What you will learn in this module
Understand the role and importance of savings
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SESSION PLAN |
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Session 1 |
Concept of savings |
1 hour |
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Session 2 |
Concept of risk management |
1 hour |
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Session 3 |
Use of profits |
1 hour |
The three sessions may be combined into two sessions in a short duration training programme. When there is time, groups can be given the case studies to analyse, and they can discuss the implications of the decisions they take on capital formation and risk coverage.
Start the session by asking the members if they save regularly.
Do they keep their saving at home or with the group?
Do they save with the cooperative?
If each cooperative member saves, how does the group business benefit from this?
How do the members use this joint saving?
Use the handouts to highlight the importance of savings both as a source of capital and as insurance against risks.
Handout 1: concept of savings
Women's grassroots groups are members of primary cooperatives, which, in turn, are part of federations of cooperatives at the provincial and national levels.
When group members deposit their savings with the group, the amount is usually rotated as credit. The Local Administrative Council promotes the scheme and recommends an interest rate of 2 percent per month on the loans. The accounts of the savings and credit operations are supervised by the Council which helps in calculating dividends at the end of the year.
When women deposit their savings with the cooperative, they participate in the business of the cooperative. If they save in the groups as well, they help the business of the group.
The advantages of starting savings schemes in all the groups:
women have greater involvement in group activities if they save in the group;
a habit of savings instills discipline among members;
members can avail of credit from the group's savings to buy raw material and other requirements;
the group can build up capital to procure machines, better technology and improve the quality or/and quantity of its production;
the savings of members is a risk cover in case the business faces problems; for instance, if working capital cannot be obtained from other sources, the group can use this fund for some time;
builds a culture of self-reliance; the group acquires a greater degree of control as its capital base increases, enabling it to take better financial decisions;
finally, when the group's capital base increases, it gains recognition from other institutions; if the group builds up a good capital base through its savings kept in a group account in a banking institution, it will have enough credibility to be able to obtain loans for its business from the institution.
Handout 1: risk management by women's groups
Rural women's cooperative groups are quick to follow the advice of government officers on business. However, this can result in losses as the government has not always adapted its programmes to local farmers' conditions.
It is important that the groups make informed business decisions that are based on knowledge and experience.
Factors that help in this:
increased awareness of business-related factors, especially marketing;
good linkages with external agencies so that information and understanding can be checked and updated regularly;
participatory group processes using the common wisdom of members; informed and joint decision-making by members; therefore, it is important to reduce the risk of business failure.
Handout 2: business risks
Risk is defined as any factor that may cause losses to the group's business. The risk may be external, i.e. arising from outside the group. Group members may have little control on such risks, e.g. change in market preferences. There are several risks that are internal, i.e. risks related to business management. The group can reduce these risks through management systems and planning.
Groups need to think of all the things that can go wrong and plan how to reduce the damage to the business if these things indeed do go wrong.
Principal risks
Financial
Production/technological
Market
Management
Discuss the probability of each of these risks arising in the groups represented by the participants. How do group members cover these risks? Ask members to relate some stories about the impact of risks on their groups.
Start by asking the participants if every business can succeed. Make the point that if this were true, every person would be an entrepreneur.
The fact is that while business yields profits, it also involves risks.
Ask participants to tell about some unsuccessful businesses. Write the key words on the board while the participants are sharing these accounts. Ensure that all the points in the handout have been covered. Emphasize that good business planning and linkages can be an insurance against risks.
Emphasize also that risk is reduced when groups take joint decisions. This is a better strategy than blindly following external advice.
Handout 1: use of profits
Members of a rural women's cooperative enterprise should know how the profits are generated. They should know the details of the calculation as they have each contributed to the profits.
It is also important that the women know and participate in deciding how to use the profits.
