The MicroLoan Foundation: A hand up, not a hand out
Introduction
Microcredit and Microfinance may seem unfamiliar terms; especially to those of us not fully acquainted with poverty, economics and a global mission to empower women in the developing world. However Microcredit institutions, since their inception in the mid 1970’s, have been providing small (micro) loans and other financial services to the world’s poorest and most marginalised people. Those targeted by Microfinance organisations are people excluded from accessing traditional commercial financial services; people who without the provisions of Microcredit would be unable to gain a footing on the traditional economic ladder. One of the central components of Microcredit funding is that it is nearly always granted to women.
By giving individuals sums of money with which to start entrepreneurial businesses, microcredit facilitates the reduction of poverty, develops dignity and is inciting social change. Creating situations where the poorest in society have the chance to impact directly upon their own destiny is not a traditional charitable approach, it is a system designed to create opportunities; opportunities that the majority of people in the west enjoy innately. Microcredit seeks to grant those who expect to live from hand to mouth the chance of economic stability and security. It has the ability to allow those excluded from conventional economic services the capacity to produce collateral in order to extend markets, reduce poverty and foster change.
Whilst leading an excursion of university students to the poorest area of Chittagong, a city in the southeast of Bangladesh, Economics Professor Muhammad Yunus had an epiphany. His moment of inspiration was concerned with the complete lack of opportunity with which the poor of Chittagong were presented. This was in 1974 and as a direct result of this experience Yunus began to develop an economic theory to tackle the problems he had observed. A practical concept which would alleviate poverty whilst creating dignity for the society’s poorest people; his solution was microfinance. Yunus sought to tackle poverty through small scale economic development. His reasons for starting such a radical programme were due to what he saw as the vast inequalities evident between the world’s poor and the western and developing elite worlds ‘We have created a society that does not allow for the poorest to take care of themselves because we have denied them those opportunities’.
From the conception of the Microfinance theory Yunus’ quest has become the practical implementation of his theory throughout the world. Developing the economic, and consequently the social and cultural, abilities of the world’s poorest has become his life goal. From meagre beginnings Yunus has developed a system of loans and financial support that in 1983 became the Grameen (meaning village in Bangladeshi) Bank. As well as creating the concept of microfinance through Grameen Yunus has led the way in developing an organisation which can carry his creation to the areas of Bangladesh and the world which need it most. Grameen showed the possibilities for dedicated people around the world to start similar Microfinance programmes. For the concept and his practical implementation of it, Yunus and the Grameen Bank were awarded the Nobel Peace Prize. The first time it has been given jointly to a person and an organisation.
As a result of Yunus’ dedication Microfinance, applied through Grameen methods, is now practiced in 58 countries around the world and the number is rapidly increasing. Muhammad Yunus has created a system of charity that is not concerned with the alleviation of a problem but is focused on eradicating it forever.
Criticism of Microfinance
It seems unthinkable for there be critics of a system that is aimed at erasing poverty yet microfinance has come under attack. Most of this hostility has come from western economists who cast a scathing eye from the comfort of London and New York, but it is important to discuss the problems they have identified. Although microfinance seeks to end the overt power of money lenders some critics have identified the opposite as happening. They see microeconomics as reinforcing the stigma of money lending making people vulnerable to accepting financial support from more exploitative forces.
The questions of should microfinance institutions charge interest and who should regulate those rates of interest have become a focus for critics. Interest is essential to these organisations becoming self sustainable, Microcredit facilities must be self perpetuating in order for them to really create social change. Although this would seem to discourage any argument against charging interest Muhammad Yunus has expressed a concern over the rates of interest charged and is geared toward a worldwide regulatory commission.
The minority of microfinance companies have any policy for regulating the working conditions of the people to whom they grant loans. Few, if any, have rules governing working hours, holidays, working conditions, safety or child labour. There are virtually no inspections carried out to determine these factors. The creation of loan groups within societies helps prevent poor conditions and unethical practice. That is why it is essential for microcredit facilities to be run by the communities of the people they fund.
The MicroLoan Foundation
The MicroLoan Foundation was created in 2002 by English businessman Peter Ryan. After visits to the Philippines and Malawi Ryan decided that he could make an economic difference in the poorest areas of these countries. Started from the back room of a garage in Lilongwe (the capital) the MicroLoan Foundation now covers multiple areas of Malawi, with scope to cover all Sub-Saharan Africa. From scant beginnings the Microloan Foundation has become a system of alternative finance within the impoverished communities of Malawi.
