Image courtesy World Bank
Most those who have been resettled or re-located in the Wanni District of Sri Lanka after the war have found that they have to start life from scratch. The re-settlement allowance of Rs.25,000 paid to each of these families was found to be hardly enough to do anything meaningful to make a start. Most of the infrastructure which had helped them to sustain themselves in their villages before the war, has been destroyed. Roads, buildings, water tanks, canals and channels leading water to their cultivations in their respective villages are in a state of disrepair. Consequently re-starting life has been a challenging task for these families. Many of them have lost their male members either during the war. Some have been taken into custody or have disappeared thereafter. The surviving women have to fend for themselves, their children and often their aged parents as well. They neither have resources, skills nor the cash needed for them to start on some venture or the other to make a living. In their effort to help these unfortunate persons, the government, the non-government and the UN agencies have been encouraging these people, especially the women, to form groups or join the rural development societies or such other societies in their respective areas. Many have been given outright grants to help them to make a start. Even those in the Tamil diaspora have been providing varying amounts of cash to many of these persons for the same reason. However, no proper evaluation has been done to see how many have actually benefitted from these outright grants that they have received. The only thing that is visible is that most of them are still waiting for more and more such grants to help them to make a living.
It is in this context the one has to consider the other option available to provide assistance to these persons. Assistance through revolving funds is one such option. In accounting terms a revolving fund is capital raised with a certain purpose which can be made available to the same beneficiaries more than once, for the same or a different purpose. The capital circulates from the revolving fund to the beneficiary as the latter continues to borrow and payback to the fund. . An additional sum can be charged to the borrower to act as a fee for providing the service. The question then arises as to who should maintain such a fund and let those concerned benefit from it. This is where co-operative societies in the re-settled come into play.
It is known that there existed a large number of co-operative societies in the North and East prior to the escalation of the conflict. The most widespread among such societies were the Thrift and Credit Co-operative Societies with a large percentage of women as their members. These societies had been their traditional grass-root level financial institution which were not only providing micro-credit to its members in need but also promoting thrift and savings habits among them. The writer was the Assistant Commissioner of Co-operative Development in the Mannar and Jaffna Districts during the 1980s and later in the other districts, is well aware of the role played by these societies in the community development activities of these districts. Such co-operative societies functioned according to democratic principles with their members participating directly in the activities of these societies. Besides, the Department of Co-operative Development played a key role in educating the members of these societies on how to run these societies efficiently and effectively manage their funds. With the displacement following the war many of these societies were in disarray. A large number of them have now been re-activated with the re-settlement of the displaced. The District Unions of these societies in the Vavuniya, Kilinochchi, Mullaitivu and Mannar Districts are very active in promoting, organising and re-activating dormant societies in their respective Districts. Consequently it has been found that there are 259 active Thrift and Credit Co-operative Societies in these four Districts out of a total of 528 that existed prior to the war. It is understood that steps are being taken to re-activate the remaining societies.
Many of those affected by the war who are members of these Thrift and Credit Co-operative Societies are now benefiting from loans obtained by their District Unions from the local Banks. However, since the banks have given loans to the District Union at a high rate of interest, the beneficiaries have the burden of paying the loan instalment as well as the interest payable to the Bank. This problem does not arise when donations are given to the District Unions of these Societies by well-wishers or funding agencies. Such funds are being used by these societies to give soft loans with a low rate of interest which the members of the society themselves decide on. Such donations from well-wishers and funding agencies form the revolving fund of these societies. In any event if the donor or well-wisher desires that the loans to beneficiaries should be given interest free, they could consider giving an additional sum of money to enable the society to meet the running cost of the revolving fund.
Usually a society which establishes such a revolving fund would be having a large number of aspirants waiting to benefit from that fund. But due to limitations in the amount available in the revolving fund, all those wanting loans cannot be provided assistance from the fund at the same time. Besides for the sum provided as assistance, say for example to start a self- employment project, needs to be adequate to start a venture. The amount may be as much as Rs.50,000 to 100,000 and the capital available may not be adequate to pay all its members who may require such an amount. So the society usually prioritizes the applications on the basis of the need of the person and the viability of the venture concerned, and pays whatever amount is possible to a limited number of persons as a loan, to start with. The repayment in agreed installments would commence once the venture begins yielding results. Since the guarantors of the loan are other members of the society itself, default of the loan repayments are very low. Once the repayment of the loan installments start coming in, the amount so collected would be paid to the others in the society waiting for such loans. Past experience in running such revolving funds have been analyzed by the Department of Co-operative Development and found that this system enables optimum use of available funds of a society. This Department is obliged by law to supervise and assist in the financial management of these societies through their co-operative inspectors who are trained in that field. Often they have look at the risk factors and have recommended appropriate measures to minimize default. Besides, the members of the societies themselves are usually keen to make sure that loans are not provided to projects that are not feasible, thus reducing the risk of failure of the venture concerned. When the fund is properly maintained, a member would be able to obtain loans again and again from the society for other purposes, if the capital is preserved by a proper management of the funds. This is where the role of the Co-operative Department of the area comes to play. Since each society is anxious to perform well to draw donor funds, they are keen to learn from those with experience and from the training provided by the Co-operative Department in the management of the funds of the society. Providing training to members of co-operative societies is one of the functions of this Department. There are Co-operative Training Schools in many Districts. Eventually these thrift and credit co-operative societies become a kind of a mini bank in their midst from which its members could not only get loans but also deposit savings that they may have. In fact every member of such a co-operative society has an obligation to save at least a small amount each month. Some societies have rules that promote more savings, as for example, loans for incidental expenses such as to meet the cost of a delivery of a baby in the family, or to meet the funeral expenses of a family member are usually given in proportion to the savings the member has in the society. In this way, from small beginnings, communities are empowered to decide how best to plan their own pathways out of poverty with locally relevant solutions. Thus it could be seen that a revolving fund could play a significant role in the development of the communities that are now living in the re-settled areas. Donors who wish to help them could provide funds for income generation activities to the war victims through Thrift and Credit Co-operative Societies and make it possible for the sums they donate benefit the community as a whole instead of one individual.
