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by Phil Bartle, PhD

Reference Document


The basis of this scheme lies in the existence and long tradition of credit rotation groups, where small groups of persons contribute small amounts of money on a regular basis and allocate the resulting collected amount to a selected member each time.

Instead of being distributed each month to a participant, in this scheme the collected money is integrated with commercial banking through a pyramid of small trust groups and an umbrella group. The mobilizer consults with women's groups, provides financial and management training to umbrella groups of recipients, who in turn form trust groups. Each member of a trust group works as an individual (or with family members) to produce some product for sale, or similar income generating activity, rather than as a member of a co-operative. As each member contributes small amounts of money each period, the trust group forwards the collected money to an umbrella group.

That money is then deposited in a nearby participating commercial bank. The bank, after signing a Memorandum of Understanding with the ministry or agency, has some money deposited in it to use as capital.

The groups are required to obtain loans through the regular bank channels and procedures (after encouragement, mobilization and training from the mobilizer), and the bank uses the capital deposited by the ministry or agency to make loans to the umbrella group. When an umbrella group demonstrates its credit worthiness to the bank, then it can get access to normal capital from the same bank (ie not from the original agency or ministry deposit ), thus Sustainability, and freeing up the agency or ministry capital for use by further target groups.

Many thanks to Victoria Abankwa, National Coordinator, and Adolphine Asimah, National Director, of the Ghana Strengthening Community Management Programme (SCMP), who made this system work, who adapted it to existing principles and practices, and who invited me to Ghana, January, 1996, to see it work. Phil Bartle. See Ghana Scheme.

This scheme is designed to be implemented by a development oriented NGO, or the relevant ministry. Thus "agency or ministry" is mentioned throughout. If an international NGO adopts this methodology, then its role is identified by "agency or ministry." Any NGO is encouraged to integrate its developmental work with the relevant ministry and the district Governments.

Income Generation:

We were faced with a challenge: develop a viable scheme for income generation and add it to the ongoing strengthening of low income community groups. The scheme had to be within the following limits:

It must be sustainable (ie continue after agency or Ministry external funding ends ); Income must be generated by some productive activity of the recipients, not consist only of the money handed out by the agency or ministry; The income generated must directly benefit low-income participants; it must be consistent with principles and methods of the agency or ministry (ie designed to strengthen low income communities ); The scheme must avoid charity (which weakens) and must be designed to strengthen; The training must be for strengthening and mobilizing, and be linked to action; it must be chosen by the target community.

We were faced with several choices: Should the financial support be in the form of credit or grant? Is the generation of income (productive activity) to be by a group (eg as a co-operative) or individual? Is the loaning activity to be undertaken by: (a) the Ministry, (b) the project, (c) a bank, (d) another scheme or project (eg Ntandikwa in Uganda )? Who is to administer the scheme (training; financial support)? . What is the "training as mobilization" role of the agency or Ministry? What are the limits to each loan (to group, subgroup, individual)?

What we devised is described here.

The scheme is a viable method of poverty reduction by income generation. The mobilizer provides awareness raising, mobilization, financial advice, organizational and management training, encouragement, skills, and (indirectly) the initial capital for the IG activities selected by the participants.

The loans are modest and within the capacities of the participants to repay when they obtain income from their activities.

The regular deposit of money is based on traditional and well known practices of credit rotation groups.

The groups are small enough, and the members are put into a context in which they will put social sanctions on defaulters, so that they remain sustainable.

Who Can Use this Method?

This scheme can be adapted and adopted by any agency.

Why Credit Instead of Grants:

A debate has continued about the dilemma of offering credit versus grants to small groups of women for use as capital in generating income for themselves. See Grants.

The offering of credit is recommended, because it is expected to make the recipients more accountable and responsible with its use, because they will be required to pay back the loan. This is sustainable development, not charity.

Offering credit, however, requires administrative and management capacity the ministry does not have. While giving small grants to women's groups may be easier to administer by agency or ministry, it is not advised, because it is not a sustainable approach, and does not require the recipient groups to be as accountable for their use of the funds.

There have been uncountable horror stories of various credit schemes, in many countries, where the moneys have been diverted, not used for their original objectives, and not paid back as promised, not to mention many other problems that have arisen in this sector.