Major sources of finance
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Own money |
External money |
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Share capital contribution by members |
Grants from government departments (CPD, CDD, Department of
Extension, etc.) |
Profits can be used for:
a) increasing working capital
b) improving fixed capital, i.e. more and improved machines or building
c) investment in improved skills
d) investment in marketing
It is important that the women take into account the investment needs of their own business before donating money for community welfare. Improved business performance is necessary for generating more profits which, in turn, will enable them to provide sustained support for community welfare. If money is spent on community welfare without allocation for the group's business growth, there will be no benefit for the community over a period of time.
Many rural women's groups contribute their profits to the community without planning for their own business needs. This is not done in cooperatives, which see themselves as business enterprises and take care of their business needs first. Many women's groups, on the other hand, have been supported by the government and have leaders who emphasize social responsibility more than the growth of the group's business.
This can lead to continued dependence on the government.
Unless rural women's groups are run as good businesses, they will not be able to get recognition from the cooperatives and the banking sector and raise credit for their business demands.
The advantages and disadvantages of not using profits for business expansion (in this case, using it for the community):
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Advantages |
Disadvantages |
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Using profits for community welfare without putting aside money for business development and growth |
· Satisfaction from contributing
to community needs |
· Continued dependence on the
government |
Therefore, it is important that groups give priority to improving their businesses. The rest will follow once their businesses become independent of subsidies and government support.
Handout 2: case study on capital formation and risk management
The Bong Ho women's cooperative group with 85 members has three businesses: common purchase of raw material, selling this to the members and the purchase of the final products from the members to sell in the market.
The group was formed 10 years ago with members raising 20 000 Baht from a dance performance in the village. The group has rotated this money as loans among members at a yearly interest rate of 5 percent and the initial fund has now grown to about 100 000 Baht.
The group does not have an accountant. A CPD officer visits them once a year to audit the accounts. Till then, the members do not know how much the group has earned as profit that year.
In fact, they have not even maintained proper accounts for earlier years. In 2001, they obtained government financial support, using it to buy machines to improve production quality. The government helped them in selling their produce and the group made a profit of 60 000 Baht. This was used to start 20 scholarships in local schools and make donations for the welfare of elderly people and persons with disabilities. All these decisions were taken unanimously by the members.
Six months after distribution of the profits, the leader found that the group needed working capital to buy raw material. There is a great demand for their products three months of the year and the group can increase its earnings if it can increase production at the right time.
The group believes that it can obtain working capital from the CPD or any other government department.
Exercise
Analyse the financial management of the group and discuss whether it has taken good decisions with regard to capital formation.
What you have learnt in this module
Saving makes the group more active and members meet regularly.
Savings are the most important source of funds for a group business.
Regular savings lead to investment in group business, inculcating an attitude of self-reliance.
Cooperatives encourage individual members to save with them.
When group members save and rotate money as credit, they are able to increase the capital available for women. Such savings schemes are often started and monitored by local administrative offices. Few women's groups are able to manage a good savings and credit scheme on their own.
Women's groups are not recognized as members of cooperatives and, therefore, are not eligible to take loans from cooperatives. This discourages the groups to save with the cooperatives, which, in turn, have no business interest in the groups.
It is important to emphasize the value of group savings as a source of capital and also as insurance against business risks. Savings also enable a group to be recognized by external and mainstream agencies, making it more creditworthy.
It is necessary to estimate the principal risks in a business. These relate to finance, production, marketing and management. Estimation helps the group to handle these risks when they arise.
How risks can be contained.
How to develop a strategy of low risk and high benefit.
Open and joint decision-making is one way in which the group can reduce risks. Awareness and participation of all members in decision-making on the use of resources is the best way to move towards a viable and sustainable business.
Profits = Revenues - (less) All expenses
Profits are a source of finance. How can these be used?
Plan properly to utilize the surplus from either business profits or savings. Groups must reinvest their profits for at least three to four years as this helps to expand or diversify their business activity.
Viable and sustainable group businesses enhance the groups' long-term ability to contribute to social causes. Profits must primarily be used for the growth and sustainability of the business and money may be contributed to social causes after meeting business needs.