The mission statement of the Foundation is a commitment to helping the poor to help themselves, in order to change their lives for the better. MicroLoan sees this as being achieved by relief of poverty, advancement of education and the relief of sickness in the developing world.
The Foundation works on a principle of six steps to independence. The steps incorporate a mixture of business and social practice geared toward increasing business growth. This in turn leads to an increase in profit and the poverty cycle being broken.
The defining principles of the MicroLoan Foundation are women first and self determination through economic group participation. This means that the Foundation focuses on creating female entrepreneurs. Women undoubtedly are the most deprived and marginalised within impoverished societies. The foundation strives to give them a chance to develop their own businesses and their own dignity. To access microfinance through the MicroLoan Foundation those interested must form a loan group. These groups are a vital component in support and loan allocation, ensuring the Foundation is integrated within local communities. In the majority of projects the tribal chief is invited to chair the loan groups, which are crucial in supporting the women who are part of them. They provide business acumen and advice in terms of repayment and financial management.
Economic fluctuations in the Malawian economy, as a result of the global economic situation and the increased plundering of Africa’s natural resources, have increased the importance of MicroLoan. Many of the clients live below the absolute poverty line (a daily income of $1 a day). As a result of this the majority of the people financed by the Foundation are in a situation where they live from day to day. They cannot cope with economic changes far beyond their control which impact upon their lives; making access to Microfinance essential.
When determining the effects of Microfinance it is necessary to look at the wider impact of the money; not solely at the lives of those directly furnished with loans. The majority of those financed are women with family responsibilities; as a result their dependants must also be taken into account. The impact of the loans is felt in the lives of dependants, especially children, through better diets, education, healthcare and improved living conditions. All of these were previously beyond their means; improving access to microfinance can create longer, happier and more fulfilled lives. The loans empower woman both economically and socially. They create pride and dignity through individual sustainability and the ability to determine their own future and the future of their children. The Foundation provides people with the chance to gain basic human rights which they were deprived of before MicroLoan intervention.
Having a direct and lasting effect in Malawi is central to the ethos of the Foundation but it is a task that is difficult to implement. Poverty has a crippling hold over the majority of the Malawian population. With the introduction of Microfinance to the poorest communities a percentage of these areas have been given the opportunity to personally change their situation. Since the inception of the Foundation in 2002 its Malawian operation has made 50,000 loans to 20,000 women impacting on the lives of an estimated 120,000 people.
The Impact of the Foundation in Malawi
Junia Matiya is a 41 year old woman who receives a MicroLoan Foundation Loan. Previously Junia had no reliable income and no stability. She has four dependants of differing age and sex, for whom she is the sole breadwinner. Junia has worked her way through two loan cycles (a combined total of £106). With her loan she started a business selling potatoes and cabbages, as well as her own fritters, in local markets. Junia has used the profit from her business to improve her home and the quality of life for her children. She has not stagnated in her work and her most recent venture has been to secure a contract supplying her local hospital with cabbages.
‘God sent microloan to help women develop and remove poverty from Malawi’.
Similar to Junia’s story is that of Ruth Mawinda, a 45 year old mother of four. Before MicroLoan Foundation support Ruth had no income and no hope of accumulating wealth in any capacity. Ruth has now worked through three loan cycles (totalling £302) and she is the chairwoman of her community’s MicroLoan group. Her business of selling tomatoes, onions, beans and ground nuts has become a successful source of income.
‘MicroLoan is so good and nice without question. We are profiting now and before we did not know about saving. Now we can and do use the bank for the first time. My husband is very proud’.
The effects of the Foundation on the communities of Malawi and the perceptions of those helped has been measured by a social impact report conducted by the charity Banados UK. This report, in conjunction with the MicroLoan Foundation, was designed to quantify the implications of microfinance on income, education, health and nourishment. What they discovered was that the loans were improving the quality of life far beyond the expectations of the Foundation. 76% of loan receivers had increased their incomes, also the longer their businesses had been established the more successful they became. 81% of clients had increased spending on education for their children; a vital component of social, economic and environmental progress in any society. Spending on healthcare had increased by 77%, an essential step, improving the quality of Malawian society as a whole. The eradication of disease and malnutrition improves the quality of life whilst simultaneously creating a healthier and happier working population. This directly impacts upon the country’s economic situation. The report detailed that 60% of loan recipients saw a decrease in food shortages. Malawi has a 5 month rainy season where many mothers are forced to feed their children, on average, only one meal per day. This situation has changed significantly with those supported by the Foundation able to access credit and savings facilities. Banados concluded their report with the information that 81% of families involved with the MicroLoan Foundation had improved their lives and the lives of their families.
