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Module 7 - Savings, risk management and use of profits

What you will learn in this module

Understand the role and importance of savings
Understand different business risks
Discuss how some risks may be covered by the group
Discuss alternate use of profits of women's groups


Session 1

Concept of savings

1 hour

Session 2

Concept of risk management

1 hour

Session 3

Use of profits

1 hour

The three sessions may be combined into two sessions in a short duration training programme. When there is time, groups can be given the case studies to analyse, and they can discuss the implications of the decisions they take on capital formation and risk coverage.

Session 1 - Concept of savings

Start the session by asking the members if they save regularly.

Handout 1: concept of savings

Women's grassroots groups are members of primary cooperatives, which, in turn, are part of federations of cooperatives at the provincial and national levels.

When group members deposit their savings with the group, the amount is usually rotated as credit. The Local Administrative Council promotes the scheme and recommends an interest rate of 2 percent per month on the loans. The accounts of the savings and credit operations are supervised by the Council which helps in calculating dividends at the end of the year.

When women deposit their savings with the cooperative, they participate in the business of the cooperative. If they save in the groups as well, they help the business of the group.

The advantages of starting savings schemes in all the groups:

Session 2 - Concept of risk management

Handout 1: risk management by women's groups

Rural women's cooperative groups are quick to follow the advice of government officers on business. However, this can result in losses as the government has not always adapted its programmes to local farmers' conditions.

It is important that the groups make informed business decisions that are based on knowledge and experience.

Factors that help in this:

Handout 2: business risks

Risk is defined as any factor that may cause losses to the group's business. The risk may be external, i.e. arising from outside the group. Group members may have little control on such risks, e.g. change in market preferences. There are several risks that are internal, i.e. risks related to business management. The group can reduce these risks through management systems and planning.

Groups need to think of all the things that can go wrong and plan how to reduce the damage to the business if these things indeed do go wrong.

Principal risks





Discuss the probability of each of these risks arising in the groups represented by the participants. How do group members cover these risks? Ask members to relate some stories about the impact of risks on their groups.

Session 3 - Use of profits

Handout 1: use of profits

Members of a rural women's cooperative enterprise should know how the profits are generated. They should know the details of the calculation as they have each contributed to the profits.

It is also important that the women know and participate in deciding how to use the profits.

Major sources of finance

Own money

External money

Share capital contribution by members
Savings of members
Profits from business

Grants from government departments (CPD, CDD, Department of Extension, etc.)
Loans from cooperatives through government schemes

Profits can be used for:

a) increasing working capital
b) improving fixed capital, i.e. more and improved machines or building
c) investment in improved skills
d) investment in marketing

It is important that the women take into account the investment needs of their own business before donating money for community welfare. Improved business performance is necessary for generating more profits which, in turn, will enable them to provide sustained support for community welfare. If money is spent on community welfare without allocation for the group's business growth, there will be no benefit for the community over a period of time.

Many rural women's groups contribute their profits to the community without planning for their own business needs. This is not done in cooperatives, which see themselves as business enterprises and take care of their business needs first. Many women's groups, on the other hand, have been supported by the government and have leaders who emphasize social responsibility more than the growth of the group's business.

This can lead to continued dependence on the government.

Unless rural women's groups are run as good businesses, they will not be able to get recognition from the cooperatives and the banking sector and raise credit for their business demands.

The advantages and disadvantages of not using profits for business expansion (in this case, using it for the community):



Using profits for community welfare without putting aside money for business development and growth

· Satisfaction from contributing to community needs
· Needs of local community get recognition and support
· Social recognition and prestige for the women's group

· Continued dependence on the government
· Non-recognition of their unit as a genuine business enterprise
· Inability to provide for the growth of own business
· Not able to get credit from mainstream institutions, even from their own parent cooperatives

Therefore, it is important that groups give priority to improving their businesses. The rest will follow once their businesses become independent of subsidies and government support.

Handout 2: case study on capital formation and risk management

The Bong Ho women's cooperative group with 85 members has three businesses: common purchase of raw material, selling this to the members and the purchase of the final products from the members to sell in the market.

The group was formed 10 years ago with members raising 20 000 Baht from a dance performance in the village. The group has rotated this money as loans among members at a yearly interest rate of 5 percent and the initial fund has now grown to about 100 000 Baht.

The group does not have an accountant. A CPD officer visits them once a year to audit the accounts. Till then, the members do not know how much the group has earned as profit that year.

In fact, they have not even maintained proper accounts for earlier years. In 2001, they obtained government financial support, using it to buy machines to improve production quality. The government helped them in selling their produce and the group made a profit of 60 000 Baht. This was used to start 20 scholarships in local schools and make donations for the welfare of elderly people and persons with disabilities. All these decisions were taken unanimously by the members.

Six months after distribution of the profits, the leader found that the group needed working capital to buy raw material. There is a great demand for their products three months of the year and the group can increase its earnings if it can increase production at the right time.

The group believes that it can obtain working capital from the CPD or any other government department.


Analyse the financial management of the group and discuss whether it has taken good decisions with regard to capital formation.

What you have learnt in this module

Savings and capital formation

Risk management

Distribution of profits

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