Delinquency control & capital build up for cooperatives
DELINQUENCY CONTROL and CAPITAL BUILD UP FOR COOPERATIVES Prepared by: Efferson P. Ramirez
WHY DO PEOPLE BORROW?- sickness or death of a family member- loss of jobs- lack of capital to start a small business- to buy farm inputs- to buy in cash instead of an installment basis- birthday parties, to satisfy vices and others
DELINQUENCY: when the payment of a loan is delayed or the loan remains unpaid after its due date.CAUSES OF DELINQUENCY:1. Lack of cooperative Education: - failure of member to make an adequate budget of his income;- failure of member to appreciate the value of cooperativism;- failure of member to know his duties and responsibilities- failure of member to understand the terms and conditions of payment of loan;2. Unwise use of money/vested interest by some officers- diversion of project plans- misrepresented purpose of loans 3. Improper or Erroneous Evaluation of Borrowers:- improper evaluation of loan applications
4. No schedule of policies:- lack of harmonious relationship between management staff and members- wrong attitude of Crecom towards members5. Unexpected Natural Calamities:- typhoons, floods, death- irregularity of incomes The problem on deliquency is a very common problem being encountered by most cooperatives for it could happen even before the loan is granted to a member, however, the following are some measures to minimize the problem on delinquency:
DELINQUENCY CONTROL MEASURES:1. Continous Cooperative education: Loan deliquency can be greatly minimized if the members could be made to understand and appreciate the purposes of organizing a cooperative;a. to develop among members the habit of thrift and regular savings;b. to teach the members the importance of borrowing wisely for productive and providential purposes;c. to teach the members the wise use of money through intelligent buying and budgetting
2. Proper and Intelligent Loan Appraisal by Credit Committee: Criteria for Loan Evaluation;a.Character – spending habits, credit consciousness, credit standing in the community, participation in cooperative activities;b.Capacity to pay – financial condition of borrower, his income versus his expenses, loan from other sources.c.Capital – his total capital contributions to the Coop, availability of cooperative fundsd.Co- makers – solvency of co – makers, attitudese. Collateral – fixed assets free from any encumbrancesf. Purpose of loan – based on actual needs of borrower
3. Loan deliquency goes high – if those who have current loans find out that the operation of the cooperative is going down, many of them would hesitate to pay their loans. They believe that if the cooperative goes bankrupt, they may not need to pay their loans. 4. The income goes down - if more loans are being extended, there would be no more income. The fixed cost must have to be taken from the capital. 5. Employees are discouraged – the future is black for the employees of a cooperative in this situation. They would look at their jobs as a temporary employment while they scout for greener and more secured pastures. 6. The cooperative flops – it takes only a few months from the time the services slow down until the time to close down.
PRIMARY STRATEGIES FOR CAPITAL BUILD UP1. Continous Cooperative Education – this is one of the principles of cooperativism, but its importance is belittled. The reason why educational funds are allocated every year from the surplus is to provide a budget for membership education and staff development. Members will always be supportive to whatever programs of the cooperative only when they understood and appreciated what the undertaking is all about.
2. Raffle Draw – the raffle draw cooperative style does not sell tickets, it does not solicit funds from the public. It merely encourages the members to add to their own savings and share capital. Those who increase their share capital are given raffle tickets. The prizes may be charged to educational funds or the operating funds. After all, the objective of the draw is to increase the capital and income of the cooperative.3. Annual Dues – the cooperative may collect annual dues by deducting the amount from the loans of the members when they borrow or from their interest on capital at the end of the year. In this way the members would not have shelled out from their pockets.
4. One – peso per visit – this scheme requires every member to deposit P1.00 in his share capital everytime he visits the cooperative for every reason. After all everybody has one peso in loose coins. That is less than the cost of a pack of cigarettes or a bottle of beer. Besides, the one peso is not a payment, it is saved by the member and is added to his share capital. 5. Authorized Retention from Loans – this is another scheme that compaigns from those who are served by the cooperative. By the authority of a Board Resolution, the staff shall deduct a percentage from every loan granted and adds the deducted amount to the borrowers share capital.
6. Share Certificates – this scheme calls for the distribution of the interest on capital and patronage refund not in cash, but in the form of share certificates. 7. Paluwagan – this scheme is particularly succesfull among market vendors and other groups with a regular source of income. The members are being grouped by tens. All the ten will deposit P1.00 each in the number one’s share capital and so on until all the ten group members have had their turn.
8. Salary Deduction – saving to some people is easy. To others it is hard. They spend all the money they lay their hands on. Sometimes , they even spend money that they have not gotten yet. For this kind of people, force savings is necessary. Cooperatives can arranged savings by salary deduction if the members concerned would sign the payroll deduction form. This goes in line with the members’ pledge to save regularly. 9. Revolving Fund – if the total amount for interest on capital and patronage refund is P100,000.00, the Board is authorized to set aside P50,000.00 as a Revolving Fund for five (5) years. After five years, this amount shall be distributed to the members as they should have been five years ago.
10. Doorstep Savings Program – this scheme is more applicable to people who are busy that they don’t have time to visit the cooperative (businessmen). They may have the money and maybe willing to save but they don’t have the time to visit the cooperative. For them, every second is GOLD. A management staff may be go from door to door to this type of people to collect their deposits.11. Special Depositors a. Special Members (minors) – the children of members are encouraged to open up savings account with the cooperative. They would not be allowed to borrow because they are not old enough to enter into contracts and they usually don’t have a regular source of income to pay back the loan. The parents should not be allowed to withdraw from the savings of their children without the latters consent.
b.Organizations– there are many community organizations which do not have the juridical personality to become members of the cooperative. These group’s should be encouraged to open an account with the cooperative, however, they are not allowed to borrow. c. Non-members – for people who want to support the cooperative by saving their money in it, the staff should not close doors. Anybody should be encouraged to save in the cooperative, but, since they are not members, they will not have the priveledge of borrowing.
CAPITAL BUILD UP STRATEGIES FOR COOPERATIVES It is easy to organize a cooperative. It is difficult to succeed. One failure affects the others, including those that are to be organized. Most cooperatives died a natural death, and the foremost reason is lack of capital due to lack of knowledge on some capital build up programs. Most cooperatives considered today as successful, based on their history, states that they have stood by their own money, and besides have engaged in many programs/ strategies on how to increase the needed capital to extend maximum services to its members.
A cooperative which depends too much from outside funding at the onset on its operation would merely teaches its members to be dependent from outside source of funds. They may never realize their duty to capitalize their own business enterprize. They may not even take their loans seriously because they say that it is not their money at stake. Furthermore, members may not develop pride and responsibility of ownership knowing that the capital is not theirs. To borrow from outside sources is not actually bad, provided that a cooperative will borrow for expansion purposes and officers and management staff are well prepared with the knowledge and skills on how to manage a bigger amount of money.
WHY DO WE SAVE? WHY DO WE ENGAGE IN CAPITAL BUILDING?Primarily, a cooperative must save and engage in capital building to be able to extend maximum service to members, secondarily is that cooperative members must finance their own business enterprise as one of the practices of cooperativism.
EFFECTS OF LOW WORKING CAPITAL: Insufficiency or low working capital can cripple a cooperative permanently if it is not attended to immediately. The following are the effects of lack of capital: 1. Services slow down – the members applying for loans can not be served at the right time. They have to wait for days, weeks and sometimes months for their loans. A delayed loan due to lack of capital may not be very useful anymore.