1. Criteria for Selection of OOSA (Organizations Operating in Small Areas) Category POs

PKSF carries out microcredit operations through its POs. Therefore, the selection of POs is a crucial task and an ongoing process. Under this process, PKSF appraises various types of non-government, semi-government and government organizations; voluntary agencies, societies and local government bodies to select POs that have gained experience and expertise or which have potential to operate a successful microcredit program for self-employment and income generation for the poor. In appraising an organization, PKSF follows clear guidelines relating to the following matters: (1) Organization; (2) Organizer; (3) Management; (4) Human Resources; (5) Working Area; (6) Field Activities; (7) Performance; (8) Management Information System (MIS); and (9) Accounting System.

(a) Organization:

- The organization should have a legal basis: if it is a non-government and voluntary organization it is to be registered with the appropriate registration authority such as the Directorate of Social Welfare, Department of Women’s Affairs, Registrar of Cooperatives, NGO Affairs Bureau, etc.

- It should have a constitution duly approved by the concerned registration authority.

- It should have a General Body and an Executive Committee approved by the concerned registration authority.

- In the case of government, semi-government and local bodies, it must be formed lawfully.

- The organization should have the mandate to operate credit program for self-employment and income-generation activities of the poor with an admissible service charge.

- It should have a mandate to borrow money from government, semi-government, private and any other institutions.

(b) Organizer:

- The organizer(s) or founder(s) should be socially reputable, respected and honest, and have sincere intentions to serve the poor.

- Organizers are to be acceptable to the staff, group members and to the community in general.

- The organizers should have the capacity and vision to develop a future perspective and strategic plan of a development organization.

(c) Management:

- The organization should have an organogram.

- The Chief Executive should be full-time and should possess a long-term vision. In the case of local organizations, the Chief Executive must reside in the working area.

- The Chief Executive should have dynamic leadership qualities, demonstrate management capability and be able to formulate a strategic plan for the organization.

- The organization should have adequate regular and full-time staff to ensure proper implementation of the microcredit program.

- The Chief Executive should have a good reputation and be acceptable to the staff, group members and to the community in general.

(d) Human Resource:

- The organization should have trained and skilled human resources to administer the organized group and to maintain a sound accounting system.

- Staff should be honest, dedicated and possess missionary zeal.

(e) Working Area:

- The working area of the organization should be suitable for microcredit operations. It should have a good transportation network, banking facility and easy access to a market so that the borrowers can utilize their loan profitably.

- It should be poverty-stricken and such rural areas will be given preference.

- There should be potential for expansion of the program by avoiding duplication with the activities of other organizations in the same area.

(f) Field Activities:

- Target members are the landless and assetless who will be reside in rural areas, own less than half an acre of cultivable land or having total assets of the value less than that of one acre of land in the locality.

- Members are to be organized in groups composed of like-minded people. Members should be conscious about group discipline and attend group meetings and deposit savings regularly. Members should have a minimum of three months practice of regular savings deposit before accessing credit.

- The organization should have at least 400 organized members, Tk. 0.2 million operating loan outstanding at the field level and at least six months experience of successful microcredit operation.

- The number of organized members should be consistent with the working/operating capital of the organization.

- Groups should be organized within a 10 km radius of the project office.

- In the case of local organizations, the head office should be situated in the working/operational area.

- The organization has to maintain a minimum loan recovery rate of 98% on a continuous basis. For a program operating for more than three years, a minimum loan recovery rate of 95% has to be continuously maintained.

- Overlapping with the same activities of other organizations in the same area should be avoided.

(g) Past Performance:

- The organization should have a demonstrated experience of ensuring proper loan utilization while maintaining a high rate of recovery on a continuous basis.

- It should maintain records as evidence of successful implementation of all the programs undertaken.

- It should have properly organized members and groups for the successful operation of the microcredit program.

(h) Management Information System (MIS):

- A system for collecting information from member, group and office levels for proper management and monitoring of the microcredit program should be present.

- Adequate information should be available regarding the microcredit operations.

