|
Practicing Significance Glorifying God by fulfilling your own unique purposes through the never-ending action of acquiring, using, and sharing diverse resources. |
|
|
|
|
|
|
|
|
|
|
|
|
Microfinance
“Money alone sets the world in motion.” Publilius Syrus
“Money begets money.” English Proverb
“Subject to a kind of disease, which at that time they called lack of money.” Francois Rabelais
“Money is the seed of money, and the first guinea is sometimes more difficult to acquire than the second million.” Jean-Jacques Rousseau
Introduction
This year Americans will donate $240 billion dollars in cash and an equivalent amount in labor. It is estimated that 80-98% of the donations will remain in America. We are blessed in America to not only have the resources to give, but to have so many excellent places to give. However the needs of people around the world are so great that we also need to seek innovative ways to address their problems. One new way is through microfinance.
Why Not Just Give Money or Effort to Solve Problems?
I have to confess that I have sometimes been disappointed when working with non-profit organizations. There are many organizations which do great work and would love our money and our time, but there are not very many in which we can leverage our time and money. Most non-profit organizations raise money to meet specific needs or to provide operating funds. Even when their funds are spent wisely, they are still gone after being used only once. Often, the recipients of these funds do not change any aspect of their lives, and may even become dependent on the source of the funds.
Microfinance
In November of 2003, an article in the Dallas Morning News changed my outlook on giving to non-profit organizations.
The article’s headline was: “What will a $50 loan buy? A pig, a chicken, a sapling and more opportunity than Chiapas women ever dreamed possible.” The article went on to describe how over 200 women from Dallas had raised approximately $400,000 to make loans to women of the Chiapas region of Mexico. These loans were in very small amounts of money (maybe $50 - $500) which were used to start or expand family businesses.
In its most basic form microfinance is the extension of very small loans, usually without collateral, to entrepreneurs too poor to qualify for traditional bank loans. All of the transactions needed to make and collect these loans are called microfinance. For instance, a loan of $50 is made to a woman in Chiapas to purchase fruit tree saplings, or a loan of $100 is made to a man in India to buy some chickens and feed to start a poultry business, or a loan of $200 is made to a prostitute in Ghana so she can leave that business and begin a clothing stand. Over a one year period, the loan recipients try to build up a small business and repay the loan with interest. Many of the successful businesses continue to grow through additional new loans. We have all heard that it is better to teach someone to fish, rather than give them a fish. Through microfinance, a pole is loaned so that a fishing business can be started.
I love the microfinance idea because it mirrors how many of us started and succeeded with our businesses. For instance, I borrowed $25 for my first lawnmower at age 10 and built up a nice business. It makes sense that with a little capital, many people in the world are capable of starting a good business and improving the economic future of their families. One of the most important aspects of microloans is that they are a “hand-up” not a “hand out.” When borrowers succeed, they have a renewed dignity from their families, societies, and themselves.
In general, the amounts of the first loans are lower in less developed countries. For instance, a microloan in the Congo might be for $50, in Mexico for $500, and in Russia for $5,000. For this reason, and for various cultural reasons, microfinance tends to work better in less developed countries. The impact per dollar is much, much greater in the less developed countries, where over 1.2 billion people live on less than $1 per day. Also, in less developed countries, the cost of living is much lower, so improving incomes a small amount may be enough to move the family out of poverty.
A specific example of a microfinance program concerns Africa. The residents of certain villages in the Congo live in abject poverty. For a total of $30,000 a poultry project can be started which will eventually result in individuals raising hens and selling eggs. It is expected that within two years this project will result in 230 families increasing their income enough to eat at least one meal a day throughout the year, with many of these eventually expanding their income significantly. The repayments of the loans will occur within two years. This project will be administered by a currently existing Christian organization. Lives will be permanently improved for loans of approximately $30 per person, which will then be re-loaned for other projects.
Characteristics of many successful microfinance projects include:
· The loan addresses a need, reduces or eliminates that need, and improves lives permanently.
· A community or group is involved.
· Training is involved.
· Women are involved, and are often the loan recipient. In most societies, women are very oriented to raising the standard of living of the family, while men may be absent, deceased or more interested in entertainment.
· An existing program or infra-structure is involved in the administration.
· The donor can be as involved or uninvolved as desired.