The Significance of Body Shop Foundation Funding
In 2007 the Body Shop Foundation began to fund a new arm of the Microloan Foundation’s Malawi operation. The funding was for a branch of the foundation in Mzimba, a rural district in the north of Malawi. The backing consisted of a £55,000 grant issued over a two year period. This money would be used to attain specific goals for the new branch: the financing of 1,500 loans to 750 women, affecting the lives of an estimated 3,750 dependants were the initial targets set. A high demand for microfinance support in the Mzimba area resulted in the predicted goals for the branch being achieved and surpassed in a far shorter period of time than expected. The repayment rate for the loans granted was also surpassed with a 99% repayment ratio.
The Foundation and the Mzimba branch offer different types of loan. The vast majority of money given out by the foundation is in the form of Standard loans. These are on average about £40 and are given directly to individual members of the loan groups. The Foundation also offer Microventures loans and £2000 pounds of the Body Shop funding in Mzimba went directly to furthering the Microventures project there. These loans are larger than the ordinary loans available. To gain access to them specific training from MicroLoan is necessary in specialised areas such as irrigation and crop management, knitting, sowing and the management of chicken broilers. Since the creation of the Mzimba branch a Microventures field officer has been funded to be stationed there overseeing fifteen irrigation groups and four broiler groups.
Central to The Body Shop Foundation funding in Mzimba was the creation of a sustainable MicroLoan project in the region. Sustainability has to be one of the major focuses for any fledgling MicroLoan group. If the project appears and then fades the impoverished situation prior to its arrival begins to reassert itself. Thanks mainly to the rates of repayment, including interest, which the clients have fastidiously stuck to; the branch is running at a level of 98% sustainability. Continual monitoring and communication between the branches already operating in Malawi and the continued support of The Body Shop Foundation should provide a permanent economic alternative in the Mzimba area.
In addition to reducing poverty through their funding in Mzimba The Body Shop Foundation is promoting an ethos of interconnection between the social, environmental and political make up of Malawian society. Through alleviation of economic problems The Body Shop Foundation hopes to give the people of Mzimba the opportunity to take more interest and concern in environmental problems and wildlife conservation, both of which are required in Malawi. Although these issues desperately need attention the nature of the humanitarian struggle means local people cannot dedicate any time to environmental causes. By helping communities with social economic problems the Foundation hopes to show that the environmental is no less important than the social. Focusing on the interconnection between these areas hopefully shows that we are all reliant on one another; ignoring any problem can have a far reaching effect within that society. The Body Shop Foundation strives to support diverse projects and considers them to have equal significance and importance.
The Realities for Women in Malawi
In Malawi the plight of women not reached by Microfinance organisations can seem like an endless struggle against degradation and neglect. In one of the world’s least developed countries women in rural areas are the poorest and most powerless people. With almost no economic opportunity the realities for Malawian women are bleak with little guard against malnutrition and disease. The lack of economic access creates knock on effects that determine significant aspects of these women’s lives. At least one in every 2,000 women dies in child birth and there is staggeringly high infant mortality rate. The devastating sweep of HIV/Aids across the African continent has meant that Malawi is now suffering from a drop in its Gross Domestic Product (GDP) due to the number of its working population who are dying from the disease. With 85% of Malawi’s population living and working in agricultural areas true figures for poverty and health are almost impossible to correlate.
Malawi has just one doctor per 50,000 people, one of the lowest rates in the world. As a result hardly any women in rural areas have access to formalised medicine. Women in Malawi are socially and economically subordinate to men. They are actively encouraged not to refuse the advances of their husbands or courting men; meaning women are particularly exposed to the risk of HIV. Devastatingly HIV is a hereditary disease and is therefore passed on to the next generation through childbirth.
