Loan

VICOBA is founded on the principle that loans are better than charity to interrupt poverty: they offer people the opportunity to take initiatives in business or agriculture, which provide earnings and enable them to pay off the debt.

Village Community Bank (VICOBA) is founded on the belief that people have endless potential, and unleashing their creativity and initiative helps them end poverty. 

VICOBA has offered credit to classes of people formerly undeserved: the poor, women, illiterate, and unemployed people. Access to credit is based on reasonable terms, such as the group lending system and weekly-installment payments, with reasonably long terms of loans, enabling the poor to build on their existing skills to earn better income in each cycle of loans.

VICOBA's objective has been to promote financial independence among the poor. Devota Likokola (Vicoba's President) encourages all borrowers to become savers, so that their local capital can be converted into new loans to others. Since 2002, Vicoba has funded 70 percent of its loans with interest income and deposits collected^.
 
It targets the poorest of the poor, with a particular emphasis on women, who receive 95 percent of the bank’s loans. Women traditionally had less access to financial alternatives of ordinary credit lines and incomes. They were seen to have an inequitable share of power in household decision making. 

Founder found that lending to women generates considerable secondary effects, including empowerment of a marginalized segment of society, who share betterment of income with their children, unlike many men. Women still have difficulty getting loans; they comprise less than 1 percent of borrowers from commercial banks. The interest rates charged by micro-finance institutes is high compared to that of traditional banks^.

So by borrowing in these traditional banks the interest rate being reduced by 20 percent with no collateral.

Vicoba members have been encouraged to adopt positive social habits. One such habit includes educating children by sending them to school. This in turn helps bring about social change, and educate the next generation.
 
Solidarity lending is a cornerstone of micro-credit, and the system is now used in more than 43 countries. Although each borrower must belong to a five-member group, the group is not required to give any guarantee for a loan to its members. Repayment responsibility rests solely on the individual borrower. The group and the centre oversee that everyone behaves responsibly and none gets into a repayment problem. No formal joint liability exists, i.e. group members are not obliged to pay on behalf of a defaulting member. But, in practice the group members often contribute the defaulted amount with an intention to collect the money from the defaulted member at a later time. Such behavior is encouraged because Vicoba does not extend further credit to a group in which a member defaults.

No legal instrument (no written contract) is made between Vicoba and its borrowers; the system works based on trust. To supplement the lending, Vicoba requires the borrowing members to save very small amounts regularly in a number of funds, designated for emergency, the group, etc. These savings help serve as an insurance against contingencies 

Vicoba has focused on women borrowers; 95% of its members are women. While a World Bank study has concluded that women's access to microcredit empowers them through greater access to resources and control over decision making. 

©2015 , Vicoba Benki ya Maendeleo Vijijini