Can Microfinance Create Sustainable Businesses?

Lendwithcare.org's Microfinance Advisor, Dr Ajaz Ahmed Khan, answers one lenders very pertinent question

Banking on Change in Uganda

© CARE/Tine Frank

A business owner and lendwithcare lender raised a very important question in an email to the lendwithcare team recently. Attracted to the lendwithcare model due to its emphasis on sustainable development and providing the working poor with a hand up instead of a hand out, he asked how, with loans alone, micro-entrepreneurs were able to create truly sustainable businesses that could benefit whole communities. We thought we would share Ajaz's answer with you all ...


In our experience low income people face many obstacles, lack of capital is just one. Thus, lack of appropriate skills, lack of markets, lack of mobility (particularly important for women in certain contexts), lack of rural infrastructure, etc. all impact upon their ability to develop their businesses - poverty is multi-faceted. As an organisation, CARE International works in addressing many of the aforementioned obstacles and many others (such as health and education), not just providing microfinance.

There are a wide range of institutions that provide microfinance, some tend to be very commercially minded providing nothing but loans, while others have a strong social development mission and provide a range of other services including savings (so that low income people do not always need to seek loans), insurance and training. We are very careful in selecting our microfinance partners and work with the latter rather than the former. Some of our partners provide extensive training to borrowers. For example, our microfinance partner in Bosnia & Herzegovina, Zene za Zene International has a sister organisation that focuses exclusively on providing women with training in basic bookkeeping and financial planning, new skills, marketing and presentation and even helps them to export products overseas. Once women complete the training courses (that can last several months) they then qualify for a loan providing they present a viable business plan from the microcredit foundation. However, in practice funding training programmes is a challenge and it is one of the reasons why they are not more widespread.

Our microfinance partners also lend to small and medium enterprises (SMEs) who typically require larger loans than those featured on lendwithcare. For example, around 10% of the loans given by our partner in the Philippines, SEEDFINANCE, are to SMEs. These are enterprises who typically employ several staff. We have not generally featured these loans on lendwithcare though as yet because they might take too long for us to fund, although as lendwithcare grows and we have more lenders we will support more SMEs.

Our partners are all experienced microfinance providers, often with a close understanding of the communities where they work and take the view that providing one loan to a microentrepreneur may not generate a cycle of sustainable development, rather that they require access to loans (supported by a range of other services and training) over an extended period of time to develop their businesses. However, since they also need to ensure their own organisational sustainability (despite sometimes being non-profit or member owned organisations) our microfinance partners tend to slowly increase the size of loans over several years as they see a business develop - certainly there are many instances of borrowers beginning with very small enterprises that have developed into much larger businesses that employ several staff. However, there are certain limitations also as I have explained in a recent blog http://lendwithcare.blogspot.co.uk/2012/09/ecuador-microfinance-and-women.html#more that are often more difficult to overcome.

By Lendwithcare.org Microfinance Advisor, Dr Ajaz Ahmed Khan

Ecuador: Microfinance and Women Entrepreneurs

‘No tengo con quien dejar los niños’

Mariana Robalino, an entrepreneur from Ecuador
© CARE

Looking through the types of business supported by lendwithcare in Ecuador, it is notable that many women manage shops, raise poultry or provide sewing or tailoring services – typically, activities that are undertaken from home. When during a recent visit to South America I asked women entrepreneurs why they favoured such enterprises, invariably the response was ‘No tengo con quien dejar los niños’ or ‘I have to look after the children’. Working from home enables women to earn an income while looking after young children – they can close the business while they drop off and pick up their children from school or attend to other urgent tasks such as taking an ill child to the doctor.

The experience of Carmen Castillo, who in May 2012 received a loan to buy another computer for her Internet café, is typical. Doña Carmen used to work as a radio controller for a taxi firm but found it difficult to combine work with looking after her three young children. She decided therefore to start her own business. She converted the ground floor of her home into an Internet shop while continuing to live on the first floor. Carmen opens the shop at around 10 am each day after making breakfast and taking her children to school. She then attends to customers throughout the day, closing briefly when she has to pick the children up from school. When her partner returns from work she switches to other tasks such as cooking, cleaning and making sure her children do their homework while he continues to look after the shop until it closes at 10 pm. 



Carmen Castillo © CARE



Women who have businesses that require them to work outside the home, for example managing a stall in the public market, rely on other family members, particularly grandmothers, to look after their children. Lendwithcare’s microfinance partner, Fundacion de Apoyo Comunitario y Social del Ecuador, estimates that in approximately one-third of families the father is absent. However, even in the remaining two-thirds of households looking after children is still considered primarily a ‘mother’s responsibility’ - although among younger parents in particular such attitudes are changing. I asked some of the many women who sell fresh fruit and vegetables in the markets how they used loans. Primarily, loans enable them to pay wholesale suppliers in cash, rather than taking items on credit. This is important because not only do they receive a discount, but they can also select the freshest and best quality produce available. The valued outcome is that they are able to sell their stock quicker, close the stall and return home early to care for the their children.

Undoubtedly, the types of business activities that women prefer to undertake or the time they spend outside the home is influenced by their ability to depend upon other family members to assist with child care, as well as the accessibility and cost of childcare facilities. Unfortunately children’s nurseries tend to be either heavily oversubscribed or too expensive for lower income families, while outside the larger towns and cities childcare facilities are simply non-existent. Creating more affordable places at nurseries would make women’s lives easier and it might also impact upon the range of business activities that they consider undertaking. In fact, in some respects the challenges facing women in Ecuador are not too dissimilar to those faced by women in industrialised countries such as the United Kingdom.

