a) What is loan and why

In micro-credit process the capital is provided to the poor people with a view to awareness build up, to create employment, to increase income and all-out development within the rules and regulations taking no security, at certain service charge, very easy terms and conditions for repayment is known as a loan.

b) Classification of the loan

In micro-credit process loan is provided to the poor to uplift their lifestyle. Local peoples get privilege here. In an altered situation very often the difference is observed because of meeting the wants of the poor people. But the classification of the loan may be considered as follows:-
General or loan for 1-year duration: The member to fulfill his minimum demand with a view to ensure his income within shortest possible time through investment in such different business or production the loan taken for 1 year and to repay the loan generally by weekly installment is known as the general loan.
Loan for the long term: For additional income of the member, social status enhancement and to create additional employment, the loan disbursed for over one year is known as a long term loan. Such as housing loan, small entrepreneur loan, etc.
Seasonal loan: To increase the income of the member, the loan which is disbursed for a definite season is known as the seasonal loan. As per the contract, total loan amount along with service charge will have to be paid by one or more installment in less than one year time. Such as the loan disbursed for preserving food or any crop to produce certain agriculture product etc.
Special or other loans: In respect of special circumstances, on the demand of the members or to meet local demand, the loan disbursed as per contract for a certain period or to serve a special purpose is known as special or other loans. Such as small entrepreneur loan sanitation loan, special loan, combined loan, goods/ animal- bird loan, etc.

c) Loan proposal procedure

  • Members propose the loan as per their own demand with an aim to build up capital is known as loan proposal. At the time of the loan proposal, the members as per his training at first will discuss with his family members to decide the amount and will inform the somity members accordingly. The member will study the proposal, the propose, amount and will submit to the chief/ gr: leader of the somity.
  • The chief/ group leader will study the demand of applicant members and the recommendation of others. If the member received a loan more than once, the previous transaction, utilization of loan money and success will be considered. Afterward deciding the loan amount, a signature of all members along with the applicant will be collected and the loan proposal will be written the scheduled meeting for onward submission to the staff.
  • The staff will study the applicant’s loan amount, the recovery rate of the somity, the status of the incomplete group, saving amount, own capital of the applicant in the proposed investment, overdue installments, presence in the central meeting, the behavior of the applicant, etc will also be taken into consideration. The staff will visit the applicant’s house, business spot, discuss with concerned persons and will submit the written proposal to his controlling manager.
  • The manager will study the loan proposal submitted by the staff. He will finalize the loan proposal after being ensured through visiting the field and holding a discussion with the concerned persons.

d) Considerable issue for loan proposal

  • Member’s purpose of the loan and time limit.
  • Attendance of the member in the weekly meeting
  • Transaction of the member
  • Active participation of the member in the meeting
  • Whether the loan will be utilized properly
  • Family status
  • The recovery rate of the somity
  • Incomplete or unstable status of the somity
  • Amount of savings
  • Own capital of the member in the proposed investment
  • The behavior of the member
  • After visiting the member’s house, business spot and holding a discussion with his family members and others concerned to be ensured
  • Investment capacity of the member
  • The expected possibility of income
  • Participation of the family

e) Importance of members active participation of the somity in loan proposal

At the time of the loan proposal, the active participation of the somity members is very much important. If the loan is not proposed in the presence of all the members, so many problems arise. If the loan is proposed in the presence of all the members, every member knows what will be done by this loan and how. His/ her weekly installment is how much. Whether he will be able to clear up the installment. His/her family status will also be known.
The member remains careful to pay up the scheduled installments if the loan is proposed in the presence of all members. If he/ she fails to clear up the installment in time every body will condemn him/ her and they will not agree to sanction loan next time. If the loan is proposed in the active participation of all the members, the justification of the loan proposal is ensured and every body becomes responsible for the loan.

f) Approval of the loan proposal

After finalization of the loan proposal, the recommendation of the finalize is studied properly, the person having responsibility will approve the same. The amount of loan, its kind and location will be different according to the status of the person having the responsibility of loan approval. But generally, the loan approving authority will be the manager or on his recommendation the next higher authority will approve the loan proposal. But on the basis of the amount or in case of a special and big amount, the proposal will be approved by the head of the organization or by the person having authority for doing the same.

g) Necessary files used to disburse loan

Before disbursement of the loan, list of the master-roll, loan agreement including loan repayment schedule will have to be noted down in the Passbook. It is to be included in the daily disbursement ledger. As per rule of the respective organization (stamp of an equivalent amount or specified form) documents will have to be prepared. The loan is to be disbursed in the presence of the responsible officer. Information is to be recorded in the loan ledger. Signature of the member and his/ her proper family representative along with the witness from his/ her own group or member of the somity are to be done on the loan disbursement list.
After approval of the loan proposal and finalizing the aforesaid activities, the officer having responsibility will see everything and will sign the same to enable the staff for the disbursement. In the case of loan disbursement, every time all tasks regarding loan disbursement are to be carried out.

