Christmas for Entrepreneurs Around the World

In Kishasa they sing through the night. In Mexico City, the streets and houses are adorned with bright red flowers that brings luck year round. In Russia, where snow is practically guaranteed, they swap presents at New Year and don’t celebrate Christmas until a week later. So how (indeed if at all) do lendwithcare entrepreneurs celebrate Christmas and how does it affect their businesses? We asked our MFIs exactly this. 

In Benin, Christmas is very popular and is celebrated in all homes, whether Christian or not. It is very much a family occasion. Houses are cleaned and decorated with trees & garlands, presents are exchanged and special meals are prepared from yam and beans to fish or mutton. Father Christmas arrives with presents for the young children and many of our entrepreneuers will visit those in need or alone at this time of year: orphans, prisoners and the elderly.

But the festive season is far from quiet for entrepreneurs. As our ACFB, our chosen MFI in Benin told us: “The celebration time at Christmas is the period par excellence for business in Benin. Trading is intense, especially on the markets selling toys, gastronomy, clothes, shoes, garlands, and ornaments for example. Each stall owner manages to keep on their shelves the products in higher demand by customers both regular and new. The main routes in the towns and countryside are transformed into temporary markets. Usually during this period the majority of ACFB’s clients are rushing to get loans.”

The entrepreneurs funded through lendwithcare live in the south of Benin near the coast, where there are two rainy seasons and two dry seasons; from December to February the air is hot and dry as the dust of the harmattan wind blows across West Africa.

Next door in Togo, weather, business and celebrations are similar. Special dishes are served with drinks such as whisky, coca-cola and a local beer made from millet. Our MFI partners WAGES told us that: “Christmas is one of the most important holidays in the country. Christmas is an opportunity for our communities to do special things such as give beautiful gifts to families and parents like chickens, sheep, cloth, wine, drink cans and bags of rice. This is the time of great reunion and we took the opportunity to reconcile quarrelling members. Best wishes are formulated in those days.”

Depending on their business, it can be the busiest time of year for some entrepreneurs; those that work in bars and restaurants or as tailors, hairdressers and taxi dressers are barely able to celebrate at all. 

As Cambodia is mostly Buddhist, Christmas is not celebrated by most. However, businesses may grow to meet demand from those who do. Across the South China Sea in the Philippines, the opposite is true for 90% of the population belong to the Christian faith, of which the vast majority are Catholic. Here, they lay a claim to the world’s longest Christmas celebrations, as carol singers visit houses as early as September. Religious devotion is central to their celebrations and is perhaps typified by Simbang Gabi – a mass attended for nine consecutive days; a tradition which if completed is believed to result in the wish of the believer being granted. Despite the recent floods in the Philippines (which did not affect the area of the country where our partner MFI is based), the Christmas spirit is kept alive, as SEED Finance told us: “This season of the year is truly an important occasion for all Christians in the Philippines. As long as God’s spirit and guidance is present in everyone’s heart, the Filipino Christmas will always be the happiest no matter what challenges come ahead.”

Closer to home in Bosnia and Herzegovina, Christmas is celebrated by some and not by others; there are a roughly equal number of Muslims to Christians. Many Christians fast but prepare cakes and dishes in time for Christmas celebrations. Christians and Muslims alike visits friends, family and collegeues. Our MFI partner Zene za Zene told us that as Muslims they celebrate two ‘Bajrams’: the two major Muslim festivals that mark the end of Ramadan and pilgrimage to Mecca. They told us that for Christians and Muslims alike:  'For all holidays in Bosnia and Herzegovina peoples are more close and friendly to each other.'

All of our partner MFIs and indeed everybody at lendwithcare would like to express their thanks to lenders in the UK and their wishes of good health, prosperity and happiness to all those who lend their money so generously. Good will and a very Merry Christmas to all!

