Loans, not gifts, the way to end poverty: aid agency

Friday, October 19, 2007

By Mark Colvin

Opportunity International is aiming to raise nearly $1 billion in the next four years to lend to millions of poor entrepreneurs in India.

While anti-poverty campaigners call for an increase in Australia’s foreign aid budget, there is also a debate about whether aid in the form of money, training or goods is the way to go.

Opportunity International is an Australian company specialising in microcredit – aid that comes in the form of loans, not gifts.They already lend to a million active clients across 27 developing countries and now they are aiming to raise three-quarters of a billion dollars in the next four years to lend to millions of poor entrepreneurs in India.

The chief executive of Opportunity International is Paul Peters, who says the company is mix of a charity and a bank.

“We are both a charity in the sense of our main mission is to lift people out of poverty and improve the quality of their life, but how we do that is through bank structures, and various other [things] that look like businesses,” he said.

“We raise money from private donors here in Australia and a few corporates give us money – and this past year we raised $39 million – and that is invested, put to work in India, the Philippines, Indonesia, to help people get out a business.

“We support an individual entrepreneur, there is a small business, a micro-entrepreneur at the other end of the distribution of our funding that gets a loan of $120, $130, $150.”They start a business, we collect that money back from them and then recycle it on to somebody else.”


The concept of microcredit won Bangladeshi economist Muhammad Yunus a Nobel Prize for inventing it and Mr Peters says the concept can be taken further. He says there are two levels on which Opportunity International helps entrepreneurs create and sustain small businesses.

“One is giving people access to credit and financial services to start a very small business,” he said.”The second is what we call enterprise development services and they’re services that provide entrepreneurs to overcome the challenges that you’d face.”He gives the example of a tiny business in a remote village in the Philippines.
“Getting access to market is as great a challenge as it is getting access to finance,” he said.

“So we group 1,000 entrepreneurs or 2,000 entrepreneurs. They might be raising livestock and so we want to connect that livestock to the market that might be in a regional town.””[On their own] they ship one pig at a time and so they’re at the mercy of the person with the truck, and so if you’re now shipping 1,000 pigs or 1,000 head of cattle, you can set up contracts that are better.”So we use the scale to actually negotiate contracts that allow them to buy cheaper, to sell at a better price and therefore get them more income.”

Market-based approach

Mr Peters says the company uses the approach of growing the market rather than giving gifts.
“We prefer to support the market just acting on its own behalf, but if we have to correct a failure or give somebody a hand up and make the market work ourselves, we’ll invest into that situation,” he

“[For example,] in West Timor we have a micro-finance program that funds thousands of people who grow seaweed. There is no market for seaweed in West Timor and so we set up a little marketing company to market the seaweed in Java.”We were so successful that now commercial buyers of seaweed have entered the market. And so we wound up that business and the market has now corrected what I would say is the failure of not seeing an opportunity where it was there and it was just a matter of organising the supply.

“And so, in the course of our program with the marketing company, the income for those farmers had gone up triple. So they were making three times as much money and now just the market and a business supplies that need at a price that’s as good as what we were providing.”Mr Peters says the great problem aid companies face is figuring out how to work themselves out of a job.

Continue Reading “Loans, not gifts, the way to end poverty: aid agency

Source: ABC News Australia (link opens in a new window)