What is a
Micro-enterprise Deposit?
A micro-enterprise deposit is a
deposit made by NFCDCU in a credit union that is used to collateralize a portion
of the micro-enterprise loans that the credit union makes. As the credit union books loans to
micro-enterprises, funds from the deposit are transferred to accounts pledged to
the credit union to support those loans.
Usually NFCDCU assumes risk equal to 25 - 33% of the value of the
loan. The size of any loan made by
the credit union to a micro-enterprise must be no larger than $25,000. When NFCDCU’s deposit in the credit
union matures, the credit union repays to NFCDCU the amount of the original
deposit which was never used as collateral, if any, plus amounts used as
collateral that represent the repayments by the micro-enterprise borrowers.
The purpose of the micro-enterprise
deposit is to “share” the risk between the credit union and NFCDCU. The
collateralized portion of each loan is the share of the loss NFCDCU is willing
to take.
How does a Micro-enterprise Deposit
work?
The following transaction is an
example:
|
1. NFCDCU deposit in credit
union:
|
$25,000 |
|
|
|
|
2. Credit Union makes loan
of: |
$20,000 |
|
Portion collateralized by
funds from NFCDCU deposit: |
25% |
|
Amount collateralized by funds
from NFCDCU deposit: |
$5,000 |
|
|
|
|
3. If the loan were to
default:
|
|
|
Amount collected after all
collection efforts: |
$8,000 |
|
Loss realized after all
collection efforts: |
$12,000 |
|
Amount of loss taken by credit
union: |
$9,000 |
|
Amount of loss taken by
NFCDCU: |
$3,000 |
|
Funds from collateral account
returned to NFCDCU deposit: |
$2,000 |
|
|
|
|
4. At maturity of NFCDCU
Deposit (assuming no other losses) |
|
|
Amount repaid to NFCDCU by
credit union |
$22,000 |
Who is eligible for a
Micro-enterprise Deposit from NFCDCU?
All credit unions that have Micro-enterprise lending
programs and have been policy members in good standing of the NFCDCU for at
least six months are eligible for Micro-Enterprise Deposits. The recipient must
have at least two years of lending experience. Priority is given to applicants
whose staff has attended NFCDCU-sponsored training on Micro-enterprise lending
and who have hosted a Micro-enterprise VISTA.
What are the normal terms for these
deposits?
| Amount: |
$25,000, but could be larger |
| Rate: |
3 ½ – 4% p.a., payable
quarterly
|
| Term: |
2 - 4 years |
Are there any restrictions on
the use of the funds?
Yes, the credit union must have a micro-enterprise
lending program and use the funds from the deposit in that program as described
above.
If approved, what documentation does
the Credit Union and NFCDCU sign?
Both parties must sign a
Micro-enterprise Collateralization Deposit Agreement. The terms and conditions
are described in this agreement.
What is required in order to apply
for a Micro-enterprise Deposit?
Complete and send in an application
form, including:
Also the application should:
-
discuss the need for micro-enterprise loans in the
community and the credit union’s strategy for meeting this
need
-
describe how micro loans are made and
booked
-
provide the credit union’s micro-lending policies
(apart from general lending policies)
-
describe
the experience/background in micro-enterprise lending of the loan committee
and/or of the micro-lending officers