By Emma Howard, assistant at lendwithcare.org

Microcredit and Job Creation

© CARE/ Emilie Bailey

When the aim is to create jobs then what is more effective, lending to the very smallest businesses, often referred to as microenterprises, or lending to slightly larger businesses commonly called Small and Medium Enterprises (SMEs). This was the question addressed by an interesting workshop that I attended recently on the relationship between microcredit and job creation at the Microcredit Summit in Valladolid, Spain. I am not sure that we reached any sort of agreement, apart from the obvious that both are important.

Traditionally, microfinance institutions (MFIs) have provided quite small short-term loans, often lasting no more than 3-4 months, to microenterprises to use as working capital. These businesses tend to be family owned and operated ventures. If these businesses are successful and grow, it usually means that the microentrepreneurs work longer hours. If they actually reach the stage when they require extra labour they tend to employ other members of the same household, often spouses, elder children or even other members of the extended family. It has been argued that little employment is created outside the immediate family and that many micro-businesses tend to remain micro.

In the context of low-income countries, SMEs are broadly defined as businesses with between 5 and 50 employees and typically require much larger, longer-term loans. They are often described as occupying a void called ‘the missing middle’ in terms of accessing finance; that is they are considered as being too large for the MFIs and too small for the banks. Nevertheless, it has been suggested that creating jobs is actually better achieved by focusing on SMEs, particularly those in labour-intensive industries, and even that such enterprises contribute more to the goal of poverty reduction. This occurs, it is argued, because SMEs often employ low-skilled workers; that is those that are among the poorest segments of the population and who are usually too risk averse even to begin their own microenterprises let alone qualify for micro-loans.

In fact, which of the two approaches is most effective in terms of creating employment is largely an empirical question. Lendwithcare’s MFI partners have recognised the potential of SMEs and while they still concentrate on providing finance to microenterprises, they have extended lending to include SMEs. In the Philippines, for example, approximately 10% of our partner SEEDFINANCE’s portfolio is targeted at SMEs. The employment creating potential of SMEs is demonstrated by Christina Reyes who has a business producing woven products made from the stalks and leaves of water hyacinths. Christina employs 25 workers from her local community in San Miguel in Central Luzon - all of whom are single parents and who would have struggled to receive a loan and establish their own businesses.

           

Undoubtedly, SMEs do possess considerable potential to create employment and while different organisational lending skills are required for lending to larger businesses, perhaps more MFIs should complement the provision of microfinance with lending to SMEs as well. However, aside from the obvious concern with the quality, not simply the quantity of jobs, we should also recognise that SMEs vary considerably between different economic sectors in terms of the types of workers they employ. For example, a forthcoming investigation on SMEs supported by the BRAC Bank in Bangladesh reveals that SME employees were far more educated and skilled and came from households considerably less poor on average than microcredit borrowers. Furthermore, SME employees tended to be men while microcredit borrowers were largely women. We cannot assume, therefore, that lending to SMEs will always create opportunities for the poorest.

By Ajaz Ahmed Khan, microfinance adviser at lendwithcare.org

Alastair Stewart OBE report from Bosnia

Bosnia and micro-finance

A weekend in Bosnia with one of the charities I support:



© CARE/ Jon Spaull

The day before I left for Bosnia-Herzegovina I had been grilling MPs in London about the Autumn Statement, the UK’s public spending crisis and the Coalition’s austerity package. Here, unemployment is 40% and the state levies an effective 70% jobs tax – it is the economics of the mad-house. Widows of the civil war, particularly the genocide of Srebrenica, literally scrape a living from the cold soil. Buildings, twenty years on, still bear the pot-mark battle-scares of shelling while others remain empty wrecks- crumbling monuments to lives lost, people disappeared.

Nearly two decades after the Dayton Accord stopped most of the killing, there is a sense things are getting worse. As Italy and Greece rely on the wiles of unelected experts to claw their way out of indebtedness, in Bosnia-Herzegovina there is a common harking back to the ‘good old days’ of Tito and the socialist totalitarianism of Yugoslavia. He was an unelected man who made this montage of ethnically and religiously diverse groupings cling to together.

One young man tells me “I‘d swap that oppression for this freedom”. At day break, soup-kitchens in Sarajevo do a roaring trade, though some potential clients cower in the alleyways until we have gone. Pride has survived much deprivation and continuing hardship.