To allay any fear donors may entertain about revolving funds crashing or not giving the expected results some of these matters should be taken note of to minimize the risk of the revolving fund collapsing.
- Revolving Fund creates a financial relationship with the donor and the users of the fund through a memorandum of understanding (MOU) which could be signed with the District Union concerned. This could lay down obligations on the Society concerned to make payments or repayments and to submit reports periodically. This makes it necessary for the society to keep separate financial records on the Revolving Fund at all times. Without such an MOU there is a risk of the revolving fund not achieving its objective.
- A revolving fund would fail if such a fund is created by a society that does not have members who are actively interested in the functioning of their society. Unless the members are vigilant, the fund runs the risk of being mismanaged. The members should care for the revolving fund of the society as their own fund and ensure its proper use.
- The Co-operative Department should be involved in guiding the society in ensuring that loans are provided for feasible ventures and the recovery system is secured with proper guarantors from among the members themselves. Usually when a default in the repayment of the loan takes place, the guarantors lose their rights to benefit from the society. This ensures the guarantors’ active involvement in making the beneficiary repay the loan as agreed. When the default is due to genuine and unavoidable reasons, the members of the society need to act as a group and make an effort to give a helping hand to the defaulter to pay his loan installment. A group of members taking such a responsibility touches on the fundamental principle of the co-operative system that every member should make an attempt to help a member in difficult circumstances.
- It should be obligatory for the society to have regular meetings at which a financial statement of the society should be submitted for perusal of the members. The Co-operative Inspector’s assistance should be sought to help the societies to maintain proper books of accounts which make it possible for accurate monthly statement of accounts to be prepared. If necessary a donor could stipulate a condition that copies of the monthly statement relating to the revolving fund should be made available to him. That would enable him to keep pace with the financial activities of the Society and warn him in time when the fund is going to be at risk.
- There are times when ventures for which loans are provided from the revolving fund fails due to natural disasters such as floods. The society should, where possible, insure its beneficiaries against such eventualities. In the absence of such an insurance scheme, the revolving fund runs the risk of being dissolved by natural causes. Various types of crop insurance schemes now available with some of the Insurance companies in Sri Lanka could be availed of by these societies.
- When a society has a revolving fund of a large amount of money, the members themselves may not be able to perform the accounting functions of the society. It would be desirable in such instances for the society to employ a competent person or persons not only to maintain its books of accounts but also to ensure the due collection of recoveries and make field inspections of the ventures for which loans have been obtained.
- While accepting the fact that a co-operative society should not provide loans to its members from its revolving fund like a commercial bank and act like a money lender and charge unconscionable interest on the loans, the interest levied on loans should be meaningful enough to enable the society to meet the administrative costs involved in maintaining such a fund. If not, the revolving fund runs the risk of being diminished due to administrative expenses being charged to that account.
It may be asked why only a revolving fund run by a co-operative society is being promoted to the exclusion of other institutions in their midst. There are rural development societies or other such societies or groups organized by the State and/or by NGOs working with those who have been re-settled. But none of these have a tradition of having been a community development organization which is equipped to deal with funds in as a co-operative institution. Basically a co-operative thrift and credit society is a grass root level democratic institution which is a legal body registered by the Department of Co-operative Development which is obliged to train members of societies in managing their institution and following accounting procedures. This department has a contingent of co-operative inspectors who have had training in community development and accounting procedures. It is their duty to ensure the societies in the respective districts maintain their books of accounts in a manner that would facilitate the obligatory auditing the Department does annually. To cap it all, whatever funds the societies have remains the capital of the society which the members own jointly. They have the option of changing those at the managerial level of their societies at the elections that are conducted regularly under the supervision of the Department. Besides, these societies are legally allowed to accept donations to the society by well-wishers. Members of the society who have excess cash could even deposit such cash to the account of the society as their savings and allow the society to use such cash to help other members by way of providing loans to them. No other society found among the rural communities have all these advantages.
In the circumstances, it would be best if donors or persons who wish to help those resettled in the Wanni or elsewhere could use the co-operative thrift and credit societies in the Districts through their District Unions which are equipped to effectively handle large amounts of case and provide assistance to its member societies through revolving funds. That would enable whatever funds provided to continue to be available to its members over and over again for use in the development of the community.