(i) Accounting System:

- The organization should maintain a sound, systematic, accurate, detailed and transparent accounting system.

- The organization should not have any case misappropriation or illegal withdrawal of funds.

- Savings account of the group members must be complete, detailed, transparent and accurate.

- All the accounts should be duly audited by the proper authority and these reports should be readily available.

- All the accounts must be accurate and updated.

- The PO has successfully implemented a microcredit program for a minimum

five years.

- It has at least 100,000 borrowers with a strong potential for expansion of the program.

- It has at least Tk. 100 million of equity (including grants, retained surplus, etc.) in the program.

- The debt-equity ratio of the microcredit program does not exceed 2.5:1;

- It maintains a strong and transparent accounting, internal audit and MIS.

- It has its accounts audited by a reputed external auditor on an annual basis.

- It maintains a minimum loan recovery rate of 95%.

The 103rd Governing Body meeting held on 14 June, 2001 decided to enlist Pre-PKSF POs to support potential local NGOs which do not meet the aforementioned criteria under the OOSA category.

Customized training facilities and small loans are provided to the selected organizations under the Pre-PKSF program to improve their overall institutional capacity with an objective to graduate them as full-fledged POs under the OOSA category within 6 to 12 months.

In close consultation with a number of POs, PKSF has formulated a policy to avoid overlapping. The main features of the policy are as follows:

Definition of overlapping

When a household receives microcredit from more than one institution, this will be treated as an instance of overlapping; although the same household can establish links with more than one institution without being branded so.

Policies to avoid existing overlapping

(a) The microcredit institutions working in a particular village must posses the list of their respective samities (groups), and members, along their date of enrollment, household number and address. The application for membership should contain the photograph of the applicant. Once enrolled, the member should have an identity card containing his/her photograph.

(b) The microcredit institutions working in a particular village must exchange the list of their respective borrowers once every three months. The exchange of the list may be done more frequently, if necessary, in the village where overlapping allegedly exists.

(c) There should be an upazila-level forum of the microcredit institutions and their members, initially on a monthly basis and later once every three months, to regularly review the situation and take appropriate action to stop overlapping and its recurrence.

If the problem persists, the matter should be referred to their respective head offices. If still unresolved, the issue may be discussed with PKSF.

(d) A list of those members who have received microcredit from and/or accumulated savings in more than one institution would be prepared and, subject to discussion with the members concerned, they would be allowed to remain with the organization they prefer.

However, the concerned members will have to repay all debts to the organization they are leaving and obtain a clearance certificate from it.

(e) In order to verify whether any member has received microcredit from more than one agency, field staff and officers of the institutions may attend the weekly meetings of centers/samities of one another.

(f) A special seal will be stamped on the Pass Book of the member who received loans from more than one source so that the member can be easily identified.

(g) Field workers must be fully aware of the list of borrowers that have received credit from more than one source and must motivate the concerned borrowers to repay loans of the other institution in addition to his/her own. After the loan is repaid, action as per (d) would follow.

Policies to avoid future overlapping

(a) The members organized by one organization cannot be taken over by another organization without prior consultation with the concerned organization.

(b) The practice of waiting for credit by the borrowers after being organized must be uniform for all the agencies working in a village, and may vary from 8 to 12 weeks. The members or potential borrowers who failed to receive credit from one organization even after waiting for 12 weeks may be taken over by another organization but in that case they will have to wait for another 8 to 12 weeks under the new organization to receive credit.

(c) The list of new members, along with their addresses, of one organization must be circulated to other organizations working in the same village. If no objection is recorded within 15 days of the circulation, it would be safely assumed that the enlisted people are not members of any other organization and hence the list is final. The persons about whom objections have been received should be absorbed by any of the organizations after mutual discussion. If needed, a household may be provided with a maximum of two loans simultaneously to overcome the situation.

(d) The member who has just started depositing savings with one organization and was subsequently found to have already received a loan from another organization should receive immediate refund of his/her savings amount along with the cancellation of membership.