Life for women in Malawi is tougher than the majority of us could ever imagine. This is why microfinance and the MicroLoan Foundation are aimed specifically at helping women. The hope is to supply them with the tools to impact on their own situation by being able to feed and protect themselves and their families; to break the cycle for these women so that their daughters do not grow up feeling insignificant and helpless but empowered to shape their own destiny.
The financial and social impact of empowering and enabling women from extremely poor backgrounds has had astounding wider implications. Loans provide access to bank accounts and the ability to save, meaning these women can participate in the formal economy for the first time. Empowering women both economically and socially and creating dignity through individual financial support has given women the ability to determine their future and the future of their children. They now have the capabilities to provide basic human rights for their families; which they were deprived of before MicroLoan intervention.
Microfinance around the World
Thanks to Muhammad Yunus’ rigorous development and promotion of Microfinance, organisations across the world have adopted microeconomics as a way of alleviating poverty. The pragmatic solution of furnishing people with the ability to change their own situations is now being offered to vast numbers of the globes poor.
Many institutions now providing microfinance are privately coordinated, running on donations and funding from benefactors.
This is the model that the MicroLoan Foundation operates under; similar to independent micro-financiers United Prosperity. This organisation runs mostly in India and is the first person to person (p2p) loan guarantee website. United Prosperity allows people to choose which entrepreneurs they wish to donate to by placing individual profiles on their site. Each dollar donated is doubled by local bank partnerships and all donations are paid back to donors through interest repayments. This may seem like taking back their charity but the site is not designed to simply give people money. Its aim is ‘to give people the chance to access credit and financial services so as they can bring themselves out of poverty’.
Religious microfinance providers, like Opportunity International, also operate in many countries. Opportunity International is a Christian led organisation running throughout the world. Their mission is to provide opportunities for people in poverty by furnishing sustainable financial services so that the poor can unlock their own potential and begin to work their way out of poverty.
The results of private microfinance have meant governments have begun to adopt the practice as a means of eradicating economic problems within their own countries. In Columbia the Banca de las Oppoertunidades is a national policy aimed at providing access to credit and other financial services to the unbanked Columbian population. Operating in low income areas the objectives of the government are to reduce poverty, promote social equality and stimulate economic development.
Global interest in the economic situation of the poor and ways in which to alleviate it is vital to the eradication of poverty and social injustice. Microfinance has become an essential tool in the fight for economic parity across the world. Although groups may be funded or structured in different ways the central ethos of microfinance stays the same: help people to help themselves, give them the tools to take control of their own lives and create equality through economic development.
Following a recent trip to Malawi and seeing the MicroLoan Foundation at work, our Chief Executive, Lisa Jackson states
“For me personally – Microloan is such an inspiring organisation for so many different reasons.
As a business it takes a cooperative of women – educates, trains and develops their many skills. Even the basis for the cooperatives is thought through with such professionalism and consideration that I feel it would rival some company boards! The women are always in control and always working as a team – incredibly effective and supportive as a group. They have such a determination and a tremendous work ethic.
The loans which the women take out are for such small amounts yet they build such incredible businesses from this and the impact from the financial gain is staggering. A great example of this is one of the members of the Happiness Cooperative, her first loan was to purchase a batch of tomatoes – the lady then went on to build a vegetable stall with tomatoes, potatoes and onions – to then planting seeds and growing her own crops – to buying bricks to make her own kiln – purchasing school uniforms for her children – paying for her children’s education (as well as caring for other family members children) – to making her own bricks – to building a modest home with a roof – to purchasing goats – to feeding her family well and so it goes on….
In addition to this the women grow in confidence and develop as individuals. Incredibly the circle of poverty has stopped. Does it get any better than this?!
As a westerner our world has become so material that the experience of meeting these women really puts things into perspective and quite frankly was incredibly humbling. We strive at The Body Shop Foundation to ensure that our funding is effective – I left a meeting with the cooperative in Malawi in absolutely no doubt that this really is an incredible way to give a hand up rather than a hand out a with an impact that is so amazing that it is impossible to quantify”.
I left a meeting with the cooperative in Malawi in absolutely no doubt that this really is an incredible way to give a hand up rather than a hand out a with an impact that is so amazing that it is impossible to quantify
For more information on the author – John Reid – please contact our office at bodyshopfoundation@thebodyshop.com.
