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01 June 2003 Microcredit at work Small Loans That Go a Long Way Small
Loans That Go a Long Way The loans were repaid with interest and Prof. Yunus' small
lending operation blossomed into the Grameen Bank, now owned by its 2.4 million borrowers, 95 percent of whom are poor women.
It has made $3.7 billion in loans since its inception, with a 98 percent repayment rate and it is a model that has been replicated
all over the world. The microcredit idea is simple. A small loan, with an interest
rate that is often higher than the going rate, but lower than the money-lender rate, is used to help people who cannot secure
credit to set up a small business that generates profits. When the loan is repaid, the borrower becomes eligible for a larger
loan that helps expand the enterprise. The proceeds from the interest increase the pool of funds that are available to provide
loans to more people. The success of specific small loans or microfinance operations depends on the integrity of the programme
and the collective discipline of the borrowers to repay the loans. UNDP has embraced
microfinance as a programme on its own and as a component in many of its projects. But according to UNDP Administrator Mark
Malloch Brown, despite the tremendous successes of the microfinance model, "the fact is that we have still only begun
to scratch the surface of what is possible." Out of an estimated 500 million households who would like to obtain a loan,
only three to six percent of this number are presently being served, he said. UNDP,
together with its sister organizations including, the United Nations Capital Development Fund, and United Nations Volunteers,
along with the UNDP-implemented Small Grants Programme of the Global Environment Facility, works to promote legislation that
allows microfinance, develop financial rules and guidelines for programmes, and conduct microfinance operations through MicroStart
and MicroSave. It also works to provide microfinance through non-governmental organizations. Republic of the Congo:
Loan Fuels Flour Power Before the war, in 1994, Lydie Mouyokakani had started a small business, Farila, to produce a highly
nutritional flour that mothers could use in food preparation during the weaning process. At the time, mothers were using imported
cornstarch or a fermented paste that is widely available but nutritionally lacking. Business had been good and Farila was
producing 3,000 sacks of flour every month. The war wiped out the business, but
worse, Mrs. Mouyokakani's husband died, leaving her with very little to support herself and a girl. When the war ended, she
found herself with a complete lack of capital to restart the business. Through a grant from UNDP's Community Action Project,
which was aimed at reviving and promoting small business, Mrs. Mouyokakani was able to recruit three additional employees
and buy the necessary equipment, including a roaster, a crusher and a drier to get back in business. Farila now offers two additional varieties of flour. In addition to Farila Maize and Soya, there is Farizso (corn/rice)
and Foufou Riche (containing cassava, manioc and soya). To market her flours, Mrs. Mouyokakani demonstrates the benefits of
the Farila products for salespeople with a pitch for the nutritional benefits. She says mothers now use Farila not only for
the babies, but for baking cakes as well. "I hope that my Farila will successfully reach consumers, not only nation-wide,
but worldwide. I am glad to be an active player in the development of my country." Production is still only at half the pre-war level, or about 1,500 sacks per month, but Mrs. Mouyokakani reports
that "you can find Farila in every district of Brazzaville." Each sack costs 250 CFA Francs (US$0.42) and, on average,
she sells 900 sacks of flour a month. The total revenues from the flour amount to 220,000 CFA Francs, all on an initial investment
of 30,000 CFA Francs. Vanuatu:
Women Now Their Own Bosses But when a programme offered poor women a chance to take out loans to open a business, it "was
like manna from heaven." According to Mrs. Joe, she borrowed $150 to buy a concrete mould, sand and cement so that her
husband could build apartments to rent to low income earners. Renting each apartment for $100 a month, Mrs. Joe was able to
repay her first housing loan. She took out a second loan of $1,000 last year and
opened a small retail outlet opposite the apartment building, and she employs a store assistant. A new concrete foundation
for a bigger apartment is taking shape opposite the present one. "I am the breadwinner for the family," she says
with a smile, "and I put the food on the table while my husband preaches in church." The Pacific island nation of Vanuatu has about 200,000 people, and about 80 percent of the population lives in rural
villages and depends on subsistence farming. Traditionally here, the woman's role is to rear children and till the land, but
that is gradually changing. At the centre of the effort to help women take control of their lives has been VANWODS, a non-governmental
organization that, with support from UNDP, has helped make small loans to disadvantaged women. Presently, UNDP is working
to officially transform VANWODS into a microfinance institution. Toko Mara, a member
of the UNDP team to restructure the organization, said the project has helped mothers to take control of the family budget.