(e) The local level officers of the organizations will hold monthly review meetings at the upazila forum. The unresolved issues of that review meeting should be referred to higher authorities of the concerned organizations to resolve before the next meeting. If still not resolved, the matter should be referred to PKSF in writing.

(f) There should be uniformity across the concerned institutions with regards to the maximum size of the first loan (the first loan should be Tk. 4,000 irrespective of the organization delivering it). This amount, however, may be increased to adjust for inflation and may be exceeded for microcredit under special programs.

(g) While considering the enlistment of a new PO, PKSF considers the number of other microcredit institutions and their programs in the area concerned.

[Dr. Fakruddin Ahmed, Managing Director, PKSF (center), presiding over the workshop entitled "Financial Services for the Poorest: A comparative Study of Different Programs", organized by PKSF on December 19, 2005. (L-R) Dr. Narayan Chandra Nath, Research Fellow, BIDS; Dr. M.A. Hakim, General Manager, PKSF; Professor Baqui Khalily, University of Dhaka, and Dewan A.H. Alamgir]

1) Introduction

i. This Policy describes the broad framework for microcredit programs that affect indigenous people.

ii. It asserts that, following the general principles and guidelines of PKSF, the institution will extend microcredit service for indigenous people, tribes, ethnic minorities and other groups to increase their capacity to assert their interests and rights with regards to land and other resources.

iii. It sets the basic definitions, policy objectives and guidelines for the design and implementation of sustainable microcredit programs for indigenous people.

iv. It should be consistent with the overarching policies of the Government with respect to indigenous ethnic minorities.

(2) Definitions

i. The terms ‘indigenous peoples,’ ‘indigenous ethnic minority,’ ‘tribal group,'’ and ‘scheduled tribes’ describe groups with a social and cultural identity distinct from the people on the plain. These marginalized groups still lag behind with regard to the mainstream development process. For the purposes of this directive, ‘indigenous people’ is the term that will be used to refer to these groups.

ii. Due to the heterogeneity of indigenous peoples, no single definition can capture their diversity. Indigenous people are generally the poorest of the population. They engage in economic activities that range from shifting agriculture in or near forests to wage labor or even small-scale, market-oriented activities.

iii. In accordance with the policies of the Government, indigenous people can be identified in particular geographical areas: Chakmas and Mongs in Chittagong Hill Tracts (CHT); Manipuris in Sylhet, Garos in Sherpur, Tangail and Mymensingh, and Shawntals in Rajshahi.

iv. The following characteristics are distinct about the indigenous peoples to a varied extent:

a) a close attachment to ancestral territories and to the local natural resources;

b) self-identification and identification by others as members of a distinct cultural group;

c) an indigenous language, often different from the national language;

d) presence of customary social and political institutions; and

e) primarily subsistence-oriented production.

(3) Basic Assumptions for Intervention

i. PKSF serves the indigenous peoples through its POs. PKSF will provide funds for microcredit programs, as well as assistance for institutional development, following its general principles and strategies.

ii. Microcredit programs will encourage income-generating activities (IGAs) such as agriculture, fisheries, forestry, hydropower, horticulture, tourism and various types of small businesses and production.

iii. The POs shall have a track record of successful performance of microcredit program for at least one year.

iv. PKSF will monitor the microcredit program according to established performance standards.

v. PKSF shall apply its overlapping policy while funding an organization in the CHT.

vi. An on-lending service charge ceiling may be established as per the loan agreement with PKSF.

vii. The environment of enlisted POs should be carefully screened. Issues related to indigenous peoples are commonly identified through the environmental assessment, or social impact assessment processes.

viii. The POs will respect and display importance towards the ethnic features, education, culture, environment, religion and customs of the working area, and may not conduct any propaganda campaign or undertake any activity that may threaten those features. The microcredit program is to be conducted in harmony with those features.

ix. With regards to staff recruitment, POs should give preference to local people because of their shared language and culture with the community, the local people. Recruitment should also consider adequate gender representation.

