Savings and Internal Lending Communities (SILCs) are a type of community-based Accumulating Savings and Credit Association (ASCA).
The basic principle of Savings and Internal Lending Communities is that a group of self-selected people come together to form a SILC and save money, which is the source of loan capital from which they can borrow.
The main purpose of a SILC is to provide savings and simple loan and insurance facilities to community members who do not have access to formal sector financial services, either because the services are not available or because they do not have access to them.
The money is paid back with interest, causing the fund to grow.
Members are free to use the distributed lump sum as they wish, including reinvestment for another cycle. Additionally, SILCs contribute to a secondary fund that caters for member emergencies.
SILCs are usually more attractive to participants than ROSCAs. This is because SILCs offer interest on member savings, provide a micro-insurance service, and provide access to loans in useful and varying amounts, usually in excess of the borrower’s savings, at times that are convenient to the borrower and for varying lengths of time.
The savings, insurance and loan facilities of SILCs allow members to meet their small, short-term financial needs for household cash-flow smoothing, income generating activities, social obligations and emergencies without having to borrow from a money lender, take an expensive advance from a supplier, or rely on relatives.
This increases members’ social security. In addition, the end-of-cycle lump -sum is available at the same pre -determined time for all members, oftentimes for major holiday or agricultural needs. SILCs, however, are not as widespread as ROSCAs because they are more complex to manage and require a record -keeping system.
SILC builds on people’s knowledge and experience of ROSCAs, helping communities create sustainable and profitable ASCAs.
SILC groups have between 15 and 25 members. The members are self-selected and usually from the adult population.
SILCs are made up by a General Assembly and a Management Committee. The General Assembly is the supreme body that elects and gives authority to the Management Committee.
Each member of the General Assembly has only one vote. The Management Committee of a SILC consists of seven people elected from among the General Assembly, including a Chairperson, Secretary, Treasurer, Money Counter and 3 Key Holders. Committee members are subject to annual re-election at the start of a new cycle. They may be removed at special meetings.
A SILC Constitution does two things: it provides a framework for governance, dispute resolution and disciplinary action, and it specifies how the group’s two funds (Loan Fund and Social Fund) will be managed.
All transactions are carried out at meetings in front of the SILC, to ensure transparency and accountability. This ensures that all the members are able to witness who has saved and who has not, who has borrowed and who has repaid, and can decide on appropriate actions.
To ensure that transactions do not take place outside SILC meetings, unused funds and group records are kept in a lockable cash box between meetings.
This prevents unauthorized cash movement and the risk of misused funds or tampered records by the Treasurer.
Members are free to decide on a suspension of savings to accommodate lean periods of the year. During challenging economic circumstances, SILCs may decide to suspend their savings by mutual agreement and the entire SILC stops saving.
SILC members meet regularly and contribute to a SILC fund in the form of a fixed minimum sum.
During the first cycle, loan terms usually do not exceed three months and in fact may be shorter.
One -month loan terms will limit the types of activities in which members can invest. This may change in subsequent cycles.
The size of a loan available to a member can be linked to the total value of his/her savings. The SILC may decide that the amount a member can borrow may be no more than a multiple of the total face value of their savings.
This prevents the risk that a member borrows far more than they have saved, and then absconds or is overwhelmed by too much credit.
At the same time, it is important that the maximum amount that a member can borrow is in excess of his or her savings, to encourage true financial intermediation.
The cycle of savings and lending is time bound. Members agree to save and to borrow as they wish from the accumulated savings of the SILC for a set period of time (between 8 to 12 months), called an operating cycle.
At the end of this period the accumulated savings, interest earnings and earnings from other economic activities undertaken by the SILC, are shared out among members in proportion to the amount that each member has saved throughout the cycle.
Liquidation avoids the risk of a large unused surplus of funds that may be at risk of theft and that may need complex record keeping to manage.
Liquidation of funds at the end of the cycle also increases group enthusiasm and motivation.
Those who do not wish to continue as members may leave and new members may be invited to join.
SILCs may also decide to reinvest a part of their loan fund, in order to have a useful level of loan disbursement at the start of the next cycle.
This post was written by Anne Oyoo
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