I am here with CARE International UK, part of an international charity which began life sending food parcels from the USA to war-torn Europe. In an irony of history, today CARE is a big player in the increasingly important micro-finance initiative – small loans to those with big needs. They work, in Bosnia & Herzegovina, with Women for Women International. Among the Muslim population, the Serbs and their allies guaranteed there are many widows who have become keen and needy clients.

We entered Sarajevo from the west, passing a huge factory complex on the left of the road where thousands of Muslim men and boys were rounded up and either executed or deported. Across the road, a cemetery. Its dimensions pay a chilling tribute to the scale of the atrocities committed on the other side of the street.

In the hills, clusters of simple white stumps, marking the resting places of other victims.

We meet Mustafa, a Policeman, his wife, a qualified lawyer, and their two beautiful girls, aged five and six. At the outbreak of war, Mustafa fled to the mountains with his father and brother. Most refugees clung together in a big group and were caught and slaughtered. Mustafa was among those who broke away and survived. The family is lucky: they enjoy a modest income and live on a small-holding of family land. Micro-finance has enabled them to expand, buy sheep and goats, sell meat and wool, and do better. They also sell sheep to the Muslim community for ‘Kurban’ , the sacrifice of Eid. They are planting beet. They trust the micro-financiers who are more ’simpatico’ and less admin-bound than the banks. But they make their payments and their dream is economic independence.

Snerjena runs her own hair-dressing salon. She worked in one, borrowed E500, trained, and set up her own. She arranged two more loans, repaid them, and is now on her fourth. She makes a profit and wants to employ someone though that 70% tax makes her pessimistic. She is 27 and married to a geologist.

“This has transformed my life – it has taken me to a different level”.

But the strikingly different level for me was Namina, a fifty one year old widow who, with all the courtesy I can muster, looks much older. She lives in her dead brothers house. The Serbs threw her and her teacher-husband out of their down-town apartment when they occupied the town; they killed him and she was deported to Tusla with her young sons. To this day she doesn’t understand why they were allowed to live.

“This loan means life for me – if the lender was not here life would be impossible”.

Hens and guinea-fowl scratch the soil among the remnants of last summers vegetable crop – cauliflower and cabbage from what I can see. A plastic-sheet green house boasts seedlings and the promise of next years crop of cucumbers and peppers. The poultry lay eggs but she mainly ’brings on’ chicks and sells adult birds as food in the nearby market town of Bratunac. A neighbour does the ploughing and her twin-sister, who lives nearby, helps. She needs another E750 in June. She’ll get it.

In the hills above Srebrenica, Tima and her son have sheep and a few fruit trees. The war took her husband and her home. CARE rebuilt the house and is now helping her re-build her life. The family fled to the mountains but her husband didn’t return – his remains were discovered in a mass grave in 2008. She is now on her second Lendwithcare loan – E 1000 – and they survive, just. They work hard – seeds in the spring, a harvest, some sheep sales and then something of rest in the bleak winter. Her priority is a job for her son – that, and survival. CARE is helping with survival. The job prospects, more bleak.

This is simple economics transforming ordinary and extraordinary lives. It can enhance the existence of those on the brink of destitution; it can take a low-wage group of survivors to a new level; and it can salvage lives, like Tima’s, from utter destitution. In a time of multi-trillion Euro-lunacy, it is a moving experience to see how little, administered by caring and committed people, can take some of their fellow human-beings out of despair. They may not reach Nirvana but, for them, the hell of twenty years ago, is slowly being put behind them. It is impossible to describe how proud I am to support a charity at the heart of that process.

Posted by Alastair Stewart. 28 November, 2011 )

(This blog entry is produced with kind permission of Alastair Stewart OBE from his original ITV News Blog http://blog.itv.com/news/author/alastairstewart/

CARE International UK Chief Executive reports from Bosnia Herzegovina

 


© CARE/Jon Spaull

  CARE UK Chief Executive Geoffrey Dennis writes from Bosnia and Herzegovina where he is with ITN’s Alastair Stewart visiting the latest entrepreneurs to be added to Lendwithcare.