We are committed to sustainability and to community strengthening as a method of poverty reduction; therefore promote income generation in the manner described here.

A Sketch of the Scheme:

This section describes the overall operation, the essential elements and a few details about some of the key parts. They are all needed. Together they constitute a working system; if any of the essential parts are missing or seriously modified, then the whole will be affected, and success not guaranteed.

The essential elements include the following:

Banks do not like to give out loans of small amounts, so the system should be set up so that the bank issues large amounts of money, such as 15,000,000/= (US$ 15,000) to 50,000,000/= ($50,000).

Initial loans for productive activities should be in the range of 100,000/= ($100) to 500,000/= ($500) per individual in production;

A pyramid, with trust groups of 5 to 7 individuals at the bottom, and of 5 to 7 groups in an umbrella group, has a function of taking large loans of the bank and breaking them for distribution as loans to smaller groups or individuals;

Small groups of 5 to 7 of individuals at the bottom, trust groups, formed of individuals who identified each other as individuals who could be trusted with their money;

The traditional credit rotation system is used as a basis concept, where members regularly contribute a very small amount, but that is used as bank collateral instead of being distributed to one member;

The group should act as a credit distribution agency, not as a productive organization (as in a co-op).

The productive activity is more effective at the individual level (soap making, petty trade etc.), which gets its small amount of credit from the group. (When any productive group is larger, as in a co-op, it is harder to manage or control, so it is less likely to be able to make a profit, avoid diversion, and pay back its loan );

Training, mobilization, supervision and meetings, by CDOs, agency district coordinators, and CDAs are all necessary, especially in challenging the participants to choose and plan activities that are viable and not unrealistic wishful thinking.

Who Does the Banking?

After the ministry or agency signs a Memorandum of Understanding (MOU) with the participating bank, it deposits an amount into that participating bank, trains participants, then introduces them to the bank. The agency or ministry acts a broker, trainer, mobilizer and organizer (not as a banker and not as Father Christmas).

The ministry or the agency should not be engaged in banking; it is not our business; it is the business of a bank. Putting control over money in the hands of mobilizers weakens their effectiveness as mobilizers, sets up conflicts of interest, invites corruption and inefficiency, and diverts mobilizers from their responsibilities.

The Role of Commercial Banks:

Because the ministry or agency do not have the mandate, capacity, or means to operate as a bank, the loaning of credit to these groups is done through participating local commercial banks, credit unions, or governmental banks. A Memorandum of Understanding (MOU) between the ministry and the banks provides the legal instrument for channelling agency or ministry funds to be used as capital for the scheme.

Instead of agency or ministry putting its money (from its IG budget) directly into the hands of the target groups, it deposits it into participating banks (eg the Agricultural Development Bank) operating near the target groups. The agency or ministry offers training in management and finance to the participants. It then introduces the groups to the participating banks. Many or even most of the participants have never been near or inside any bank, and originally feel very distant from such sophisticated institutions.

After training, which provides encouragement, skills, organization and confidence, the groups are then introduced to the banks, which require them to follow standard procedures of making deposits and obtaining loans. The banks are willing to participate at first because the original capital that they loan to the groups is that which is deposited with them by the agency or Ministry. If the group is successful in generating income, repaying its loan, and obtaining credit worthiness, then the group is able to obtain credit from the standard capital within the bank. The capital originally deposited by agency or ministry, then, is freed up for use by other target groups. The process of expanding to new groups is thus made sustainable.

Banks usually do not want to give small loans to individuals or small groups of people who need a little capital. (They can earn more interest with much less risk by buying Governmental bonds). The bank deals with the umbrella group, and makes a larger loan to it rather than to the smaller groups or individuals needing small loans. By setting up small trust groups that in turn form larger umbrella groups, and training them to carry out their own internal banking procedures (each participant having her own passbook, printed by agency or Ministry), this agency or ministry scheme thus forms larger groups needing and qualifying for larger loans.

Amounts of the Loans and Interest:

The sizes of the loans, and the rates of interest paid on them, are important variables that must be analysed very carefully to predict the effect they have on strengthening the target groups. They should be determined by professional community development, psychological, economic and sociological principles, not by political considerations or popularity.

