NOTES FOR DCI BANKING FOR THE POOR
Taken from the book '
When Helping Hurts' by Corbert and Fikkert
IS THE MICRO-FIAINCE MODEL FOR YOU?
Many missions, churches, small ministries and individuals in the
Developing World pursue the "Provider Model" in which they try to
emulate the world famous Grameen Bank of Bangladesh and other Banking for the Poor schemes by
setting up a small Micro-finance scheme to provide loans to poor
people.
Unfortunately, missions, churches and big-hearted individuals are particularly ill-suited to provide loans for two reasons.
1. They do not have the technical, managerial, and financial resources
to get big enough to make their loan program financially sustainable.
If borrowers sense that the program is not to be there over the long
haul, they stop repaying their loans, thereby causing the program to go
broke. To change a city or nation as Grameen has, a viable successful
Banking for the Poor scheme needs hundreds, thousands or tens of
thousands of clients, a number that is simply beyond the capacity of
most missions, churches, agencies and individuals. However individuals
and small agencies can undoubtedly change their community as DCI
Banking has done in Aduku, Uganda.
2. Christan believers find it very difficult to balance their culture
of grace and forgiveness with the discipline needed to enforce loan
repayment. How many pastors or bank leaders would be willing to enforce
loan repayment - by confiscating security or possessions - from a widow
with five children who failed to repay her loan? But if the bank scheme
will not enforce loan repayment for this widow, other borrowers will
believe that they do not have to repay their loans, and the program
will fail. Micro-finance is a tough business as well as a blessing.
Many missionaries and churches ignore this warning and believe that
they can successfully pursue the Provider Model. But the landscape is
covered with the carcasses of failed loan programs started by
well-meaning people.
DOING MICRO-FINANCE WITHOUT MONEY FROM OVERSEAS
Consider a Savings and Credit Association instead.
Maria walked to the front of God's Compassion Church in a Manila slum
and testified to the congregation, "My child would have died had it not
been for the help of this church's Savings and Credit Association. I
was able to get a loan for the medicine, and they also prayed for me,
and visited my sick child." Camilla then stood up and explained how the
SCA members had encouraged her to borrow some money so that she could
start a small cookie-selling business. As a result of this business,
she has been better able to meet the daily needs of her children.
The Savings and Credit Association (SCA) associated with God's
Compassion Church dispensed a total of forty-one relatively
low-interest loans, enjoying a 100 percent repayment rate. Moreover,
the interest paid on the loans enabled the SCA members to earn
dividends on their savings.
But the blessings were more than economic in nature. The SCA members
prayed for each other and their families, and God steadily answered
their prayers: husbands found jobs, children were healed, and broken
relationships were mended. Neighbors of the SCA members commented about
the love and concern that the members showed to one another, so the SCA
members invited these neighbors to attend their weekly meetings and
Bible study. These non-members were allowed to borrow money from the
SCA at an interest rate much lower than that available from local loan
sharks. And when the SCA started its second savings and loan cycle,
these non-members were allowed to become members.
Quite remarkably, this SCA, which reflects an alternative approach to
Micro-Finance did not require one cent of donor money or management by
outsiders. A SCA is a very simple credit union in which poor people
save and lend their own money to one another. Each member contributes
an agreed-upon savings amount to the group's fund at a weekly meeting.
The SCA members decide how much of the group's fund to lend, to whom it
will be lent, and the terms of the loans. At the end of a predetermined
length of time, usually six to twelve months, each member's savings are
returned along with dividends they have earned from the interest
charged on loans. It is microfinance without outside managers or money!
The only role of the church, mission or outside agencies in this SCA
model is simply to facilitate its formation. The SCA group manages its
own affairs and handles the money, in other words the poor are
empowered to create and manage a system for saving and borrowing the
lump sums of money that they need. The group meetings also provide an
excellent context for sharing faith and learning God's ways that may be
offered by a mission, a church, or by the group members themselves.
SCA's have proven to be a highly effective and strategic way forward in the Majority World for the following reasons:
• SCA's are simple to facilitate, can work on a small scale, and do not require outsiders to lend and collect money.
• In addition to providing loans, SCA's offer a way for poor people to save and even to earn interest on their savings.
• SCA's can work in both urban and rural areas.
• Loan sizes in the $5-$12 range are entirely feasible, as are loan
sizes amounting to hundreds of dollars; hence, SCA's can minister to
multiple levels of poverty, including the extremly poor.
• Lump sums from SCA's can be used for the full range of households' needs, not just financing business investments.
• Because SCA's were originally developed by poor people, promoting
them builds upon local knowledge. This fact, combined with the use of
local savings, makes for efficient use of the skill, manpower and
intelligence in the community of the poor.
• SCA's employ highly participatory methods, allowing group members to
make their own policies rather than prescribing such policies for them.
• The fact that the SCA's can originate from churches and missions
makes it easy to share faith and teach the faith thereby addressing
brokenness at the individual level.
There are numerous examples of individual churches and ministries
promoting SCA's as part of an effective word and deed ministry on a
small scale, but large-scale programs are also possible. For example,
the Anglican Church of Rwanda is currently trying to include eighty
thousand people in church-centered SCA's as part of its nationwide,
holistic outreach.
