Archives For microfinance

This week is the 75th birthday of Muhammad Yunus, the inspiring leader who asked a question which struck at the root of a paternalistic approach to poverty alleviation: Why do for people what they’re capable of doing for themselves?

This question served as the basis of Yunus’ groundbreaking work in the 1970s as he founded the Grameen Bank, pioneered the modern microfinance movement, and garnered some impressive recognition, including Presidential Medal of Freedom and a Nobel Peace Prize.

Hundreds of thousands (myself included) have been inspired by the model of microfinance and signed up to help unleash women’s and men’s creativity around the world.

But recently there have been articles and thoughtful research projects critiquing this tool. Does this recent criticism undermine the microfinance movement? Does it unravel all that Yunus envisioned and many of us have worked to implement?

Intuitively, it makes sense that microfinance has the potential to benefit a community. Many of us have benefited from a savings account, a mortgage, business coaching/mentoring, access to loans for business investment or to care for an urgent need. Why assume those in poverty wouldn’t have similar needs for financial services or benefit from the services you and I enjoy?

Instead of a grand critique of microfinance, I find the recent articles and data contain important lessons for those of us who implement these ideas. It’s an invitation to do some soul searching and consider where we might have gone wrong in implementing these ideas – and perhaps pop a few myths.

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Myth #1: Everyone should borrow.

Initially, it was thought that if every person received a microloan, then poverty would be eliminated. The reasoning was that any person could receive a small loan and start a business . . . but this hasn’t proven to be true. Not everyone has a successful business idea, and not everyone needs additional capital. It’s possible for a person to actually become worse off if they take capital and use it for unhelpful or irresponsible consumption spending. Assuming that everyone needs a microloan just doesn’t makes sense.

Instead, a growing number of organizations are realizing that while not everyone should borrow, everyone should save. The approach is shifting from focusing primarily on loans to placing a significant emphasis on savings. This is why I hope we can finally banish the word “microcredit” and replace it with “microfinance,” recognizing that a loan is only one part of providing families with the services they need.

As one example, initially at HOPE International, we focused on microloans. Over the past decade, our services have expanded to include savings and today 74% of the families we serve only save with us, 25% save and borrow, and 1% only borrow. The impact of savings is largely underestimated.

Myth #2: Profits are all that matter.
Microfinance began as a movement among nonprofits and credit cooperatives, but something changed in the 2000s. I remember going to a presentation on microfinance in New York, and the only metric that highlighted was the quarterly financial return and how microfinance was an investment opportunity uncorrelated with global markets. The message was simple: Invest with us to maximize your return. This had nothing to do with serving families, investing in dreams, or honoring dignity.

Over time, this “maximize profit” approach resulted in the removal of anything that didn’t directly contribute to quarterly profits. Entrepreneurship training, health services, and group celebrations for clients were left behind. It’s made some microfinance institutions look more like payday lending shops than community-minded organizations seeking to positively impact families.

Microfinance institutions that are truly effective have always focused on investing holistically in the client, providing resources and training opportunities so that they can grow professionally, personally, social, and communally. At HOPE, we take this one step further by investing in clients’ spiritual lives, knowing the transformation that is possible through a relationship with Jesus.

Myth #3: Microfinance will eradicate global poverty.
Early positive stories caused a rush of enthusiasm for microfinance; finally, there seemed to be a business approach to alleviate global poverty that could be scaled to assist millions of families! At some point, enthusiasm crossed over into the land of fairy tales, with the promise that one single approach could effectively eliminate poverty.

But poverty is complex. And while savings services, stronger community relationships, greater hope for the future, access to small loans for expanding a business, and cash flows smoothing all help, none can, on their own, eradicate poverty. Instead, a huge number of other issues—justice, property rights, education, health, nutrition, infrastructure investment, social constructs, government transparency and corruption—all come into play.

By understanding that each of these elements has an important role and by creatively linking with other organizations, we believe real impact will occur.

By soberly understanding the places where we’ve got it wrong, we can help ensure that microfinance remembers why this tool was created and get back to work serving families. I can think of no better birthday present to give Yunus on his 75th birthday.

“Peter, COME HERE!” Laurel shrieked from downstairs.

Based on the urgency in her voice, I knew this was not a “when-you-have-a-moment” type of request.

Fire

I sprinted downstairs. Thick smoke was billowing from our family room.

Laurel loves decorating. And she does it well. She uses candles in every room and for every occasion – not just one or two, but dozens. In our fireplace, she had created a fall masterpiece with Christmas lights wrapped around fall leaves, little pumpkins, and yes, lots of candles.

It looked charming earlier in the evening. Right now, the decorations were a massive blaze. With the flue shut, the smoke was filling our family room.. and into our kitchen… and throughout the rest of the house. The smell of melting plastic was potent.

Our fire alarms were going off, and we discovered that one of them even eerily announced “Fire. Fire. Fire.”

I rushed to grab a hot mitt to open the flue and allow the smoke to go up the chimney, while Laurel got the kids outside. But the smoke and fire still poured out of the fireplace. This was a major blaze.

Laurel rushed back inside. She grabbed a fire extinguisher under our kitchen sink I had forgotten about. Dousing the fire, she conquered the blaze. Throughout the house, we began scrambling, opening windows, and trying to fumigate the house.

Smoke does lots of damage. We had the fun of repainting our fireplace and washing every single wall over the next few days.