Landing in Sarajevo 19 years after I was last here during the war, I was quite surprised to see a lot of buildings and infrastructure are still in the same poor condition as they were then, some exactly as I last saw them. We travelled to Srebrenica early this morning, which economically and physically appears to still be in a very bad way. Buildings still bear bullet marks from the conflict. The economy of Bosnia and Herzegovina has slowed down considerably, particularly since 2008, and as a result approximately 40 per cent of working age people are unemployed.

Clearly, many families are in a very vulnerable situation. In many cases the head of the house and the only breadwinner is now the mother, as thousands of fathers were killed in the war. Many are struggling to earn a living and a large number are still reliant on food kitchens to keep their family together.

One positive story, however, was a woman we met today. Her name is Nermina. She is now 51 years old and lost her husband in the 1995 massacre. She was left alone with three young children to look after, all under the age of five. In recent years, Nermina has benefitted significantly from education, training and loans through Lendwithcare’s partner and is now able to support all three children with income from a greenhouse and an agricultural smallholding particularly concentrating on chickens.

Lendwithcare gives vulnerable families the opportunity to stabilize their lives - the idea is that individuals in the UK make small loans to entrepreneurs in a poor community. So far 100 percent of these loans are repaid. When you make a loan to a Lendwithcare beneficiary, which I have done several times, you receive updates on a regular basis and repayments on your loan. Lendwithcare has just started operations in Bosnia and Herzegovina; in other countries it has already proved to have an extremely positive effect on people’s lives.

We also met inspiring staff from CARE’s women’s empowerment project and discussed the issue of the sex trade that has affected a large number of young women in this country. I see a really positive link with the Lendwithcare programmes as this will allow affected women to change their lives and start building a legitimate small-scale business as an alternative to the dreadful life they’ve had to lead.

I have now seen Lendwithcare operating in three countries and I’m very impressed with the effect it has- I am a great believer in building self sustainable programmes so people don’t have to continue to rely on organisations like CARE. For a small loan- and I do mean these are loans- the effect is genuinely life changing and they restore the dignity of families who really do not want to rely on handouts.

What a wonderful way to invest in improving the life of a vulnerable family at Christmas time. Every staff member in CARE International UK is making a loan on Lendwithcare this Christmas and many of their family members are doing the same thing. Lendwithcare now offers gift vouchers to make it easy to share this opportunity with others. Please do go to www.lendwithcare.org and you can see numerous entrepreneurs and opportunities to make a loan which really will substantially assist a less fortunate family at this time of year.

While I’m writing this, I’m staying in a boarding house in Srebrenica. We have heard some really sad stories today, particularly relating to the killings that took place here 19 years ago. The last family we visited lived in a still partly damaged house and the weather is well below freezing point. I came away today feeling very sad about the situation for many of the people we met.

But I also feel positive about the difference CARE is making. I am personally going to make two loans for families in Srebrenica this Christmas. This is a really good opportunity to permanently and positively affect the lives of some wonderful people like the ones we met today.

By Geoffrey Dennis, CEO of CARE International UK

What happens with loan repayments when a natural disaster occurs?

© CARE/Ami Vitale

I am currently in Cambodia where months of heavy rainfall have resulted in the worst flooding in a decade. This has left at least 247 people dead and damaged more than 390,000 hectares of agricultural land, including more than 10% of the country’s rice harvest. The floods have affected 1.2 million people across the country, but particularly those living along the Mekong River. Around 34,000 households have been evacuated to higher ground, and many roads, schools and homes have suffered damage.

Since early 2011 lendwithcare has been partnering with a local microfinance organisation, Cambodia Community Savings Federation (CCSF), which provides loans and other financial services to microentrepreneurs in the north-western provinces of Battambang and Banteay Meanchey, near the border with Thailand. While not as badly affected as other parts of Cambodia, many villages in the province remain isolated and under water. In some parts, cattle have been put in pens on small man made islands of earth, surrounded by flood waters. Many farmers have lost their entire rice crop as their farms have turned into lakes. In these situations, what happens to loan repayments?

