In November 1995 representatives from 30 agencies and 20 countries met in Guatemala for the First International Conference on Village Banking. Participants sought to develop a set of principles and standards that could help effective village banking programs. The interaction and understanding of common concerns at this conference will serve as the basis for future collaboration on village banking issues. Village banking provides a model which enables poor communities to establish their own credit and saving associations in village banks. The sponsoring agency makes one loan to one village bank which then makes loans to its members, guaranteeing the loans and relying on peer pressure and support among members to help ensure repayment.
Borrowers start with an extremely small loan and work their way up to an established ceiling.
Credit is linked to savings and loan sizes to the amount saved by each borrower. Members' savings are held by the village bank as an internal account and forms one capital the bank can lead or otherwise invest to increase its resource base. Now village banking is being implemented in over 25 countries in Latin America, Africa and Asia. Although savings mobilization is still key for capitalizing village banks the motivation to save is changing. Most implementing agencies have had to strike balance between empowering village borrowers to create their own management systems and providing sufficient oversight to assume accountability.