Looking back, I couldn’t help realizing how important that little fire extinguisher was. It’s tiny – and was dormant under our sink for years. I had completely forgotten about it. But in our moment of need, it was critical.

I’m convinced that with HOPE—which operates in places where the fires of poverty blaze regularly—one of the most important things we do is assist families to secure small savings accounts. Though seemingly insignificant on the surface, savings can make the difference between having a problem that becomes a nuisance or a disaster. Between a pothole and a car accident. In the words of my friend Dave Larson, a simple savings account allows families to step away from the cliff of disaster –and creates a layer of protection against catastrophe.

Defended by a small savings account, parents know they can take their children to the clinic when they get sick. They can repair their equipment when it breaks. They can move away from the possibility of tragedy.

Simple and powerful, it has been a privilege to rapidly expand savings programs in partnership with the local church. Together, we are seeing families armed with their own fire extinguishers to protect what matters most. 

For other posts on how savings help the financially vulnerable, please visit:

 

A friend recently asked me, “There are so many great organizations out there. What really is the difference with HOPE?”

I paused before responding. I didn’t like his question because it felt like he was looking for me to talk about HOPE’s competitive advantage in relation to other organizations. When comparing ourselves with other causes or other organizations, we all lose.

I see our competition not with other organizations who share a common mission, but rather with the many other causes that capture our time and attention. If we got as excited about healing and wholeness and missions as we did about professional sports and pet food and ice cream, then we’d have the resources to massively change the philanthropic landscape.

But what he was really asking was our value proposition. What is it that makes me passionate about our cause?

Here are some of the things that resonate with my head, heart, and soul.

  1. Head. The business impact.
  • Sustainability/Scale. Due to HOPE’s methodology, eight microfinance institutions in our Network are fully covering local costs. Profit enables HOPE to grow and means we don’t have to raise funds to do the same programs year after year. We are able to serve more and more families and dream big.
  • A Job is Better than a Handout. Handouts have never caused a country to escape poverty. Only jobs do that. It makes sense to me that job creation requires investment – and HOPE has the privilege of being investors for over 500,000 families.

2. Heart. The personal impact.

  • Individuals Matter. Having lived in several countries and spent significant time traveling to these places, I’ve met the people we serve. When you see lives changed, you simply cannot leave without desiring to do more.  Stories like Fadzai’s are happening. This is not hypothetical.

 

3. Soul. The eternal impact.

  • The Power of the Local Church.  HOPE’s savings programs equip the local Church to serve their communities with biblically based business training and financial services. While not our primary motivator, lower costs result from partnering with the Church. It’s good stewardship. See video of our church-based savings program in Rwanda.
  • Missionary Staff: We are able to recruit a team of fulltime missionaries who serve as loan officers and solve problems in local communities. Over 1,200 staff members interact with families every day. We operate on a far smaller budget than the traditional “sending” model and equip the local body of Christ to serve their communities.

It is a joy to serve with an organization that is actively sharing the love of Christ and helping individuals work their way out of poverty.

 

 

 

In my work, I get the opportunity to meet entrepreneurs, both in the US and around the world. I admire them. I respect what they’ve accomplished.

Not just building products, they are serving their communities and addressing the world’s greatest needs. In the fight against poverty and in economic development, they are the world’s unsung heroes.

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Here are just five traits I’ve observed from a few of my favorite entrepreneurs:

1. Ability to take risks. Ideas are a dime a dozen – I have a dream of starting several businesses. But the difference with entrepreneurs is they are willing to do their homework and actually launch their ideas. Entrepreneurs understand not all concepts succeed–but they take the risk. Pushing their chips to the center of the table, they declare, “I’m in.” Ron Thompson was successful when late in his career, he decided to buy a property in Lexington, Massachusetts, and start a car wash. He knew he would wrestle with zoning. He knew it wouldn’t be easy. But Ron did what entrepreneurs do – he jumped.

2. Humble enough to start small. Entrepreneurs know they have to plant small seeds. And sometimes these seeds grow into something bigger than they could have ever imagined. I played soccer with Jason Webb at Messiah College (before they began dominating Div III soccer). During summer break, he began Soccer Shots, which provides soccer skills and character training for children. Recognizing a niche market—and a way to encourage personal growth for little tikes—Jason now has a franchise that Entrepreneur magazine ranked as the top Children’s Fitness Franchise in 2012. See www.soccershots.org.

3. Demonstrate tenacity- Mama Flores owns a salon in the war-ravaged country of the Democratic Republic of Congo. With an extraordinary work ethic in the face of seemingly insurmountable challenges, she took a small loan to sell rice and beans. Little by little, she kept growing her business until she eventually saved enough money to purchase a salon. Today, through her salon, she employs 15 single mothers and orphans—keeping them off the streets. See more of her story through video and article.

4. Purpose bigger than themselves- Defying traditional suburban planning, Perry Bigelow, founder of Bigelow Homes, is not concerned with building the biggest homes. Building energy efficient houses of all sizes and prices within the same neighborhood, he’s promoting diversity, community, and lower taxes. He’s not just a home builder; he’s a community developer and creator of social capital. See www.bigelowhomes.com.

I celebrate local and global entrepreneurs. They are job creators. And these four entrepreneurs are living out their faith in Christ in a beautiful way as they grow their businesses. Crazy enough to challenge the status quo, they launch ideas that can change the world.  They are my heroes.

How about you? Which entrepreneurs most inspire you?