Why Association?

Simple answer to the above question is the following: Under the present day circumstances association would be the most suitable instrument for micro financing. When compared with the other forms of institutions (credit cooperatives, foundations, banks, etc.) Associations have following advantages:

- Easy to establish (no prior permission is required)

- Easy to establish branches, federations and confederations

- Government and foreign funding are possible

Micro financing through Association

Although Associations cannot undertake financial activities directly they may do so "by proxy" establishing a "Community Chest" or better still just a "Chest".

Indeed new law on associations stipulates the following:

"The associations may establish a fund to meet the necessary needs such as food, clothing etc. and short term loan requirements of their members, including other services such as supply of goods, provided that such an activity is declared in the Statute and the profit is not distributed to the members under any name whatsoever (income, interest etc.)

The establishment and operation principles of these funds are adapted in a regulation."

Mechanism of Chest

- Only those who belong to the Association could become members of its "Chest".
- Membership is decided by the Board of Chest which is subordinated to the Board of the Association.
- Chest would have to prepare its own regulations and fix membership fees as well as yearly contributions.
- Chest would also determine the principles and methods that would govern loans as well as how liquid assets would be used.
- Rules relevant to liquidation of the Chest property would be part of initial regulations.
- Chest is not a legal entity.

Revenues of Chest

- Membership fees
- Yearly contributions
- Sale revenues
- Service fees (interest on loans)
- Interests from deposits
- Grants and economic aid
- Unforeseen revenues

Critical factors to be considered

- Local administrations
- Political figures
- Willingness of villagers
- Cost of membership
- Interest rate on loans
- Repayment rate
- Training
- Sustainability
- Institutional
- Financial
- Operational