 

Since many entrepreneurs have more than one source of income, they may in fact be able to continue making loan repayments from income generated from activities not affected by the flooding. For example, Saret Bou took out a loan of about £360 from the Ek Phnom Credit Union a few months ago. His loan was re-financed through lendwithcare (you can see more details at http://www.lendwithcare.org/entrepreneurs/index/703). He used the loan to prepare his land and buy fertiliser in order to ensure a good rice yield.

However, one hectare of his land has remained under water for the last month and he has lost any rice he planted there. Despite this, he hopes that the two hectares that escaped the flooding will provide him with a reasonable yield when he finally harvests the rice in January. However, Saret is confident that he will continue to be able to meet his monthly loan repayments over the next few months because he and his wife also produce ‘Sambok Nem’. This is a thin type of pastry that can be stuffed with meat, fish or other food and then cooked. They produce and sell Sambok Nem on a daily basis and it provides them with a regular income.

© CARE

Other entrepreneurs though are not as fortunate as Saret Bou, and will be unable to make full and on time repayments. Indeed it would be unfair on borrowers for lenders to insist. In these cases, CCSF and the local credit unions are planning to re-schedule repayments without penalty charges for late repayments and without, importantly, imposing an unreasonable level of debt on borrowers. Usually, this means that entrepreneurs will make much smaller than expected repayments, or suspend repayments altogether for some months while extending the length of the loan. Nobody is quite sure what needs to be done and what the scale of default might be though until the floodwaters subside and they have had the opportunity to visit entrepreneurs and assess the extent of the damage.

Thon Meas, Operations Manager for CCSF, remarked “This level of flooding is unprecedented during the many years that I have worked for CCSF. It is a worrying time for the organisation, but we are determined to continue supporting the credit unions and ensure that our borrowers receive the support they need to re-establish their livelihoods”. In fact, when they have lost their entire rice crop and have few other sources of income, farmers actually need credit more than ever; in order to buy seeds, fertiliser and even in the short-term food to survive. In situations where borrowers are unable to repay their existing loans it is not uncommon therefore for them to be given new loans so that they can buy the necessary inputs and begin producing again as quickly as possible.

By Ajaz Ahmed Khan, microfinance organiser at lendwithcare.org


 

Fair interest rates and ethical lending



© CARE/Emilie Bailey



There has been a lot written in recent months about the high interest rates charged by certain microfinance providers. Thankfully, such instances are still relatively rare. Lendwithcare only partners with those microfinance institutions (MFIs) that charge ‘fair’ interest rates, but we go further and also promote an ethical lending policy. This process starts by selecting MFIs that comply with a set of eligibility criteria. Although solid financial performance is among the requirements, paramount importance is given to a strong social development mission including targeting low-income populations who are usually excluded by commercial banks. We check at least once every six months to ensure that partner MFIs continue to meet criteria. CARE also maintains a presence on the Board of some of the MFIs to ensure that social development objectives remain at the fore in institutional decision making.

Although lendwithcare provides interest free capital to our MFI partners, the MFIs do charge interest (or other fees in the case of Shari’ah compliant institutions) to entrepreneurs. However, we do check to ensure that their interest rates are ‘reasonable and fair’ according to the local context. If they are to survive then MFIs must of course cover their operational costs. And the costs associated with providing very small loans, on occasions supported with training and other services, to often geographically isolated borrowers, especially when they visit them at their homes to disburse loans and also collect repayments, can be considerable. Indeed if they wish to grow and develop MFIs will need to make a profit. However, while there is an obvious need to ensure financial security for themselves so that they can continue operations, they are rarely under pressure from shareholders so do not need nor desire to make ‘excessive’ profits.

What the interest free capital allows the MFIs to do is extend their operations and lend to poorer clients than they might otherwise, or to move into more remote areas - this has been the case with our MFI partner in Togo for example which is now lending in more isolated rural areas.  In other cases, such as the Philippines the MFIs have actually passed on the benefits of receiving interest free capital from lendwithcare to their clients through much lower interest rates.

