This past week I had the privilege of participating in a Hope International Vision Trip. Last July, I posted on this blog an invitation to join me on a trip to the Dominican Republic. Several folks answered the call to experience first hand the most effective way to wipe out poverty – Microfinance.
The principles of microfinance involve giving small loans to the poorest of the poor to enable them to start or expand a small business thus enabling them to take steps out of their poverty. These poor have no access to capital and would never qualify for a typical bank loan. The local “loan sharks” charge an interest rate that is 20 times higher than a HOPE loan. These people have no savings (and actually need to pay someone in order to save). Many of these people need to choose which child to feed or which one gets an education. They have to pick winners and losers within their own family due to a lack of resources.
Most microfinance loans are in a range of $50 to $500 and given for a term of usually around six months. The borrower becomes a part of a small group of five to eight people also receiving small loans. This small group agrees to cover each other’s loans should a person be unable to make their loan payment. Thus, in taking out the loan one becomes part of a supportive community of people who are interested in and work for your success and theirs.
Every two weeks this group of borrowers comes together to make their loan repayments. This total group forms a “bank.” The bank has a loan officer who works with them individually and as a group. When they come together in their biweekly meeting, they make their agreed upon loan payment in full view of the others. Thus, it is immediately apparent if one is having difficulty making a payment. In addition to making the loan payments, the loan officer gives training on business principles to the “bank” members. The loan officer insures that the borrower has a workable business plan and that the loan is used to actually advance the business. The loan repayment rates average approximately 98% (I know a lot of bankers in the
HOPE International is a faith based microfinance ministry that is “committed to enable sustainable economic development that results in significant and lasting change, temporal and eternal, in the lives of many people living in poverty.” To this end, HOPE’s entire staff of loan officers are committed Christians, who have the “head of a banker, the soul of a development worker and the heart of a pastor” for those who utilize their bank.
Most charitable organizations struggle to make lasting change in their community, unless they continue to give (month after month) and this can become costly. For example, if you decide to sponsor a child in a third world country, you would need to give $1 a day. You might say that is not much to feed a child for a day. But consider the cost to impact 240 people for a year - $87,600. The cost for 10 years is $876,000…A huge cost!!! Now consider the HOPE model. For only $5,000, you can provide all the seed money for a local bank serving 40 loans to 40 individuals. Each family unit has an average of 6 members, so you are impacting the same 240 people. However, because the loan continues to be repaid and then reinvested in more business loans (the bank becomes self sufficient), you can impact 240 for a lifetime for just that initial $5,000. You do not need to be an accountant to understand that HOPE’s model has a much greater Return on Investment. HOPE’s model creates a spirit of empowerment while most traditional charity teaches dependency.
If you desire to learn more about microfinance and HOPE, I encourage you to read The Poor will be Glad written by the President of HOPE International, Peter Greer.
Wonderful article. This is the best explanation of micro-financing I have seen that underscores the broad base of support you are able to create through this method of support. Thank you for sharing.
Posted by: Larry Warkoczeski | January 12, 2010 at 08:05 AM