It is 2PM on a recent Sunday, and the women of Dumkibas in Nawalparasi district know that it is the time for the weekly meeting of their village bank.

Thirty women have gathered in this dusty highway town for the meeting of the Bhrikuti Village Bank. After president Kiran Tiwari formally opens the meeting, she begins calling each member by name. They come forward one by one and hand over their weekly savings to the treasurer.

Once everyone submits their savings, plus payments of installment on previous loans, the president declares that Rs 7,500 was collected that week. She asks who in the group would like to borrow money for the next four months. Two women decide to borrow: one to pay fees for her children, and another to invest in a tea-shop she runs nearby.

Faraway from the corruption and default scandals in the big banks in Kathmandu, and out of the glare of the national media, there is a quiet rural revolution going on in the tarai. More than 1,500 small village banks like the one in Dumkibas have been bringing new hope to farmers, giving women income, empowering them and raising the nutritional standards of children.

Nepal's revolution in microfinance-small-scale, semi-formal savings and credit activities in rural areas-had begun simultaneously with the more famous experiments in Bangladesh in 1981 with Grameen Bank. Here, we called it the Small Farmer's Development Program (SFDP) and twenty years later, every conceivable model of microfinance has been tried in Nepal. The village banking idea is the latest, and what is unique is that the cooperative savings schemes are owned and run completely by local women.

One of these initiatives is the three-year Women's Empowerment Program, the group PACT Nepal has helped establish and train village banks to keep their own records. Each bank consists of 25-35 women who elect a president, treasurer, secretary and a controller from amongst themselves. They decide how frequently they are going to save, which is usually weekly or monthly and how much they are going to save per period, which is usually between from Rs 10-25 per week.

They lend only to women within the group for about three-six months at 24 percent interest per year, and keep their own records of saving and lending without help from outside organisations.

NO DEFAULTERS
To ensure that members save and repay on time, the cooperatives have strict rules which the members themselves enforce vigorously. This gives them an immense sense of ownership and accomplishment. Pointing at a heap of corn drying in the sun, Laxmi Chaudhari of Chitwan says: "Although this corn belongs to my family, I don't really feel that it is my own. But I feel that the cow that I bought with the loan from the village bank is really my own." Laxmi sells the milk to save in her village bank and uses the rest of the money for purposes that she sees fit. Her friend, Subhadra Chaudhari, says she has one less anxiety: "When I get old, I won't have to worry even if my husband leaves me because I have my own savings."

Because they borrow from themselves, the interest on loans stays within the group. More importantly, it releases the village women from having to depend on local loan sharks who charge up to 60 percent interest. There are also indirect benefits to women for whom financial independence appears to result in social empowerment.

When an 11-year-old girl was raped in Chitwan a few years ago by two men (one of them a relative) local women from the Mahila Utthan Village Bank caught the two men, tied them up and hired two tractors to report them to police. In Dumkibas, women from the Bhrikuti village bank are working with another nearby women's bank to improve the dirt road that passes through their village because heavy trucks have ruined it.

Still, many women say that the decisions on loans and spending are still made by the men in the family. "After we set up the bank, women themselves have been able to borrow," says Bidhya Timilsina of Chitwan. "But most of the time, the loan is used in consultation with the male members of the family. Even when that happens, it is women who are responsible for repaying the loans."

The other problem has been that most microfinance schemes have not used loans to set up self-sustaining businesses, but to allow the family to tide over an immediate need like a marriage, send a relative abroad to work, pay medical or school bills. These activities are not necessarily non-productive and investing in education, or health can yield long-term benefits. However, it does put a burden on women who have to repay the loans.

Opening up a micro-enterprise in rural areas by women on their own requires a lot of self-confidence and a change in attitude that cannot be brought about in a few years. Where rural planners are optimistic is that the message of success will spread.

Most village banks are still less than five years old, and most have maintained practically zero default rates, and delinquency is also very low. These results are stupendous when compared with repayment rates at large government-owned banks like Nepal Bank or Agricultural Development Bank which have huge amounts of bad loans.

The reason is the social networks that bind the women in a cooperative. Since everyone in the group knows each other, they use peer-pressure to make sure that borrowers repay their loans, on time. "Women are afraid that they will lose their ijjat in front of everyone in the group," says Nirmala Chaudhary of Sauraha in Chitwan. "No matter what, we repay loans to the group, even if we have to do so by borrowing from a different source."

One rule that banks enforce is that at the end of the loan cycle (which is usually between three and six months), everyone must repay the loans from the group. The banks have realised that doing so in reality is extremely difficult so they allow women to repay from a different source and borrow the same amount immediately. Doing so keeps the records clear of delinquencies and makes borrowers happy.

Alternative sources of loans for women have been friends, relatives, other groups that women save in, or other microcredit programs like the Grameen, Nirdhan, or other government-sponsored lending programs. In the long run this mechanism of instant repayment and re-borrowing could put the banks in jeopardy.

The health of VBs relies heavily on how well they manage to stick to the rules. Penalties for delayed savings or repayment is an example. Although most groups have rules to charge fines in such cases, older groups seem less strict about them than newer ones. In the long run, relaxation of rules could raise the default rate, or even cause a bank run with members withdrawing their savings.

Most banks have total savings of less than Rs 100,000, and the fund is increasing by up to 50% per year. At this rate, they could easily reach Rs 1,000,000 within the next five years. And as the volume of deposits increase, so will the size and complexity of records. Record-keeping will be a problem for banks which have few educated women. And as the fund increases, the women will need to look for new places and ideas to invest in.

Economists have long told us the importance of savings in economic development. And the miracle in the tarai is that subsistence farmers have found that they can save. "In the beginning our group began to save Rs 2 per week," says Kamala Adhikari of Arungkhola, Nawalparasi. "I would wonder how I would be able to save that amount. But I have become careful about where I spend. Now we are saving Rs 25 per week and I am still managing fine." t

(Ani Rudra Silwal is working on a thesis on village banking at Swarthmore College in the United States.)