There are some administrative issues, such as: how to find the projects, how to collect loan repayments, how to take tax deductions, how to keep administrative costs to a minimum, and so on. So, hundreds of for-profit and non-profit organizations have been formed to make the process easier, more reliable, and more efficient. Some of these are listed in the Additional Resources section at the end of this lesson.
Microfinance is meant to help break the cycle of poverty and unemployment in families and communities. By starting successful businesses, a vast array of other problems can also be solved such as: freeing child slaves, rehabilitating prostitutes, caring for abused or orphaned children, and caring for refugees.
Microfinance and Missions
One missionary returning from a foreign field commented that he would never start a missions project without considering the use of microfinance. Many others agree with him since over 1,200 Christian organizations currently utilize microfinance in their foreign missions projects. Although we think microfinance can be a very vital part of a missions effort, we would highly recommend that biblical teachings for capital supply, wealth creation, and stewardship be given significant attention as an integral part of the microfinance effort. The administrative aspects of microfinance can be very daunting and shouldn’t be underestimated by well-meaning Christians, because the incorrect application of microfinance can cause more harm than good. However, the correct application of microfinance can allow access to communities and meet physical and social needs, while extending long-term evangelism and discipleship programs.
Any Christian organization considering microfinance would be well advised to read the book Christian Microenterprise Development, by David Bussau and Russell Mask, and also access the expertise of Peer Servants at www.peerservants.org.
As an example of a missions microfinance program, here is a program that one church is considering. It has previously trained twenty preachers in Russia, and is in the process of training twenty more. The long-term support for each preacher is about $5,000 per year. They have the opportunity to receive a $500,000 grant to make microloans to church members. This will help raise the incomes of the church members so they can better support their families and start giving more to support the preachers. Types of projects will include: bee keeping, pasta making, street vending, and various agricultural projects.
How to Give to a Microfinance Project
Most people want to be financially involved in microfinance in such a way that they can write-off the money they give as a charitable donation. If so, the money must be given to a non-profit organization which will make the loans, administer the loans, and then re-loan the money. In other words, you will have the knowledge that the money will be loaned and re-loaned for microloans, but you won’t get it back.
Therefore, the two easiest ways to participate in microfinance are to find a specific project which is administered by someone you can trust, or to provide a donation to an organization that makes the kinds of microloans that you desire. The second type of organization acts like a bank or credit union, so that the more money they have, the more money they can loan. Some of these organizations are listed below in Additional Resources. Through those resources you can also find organizations that target specific countries or ideas.
As in all giving to non-profit organizations, the more you give, the more is your responsibility to make sure the organization meets certain prudent standards and is doing the work you desire. For instance, one of my preferences is that the microfinance involves fundamental, Protestant organizations. Therefore, I work with different entities than some of my friends who prefer Pentecostal based, Catholic based, or governmental based organizations.
In addition to financial support, many organizations would like to have volunteers who could provide time, talent, expertise, or even relationships.
Conclusion
Microfinance allows any of us to give to non-profit organizations in a very interesting and efficient way. If done correctly, there is no downside since you would have given the money away anyway. I believe microfinance will eventually become a significant part of many people’s and foundation’s giving process. If you have any interest in this subject either now or in the future, please contact us through our website so we can help you find the right organization with which to deal.
Additional Resources
Peer Servants www.peerservants.org. Provides information and consulting for microfinance projects.
Christian Microenterprise Development, by Bussau, David and Mark, Russell. An excellent book for any Christian organization or individual dealing in microfinance.
Grameen Foundation USA is one of the most interesting and most sophisticated microfinance companies. Through Grameen it is possible to support microfinance projects throughout the world. www.gfusa.org
HOPE International provides both microfinance and also supports Christian children’s clubs. They are non-profit, so contributions of any size may be given directly. The bulk of their work has been in the Ukraine, but they have recently expanded to China, Congo, Afghanistan, and Moldova. www.hopeinternational.org or 717-464-3220
Geneva Global Inc. is a for-profit organization that finds various charitable projects around the world. Through them, you can make charitable contributions to fund part or all of a project. Some of their projects are microfinance, but many are not. www.GenevaGlobal.com or 866-743-6382
Heifer International www.heifer.org. An excellent microfinance organization which uses animals instead of money.
MicroRate is an organization that rates the quality of many of the larger micro-lending organizations. Their website or data isn’t simple. www.microrate.com
The MIXMARKET is a global, web-based information platform. It provides information and evaluations on various micro-finance institutions throughout the world, as well as information on certain groups that invest in micro-finance. www.mixmarket.org