Micro Lending Circles
The Community Based Micro-Lending Circles have the potential to have a major impact on the financial resources available to individual community members. This concept is based on what Economists call the "multiplier" effect.
The CFDC of CIFN has designated a portion of the investment fund, which we receive from the Federal Government, for Micro-Lending Circles. The investment fund has been made available to increase employment opportunities through economic development for the Aboriginal and non-Aboriginal people in our catchments area as part of the Federal Government mandate of "Investing in Growth" of Canada.
There is an expectation, by the Government, of accountability and responsibility in the use of these funds. It is for this reason that we must request that the policies and structure of each circle may, if they choose, become totally independent of CFDC of CIFN.
We have set out the requirements for sponsorship to the circles as loosely as possible. This is done to allow each circle and community to operate in its own distinctive manner, serving their own needs and priorities. The individual members will know what their objectives are to empower the communities to make those decisions with minimal direction from CFDC of CIFN or other agencies. We will assist, upon request, but will not interfere once we have accepted and agreed to the policies and procedures each circle develops as long as they are adhered to and the required accountability measures are met.
We have determined that we will loan each circle a maximum of $4000.00 once they are prepared to begin lending and have their 20% in place. The circle structure must also be in place and an agreement is reached with the CFDC of CIFN. This will give each circle and maximum of $5000.00 for their investment.
Many individuals have asked, "What good is $5000.00"? There is a considerable benefit available where the "multiplier effect" takes place as in the following example:
If the following decide to charge 14% interest on each loan they make and are paid back with interest, the original $5000.00 will circulate and re-circulate within the circle as follows.
| Initial Investment | $5000.00 | $5000.00 |
| Interest Earned @ 14% | $700.00 | |
| 2nd Circulation | $5700.00 | $5700.00 |
| Interest Earned @ 14% | $798.00 | |
| 3rd Circulation | $6498.00 | $6498.00 |
| Interest Earned @ 14% | $909.72 | |
| 4th Circulation | $7407.72 | $7407.72 |
| Interest Earned @ 14% | $1037.08 | |
| 5th Circulation | $8444.80 | $8444.80 |
| Interest Earned @ 14% | $1188.27 | |
| Total now available $9627.07 | ||
| Total Investment For 5 Circulations | ****** | $33050.52 |
Total of existing fund $9627.07
Repay CFDC of CIFN $4000.00(assume five year term) plus any accrued interest
Balance for investment in circle $5627.07
The circle can now choose to become independent of CFDC of CIFN and they will have invested in loans to their members $33050.52.
Micro-Lending Circles
Micro lending circles help generate small business development, first time borrowers, start and expand small business, and reduce loan loss risk.
Proposed Criteria
Must have 20% equity to a maximum of $1000.00
Must develop lending, control, objectives and priorities policies
Identify Circle membership & structure:
Who will they lend to?
How will members apply?
Develop loan agreements.
What is their priority
Term of loans
Interest rate
Who makes the decisions for the circle?
Recommendation
Must be 18 years of age.
Must have at least one elder in decision making capacity.
Must have a bank account.
Must have signing authorities.
Loan must be approved by a simple majority of the members of the circle.
Mandatory Requirements
Quarterly financial reports must be submitted to CFDC of CIFN.
Minutes of all meeting are to be submitted to CFDC of CIFN during the partnership phase of the agreement.
An agreement must be signed between the circle and CFDC of CIFN.
No honorariums are to be paid to Circle Board members.
Conflict of interest guidelines are to be developed.
Circles must be willing to work in cooperation with CFDC of CIFN.
Circles must be prepared to repay the loan made available by CFDC of CIFN.
Objective of the program
To test the credit worthiness and credit limitations of Micro-entrepreneurs over time.
To develop low cost, effective credit delivery mechanism.
To enhance and increase opportunities for income generation, employment, and mutual assistance in the micro-enterprise sector.
To increase economic activity in the community.
To provide experience in financial management through a loan program.
To build self-confidence of the Micro-Entrepreneurs.
To demonstrate to other community members the viability of the "micro" sector.
To increase the availability of goods and services on and off the reserve.
General Description of the Lending Circle
The fundamental element of the lending circle is that a small group of people of Aboriginal descent get together to try help each other by pooling some of their financial resources combine with a loan from CFDC of CIFN.
It is through description of the social framework that the Lending Circle, establishes accountability in the Community, ensures due repayment and provides its members with an instrument for mutual assistance and collection action. The Borrower is kept in line by peer support.
Administration Responsibilities
The Board of Directors will host an orientation session for potential clients of the lending circle.
Establish a lending circle bank account.
Receive and review loan applications.
Issue cheques for Board approved loans.
All Board of Directors must attend all meetings related to planning, assessment and repayment schedules.
Review delinquency record.
Provide assistance when and where as appropriate.
Manage the financial affairs of the circle.
Issue receipts for collection of loan payments.
Prepare monthly monitoring reports.
Provide input to the design of the lending circle.
Interest earned by the circle may be used to pay administration cost with prior approval by the Board of Directors.
