The final phase of the Savings Box program is the development of a perpetual collateral pool for the community. The assets in the Savings Box are leveraged in combination with traditional banking loans to create access to larger funding options for businesses in the community. This provides the highest return on capital investment and signals true potential for poverty alleviation on a large scale in the community.
CHOICE’s 12 years of experience with this program in Nepal has shown the following benefits from this village-based cooperative:
- It ensures the community controls who receives a loan (local ownership of economic development).
- Local ownership increases likelihood of repayment compared to traditional loan providers.
- Over time, the amount of villagers’ collective savings increases, providing collateral previously unavailable to poor farmers. This allows access to traditional bank loans for successful entrepreneurs, dramatically expanding the funds available to grow and develop small- and medium-sized enterprises in the community.
Among banks, and even micro-loan facilitators in the communities CHOICE works with, up to 80% of the loans provided go to the near and moderately poor. Most forms of direct impact investing only provide resources to those in the higher tiers of poverty. Because of this, those living in extreme poverty are unable to access capital needed to pull themselves out of poverty. CHOICE’s Savings Box program and other development models guarantee that at least 20% of all capital provided through CHOICE’s work goes to those living in extreme poverty. This “bottom-up” approach to community development has been used successfully to foster economic empowerment in communities at all levels of economic status.
As the collective collateral develops in a community, the rate of loan applications and size of loans grow organically over time. This combined effort from businesses in the community to develop the fund is the true form of collective collateral. Combinations of microcredit, formal loans, and the community Savings Box are utilized to create sustainable economic growth through local entrepreneurs. With the collective collateral and Savings Box Program, all borrowers pay a reasonable level of interest based on their economic situation. Due to the structure of these loans the charged rates are significantly lower than traditional money lenders, and as the fund is owned and managed locally repayment is much more likely. With the support and initial guidance of CHOICE Humanitarian, communities own their own financial tools and manage their own investments to create the economic success of their community.