h) Pass book

In micro-credit process, pass book is very much important. As soon as a poor people become the member of a group or somity under micro-credit process one pass book is to be issued in his/ her name. Name of the person, his/ her address, information of his/ her family etc are to be written in the pass book and is to be given to the member. The member will keep it with him/ her. All transactions of the member must be written in the pass book and duly signed. In micro-credit process all sorts of transaction is strictly prohibited without entry in the pass book. Through the pass book the member knows his/ her financial status every now and then. The pass book is to be verified with the account book kept in the office periodically.

i) Loan receiving procedure

The applicant being informed from the staff in the somity meeting after discussion with the family members and taking final preparation for investment will arrive with his/ her witness at the office of the organization or at the ascertained place date and time. Seeing all necessary paper in respect of loan disbursement, the applicant will sign the document. After signing the same by the witness the member will receive his/ her loan amount either in cash or through his/ her account. In case of taking the loan in cash, the money is to be counted in the presence of the disbursement officer.

j) Loan repayment procedure

The loan repayment procedure is different on the basis of loan amount duration and purpose in micro-credit process. A loan is to be replayed mainly through installments of different duration in this process. Generally, after two weeks from the date of loan receiving it is to be repaid through weekly scheduled installment. Total amounts of loan received and the service charge is to be repaid through equal installment in the loan duration. In the micro-credit process the loan is disbursed generally for one year and the total amount i.e. loan plus service charge are to be repaid within 50 weeks including 2 weeks grace period. It is hoped that the member will invest the loan money in an income generating activity so that he/ she will be able to earn within two weeks and will clear up the weekly installment accordingly. But the favorable environment is to be ensured so that he/ she is facilitated to earn some additional income for repaying the loan installment by utilizing the unused resources, increasing capacity, analyzing the family income & expenditure and building up awareness. In the micro-credit system, side by side of the one-year duration loan, the seasonal loan, long term, and other loans are disbursed. On the basis of a loan amount, duration and investment, the amount of installment is to be decided depending on the nature of earning such as-
one year term Loan: If any member takes 1000 taka loan @ of 15% service charge (sample rate), just after one year he is to pay taka (1000’00 + 150.00 service charge) = Tk. 1150.00. To repay Tk. 1150.00 in 50 installments, the amount of per installment will be (1150 / 50) = Tk. 23.00 only. In government holy days, a problem arises to collect installments for various reasons. As a result, the weekly meetings in government holidays, as well as a collection of installment, are not carried out and hence 46 installments instead of 52 weeks are collected and in that case, the amount of installment will be (1150 / 46) = 25.00.
In the continuous reducing process, the amount of service charge is to be calculated after complete repayment of the loan. As a result, the disbursed loan is to be collected in 50 equal installments and then the service charge will be calculated and collected in the following week accordingly.
Long term loan: In this case, the loan money is to be invested within a certain period under compulsion and this period will be counted as grace period of the loan. During the rest period, the loan amount and the service charge are to be replayed in installment.
Seasonal loan: The loan taken to invest in a certain season is known as the seasonal loan. This investment yields income at the end of the season. Hence as per contract the loan amount and the service charge are to be repaid in one or more installments within the time.
Other loans: The disbursed loan as per the demand of the members or the locality is to be replayed along with the service charge according to the contract.
In a case where income is not generated as soon as the loan money is invested or there is no opportunity to repay the installment from alternative income, in that case, offer generating income from the invested money the loan is to be replayed at a time or in scheduled installments.
On the day of the group meeting, the installment and the passbook are to be deposited to the staff. The staff will write down the money received in the passbook and after signing he will return back the passbook to the member. The member will verify whether his/ her deposited money has been entered into the passbook or not.

l) Loan Circle of the Somity

The loan disbursed among the members by and by throughout the year is known as the loan circle of the somity. To have confidence and co-operate to each other is an important factor in micro-credit process. Accept special ground, the loan is to be distributed not to all the members at a time but generally the same will be distributed throughout the year (if there are 40 members in a somity and the loan is provided to members each time i.e. the loan will be distributed in the ratio 50 weeks / 40). If to provide a loan to 2 members or more at time care should be taken so that there exist applicant for the next meeting, the loan will be repaid in near future and again the loan proposal will have to be proposed ensuring this process is not hampered at all.
If one or more persons get a loan at a time, utilization of their loan is to be ensured and then among the waiting applicants’ loan is to be provided. Disbursement of this loan among the members is known as loan disbursement circle. This procedure makes the disbursement process easier. On the other hand, it helps to ensure the utilization of loan properly