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Access to Credit in MadagascarAccessing one’s credit can be a difficult task when there is not much information provided on how to do so. Madagascar has a plethora of farmers due to its vast landscape, and agricultural production could be greatly altered in a positive way if the MFI, or Microfinance Institution, was able to offer accommodating microfinance loans.

According to a report from the University of Göttingen, “agricultural firms with flexible microfinance loans have significantly higher credit access probabilities than non-agricultural firms and agricultural firms with standard microfinance loans.” Access to credit in Madagascar can be greatly improved by supplying the population with particular loans that allow them to enhance their financial stabilities.

Access to microcredit has a profound impact on Malagasy people. As The Guardian writes, “Microfinance is seen as a vehicle to help Madagascar attain some of its millennium development goals, particularly on eradicating extreme poverty.” Approximately 85 percent of the nation’s population lives on less than $1.25 a day. Credit availability in Madagascar has been able to create severe advancements for small businesses and provide a higher income for the average Malagasy family.

Since most individuals are without access to credit in Madagascar due to their financial status, providing goods for the family and bringing in a steady income can be very difficult. Many rely on informal moneylenders who charge annual interest rates anywhere from 120 to 400 percent for unsecured loans.  These numbers are astronomical compared with the MFI’s average rate of 36 percent for the same period, equating to two to four percent a month.

Extremely high interest rates can be very dangerous for people who do not make enough money to continually make payments every month. Supplying the Malagasy citizens with microfinance loans would give them the opportunity to discontinue their relationships with informal moneylenders and ultimately save additional money for other necessary goods.

However, a country that mainly relies on farming can be slightly strenuous for the MFI. It can provide the people with loans to help supply their agricultural needs, but when the weather does not cooperate with the proper farming conditions, these loans can then be used for other purposes. This is what the institutions do not want to happen. According to Serge Rajaonarison, Chief Executive Officer of the Caisse d’Epargne et de Crédit Agricole Mutuels de Madagascar, by accurately determining the “areas and farmers affected by hailstorms, for example, we can subsequently compensate according to the losses caused.”

The prime concern for the MFI is for its loans to be paid back by the people of Madagascar. Even after the country is devastated by severe weather events, the MFI continues to obtain its money back from those who were given loans. Continued payments by the people and being able to provide a better life and workplace for the community will allow the MFI to implement a strategy that will give everyone access to credit in Madagascar.

– Matthew McGee

Photo: Flickr

Facts About Microloans
Today’s world economy is dominated by big businesses and cut-throat hierarchies. Microlenders finance those who may be left out of the typical business model, such as underprivileged or under-qualified entrepreneurs, by giving them microloans.

There are numerous nonprofit microlenders that focus on helping aspiring businessmen and women enter the marketplace. Organizations such as Kiva, Zidisha, the Business Center for New Americans and Grameen America strive to provide clients with the loans they need in an educational and sustainable way.

 

Here are 10 Facts About Microloans.

 

  1. Microloans are typically for no more than $50,000, hence the prefix “micro.”
  2. Microloans allow new business owners to take care of startup expenses. It can be extremely difficult for entrepreneurs with little disposable income to receive funding to begin their projects, which is where microloans come in. Most microloans lay the groundwork that allows businesses to survive on their own. For example, an entrepreneur who is hoping to sell dairy products may need a small loan to purchase two cows. After making this purchase, the business owner may keep breeding the cows and selling their milk, becoming more and more financially independent and eventually repaying the creditors and turning a profit. In this case and many others, the initial loan is crucial to the entrepreneur’s eventual success.
  3. The requisites for obtaining a microloan are more attainable than those of a traditional loan. The process of choosing who receives microloans is generally more personal, according to the microlending nonprofit Accion. The organization states that “it’s about your character as a business person, not just your credit score.” Though traditional financial factors are considered, microlenders look at the whole picture.
  4. Nonprofit microlending organizations largely work to educate aspiring entrepreneurs in struggling communities or developing nations. In addition to helping with loans, these organizations aid in business training and often build strong relationships with their borrowers. This can help someone with little business background find footing in the small business world more easily. These microlenders tend to charge little to no interest, making them more accessible to more applicants.
  5. Different microlending organizations specialize in lending to different groups of people. For instance, Zidisha provides microloans to entrepreneurs in developing countries, whereas the Business Center for New Americans works specifically with refugees, immigrants and other marginalized Americans. Grameen America fights economic inequality by loaning to women stuck in systems of poverty.
  6. Some microloan organizations utilize crowdfunding. Kiva, for example, posts approved loan requests online. Supporters from all over the world can view vendor profiles and project descriptions and lend as little as $25 to each project. The vendors update their lenders as their businesses grow, providing evidence that lenders can use their economic privilege to help produce sustainable outcomes.
  7. To boost financial outreach and follow up on repayments, organizations like Kiva sometimes use field partners to facilitate transactions. These partners act as intermediaries between lenders and borrowers. A downside to these partner loans is that the partners may charge the borrowers interest. Kiva’s direct loans, on the other hand, are always interest-free.
  8. Microlenders must acknowledge that their loans will not always be repaid. Kiva recognizes that borrowers occasionally fail to move their businesses in lucrative directions and that repayments are not always possible. As a result, the goal for such an organization is that borrowers repay their lenders as much as possible, even if they cannot completely refund the original amount.
  9. Microlending preserves a sense of pride on the part of the borrower that donating does not always maintain. The recipients of microloans are not merely given their requested funds but rather enter partnerships with their creditors. They are responsible for what they do with the funds by the repayment system. Many organizations believe this is a more sustainable way to create economic change than donations.
  10. Microlending may seem small, but it can have community-wide effects. Microloans can have, as the Kiva website describes, a “ripple effect,” especially in developing communities. In whatever form they take, the loans generate empowerment and opportunities that can pervade the entirety of a borrower’s community.

