by Kylie Foley
The term “micro finance” can make one subconsciously shudder.
Even if it’s small, it’s rare anything to do with the word “finance” is sexy. But as groups like Kiva and the Grameen Bank gain more attention, it’s time we make people brave about micro finance.
Through World Vision’s donation model, generous donors are able to read about specific loans all over the world that would help a budding entrepreneur provide for his or her family. These loans are typically small (read: micro) from $50-$300 and help the person to start generating income.
How the heck does the process work, though?
Many groups, including World Vision, focus on giving loans to women. In many developing countries there are few work opportunities at the same level as men, and usually when a woman wants to start a business it guarantees that her children will be one of the first beneficiaries of the success. The women and men selected to get a loan would not be able to obtain the same amount of money from a regular institution. They don’t need to have collateral (like a deed to a house or piece of property) and instead form groups of 3-10 people that can assure each’s others loans in case someone’s can’t pay it back.
World Vision is dedicated to improving the lives of children, so although loans through Vision Fund (World Vision’s micro finance institution) are for their parents, the generated income is supposed to support children’s continuing education. Before a loan is dispersed the entrepreneur learns about the importance of education and providing for their children (a motivating factor to get a loan in the first place for many families). Many of the loans in places like Cambodia are for agricultural purposes, like buying land or equipment to farm or raise animals. Other loans are for rudimentary store-front businesses, transportation costs or supplies.
Vision Fund disperses loans in over 35 countries. Vision Fund works in extremely rural areas where there is usually not even a choice of institution to lend from, although most of Vision Fund’s clients would not qualify for a standard loan anyways. In these remote places, some people have to resort to loan sharks in order to get a loan. They are known to charge up to 50% and keep the loanee of debt. World Vision’s below average interest rate (in place to pay for the huge cost of administering loans in such rural places) saves families a lot of trouble than other greedy lenders.
Just because someone is poor does not mean they are not worthy of a chance to better their families. The point of aid organizations getting into the messy economic system through micro finance is that they are willing to give loans that don’t make sense. Micro finance is a solution to poverty. Families who can only provide for each day’s survival cannot get ahead and end up in cyclical poverty. A Vision Fund loan interrupts the crushing cycle by offering a chance upwards towards self- sustainment.
When Vision Fund is ready to release a new series of loans, they gather the group (usually women) and teach them all about the money they are about to receive and some useful ways to use it. The number one lesson is to always use a loan to generate income. Vision Fund workers explain the repayment process, interest rate, and what the options are if you can’t repay the loan (your loan group absorbs the cost). Along with the economic benefits to a loan, they explain that by keeping their kids in school will lead to a better life for them. Entrepreneurs are called up to put their fingerprint (instead of a signature since many people cannot read or write) and are given their loan in cash as well as a personal booklet to track their payments. Vision Fund checks on each loan throughout it’s cycle and offers assistance to anyone who asks for it. At the end of the cycle, typically 12 months, the client is able to apply for additional loans if they need to.
That was a more general example of the micro loan process. Below is a specific account based off what we saw in Cambodia:
Twenty to thirty women sit under a stilted house and focus on a presentation board and a worker in World Vision orange and blue. They are all from three of four nearby villages about an hour north of Cambodia’s capital city of Phnom Penh. Though some of the women have taken out as much as 12 loans, they learn about the responsibilities that come with making your own income through the assistance of a loan. This is the last step in the process they’ve been going through. Each woman has applied for a Vision Fund loan (World Vision’s micro finance institution) and been approved and walked through the beginnings of their plans. Today they are taught about financial stability that can be a product of of loans in the forms of increased income and business, more property, savings, and insurance.
Throughout the lesson the women are constantly reminded to make sure their kids attend and complete the highest level of school. Most of the women have kids in World Vision’s sponsorship program; they already know how vital school is. Watch out for income suckers, a diagram explains, like wasting time, drinking, and domestic abuse. The women who can read follow along in their Vision Fund brochure that explains in greater detail the benefits and responsibilities of a loan; those who can’t read have easy to follow pictures that get the idea across. The group collectively groans as the worker talks about the 3% interest rate per month. One women reminds the group that the only other lender in the area, a grocer, charges 10% a month. They quiet down and hear that they should never borrow for others, even family members and they’ll have 12 months to repay.
The atmosphere buzzes as the dispersement gets closer, and the local Vision Fund Branch Manager gets up to say a couple of last things. Vision Fund wants clients to be successful, he says, that’s why we do all this training. As he wraps up by sharing World Vision’s mission statement the women gather in closer with their loan groups: 3-10 peers per group that guarantee each other’s loans if one woman has to defer (Vision Fund does not require collateral for the loan). The groups are called up and the women go one by one, giving the Vision Fund workers any remaining information and receiving a booklet to keep track of their repayment schedules in return. Lastly, they put their fingerprints down as a signature and have their loans counted out in front of them before they are instructed to count it themselves. They go back to their pink and blue chairs and wait for their group to finish before they leave.
These women are brave. In Cambodian culture, the prevailing thought is that debt equals shame and that loans therefor cause embarrassment. They aren’t desperate, however, the women believe in the ideas they have to generate income and provide for their families and they simply need a loan to get started. There is no shame as the women smile and laugh, so much so that they might be the things holding up the house above them instead of the wooden pillars. They have been given a fighting chance, and from hearing the confident plans they have, it’s obvious this a group of fighters ready for the challenge.
Learn more about how microfinance is a key to strengthening communities and preventing exploitation. Be a part of providing freedom from trafficking and exploitation. Sign up to receive free resources, including Working for Tomorrow, a film about microloans in Cambodia. http://worldvisionmicro.org/acts
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