How MicroLoan Foundation creates sustainability

Microfinance organisations are often criticised for providing fundamentally unsustainable solutions to poverty. They are critiqued for giving out loans which are spent solely on consumption rather than investing in business and income generation.

MicroLoan Foundation believes strongly in finding long term sustainable solutions to poverty. We operate to minimise the dependency created between ourselves and our clients. Through continuous business training, problem solving support and by encouraging savings, we help our clients to become financially independent.

The problem

Commercial microfinance schemes are often guilty of not providing sufficient training before giving out loans. However without the necessary training and understanding of investment, loan receivers may use the capital to buy immediate necessities such as food and school supplies. Providing loans, without training, can perpetuate poverty.

The solution

Sub-Saharan Africa is home to over half the world’s poorest, with many surviving on little over £1 a day. People struggle to feed their families, provide basic health care and afford education or even shelter. With limited access to economic activity and employment, people do not have the means to get by. Using a loan solely for consumption may seem short sighted, but for those living in extreme poverty it may be the only way they can feed their family that day or it may be time to pay the school fees. Our training informs our clients that the loan should not be used for those kind of expenses as it won’t provide them with a sustainable solution for the future.

MicroLoan Foundation offers extensive business training alongside loans, to show our clients the long term benefits of using a loan for income generation. This training equips clients with the lifelong knowledge and business skills they need to run a successful and sustainable enterprise.

The women take part in eight formal training sessions before receiving a loan, to learn basic business principles and how to manage their money. As many of the women are illiterate, the training is delivered through games, songs, role play and visual aids.

After receiving their loan, the group receives continuous training every two weeks and MicroLoan staff will be there if they run in to problems. By providing these women with the resources to build businesses we are giving them a way to earn an income and support their families. A consistent repayment rate over 97% indicates that the women are successful in their business ventures and every time the loan is repaid the money can be used to support more and more women.

At MicroLoan we also teach our clients the importance of making regular savings. We encourage our women to save a proportion of their new income. The savings can be crucial to support our clients in the case of a family bereavement, illness, natural disasters, such as droughts and floods, or when a business might be low performing.

Encouraging clients to become more financially prudent allows them to have a fall back for the long term, they begin to make plans for the future that are now attainable because of their businesses. 97% of our clients report being able to save after joining MicroLoan compared to only 11% before. Our support is not about giving people handouts; it is about creating long term sustainable solutions so that women can begin their journey out of poverty.

The criticism around microfinance can often stem from the belief that microfinance institutions further indebt their clients as repayments are so difficult to make. At MicroLoan we co-operate with other microfinance providers in each area to ensure that to the best of our knowledge, our borrowers are not in danger of becoming over-indebted by seeking additional credit facilities elsewhere. We operate using loan groups, these group dynamics act as checks and balances and provide a level of risk management on loan repayments. The groups are responsible for deciding who can be a part of it. Because of group responsibility of loan repayments, it’s in their own interest to only accept borrowers who will be able to repay their loan.

The Dodo Credit Group

Working in groups can play a big role in a woman’s success. Not only does the group lending model provide a level of risk management, but it provides our clients with support from other women in a similar situation.

The groups become like a family as they offer each other  advice and support during their journeys to becoming entrepreneurs.

The Dodo credit group is made up of 25 women. Each woman has their own reasons for joining a MicroLoan group but one thing they all agree on is that they want to be able to build brighter futures for their children. Between the women they care for 142 children. That’s 142 mouths to feed, and people to educate. Before MicroLoan most of them relied on small subsistence farming to get by, but this did not generate enough to provide for their families.

Now, thanks to your support these women have set up businesses, selling farm produce such as rice, maize and vegetables, selling and making clothes, and opening restaurants and bakeries.

Dorothy, the Chairwoman of the Dodo group, is extremely thankful to MicroLoan for their support and how it has changed her life.

“I am living a happy life now without having to worry about so many challenges.”

Thanks to her loans and training, she has been able to pay for her children’s school fees and now has a home big enough for her family. She has developed savings and was able to build additional houses to rent to people in her community. This has provided her with an extra income stream, making her more financially independent.

How is MicroLoan different?

At MicroLoan we understand that there is criticism of microfinance models creating dependency and our model has been developed to avoid this pitfall. On-going business training, working with groups and the encouragement to save are all factors that help us achieve this. We do not believe in giving handouts but want to help our clients build brighter futures for themselves and their families.