Microloans are vital to the success of small business ventures around the globe, enabling businesses that would be ineligible to receive traditional loans to grow and thrive in the competitive market. These 10 facts about microloans show that anyone can be a microlender. Go to any of the previously mentioned organizations’ websites to learn more and make a difference in someone’s community today.

Sabine Poux

Photo: Flickr

FINCA
FINCA International helps small business owners in more than 23 countries worldwide by providing the finances and resources they need to keep their businesses up and running.

The innovative nonprofit focuses on four core areas: financial assistance, social intermediation, enterprise development and social service impact.

FINCA International serves as a financial intermediary by providing developing business owners with loans, teaching them how to open savings accounts and helping them find insurance tailored to the products and services they offer. This helps new businesses blossom into full-running operations that help women and men provide for their families.

Their second facet, social intermediation, is also an important part of their business model. Because they are serving entrepreneurs in countries that may be lacking in gender equality, they have to serve as people who can help bring change to these communities. FINCA International provides this intermediation through education in financial literacy and Village Banking loan programs.

In addition to enterprise development, they also help developing communities through educational programs, nutrition services, and health training. These programs contribute to the success and growth of the villages and towns they serve.

FINCA International was launched in 1984 by former Peace Corps member Dr. John Hatch. Hatch started the organization as Village Banking, which operated in Bolivia and served as a financial intermediary for farmers struggling through tough economic times. The following year, Hatch started the organization.

In its early days, FINCA International operated primarily in Latin America, including the Honduras, Mexico, and El Salvador, but by the early 1990s, its services had spread to Africa and Eurasia as well. Since its inauguration, FINCA International has lived up to its name and has provided services in countries all over the world.

Subsidiaries exist in countries in Africa, Western Europe, Latin America and Asia.

Julia Hettiger

Sources: FINCA, Give, Philanthropedia, MicroCapital
Photo: Flickr

Psychological_Effects_of_Poverty

Bradley Ariza, a man living in the U.K. with his girlfriend and children, is stressed all the time. In addition to constant hunger and insecurity, he needs to carefully calculate every calorie he eats to make sure he has enough, and count every penny he spends to ensure that his finances remain in order. He feels the constant pressure to maintain certain livings standards for his family. Poverty becomes a “physical and psychological condition,” not just an economic one.

Studying the psychological effects of poverty is not usually met with enthusiastic approval. In the past, such research was often tainted with racism. It was also accused as being a way of blaming the poor for their behavior. Sometimes it has been seen as unnecessary because of the belief that although the poor are more deprived, they are happier. However, scholarly and public opinions are becoming increasingly more open to studying the effects of poverty on psychology and behavior. It is slowly beginning to be seen as a way to tackle poverty.

Poverty creates a “mindset of scarcity,” as behavioral economists Sendhil Mullainathan and Eldar Shafir have termed it. People are more likely to focus on current, pressing issues rather than long-term ones, even if they might be as important to their well-being. For instance, Indian farmers might prioritize their coming harvest over vaccinating their children. Some researchers have even found that the IQ of Indian sugarcane farmers falls just before their harvest.

Studies have already shown that poorer people have elevated levels of stress, and it is also widely known that stress is linked to depression. Depression, which causes absenteeism and lower levels of productivity, costs the U.S. and U.K. up to one percent of their GDP each year. People who are suffering from extreme stress and depression are less likely to make long-term investments in their health and education. They are more inclined to seek short-term rewards rather than long-term ones because they find it harder to delay gratification. These psychological effects of living in poverty make it more difficult for people to climb out of it.