Attendance at all meetings is Mandatory with the exception of absence due to a legitimate reason.
Three missed, unexcused consecutive meeting will result in immediate dismissal without refund.
An annual general meeting must be held.
Must be 18 years of age.
Must have a viable business idea and short form business plan.
Must reside in the community.
Must attend an Board of Directors
Must be Aboriginal or Aboriginal descent.
Must accept the final ruling of the Board of Directors.
Must attend an orientation session which may of may not include some or all of the following:
Roles and responsibilities of the Board of Directors.
The purpose of the Circle.
Viability of the project.
How the loan is to be used.
Review of the loan application.
May be in a group setting.
Discuss the proposed repayment schedule.
Discuss the importance of 100% payback.
Discuss the affect of a poor repayment on one's credit rating.
Default means no more loans in the future
Discuss the fact that if they default, the Board of Directors must repay the loan and then they must repay the Directors who then have authority to act as the collection agents.
Reporting, Monitoring and Evaluation
Lending Circles, in general, require close and frequent review and detailed reporting is necessary to deal with problems in quick and effective manner. Although the design of the Circle is meant to be flexible, there are certain fundamental rules that cannot be compromised under any circumstances. We must ensure the established objectives of the Circle are being met. Monthly reports must evaluate not only the overall performance of the loan portfolio but of the Circle in general. This, of course, will assist in determining the future of the Lending Circle.
Terms and Obligations of the Lending Circle
This section will explain the terms and obligations associated with a loan to a Circle of individuals. It will tell about the loan it self, terms of repayment, borrower's covenants, financial reporting, security, disclosure, default, consequences of default, waiver and indemnity, removal of individual borrowers, and general details of the loan.
Loan
CFDC of CIFN agrees to lend to the Borrower and the Borrower agrees to borrow from CFDC of CIFN. The loan pursuant to a request from the Borrower for the loan and the Borrower agrees to enter into an agreement to secure the repayment of the loan. Terms of repayment will record that the borrower will repay to CFDC of CIFN at its place of business in the town of the Pas, Province of Manitoba or at such other place as CFDC of CIFN may in writing from time to time direct, the loan with interest thereon as follows:
- Principal amount $******
- Interest rate on all loans will be as follows:
Year 1 --- 0% of CFDC of CIFN prime
Year 2 --- 25% of CFDC of CIFN prime
Year 3 --- 50% of CFDC of CIFN prime
Year 4 --- 75% of CFDC of CIFN prime
Year 5 --- 100% of CFDC of CIFN prime
Year 6 --- 150% of CFDC of CIFN prime
Additional Years 150% of CFDC of CIFN prime
CFDC of CIFN prime is Bank of Montreal Prime Lending Rate as established from time to time.
As at the date of this loan agreement the principal amount of the loan is $****** the CFDC of CIFN prime interest rate is **% and the rate of interest calculated yearly not in advance is **% per annum.
Until demand, repayment shall be made in the amounts and at the times as negotiated in writing between the lender and borrowers demand for repayment in part or in full may be made at any time by the lender without prior notice to the borrower.
The loan may be prepaid at any time without penalty or bonus.
The borrower acknowledges that the funds provided by the lender to the borrower under this loan is secure fund requiring regular principal and interest payment by the lender to its source of funding. The borrower acknowledges that failure to repay the loan in accordance with the terms of this agreement could jeopardise repayments required to be made by the lender.
Borrower's Covenants
The borrower covenants and agrees:
To make all payments as required under this agreement or any security agreements.
To pay upon demand to CFDC of CIFN the outstanding balance of the loan together with interest accrued thereon at a rate equal to that set out in this agreement.
To provide, upon demand, any information, financial or otherwise, that CFDC of CIFN may reasonably require from time to time including, but not limited to semi-annual financial statement form the operation of the borrower's lending circle.
To observe all of the covenants, agreements, terms and conditions of this agreement and any security agreement to which the borrower is a party.
To adhere to the principals, policies, rules of the lending circle and any covenants and other requirements established by CFDC of CIFN.
To provide full disclosure to CFDC of CIFN which will be open, honest, fair and complete to the best of the borrowers acknowledge.
To design a lending circle policy acceptable to CFDC of CIFN and not to change the policy without the prior approval of CFDC of CIFN.
To establish and maintain a Lending Circle bank account for the administration the loan.
To collect on all loans and report to CFDC of CIFN.
To elect a chairperson from one of the individual borrowers for the lending circle.
To abide by all terms and conditions of the borrower's lending circle policy as approved by the lender.
To work closely with any agent of CFDC of CIFN appointed to the lending circle as business advisor.
Financial Reporting
The borrower shall deliver to CFDC of CIFN its semi-annual un-audited financial statement within 60 days of December 31 st and June 30 th of each year as the case may be. The borrower shall deliver other financial statements and information more frequently as may be directed by CFDC of CIFN form time to time. The borrowers acknowledge and agree to set its year end at December 31 st each year.