What are the downsides of SCA's? Two problems stand out. First, poor
people sometimes struggle to manage their groups well, to keep accurate
records, and to enforce discipline. Many Micro-Finance Banks perform
better in all of these functions. Second, SCA's do not mobilize large
amounts of loan capital as quickly as Micro-Finance Banks do. Group
members can grow impatient with the process of saving money for
loan capital, particularly if their businesses can handle larger loan
sizes. Nevertheless, the SCA is a viable alternative for addressing the
brokenness behind all ranges of poverty in the Developing World.
Consider the savings and credit association affiliated with Jehovah
Jireh Church, a congregation located in a slum in Manila, the
Philippines. Each of the members of this savings and credit association
live on approximately one to five dollars per day. Each member of the
association deposits into the group just twenty cents per week, which
the association uses to make very small, interest-bearing loans to the
members. In addition, each member contributes five cents per week to
the association's emergency fund, which can be used to provide relief
to members facing an emergency crisis.
From a Westerner's perspective, these people are extremely poor. In
this light, it is instructive to consider the policies that the savings
and credit association developed for its emergency fund. Money from the
fund is lent - not given - at a 0 percent interest rate to group
members whose family members get sick. No assistance is available for
people who have had their electricity or water cut off for not paying
their bills.
According to the group, such a situation does not constitute an
emergency, since electric and water bills are regular household
expenditures for which they should all be prepared. The group will not
even give emergency loans for hospitalization for giving birth, because
the family had nine months to prepare for the delivery of the baby.
Finally, the amount of the loan from the emergency fund is limited to
the amount of the savings contributions of the member getting the loan.
The members of this savings and credit association are tough people.
WHO DO YOU HELP ?
Many of the people coming to you for help will state that they are in a
crisis, needing emergency financial help for utility bills, rent, food,
or transportation. Is relief the appropriate intervention for such a
person? Maybe, but maybe not. There are several things to consider.
First, is there really a crisis at hand? If you fail to provide
immediate help, will there really be serious, negative consequences? If
not, then relief is not the appropriate intervention, for there is time
for the person to take actions on his own behalf.
Second, to what degree was the individual personally responsible for
the crisis? Of course, compassion and understanding are in order here,
especially when one remembers the systemic factors that can play a role
in poverty. But it is still important to consider the person's own
culpability in the situation, as allowing people to feel some of the
pain resulting from any irresponsible behavior on their part can be
part of the "tough love" needed to facilitate the reconciliation of
poverty alleviation. The point is not to punish the person for any
mistakes or sins he has committed but to ensure that the appropriate
lessons are being learned in the situation.
Third, can the person help himself? If so, then a pure handout is
almost never appropriate, as it undermines the person's capacity to be
a steward of his own resources and abilities.
Fourth, to what extent has this person already been receiving relief
from you or others in the past? How likely is he to be receiving such
help in the future? As special as you bank is, it might not be the
first stop on the train! This person may be obtaining "emergency"
assistance from one church or bank after another, so that your
"just-this-one time gift" might be the tenth such gift the person has
recently received.
While many of these rules of thumb strike an intuitive chord when
working with the materially poor in North America, many Westerners
ignore these principles when working with the materially poor in the
Developing World. Compared to the West the levels of poverty in the
Developing World seem so devastating, and the people seem so helpless.
In such contexts, many Westerners are quick to hand out money and other
forms of relief assistance in ways that they would never even consider
when ministering to the poor at home.
Great caution required, don't let your emotions overrule common sense.
SAVINGS
Along with many other people who provide
Banking capital we are moving to the idea that the scheme must now
involve regular saving by the clients and by the waiting clients before they get
their loan. This means that:
a. Before a client receives a loan they must
be registered with the bank and be on the waiting list, and be saving a small
amount each month for their own benefit and to prove their reliability and
seriousness. Generally, if they save 10 dollars they can borrow at least 90
dollars, or more at the bank's discretion.
b. Before a Bank can have a capital top up
from overseas it must have local savings or investments or gifts coming in. So a
Bank that has $50 in savings can ask for a top up of five times that amount,
that is $250.
c. DCI will no longer be providing 100% grants
of capital as we feel that there must be some participation by the owners of the
bank and the poor themselves.
e. The income from local savings should
receive a small interest payment and may be used for loans.
MARRIED LADY CLIENTS
We are advising great caution in making loans
to married ladies. Studies show that in some case loans given to married
ladies are immediately transferred to husbands or other male family members without any
permission or consultation. The ladies are
then sometimes left to make the
repayments yet have no new income
meanwhile the husband enjoys the new prosperity but may not share it. Complaints
by the married ladies have led to cases of violence against them so in these cases micro-finance has not
helped them, rather it has harmed them and
made life more difficult.
DCI
thinks that preference should be given first to widows, then to single
women, abandoned women and
orphans before male clients or married ladies.
In the case of an application from a married
woman then the husband must also be interviewed and motives brought into the
light, he must become a co-borrower along with the wife and be held equally
responsible for the repayments.
Return to the
Banking for the Poor page
www.dci.org.uk