes non-financial services of
ARCAD-Pak.
* Manager explains the contents of a folder, which is
prepared for each client and includes the loan
check, a record book and a sticker with the
ARCAD-Pak logo.

Financial Performance:

The CSB project would have a markup on its cost of capital to cover its operational costs. The ARCAD-Pak board of Directors did provide operating expenses to the project during its initial operation. After only two years of operation, the credit service generated enough income to cover operating costs including the interest charged on loan capital but excluding depreciation and provision for bad debt. In 2001, the anticipated credit service generated enough income to cover all operating and financial costs. The operating cost ratio of the project is ranked among the best in the field.

For accounting purposes the project writes-off uncollected installments once they reach 12 months beyond their due date. However, this does not mean that collection procedures stop, the legal department continues to collect these funds. Transaction costs are small compared to the overall performance of the project. Loan processing time for new borrowers is two weeks from application. Repeat loans are approved and disbursed within 3 days. The fiscal year end for the SME Project is December 31st. Audited financial statements are produced each year. Unaudited semi-annual financial statements are also produced for the project and for each branch.

What are the principal benefits of participating in a Community Saving Bank?

Community Saving Bank breaks the vicious circle of poverty. Without credit, poor people may work hard but stay poor because of a lack of opportunity and capital. ARCAD-Pak borrowers receive working capital so that their efforts can become more productive. For instance, they can buy rice in bulk at wholesale prices, and resell at retail prices. They can buy a used refrigerator to keep produce fresh; they can purchase a sewing machine instead of stitching by hand. As entrepreneurs become more productive, they increase their income and are able to accumulate savings for other investments and for emergencies.

In every program, ARCAD-PAk borrowers say they spend increased earnings on children first, improving nutrition, health, and educational opportunities. In most cases, borrowers greatly expand even double family food purchases with the first loan.

Having a steady income and a savings account raises a woman's self-esteem and her status, even in a society where women are consistently treated as second-class citizens. A woman in Galiyat told us how the bank had affected her: "My knees are softer," she said. "I used to have to kneel to my husband to beg for money for every little thing. Now I don't have to kneel much, so my knees are softer."

Why does CSB lend primarily to women & youth?

For several reasons, first the feminization of poverty is a worldwide trend. Seventy percent of the world's poor are women, because of factors including limited access to education and productive resources like land and credit. Another worldwide trend is an increase in women-headed households, in which a mother provides the sole support for her children. And youth are also preferred to lend money as they grew up with un-employment they may become victim of negative activities.

Most victims of severe poverty are children. Each year some 14 million children age five or younger die from malnutrition associated with severe poverty. The most direct way to improve child survival and welfare is to give mothers the means to do so. Along with other micro-credit agencies and researchers, we have found that women invest more of their income in their families on food, school, and shelter than men do. So extra cash in the hands of mothers lifts a family out of poverty faster than increased income in the hands of men.

A final reason to concentrate on women is that women tend to repay their loans more reliably than men.

Nonetheless, it is important to note that ARCAD-Pak targets women but does not exclude men. Groups choose their own members, and some groups choose to include men.

How does ARCAD-Pak identify and target the severely poor?

ARCAD-Pak seek out the poorest communities of the rural areas in which we work, and we keep our loan sizes small. Only the very poor are likely to commit to weekly meetings just to be able to get a Rs.5000 loan for four months @ 3.5% interest.


Vision for the future:

In CSBs early stages of development, it has managed to create a very sustainable model for the provision of credit to SMEs, a model that encompasses high levels of poductivity, a strong borrower growth rate, appropriate interest rates enough to enable cost recovery, responsible loan practices, and support for SMEs. During the next phase of ARCAD-Paks growth, it continues to expand its operations in neighboring governorates. Further more, the ARCAD-Pak Board has begun to plan to incorporate a regulated Financial Institution (A Community Saving Bank) to carry out the activities of the SME Project and to mobilize savings and raise deposits to satisfy client needs and to fund its portfolio. This added capability will be beneficial both to the micro business owners, who will save capital that they can reinvest in their businesses, and to the ARCAD-Pak by providing it with additional source of funds that it can then lend to clients ARCAD-Pak is currently undertaking a study to examine the financial feasibility of such a transition and to detail the legislative hurdles that might arise.

One of the challenges of transformation is determining what ARCAD-Pak, as NGO will do after the bank is created and most of the staff and assets are transferred to the new institution.

Until a final decision is reached, ARCAD-Pak continues its expansion in District Abbottabad soon ARCAD-Pak will start operation in another two Districts (Mansehra & Haripur) by increasing its outreach through opening new branch offices, hiring and training more field officers, and considering the approach of new markets and developing new products.

Credit Terms & conditions:

1. Location of Services ARCAD-Pak will extend its services of banking to all rural areas of Districts of Hazara Division (Abbottabad, Haripur, Mansehra and Balakot)
2. Target Group Micro Entrepreneurs: 1-5 Small Entrepreneurs: 6-10
3. Loan Size Micro: Min. Rs, 5,000 Small: Min. Rs. 10,000
4. Criteria for Eligibility Existing enterprises undertaking the following activities: Manufacture, services, retail business or trade.
5. Grace Period No grace period for working capital financing Grace period varies between 1 & 2 months for fixed investment financing only.
6. Mode of Repayment The loan term is from 2 to 12 months for working capital, and up to 24 months for fixed investment financing.
7. Guarantee and Collateral None
8. Interest Rate Market interest rate (flat)
9. Administrative and other costs None
10. Requirements
a. Identity Card
b. Lease or ownership contract for the enterprise
site
c. social security Certificate
d. Work permit, icense (if any)
e. Trade business: commercial register (if any)
f. Tax Card (if any)/NTN
g. Personal Guarantee
h. Recommendation by local NGO/CBOs

For first time Micro borrowers, only the identity card and the lease/ownership contracts are required.

11. Procedures
1. Work on the loan application with the loan
officer. Review of application by branch management. For large loans, where the size significantly exceeds the norm, review by senior management is required.
2. Upon approval, new borrowers meet on specific dates, scheduled throughout the month, to receive their loans and attend a brief session with other borrowers3. The borrower receives a check in the amount of the laon, and signs post-dated checks in the amount of the installments. Borrowers applying for the first time receive their loan within 15 days, while repeat loans are disbursed within three days.

12. Delivery offices in addition to the head office, clients are served through four branch offices. The Community Saving Bank project (CSB) extends its credit through the branches of 2 banks viz. NBP and MCB Mansehra Road, Abbottabad.

Let us join to improve the
living standards of oppressed people ....

ARCAD-Pak with innovation and motivation

What is a Community Saving Bank?

A Community Saving Bank consists of 30 to 50 neighbors-usually women-who come together to guarantee one another's loans, to administer group lending and saving activities, and to provide mutual support. The amount being collected by communities groups is also considered a part of CSB and 100% loan (@ 3.5% interest) is given on that collection to a person recommended by that community group. Beside, women loan is offered to youth who want to establish small business (small & medium enterprises (SMEs) in their areas. By offering credit, not charity, to these mothers and youth, ARCAD-Pak enables them to start or improve their own small businesses, which provide a steady source of employment and income for themselves and their families. Community Saving Banking activities has to provide thousands of deprived women and youth with the means to improve their families' income, their children's health and nutrition, and theirownself-esteem.

We invite your to visit Malikpur Valley....