The Sizes of the Loans:

The size of each loan coming from the bank is much greater than the size of each loan going to each participating individual. One purpose of the organizing into a pyramid of umbrella group and several trust groups, is to bulk break each loan.

The desires of the participants to obtain assistance in income generation are expressed in animation and mobilization meetings, where community groups identify their priority concerns. Consultations with groups in the target communities indicate a general desire for assistance in income generation.

At first, requests will likely be highly unrealistic; some individuals may ask for millions of shillings and have no skills or clear idea about business operations, loans, credit or investment. Some assume that the money coming from agency or Ministry is the "income generated," and they need to be told that such money can be used, but only as a "rented" resource (not a gift) so that they themselves can generate the income. During awareness raising activities in meetings with agency or ministry, the participants are challenged to justify their plans and the amounts requested. The aim is to move their desires towards more realistic requests.

Mobilizers and trainers explain that the money loaned to them is not the income itself, but a rented resource to assist the participants to generate their own income. The interest they pay is in payment for the temporary use ("rent") of that resource. Participants are taught that interest is like a rent for the use of money, a resource that is not owned by themselves, nor given to them as charity.

The Size of the Interest:

The interest paid for the use of the credit as a resource, is at available (eg commercial) rates. The participants obtain the privilege of obtaining credit, and pay available rates of interest as a cost (like rent) of using that credit.

When the scheme was devised, some people asked why these women (many of whom are poor and/or illiterate) would have to make the same sacrifices, go through the same procedures, and pay the same level of interest on those loans, as do commercial applicants. The answer is related to the need for sustainability in generating income, and that charity weakens the recipient. This scheme empowers the participants.

If the scheme were to charge subsidized rates of interest from the beginning, the participants would be trained in receiving charity, and not be trained to obtain credit at available rates (after the donor money is no longer available). That weakens, not strengthens, them.

It can be pointed out that individual commercial loan sharks demand up to 350 per cent per annum of the loan back in interest, and that bank loans are considerably cheaper (but not free). After the principles of community strengthening are examined, knowing that agency or ministry training has a long term aim of sustainable development, the charging of commercial rates of interest makes sense.

The Required Training:

The empowerment methodology defines the concept "training" in a special way. More than just as the transfer of skills, training is also part of a strategy of strengthening the management capacities of community groups. We talk about training "as" mobilization, not merely training "about" mobilization.

We see the training in skills needed to mobilize communities to choose their own actions, identify their priority problems, resources, and plan and implement their own activities, as "content," of the training, but we see the facilitation approach to training as also a vehicle for mobilizing the trainees to reorganize and to take action. This methodology is explained more in the mobilizing module, which is related to the construction and maintenance of human settlements facilities and services. The basic training principles, however, apply as well to these income generation elements of the agency or ministry. See Mobilizing.

Where training is focussed on content (skill transfer), it is assessed in terms of how well the trainees learn skills and information. Where training is focussed on mobilization, in contrast, it is assessed on how well it results in community action and increased community-level decision-making.

The agency or ministry provides training in several ways. Meetings and workshops provide the financial and management training for organizing the trust groups and the umbrella groups, for setting up the collection and depositing procedures and routines. The agency or ministry designs and prints the pay books (similar in design to savings account books used by many banks) as training material,and distributes them free to participating women when the groups are formed and mobilized.

The groups are taken on one-day field visits to other groups of women engaged in a similar scheme. This gives confidence and a working example for members of the groups participating in the scheme. Even if another scheme is not exactly the same, the opportunity to see how others conduct their income generation demonstrates the value of such field visits as an additional management training method.

Our training includes at least three elements:
  1. training in techniques of management of the production enterprises to be conducted by those we want to help;
  2. training in finance, banking and credit procedures necessary for the distribution of credit to those who want to use it to invest in productive enterprises; and
  3. management training in the special sense that we use it, ie mobilizing and organizing to develop organizational capacity (in this case to form and organize a credit association).


Subsequent to the informal training and participatory appraisal, and based on that training, feedback and assessment, more structured workshops can be held.

The topics include management skills, organizational and mobilization skills, credit mobilization, banking skills, financial skills, simple accounting, financial recording and reporting, assessment of inventories and resources available, assessment of management and organizational skills, assessment of market availability for product sales.

