Loan application and approval process for savings groups

Members judge a fund by how it handles loans. A process that is slow, unclear or seen as favouring friends does more damage than a bad loan. This guide sets out a simple, fair process from application to disbursement. For the bigger picture, see how to run loans in a savings group.

#The application form

Keep it to one page. Ask for:

1. member name and number;
2. amount requested and repayment period;
3. purpose (a few words, such as school fees, business stock or medical);
4. monthly income source and approximate amount;
5. other loans or debts;
6. guarantors, if the amount is above the member's own savings, with their confirmation (see guarantors in group lending);
7. how they'll receive the money (mobile money number or bank account);
8. a declaration that the information is true and the member accepts the loan rules.

Online forms or fund software make this much easier than paper. The application is timestamped and the committee sees it at once.

#The approval checklist

The committee checks each application against written rules, not feelings:

• The member has saved for the minimum period (e.g. 3–6 months)
• Dues are up to date
• No other loan outstanding, or the rules allow a top-up
• The amount is within the loan limits (savings multiple, single-borrower cap, available funds)
• Repayments are affordable given the stated income
• Guarantors are confirmed and have enough free savings
• Credit record: past repayments considered using an agreed score (see fair credit scoring for members)

If every box is ticked, the loan is approved. If not, it's declined or reduced, with the reason written down.

#The loan committee

• At least three members, with at least one who isn't an officer.
• Conflict of interest: anyone related to or guaranteeing the applicant steps out.
• Committee members' own loans go to the full executive, not their own committee.
• Quorum and records: decisions need a quorum and are minuted: applicant, amount, decision, reason.
• Rotation: rotate membership every year or two to prevent cliques.

#Turnaround times

Publish them:

• Emergency loans: decision within 48 hours (see emergency loans vs welfare grants);
• Normal loans: decision within 7 days;
• Large loans needing extra approval: within 14 days.

When demand exceeds available funds, process in date order and share the queue.

#The loan agreement

Before disbursement, the borrower confirms:

• principal, interest rate and method (flat or reducing balance; the difference is large, see flat vs reducing-balance interest);
• repayment schedule with dates and amounts;
• late-payment rules;
• what happens on default, including recovery from savings and guarantors.

#Disbursement and recording

1. Two signatories approve the payment (see opening a group bank account).
2. Money goes only to the borrower's own verified number or account.
3. The loan is recorded immediately: loan receivable up, cash down. See double-entry bookkeeping for savings groups.
4. The borrower receives the schedule and a confirmation.

#After disbursement

Send reminders before each due date, record every repayment, and act early on missed payments using handling late loan repayments. Report loan totals and arrears in the monthly report.

Frequently asked questions

How quickly should a group approve a loan?

Aim for a decision within 7 days for normal loans and 48 hours for emergency loans. Publish those times so members know what to expect.

Who should approve loans?

A loan committee of at least three members, not the treasurer alone. Larger loans can need approval from the full executive or members.

Should rejected applicants be told why?

Yes, in writing with the specific rule that applies, such as exceeding the savings multiple. Clear reasons prevent suspicion and help the member reapply successfully.

This guide is general information to help groups organise themselves. It isn't financial, tax or legal advice — rules for savings groups differ by country, so check with a qualified adviser for your situation.