NB Financial Health

Monday
December 2
2013

Sara Bowcutt

NexThought Monday: Pro-poor microfinance – the gift that keeps on giving

As the holidays loom large, we have well and truly entered the season for giving. But with a multitude of invaluable charities vying for your support, those looking to help the less-fortunate this yuletide have a lot of options to consider. It’s my belief that the most meaningful gift we can give is one which will manifest itself again and again. By linking microfinance and charity, we can make a truly valuable investment in one of the most effective ways of helping to lift families out of poverty.

The nature of charitable microfinance means that initial investments are continually recycled, with the impact of donations extending far beyond the initial benefit to the first few individuals. A typical startup loan from the MicroLoan Foundation, for example, which supports impoverished women in Sub-Saharan African, is £25 (about $40 USD). So a donation of £100 ($161 USD) could initially help four women. But when we consider that each of those women typically supports five dependents, the reach of that donation is multiplied to supporting 24 people.

What’s more, when high-repayment rates are thrown into the equation (99 percent in our case), with loans given in four-month cycles, that initial donation translates to 72 opportunities to change lives in the space of a year. Or, put differently, for the 30,000 women we support, there are 150,000 more individuals that are impacted by our work. More exciting still, with schemes like The Big Give Christmas Challenge 2013, in which MicroLoan Foundation is participating, donors are able to potentially double their donations via a money-matching system, which means the impact and reach of an initial donation is extended further still.

“Pro-poor” microfinance services – usually taking the form of microloans lent to the poor to help build and grow microbusinesses – are proving to be highly effective in helping to lift communities out of poverty. But in recent years, we’ve seen the disturbing rise of negative forms of microfinance – often known as “pay-day loans.” These loans are fundamentally different from pro-poor services since they operate for financial gain and are often accompanied by unscrupulous debt collection methods.

To learn more about how pro-poor microfinance can positively transform the lives of individuals and entire communities, I recently headed for Zambia. During the trip I saw first-hand how a small amount of money can go an incredibly long distance by providing long-term, sustainable change. But I also saw that many impoverished women are excluded from accessing the capital they need to invest in income-generating activities and businesses to support themselves and their dependants. The problem is felt even more keenly in Sub-Saharan countries, some of which are among the poorest in the world (Malawi is eighth poorest globally).

Microfinance is proving to be a vitally important way of breaking the poverty-trap and providing these communities with a route to a self-sustainable future, free from poverty and charity. It’s empowering women to set up businesses and work themselves and their families out of poverty. And with tailored business training to support loan recipients, these women are able to transform their own lives, those of their families, and their entire communities.

There’s no easy solution for global poverty. But small loans, targeted correctly, and teamed with the correct support and training, can make a massive impact. That’s why the value of “good” microfinance is being recognized – not only by holiday donors, but by philanthropists, governments, and a multitude of different organizations across the globe.

MicroLoan Foundation donors have the opportunity to see first-hand the difference their fundraising will make as part of the ‘Malawi Challenge 2014’. To learn more about this unique trip, visit the MicroLoan Foundation website.

Sara Bowcutt joined MicroLoan Foundation as head of fundraising in September 2012 and now oversees their fundraising and communication activity.

Categories
Impact Assessment
Tags
microcredit, microfinance, NexThought Monday, social development