x. The POs will operate the MCP in accordance of social harmony among the inhabitants in local area irrespective of religion, groups, race, clan, caste, etc.

xi. The POs which are willing to work with indigenous people have to observe the following restrictions:

a) any activity that hinders social harmony between the Tribals and Bengalis may not be undertaken;

b) any anti-religious or unethical activity, particularly campaigns for religious conversion, are not permitted;

c) any activity that provokes communal unrest may not be undertaken;

d) any activity that hinders national or regional security cannot be undertaken;

e) any activity that, directly or indirectly, inspires the inhabitants to participate in separatist, religious or racial movement may not be undertaken;

f) the PO may not be involved, directly or indirectly, in any political activities;

g) the PO will not maintain relationships with any persons, organizations or political parties that are engaged in any illegal activities at home or abroad.

xii. The organizations should restrict their activities to the purview of their approved work plans and working areas. If any PO is involved in any activity beyond the work plans or violates the restrictions mentioned above at 3.11(a) –3.11(g), actions, including cancellation of registration, may be taken against them.

(4) Legal and Administrative Matters

i. POs intending to work in the CHT need to obtain a certificate of “no objection” from the Ministry of Chittagong Hill Tracts Affairs or Regional Council or District or Local Government Council, and government agencies concerned dealing with indigenous ethnic minorities.

ii. If necessary, PKSF may share periodic progress reports of the PO with the NGO Affairs Bureau or an attached office of the government and the Ministry of Chittagong Hill Tracts Affairs or Regional Council or District or Local Government Council to evaluate the activities of the organization.

iii.These progress and evaluation reports may also be shared with the Convenor of the Committee and the District Commissioner. In addition, the NGO Affairs Bureau and the registration authorities will maintain regular contacts with the PO; ensure its coordination; and send related reports to the Ministry of Chittagong Hill Tract Affairs or Regional Councils or District or Local Government Council concerned and PKSF.

iv. Before applying to PKSF for further expansion in new areas, the PO must obtain clearance from the Local Government Council of the CHT.

v. If any dispute in connection with the program implementation or coordination arises, the issue may be referred by PKSF to the Ministry of Chittagong Hill Tracts Affairs through the NGO Affairs Bureau for its settlement.

(6) Disaster Management Fund Policy (DMF)

The following policy will be applied for providing support to the POs’ microcredit borrowers affected by natural calamities such as floods, draughts and cyclones:

i. the PO will determine the size of the disaster loan to be disbursed to a borrower after assessing the needs of its household;

ii. the loan will be used for the rehabilitation of the affected household;

iii. the loan will be disbursed in one installment and the borrower will use it for self-rehabilitation;

iv. the PO will not claim service charge or any other charges for this loan;

v. the PO will recover the disaster loan in equal installments that are tolerable to the borrower and will inform PKSF of the loan size, period and repayment schedule before receiving any funds from PKSF;

vi. prior to any disbursement, the PO will sign an agreement with the borrower specifying the terms and conditions for repayment;

vii. the PO will maintain records and accounts of the loan fund and supervise and monitor its use and repayment;

viii. the PO will send monthly reports to PKSF with regard to loan utilization and recovery (PKSF will also supervise and monitor loan utilization.);

ix. the PO may not, under any circumstances, use the disaster loan fund for any other purpose (This fund will be treated as part of the POs’ Disaster Management Fund in which the PO shall have its own contribution);

x. in accordance with clause ix., the PO will contribute a pre-determined portion of its surplus service charge to this fund on a quarterly basis.

[Mr Mosharrof Hossain Khan, Deputy Managing Director,PKSF, delivering the first loan disbursement to Mr. Arun Kanti Chakma, Executive Director, Assistance for the Livelihood of the Origins (ALO), a community-based NGO in the Chittagong Hill Tracts. Also present, Mr.Golam Touhid, Deputy General Manager,PKSF (second from left); and Mr. A.K.M. Faizul Haque, Assistant Manager, PKSF (second from right).]