Lendwithcare also has an ethical lending policy. Although is impossible to screen each and every loan that a partner MFI disburses, we do carefully review each loan featured on lendwithcare. In this regard, we will not promote loans that, for example, focus primarily on selling alcohol, involve inhumane animal husbandry techniques, and are environmentally unsustainable. At the same time, we proactively encourage loans that, for example, promote sustainable agriculture, recycling, renewable energy and energy efficiency . For example, Geoliopsalme Comedia (http://www.lendwithcare.org/entrepreneurs/index/910) supplies timber for the construction industry in the town of Asturias on the island of Cebu in the Philippines. All the wood she supplies is sustainably sourced and her business is licensed and accredited by the relevant government authority.

On occasions we must also adopt a more practical and common sense approach. For example, many of the entrepreneurs featured from Cambodia are rice farmers and they often seek loans to purchase fertiliser. Their preference is to produce or purchase natural organic fertiliser; in fact many of the farmers have been trained by local non-governmental development organisations in how to produce organic fertiliser.  However, there are usually insufficient quantities available, particularly as it can take at least three months to be ready. Therefore, we accept that loans will often be used in part to purchase chemical fertiliser.

We also try to more broadly understand the types of activities that MFIs finance. For example, our partner MFIs in West Africa provide some loans that finance the production of red palm oil. It has been pointed out that the rising demand for palm oil has been associated with deforestation. However, while this may be an issue among the large plantations of Indonesia and Malaysia, the situation in Togo and Benin is quite different. The United Nations in its ‘Human Development Report 2007-2008’ emphasised that the production of palm oil in West Africa is actually largely sustainable, mainly because it is undertaken on a smallholder level without resort to diversity-damaging monoculture. In fact, the United Nations Food and Agriculture programme is actually encouraging small farmers across Africa to grow palm oil, because the crop offers opportunities to improve livelihoods and incomes for the poor.

By Ajaz Ahmed Khan, microfinance advisor at lendwithcare.org

How do entrepreneurs use microfinance?



© CARE/Emilie Bailey



I am always interested to learn more about how people use microfinance. During a visit last month to the Philippines I had several opportunities to speak directly with entrepreneurs. Lendwithcare works in partnership with SEEDFINANCE, a local wholesale microfinance institution (MFI) in the Philippines. This means that it lends to other smaller MFIs. Among these are the First Consolidated Co-operative Along the Tañon Seaboard (FCCT) and Lamac Multi-Purpose Co-operative (Lamac), both of whom have entrepreneurs featured on lendwithcare. FCCT and Lamac are from the island of Cebu, which is a one hour flight southeast from the capital Manila. The island’s commercial and administrative centre is Cebu City, the oldest city in the Philippines.

Small-scale retail and trade enterprises that generated a regular return applied for short-term loans lasting a few months. While there were instances of investment in equipment and machinery, generally these loans were used as working capital, often to buy stock.  Entrepreneurs, such as Josephine Saldua who sells second hand clothes in Tuburan, told me that the loans enabled them to buy in bulk and pay suppliers immediately and in cash, thereby ensuring that they received a discount. In the past, they were often forced to take (often poor quality) items on credit at a higher price from wholesalers and suppliers. The ability to access loans had in effect increased their bargaining power. Entrepreneurs who bought perishable items, such as fruits and vegetables, added that when they paid in cash, they were able to select the best quality and freshest produce available - enabling them to attract more customers with better quality merchandise. Entrepreneurs involved in agricultural and livestock ventures typically used loans to purchase inputs such as fertiliser, seeds or animals and associated feed.

During our discussions three important aspects stood out.  Firstly, entrepreneurs admitted that they did not always access loans, even when readily available. Rather, they only sought loans when they did not have enough money in their savings accounts. This emphasises the importance of MFIs offering a range of financial services, including readily accessible savings accounts, not just loans. This was particularly important for farmers and others involved with economic activities that did not generate an immediate return, as savings were used to meet ongoing household expenses.