By Dr Ajaz Khan, lendwithcare.org Microfinance Advisor

Loans can be given as a gift voucher to a friend or family member, who can choose which entrepreneur they would like to support. The entrepreneur uses the loan to help grow their business, and later pays the lender back. The lender can either withdraw the money and keep it, or lend the same money to another entrepreneur.

Gift vouchers range from £15 and are available in various designs, which can be sent via email, downloaded and/or printed. They are available at www.lendwithcare.org/gift_vouchers.

Why I Lend: Compassion

Lendwithcare lender, Ia Uaro, tells us why she lends

 

 

© CARE

“I shall pass this way but once

therefore

any good that I can do,

or any kindness that I can show,

let me do it now!

for I shall not pass this way again.”

A version of that was written by a thirteenth-century Courtenay ancestor, Edward, Earl of Devon. Many people love this poem. I don’t know what they do with their love, but my protagonist says love is more than just a feeling. Love is a drive, a force to act! Many hearts are moved when they see sufferings.

GRANDPA
 

My maternal grandpa was born in 1900, in a very beautiful green village by a forest-covered majestic mountain. Close to the equator, it was sunny during the day; but at the village’s altitude of 6000 ft, it was very, very cold at night. Grandpa knew what cold was, because he came from a poor home.

Grandpa was an angry boy. He was way too smart for most of the people of his time. There was a school in the village, but he was forbidden to attend it. His father and uncles said he would grow up to work the fields like them, and do what they do because that’s what all the men do. Their people were strongly matriarchal. Women had been heads of the big houses for centuries. Only girls could inherit. Men? Men worked for them. Or moved away to other lands.

Seven-year-old Grandpa had to work shepherding goats and lambs when his father and uncles were at work. Grandpa soon figured lambs and goats were too stupid to run away, so he spent his time peeping through a class-room window, because he was dying to learn to read. One morning the teacher caught him, and told him he was allowed to sit in the classroom for free.

Young Grandpa was very proud. At school there was Grandma, a horrible, most annoying kid of his age who was already a landlady because her mother had died, poisoned by a rejected ex-suitor. Young Grandma used to make fun of Grandpa’s social status, telling him no matter how well he read and write, he would end up working the fields. They argued constantly. Once Grandpa’s family overheard that Grandpa had been attending school. Busted, Grandpa was banished to another mountain, far far away from home.

But nobody – nobody! – could stop Grandpa’s quest for learning. And when there’s a will, there’s a way…

Grown up, Grandpa returned to his home village, where he proceeded to send many kids to school. He was regularly seen talking to young food sellers in the market, asking them whether they’d like to study instead. If yes, he gave them scholarships. Grandpa assisted their parents financially in their business, so that these children didn’t have to work. I’ve met school principals and scientists who owe him their education.

DAD

My father was born as the son of a well-off butcher. When he was eight, my paternal grandfather adopted a brand-new religious view, and this caused the whole town to boycott his business. Restaurants and retail shops conspired to place their orders as usual, pleaded to delay the payment, but in the long run refused to pay my grandfather the money they owed him altogether, unless he give up his new beliefs. And there was no such thing like law in that town.

In short order my grandfather’s business took a nosedive. The family lost several of their properties to pay the cattle suppliers, my grandfather became very ill, and the family fell into poverty.

Dad used to reminisce of how, before going to school, he had to sell breakfast food prepared by his mother. At the age of ten, a horrible incident happened. A tiny wall lizard, common in the tropics, had the audacity to jump into the food, but his mother—who was so tired looking after her sick husband and the whole family on her own—did not see it.

Dad ended up feeling SO embarrassed when he served the lizard to his most generous customer. Right away Dad left home to get to his married sister who lived a thousand miles away. This elder sister had been ignoring Dad’s letters from home about the change in their family circumstances, because she could not believe it. Dad collapsed at her door, starving after not eating at all during his three-day bus journey, saying, “Please help Mummy!”

Dad did not live long. But in the short time I was with him, I watched how he was constantly active helping the poor by setting up small businesses for them, although he himself was a busy accountant. He did not only talk about compassion. He acted.

MY ELDEST SON

My son visited me last February, right after his holiday in the Philippines, horrified by the poverty he witnessed there.

“There was this woman with a son about ten-year old. They were scourging food rubbish, looking for something to eat. And people nearby just continued shopping, ignoring them! When I tried to help, my friend would not allow me to donate a lot of money, because these two would end up being robbed by the nearest crime gang.”

OTHER AUSTRALIANS

Many hearts are touched by news of sufferings. A large number of Australians are regular supporters of various charities, and many more jump in to help disaster-relief efforts. Compassion knows no political or religious boundaries. In this global era of ours, we can support people in need easily.

 

WHY I LEND via Lendwithcare

When I first heard of Lendwithcare, my first thought was, “Compassion.” My second thought was, “What a great idea!”

I had lost a large fund elsewhere last year, because I could not guide the people I lent the money to until they could stand on their own feet. I did not have the expertise. I did not have the time, nor the means to monitor the businesses. How I wish I had known LendWithCare earlier! While I still donate to others in need as gifts, I now lend via Lendwithcare, knowing my fund will continue to eliminate poverty and ease sufferings, one after another.
 

So how much is needed to lend?

As little as £15.

 

You can always add more of course. Save £1 a day, and in a fortnight you can support another project.

 

 

By, Ia Uaro, lendwithcare lender.

 

About Ia Uaro

Hello. I am Ia Uaro and I write real-life socio-fiction. Former teenage writer, petroleum seismologist, translator, I now do several kinds of volunteer work. Please read about my upcoming novel SYDNEY'S SONG on my website. and visit the Guestbook. You can also contact me on Facebook and Twitter.