Emphasis should be on encouraging participants to observe and analyse their own resources and potential, and what practical strategies are available.

Participants from all communities attend these workshops, so that participants are encouraged by sharing experiences with those in other areas undertaking similar endeavours.

Organizing the Pyramid:

The role of the agency or ministry, in its mobilizing and organizing, is to form a pyramid, with an umbrella group at the top, trust groups under that, and individual entrepreneurs at the bottom.

Each element has a role in the scheme, and skill training must be added to the mobilizing so that each level will function. See, Organizing.

Individual and Group Responsibilities:

Experience (especially with co-operatives) has shown that when a large group has a collective responsibility to achieve a productive output, there are not enough social and economic controls to ensure full contribution of every member; such schemes invite failure and dissolution.

In contrast, it is also well known that when individuals pursue some activities, they are less effective and productive than if they can do so collectively and in an organized manner. This scheme capitalizes on these two contradictory forces.

Through standard social animation methods used by agency or ministry mobilizers, in each target community, groups of women are called to initial meetings, and formed into trust groups. Each person is asked to identify four to six others that she trusted and felt she could work with. Small groups were then formed of those women who trusted each other, this identification process taking several days. Persons who want to participate, but do not have others willing to identify them as trustworthy, are excluded.

Individual members are not to engage in communal or co-operative productive activities as a group, but were to pursue their income generation activity (eg the production and sale of soap) as individuals. Perhaps marketing, packaging and transport activities can be done in co-operation with other members of the group. Trust groups are formed primarily on the basis of collecting contributions and obtaining credit, but not in order to collectively engage in economic production.

Each trust group is composed of five or seven persons (an odd number chosen for cultural reasons). In turn, five or seven trust groups form an "umbrella group" which is the unit for making deposits in the bank and obtaining loans from the bank.

The Traditional Credit Rotation Groups:

In many countries in Africa and Asia, small groups of people known to each other, members of the same village or working mates, form small credit rotation groups.

Every routine period, perhaps weekly, usually every month, every member of the group puts in (contributes) a small, easily collected, amount of money. When the money is collected, it is given to one member of the credit rotation group in turn. This person could be chosen by lot, or when there is a death of a relative, and often is used for funeral expenses. (Often the members also all attend a funeral of a relative of one of its members).

When the money is distributed by lot, the recipient could use the money in some form of investment, where s/he would not save such an amount if s/he did not have the support of the group. Those who can afford to do so, put in multiples of the amounts put in by those who can put in only the minimum.

Some of these credit rotation clubs may be funeral groups, where the collected capital is given to the member who is most in need of paying funeral expenses. In other clubs, the money raised may be distributed according to communal decisions made each month by the members as a group, who determine which member shall get it each time. Others distribute the total on a random basis by pulling straws. Over a period, every member gets a turn to obtain the full amount put in by all members.

The groups are small, and are viable only because the members know and trust each other, and can use sanctions against offending members, based on well known social control dynamics of small groups.

The modification to the practices of these groups is that in this scheme the amount collected in each period is not simply distributed to a chosen member of the group; it is put into a bank account. These bank deposits are used for obtaining a loan. Later the deposits are also used for repayment of the loans.

The small groups, called trust groups, which collect the money from the individual participants, must therefore operate on trust. The association of small groups into an umbrella group is the larger organization that deals with the commercial bank.

Monitoring and Assessment:

There are several levels of monitoring and assessment. From the national level and the overall country programme, it is necessary to see how well the overall scheme is operating, and to give direction and encouragement to the field officers.

From the point of view of the community groups, it is important to ensure that the activities are what they have chosen, and produce the results that they desire. See the module on Monitoring. In between, the district coordinators need encouragement of their own activities, and feedback from the national office, as well as providing the same to the community groups.

Monitoring and Backstopping:

The district coordinator meets members of the micro enterprises women's group often, giving them encouragement and praise. S/he meets them all once a week for a two hour meeting. There s/he receives reports about their activities, amounts deposited and accumulated, how the production activities are faring, and how the scheme is progressing so far.

Training sessions, both formal and informal, have included topics such as financial planning, accounting, keeping records, making reports, and assessing viability of proposed productive activities.