Secondly, entrepreneurs confessed that single one-off loans would not have made a significant impact on their businesses. Rather, it was the ability to continually access loans when required over a period of many years that had helped them to manage and develop their businesses. Emmanuel Climaco was case in point. He had a stall in Balamban Public Market, selling a variety of electrical items, vehicle spares and motor oils. Emmanuel told me he had received, and promptly repaid, 22 loans over a five-year period from FCCT!

Finally, women entrepreneurs in particular, favoured businesses that allowed them to work from home, even when these offered lower returns. They needed to combine earning an income with attending to other household duties, such as caring for young children. Indeed, this might explain the preponderance of women owned small retail stores or workshops operating from the home among the portfolio of both FCCT and Lamac.

This highlights the struggle many women face in balancing work and household commitments and raises a number of important questions. Are women entrepreneurs restricted from undertaking certain activities that generate greater economic returns, by their inability to manage businesses with household responsibilities? If women’s businesses do increase and occupy more of their time, what are the implications for elder children, particularly girls, who might then have to care for younger siblings and assume responsibility for other household chores? Will their education and therefore longer-term prospects suffer?  Would women’s opportunities increase if male partners assumed a greater responsibility for household duties? Unless, these questions are addressed I am not certain that the potential of women microentrepreneurs, nor of microfinance for that matter, is being fully realised.

By Ajaz Ahmed Khan, microfinance advisor at lendwithcare.org 

Promoting responsible lending

© CARE/Helen Barnes

I listened to a very interesting and well balanced programme on BBC Radio 4 last week called ‘The Bankers and the Bottom Billion’ about microfinance in India (http://www.bbc.co.uk/programmes/b0112fz9). It illustrated the potential of microfinance in helping poor people to develop their businesses and improve the lives of their families. However, it also highlighted the problems associated with poor people taking out multiple loans and not investing the money in productive ventures. It went on to describe situations where some borrowers, who were unable to generate a return and repay their loans on time, were being chased by ‘microfinance companies’ whose main concern was making a return for their shareholders.Could this also happen to the entrepreneurs supported through lendwithcare?

 

Of course, there will always be some borrowers who, for a variety of reasons, will face difficulties in repaying their loans.  However, I think the approach we adopt makes this scenario far less likely; on the contrary a more likely development is that lendwithcare will contribute to positive changes taking place in the lives of poor people.

There are two reasons for this. Firstly, we take particular care only to work with microfinance institutions (MFIs) that, in addition to a sound financial performance, have a strong social development mission and responsible lending practices. We have lengthy due diligence procedures that involve several field visits to examine the institution’s organisational structure and decision-making processes. We also discuss lending policies and procedures with both staff and borrowers, and reviews documentation and audited reports. And we continue to monitor a range or social and financial indicators to ensure that MFIs are meeting ‘the double bottom line’ of financial sustainability and positive social impact.

Furthermore, we have developed a code of conduct in microfinance (http://www.lendwithcare.org/info/cares_code_of_conduct_in_microfinance) that underpins all our work in poor communities. It protects the rights of borrowers and ensures that they are treated with dignity and respect, while at the same time providing them with the highest quality products and services. All our partners must adhere to this. Among the many principles that the code articulates is a commitment to 'educate clients on financial management and ensure that clients and their families benefit from the services they receive and do not become over-indebted'. It is in fact very similar to other standards being promoted by other initiatives such as, for example, the client protection principles developed by the SMART Campaign

http://www.smartcampaign.org/about-the-campaign/smart-microfinance-and-the-client-protection-principles

Secondly, we only work with MFIs that, in addition to loans, offer other financial services to low-income people such as, for example, savings accounts. In this way, clients are likely to access loans only when they do not have enough savings of their own.  Furthermore, our partners generally offer a range of loan products including short-term emergency loans if a family member falls ill, assistance with funeral costs and even insurance cover.

It is important to increase the provision of microfinance, but given the potential vulnerability of many of the poor people we work with, it is also important that this is done in a responsible and transparent manner while adhering to the highest ethical standards.

By Ajaz Ahmed Khan, microfinance advisor at lendwithcare.org