Researchers are now exploring whether lowering stress and depression can improve people’s mental states enough so that they make better financial decisions and are more motivated about their future. When they are offered more psychological-centered treatments, such as therapy or counseling, people might be more likely to build a path out of the poverty trap. Studying this connection could also help explain why aid sometimes does not seem to work as it should. Microloans, for instance, might be financially helpful, but the added stress to repay loans might make poorer people’s lives worse.

Direct aid, instead of microloans, might be more beneficial. Johannes Haushofer, founder of the Busara Center for Behavioral Economics, has started studying how stress affects one’s ability to make good financial decisions. He found that giving unconditional cash transfers to families lowered their levels of depression and stress. In turn, they were more likely to make long-term, thought-out financial decisions. The effects were especially prominent when the cash transfer was a big enough size and given to women.

Radhika Singh

Sources: Foreign Affairs, The Guardian, Harvard
Photo: The Prisma

Importance of Technology Development
Technology is constantly developing and with its exponential growth there is much to look forward to in its role in ending world poverty.

“The effect of the Internet in broadening and enhancing access to information and communication may be greatest in poorer nations,” according to Harvard University. If developing countries gain more access to the Internet it can be a driving force to lift families out of poverty. The knowledge provided through the internet can maintain health, educate families, and open doors for boys and girls who are unable to attend school.

 

Technology Sparks Development

 

Another benefit the Internet offers for the poor is the ability to get microloans. Microloans give people the chance to start a business who cannot typically afford it. Businesses like SamaSource and Regent Park’s Access Microloan program have helped women to start catering businesses and finish their education. “SamaSource is an innovative social business that connects women and youth living in poverty to work opportunities via the Internet from Africa,” according to The Huffington Post.

Microloans are helping families and communities come out of poverty. When women have the capabilities to start up their businesses, they have the opportunity to invest their money in other areas in their lives. Children and communities benefit from flourishing women who are lifted out of poverty. Microloans sustain development in poor countries and expand economic growth.

The U.N. recognizes the benefits that internet access offers to developing countries. “Through both simple and sophisticated techniques, the Internet can help eradicate poverty, educate people, sustain the environment and create healthier populations,” says the U.N. As developed countries continue to progress in the field of technology, developing nations are falling behind.

However, access to the Internet is improving. Google has recently invested $1 billion in satellites to provide Internet access to people in developing countries. Along with Internet acess, businesses are also investing in mobile technology. Mobile banking services allow families to monitor their and better spend their money.

Technology is the golden ticket to achieving the goal of ending poverty by 2030.

– Kimberly Quitzon

Sources: Harvard, The Huffington Post, United Nations
Photo: SAP:Business Innovation

ugandan women
“I want to be a designer … I want to be a lifeguard … a pilot … a journalist … a president! … I just want to dance.” These were just a few of the phrases on the signs that were held up in a recent lip dub video, featuring 500 Ugandan women, all of whom have started small businesses in their local communities. Working with SYPO Uganda Ltd, a Dutch non-governmental organization that provides micro-loans, the women choreographed a lip dubbed dance to Jessie J.’s famous song, “Price Tag,” in order to show the world that they want the same things as everyone else, and not just survival.

Over the past couple decades, Uganda has reduced poverty from 56 percent in 1992 to 24.5 percent in 2009. However, the majority of those who fall below the poverty line live in the countryside where access to education, services and better jobs are much more limited.

That’s where SYPO Uganda Ltd., stepped in. The organization began working with Ugandan partners in 2009 to support entrepreneurial projects of rural women in Uganda. Providing microfinance loans through local partners in transparent and effective ways led to great levels of success among recipients. To date, the organization has provided over 1,500 loans and maintained a 99 percent repayment rate.

The loans can be used in any way that the women want and are repaid with interest, ensuring that there is no third party influencing how the money is used or leaving any unwanted feeling that it is just another Western handout. The loan allows Ugandan women to be able to create and sustain a livelihood for themselves and their families.

In the final moments of the lip dub video, a message flashes up, reminding those watching that these women are proud to be able to work for themselves and build a life for their family and community. Empowerment is the best form of international aid. “We Africans want the same things that you want – survival is not enough. But we’re not asking for handouts. Instead we are asking for loans to start our own businesses. Help us grow. Go to Microbanker.com to support our business ideas!” the women said.