Security
The borrower shall supply to CFDC of CIFN upon demand security in the form and substance required by CFDC of CIFN in its absolute discretion to secure the repayment of this loan (the "security"). All security shall be in form and substance satisfactory to CFDC of CIFN and its legal counsel and shall be in form sufficient for registration or filing under all applicable laws. Each part of the Security granted will be in addition to and not substituted for any other part of the Security granted. The borrower shall prepare, sign and deliver to CFDC of CIFN , at the borrowers cost, such further documents as CFDC of CIFN may from time to time reasonably require to carry out the intent of this agreement.
Disclosures
The borrower agrees to provide complete disclosure to CFDC of CIFN with respect to all searches with respect to the security and credit searches to enable CFDC of CIFN to ascertain the credit worthiness of the borrower. The signing of this express authority for CFDC of CIFN to conduct such searches. The borrower agrees to sign whatever other documents may be required by CFDC of CIFN of CIFN to effect such disclosure.
Default
The Borrower shall be in default under this Agreement in the event of a default pursuant to any of the Security, or in any of the following events. The Borrower defaults in any payment required under the Loan or any money secured by the Security, at the time in the amount provided. The Borrower defaults in the performance of any term, condition, obligation or covenant to CFDC of CIFN, or any representation or warranty to CFDC of CIFN as untrue, whether or not contained in the Security or this Agreement. The Borrower ceases or threatens to cease, to carry on all or a substantial part of the requirements of the Lending Circle; or the Borrower uses any money advanced to it by CFDC of CIFN for any purpose other than declared to and agreed upon by CFDC of CIFN.
Consequence of Default
In the event of a default hereunder, the Loan and any other money secured by the Security shall, at the option of CFDC of CIFN, immediately become due and payable and the Security enforceable; CFDC of CIFN may post, notify, publish, report or announce in any manner whatsoever the names of any of all Borrowers to any other party that CFDC of CIFN, in their absolute discretion, deems appropriate. CFDC of CIFN may withhold any loan funds payable to the Borrower or any of the individual Borrowers, as CFDC of CIFN in its absolute discretion deems appropriate. CFDC of CIFN may, at their absolute discretion, take any steps permitted by Law for the collection of the outstanding balance, owing under this Agreement. Neither the execution nor delivery of this Agreement or the Security, nor the advance of money there under, binds CFDC of CIFN to make any advance or further advance of the Loan.
Waiver and Indemnity
The Borrower agrees to waive any and all claims, or rights to same, that they may have against CFDC of CIFN suffered as a result of this Agreement and to hold harmless and indemnify CFDC of CIFN from all such claims or resulting damages. The Borrower further agrees to release CFDC of CIFN from any and all liability for any loss, damage, injury or expense that the Borrower may suffer or incur as a result of any action or omission of CFDC of CIFN due to any cause whatsoever including negligence, gross or otherwise, on the part of CFDC of CIFN.
Removal of Individual Borrowers
Individual Borrowers under this Agreement shall not be removed except with the prior written consent of the Lender which consent shall not be unreasonably withheld. Schedule "A" attached to this Agreement shall contain a list of all current Directors and where indicated their replacement Directors as authorised by CFDC of CIFN. Each Director or replacement Director, by signing Schedule "A", acknowledges having read and agreed to abide by all terms and conditions of this Agreement and having received a copy at the time of signing.
General
CFDC of CIFN and their agents, representatives and assigns may in their sole discretion make such public announcement regarding the Borrower or the details of the successes or defaults attributable to the Lending Circle as it see fit; no amendment to this Agreement shall be valid unless it is evidenced by written agreement executed by the parties hereto of the Loan. Except for the Security and any other instrument delivered in accordance with the terms of this Agreement, this Agreement constitutes the entire Agreement between CFDC of CIFN and the Borrower. For multiple Borrowers, wherever the term Borrower includes more than one party each of the parties is a principal debtor in respect of the Loan and all monies payable under the Security and all covenants, liabilities and obligations entered into by or imposed on the Borrower, by this Agreement are deemed to be joint and several; time is of the essence of this Agreement; the Borrower may not assign any of its rights of obligations under this Agreement. Any notice required to be given under the terms of this Agreement or any Security may effectively be given by a party hereto by posting the same by prepaid mail, directed to the party at the address below or at such other address as the party may give in writing to the other party in lieu thereof, or by delivery of such notice to __________.
Any notice posted by prepaid mail shall be deemed to have been received five days after mailing. Any change in address will be provided to the other party within thirty (30) days of such change. Any provision in this Agreement which is prohibited or unenforceable under a Court of Law shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement. This Agreement will be governed by and considered in accordance with the Laws of Canada, British Columbia and the applicable Aboriginal First Nations Government. In this Agreement, words importing the singular number only shall include the plural and vice versa, and words importing masculine gender shall include the feminine gender, and vice versa and words importing persons shall include firms and corporations and vice versa. This Agreement shall ensure to the benefit of and be binding on the parties hereto and their respective heirs executors, successors and permitted assigns. The Borrower acknowledges having read, understood, agreed to and received and executed copy of this Agreement.
