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World Vision – Microenterprise Development Program: How Microloan Works

December 15, 2008

Much thanks to Ant_L.Xanga.com for this insight.

 

Microenterprise Development Program: How Microloan Works


1. The entrepreneurial poor apply for loans:
A traditional bank loan is unattainable for most of the world’s poor. They have no credit, they may own no property, and if they have a business, it’s likely struggling despite long hours of hard work. Through a variety of strategies like group lending through community banks, and cross-guarantees, loans can effectively and efficiently be provided to people who lack collateral but who demonstrate an entrepreneurial spirit, trustworthiness, a good work ethic, and sound business ideas. The proof it works: 96% of loans are repaid on time!
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2. World Vision disburses microloans:
Loan sizes vary from $50 to $5,000, most typically in the $100 to $2,000 range. Usually loans are given to groups of five to 30 microbusiness operators who band together for self-administration, mutual encouragement, and accountability. This ensures that even the poorest of the poor can have access to credit because these entrepreneurs cross-guarantee each other’s loans and support each other’s businesses. Most World Vision loan recipients are women, who consistently use their extra income to benefit their children.
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3. Credit officers coach loan recipients:
Credit officers begin coaching clients before they receive their first loan, and continue with regular follow-up throughout the term of the loan. Business coaching includes assistance with accounting, marketing, and managing—all based on biblical and ethical business principles.
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4. Growing businesses thrive:
With a loan, entrepreneurs start carpentry shops, improve farming, operate flower businesses, purchase livestock, run food services, and weaving businesses, to name a few. These businesses create jobs and generate additional goods and services, thereby enhancing the entire community. Last year, over 185,000 jobs were created or sustained through our clients’ business successes.
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5. Loans are repaid:
The poor are a good credit risk, repaying their loans more than 96 percent of the time. As loans are repaid, borrowers become eligible for larger loans. The reasonable interest rate sustains the loan program, while maintaining low arrears and efficient operations.
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6. Families gain self-sufficiency:
Families who receive small loans report better family health, an increase in their business earnings, and the ability to spend more on food, medicine, and education. According to a study by George Washington University of microloan recipients in World Vision projects:

  • More than 90 percent reported improved business skills.
  • 75 percent reported an increased sense of empowerment.
  • 80 percent reported improved family health in East Africa.

    7. Loan is recycled:
    Repaid loans are recycled to help an ever-growing number of poor entrepreneurs to grow their businesses, better support their families, generate jobs, and aid their communities.
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    >> Community Banks
    Community Banking is World Vision’s primary lending methodology. These loan-and-savings circles provide efficient and cost-effective delivery of financial services to some of the poorest in the world. Integrated with other interventions to meet development needs, World Vision helps transform entire communities.


    Opportunity for the poorestCommunity Banking creates an opportunity for the poorest to obtain credit. Entrepreneurs typically band together in self-selected groups of 15 to 30 members to form a lending group and elect their own leaders. It is important that groups self-select responsible members whom they trust, because the entire group acts as a guarantor for every member’s loan. Members are then trained in effective loan management and leadership skills.


    Cost-effectiveBecause loan officers work with groups rather than individuals in training and handling loans, the costs of Community Banking are low. This methodology also enables cost-effective provision of loans as small as $50. World Vision lends money to the Community Bank, which in turn, lends money to each member. Members must save a specified amount before they receive a loan.


    High loan repayment ratesLoan repayment rates in community banks are extremely high. The group requires weekly meetings, where loans are tracked and repaid. These meetings also provide an excellent forum for encouragement and spiritual input, as well as training in business management, or in topics such as health care, HIV/AIDS education, or improved nutrition. This extra education is taught by the World Vision development project staff according to their areas of expertise.


    Positive impactUltimately, Community Bank members improve their entrepreneurial skills, their incomes increase, their businesses thrive, jobs are created for the community, and families and the entire community benefits. Household heads can more easily afford school fees, provide improved nutrition, and adequate health care. The enterprise-minded begin to lift themselves and their families out of poverty and fuel their community’s economy.

    As Community Bank members repay their loans, they are eligible for larger loans. Eventually, enterprising members with a good repayment record are allowed to form smaller Solidarity Groups and receive more sizable loans.

    >> Solidarity Groups
    Designed for more experienced and larger enterprises, Solidarity Groups are smaller than Community Banks, with an average of three to six people who guarantee each other’s loans. Members who make repayments on time become eligible for large individual loans. Loan sizes range from $300 to $800.

    >> Individual Loans
    Clients who have either grown their own businesses successfully through a solidarity group or have medium-sized businesses qualify for loans ranging from $500 to $5,000. These loans typically require either two guarantors or collateral. Borrowers often create a formal business plan in consultation with their loan officer.
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    2 Comments leave one →
    1. December 15, 2008 10:12 am

      A great supporter of World Vision is AIDtoCHILDREN.com.

      AIDtoCHILDREN.com is a dual-purpose site for building an English vocabulary and raising money for under privileged children in the most impoverished places around the world.

      Check it out at http://www.aidtochildren.com

      • 1familyman permalink
        December 19, 2008 12:48 am

        Thanks.

        Now, if I get this right, AIDtoCHILDREN.com is a contributor to World Vision. They send funds?

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