– Andrea Blinkhorn

Sources: Youtube, Huffington Post, SPYNO, Microbanker, Rural Poverty Portal
Photo: Microbanker

kiva
Interested in empowering the poor? Look no further than Kiva, a San Francisco based nonprofit that has provided over $542,899,850 in small loans to poor entrepreneurs around the world. Founded in 2004, Kiva makes it easy for individuals to lend as little as $25 to provide affordable capital to beneficiaries and help them start or improve a small business.

This practice of lending is known as microfinancing, and Kiva operates under the idea that poor individuals are able to lift themselves from poverty if given access to the proper financial services, such as access to loans and savings accounts.

Kiva keeps things personal and helps prevent the dehumanization of the poor by connecting the lender and the borrower directly. Using a person-to-person setup, Kiva allows potential lenders to browse the stories, pictures and loan proposals of beneficiaries before choosing an individual to lend to.

Kiva loans have a 0% interest rate and 100% of each loan goes directly to the borrower. Kiva does not take a cut, rather, their business operations are funded through donations from various grants, corporate sponsors and foundations.

The lending process begins with the selection of Field Partners in the 73 countries where Kiva works. These partners consist of social businesses, schools, microfinance organizations or other nonprofits that are committed to using credit to empower the poor.

Kiva Field Partners identify borrowers, administer loans and send pictures as well as stories of the borrowers to a team of volunteers that translate the stories and publish them to Kiva.org. Lenders then browse these stories and are able lend anywhere from $25 to the full price of the loan to the borrower they select.

As the borrowers repay their loans, Kiva provides repayments to lenders. Kiva boasts an impressive 98.93% repayment rate over 1.2 million funded borrowers. Once loans are repaid, individuals can re-lend their money to another borrower – and another, and another.

Traditionally, credit is often available to the poor through informal or erratic means. However, in many cases, these informal moneylenders charge such high interest rates that business owners are left with little working capital.

Kiva’s work allows the poor to attain affordable credit, which opens the door to economic opportunity. Studies by the Consultative Group to Assist the Poor (CGAP) show that borrowing money helps households manage cash flow and regulate consumption as well as deal with everyday crises that may arise. Tangible impacts seen include households making greater investments in the education of their children, better nutrition and living conditions, and an increase in healthcare services when needed by members of the household.

In summary, using the resources provided by lenders via Kiva allows poor households, “to make the transformation from ‘every-day survival’ to ‘planning for the future.’”

– Madisson Barnett

Sources: Monica Brand: Stanford, CGAP, Kiva
Photo: Kiva

microloans
A new pilot program from microlending organization, Kiva, is providing small loans to entrepreneurs in the United States in order for them to start their own businesses.

The concept of offering low- or no-interest microloans to individuals in order for them to have the start-up capital available to create their own businesses–subsequently lifting them out of poverty–is not a new idea for those living in the developing world, but applying that model domestically is innovative.

Kiva’s new program, Kiva Zip, helps connect potential borrowers with local trustees that vouch for the borrower so that they have the opportunity to receive microloans. Once the borrower has been accepted for a loan, the funds must be raised. At this point, lenders from all over the world can log on to their Kiva Zip accounts, scroll through the various loans, learn about the businesses and the people behind them, and ultimately make a small loan.

Crowdfunding the loans in this manner is critical in order to find lenders for the loans. A lender in South Africa might fund a loan in Los Angeles, while a lender in Chicago might want to fund a loan locally. Connecting people who want to give back, with people that have the entrepreneurial spirit to lift themselves out of poverty, is what Kiva Zip is all about.

All Kiva Zip loans are repaid on a decided upon time schedule. The lenders receive their money back to either make another loan or withdraw their funds. The hope is that lenders continually reinvest their funds into new loans–making the model self-sufficient.

Kiva Zip’s guiding principles are clear:

1) Expand financial opportunities and access for borrowers who otherwise lack them
2) Reduce the cost of capital for borrowers who need it
3) Enhance the connectedness between lenders and borrowers

The Kiva Zip model differs from the Kiva model in two important ways. First, Kiva Zip disburses loans directly to the borrowers, while the Kiva model sends the funds to a third-party organization, usually a non-profit or NGO, who then disburses the loan amount to the borrower.

Secondly, because of the direct disbursement of loans to the borrowers, Kiva Zip loans are riskier than Kiva loans. The default rate on Kiva loans are very small–only one to two percent. The default rate on Kiva Zip loans are expected to be quite a bit higher, but as the model becomes more efficient, the default rate should decline.

Applying a proven principle, like microloans, to economic woes domestically makes all the sense in the world. After all, Muhammad Yunus, father of microfinancing, said it best, “Poverty is unnecessary.”

– Aaron Faust

Sources: Kiva, Noble Prize
Photo: Komo News