The national coordinator makes frequent visits to all communities to monitor and encourage, as a backstopping support to the district coordinators, and to supplement their encouragement to the community groups.

Roles of the Key Actors:

Individual Target Participant
This person is the low income target of agency or Ministry's IG mobilizing efforts. She has her awareness raised of how the scheme works. She joins a trust group. She learns savings and banking procedures from agency or Ministry training. She deposits small amounts of money on a regular basis (eg weekly) with the trust group. She keeps a pass book to record the amounts deposited. She obtains a loan of between 50,000/= and 500,000/= from the trust group. She is trained by the agency or Ministry in ensuring that productive activity is viable, and planning, financing, and management skills. She engages in productive activity using that small amount of borrowed capital. She pays back the capital and interest to the trust group on a regular (eg weekly) basis, as she did the initial deposits.
Trust Group
This group is composed of from five to seven individuals formed on the basis of willingness to trust each other. It is mobilized and organized by district coordinators (ie by social animation efforts). The group collects regular savings deposits from members, based on practice of traditional credit rotation groups, and deposits them with the umbrella group. The trust group breaks loans (that the umbrella group obtains from the bank) into amounts to loan out to each member.
Umbrella Group
This group is also mobilized and organized by agency or Ministry district coordinators. It is composed of from five to seven trust groups that are formed into an umbrella organization. It collects contributions from the trust groups and joins the money together. The umbrella group deposits regular payments into the bank, obtains a large loan from the bank, and breaks it into smaller amounts for redistribution to the trust groups. The umbrella group then accepts the repayments from the trust groups, and combines them for repayment to the bank.
The bank receives initial working capital from the agency or Ministry, reducing its initial risk, not using its own capital. Based on a Memorandum of Understanding, it accepts regular savings deposits from the umbrella group (identified to it by the agency or Ministry ), and opens up a savings account and a loan account for the umbrella group as a whole. The bank makes a loan to the umbrella group on recommendation from the agency or Ministry, initially using the capital deposited by agency or Ministry. The bank collects repayments of the loan from the umbrella group.
Agency or Ministry
Provides initial loan capital to participating bank. Provides training in handling credit, financing and managing productive activities to participants. Prints and distributes passbooks to participants. Identifies umbrella group to bank, and indicates when the group is capable of borrowing money, and its amount. The Ministry implements through the districts.
The Minister, on behalf of the Ministry, signs an MOU with each bank. Where the scheme is being implemented by an international NGO, this function can be carried out by the country representative of the NGO, or a VIP from headquarters.
Local Councils (levels 1-5) and their civil servants must understand and approve the scheme for it to work.

Conclusions and Recommendations:


The agency or ministry's support to income generation should be in three parts:
  1. mobilizing/organizing;
  2. training: and
  3. credit.
These three elements must be linked and integrated, and training must be aimed at action, not only on skill transfer.


The following recommendations arise from experience in the field:

The scheme must be well planned, taking into consideration the realities and potentials of communities today;

As in all income generation schemes, it is wise to proceed cautiously, and frequently make and discuss assessments of lessons learned and proposed new directions;

We should not implement eclectic and separate income generation activities in the field;

All initiatives in this sector should conform to a clearly described and consistent policy paper, approved and signed; consistent with a detailed strategy;

Initial action, especially loans, should be modest. Early disbursements of large amounts encourage high expectations and unrealistic assumptions;

Assessment is essential, at every stage;

Credit should be offered at available rates of interest, not at subsidized rates. Credit offered at subsidized rates trains participants to depend upon subsidized rates;

Small loans will attract the low income target category while larger loans will attract those who could get loans elsewhere; higher income persons.

Emphasis should be on training of participants where they make assessments of their current resources and inventories, management and financial skills, and honest appraisals of potentials for success. Unrealistic optimism may be the greatest danger inviting failure. Training should include group formation, marketing, encouragement (re-organization for capacity building), and skill training (in production management, financial and credit management, banking skills, credit mobilization, record keeping, and resource and personnel management).


Productive Activity: Soap Making:

Income Generation, Productive Activity, Soap Making

© Copyright 1967, 1987, 2007 Phil Bartle
Web Design by Lourdes Sada
Last update: 2010.02.17

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