"In many cases now, it is the husband who asks his wife for money," he says. Mr. Mara said that while the scheme
operates only in Port Vila, there are many requests to extend this vital service to the other islands. He also reports that
men are now also asking to become members of the scheme. Lydia Peter finished school in fourth grade in her village in Tanna,
and like Leah Joe, she moved to Port Vila to look for work only to be told she had no qualifications. Borrowing from VANWODS,
she has opened a small retail shop and business has been good. She says, smiling across the tiny counter, that her business
has played a major role in supporting her family, which includes her husband and five children. The VANWODS loan scheme has reportedly contributed to a major reduction in small crime. Members admit that before
the project started, they often disappeared in the mornings without telling their husbands, to look for food for breakfast.
If they had no garden of their own, they would take food from someone else's garden. But the members say that is all history
now. Cambodia: Hair Salon
is Ticket Out of Poverty Born and raised in Phnom Penh,
Ms. Vanamony lived with her widowed mother, two brothers and four sisters on a combined family income of 7,000, 8,000 Riels
a day (approximately $2). Unable to afford to stay in school, Ms. Vanamony had to sell candies, fruits or vegetables on the
street. But Ms. Vanamony found special skills training from the Khmer Kampuchea
Krom for Human Rights and Development, part of a special vocational project funded by UNDP, UN-Habitat and the UK Government's
Department for International Development that assists the growing numbers of urban poor in Phnom Penh. Rich or poor, looks
matter. In a country where women, no matter how rich or poor, place a high value
on appearance, Ms. Vanamony decided she wanted to train as a hairdresser. "At first I found the make-up very difficult
to do and I was afraid that when I cut someone's hair, I would make a mistake. But after a few months of training, it got
easier. I like hairdressing and helping women look beautiful." After her six
month's training, Ms. Vanamony decided to open her own shop. "I felt confident and wanted to have my own income by running
the business myself." With the help of her best friend, she was able to borrow $200 from a money lender, repayable in
$10 or $15 lots every month, to buy the construction material for the salon and to purchase some hairdressing equipment. Ms. Vanamony has repaid half of the money so far, but it has put a strain on her business, a reason
she has strategically located her salon a short distance from a nearby clothing and shoe making factory, Ivatino Design and
Intech Footwear. Most of the employees in the factory are women and she is finding that as the workers walk past her business
she is becoming better known. Her prices are competitive as well, 3,000 Riels for a hair cut and styling and 1,000 Riels for
a combined manicure and pedicure. The salon is about two metres square, the
floor is dirt, the roof is tin and the walls are rattan. Electricity is provided by a private vendor for 1,000 Riels a kilowatt.
But the basic equipment is there-combs, brushes, curlers, hair colour, hair spray, heating devices, make-up and lots of nail
polish and lipstick. Posters of various hair styles adorn the wall. "If you want one of these styles, I can copy it for
you," Ms. Vanamony says proudly. She is hoping that soon she will be able to repay her loan and expand her business.
"I want to improve the salon so that it is much better than what it is now. My income will improve and so will my living
conditions. In the long term, though, I would like to become a hairdresser trainer, but I need more experience before I can
do that." Kazakhstan: Cobblestones
for Construction "There were too many competitors, all offering the
same products," says Mr. Narmuchamedov, the company's chief mechanic. So the company developed an idea, to add metal
fences and gates to the traditional product line that included concrete slabs and cobblestones. But they needed help. Alikulov i.K. was able to get help and space from the Sodbi Business Incubator in Shymkent, located
in a vacated bank complex. Drawing on the counsel of UN Volunteer (UNV) Stefan Schandera from Germany, the Incubator helps
fledgling enterprises develop over a three-year incubation period. New business ventures-providing jobs in trade, insurance,
furniture and printing products-grow in a supportive environment that provides everything from Internet connections to office
services and a library. Under a project funded by the Soros and Eurasia Foundations, German Technical Cooperation as well
as partners from the private sector, new and unemployed entrepreneurs profit from training on business plan development, marketing,
personnel management and information technology. And once they are steady on their feet, they move their businesses to new
premises-in the real world. "What we needed most in 2000 was a bank credit
to obtain additional technical equipment. The Sodbi team gave us very helpful advice how to go about it," says Mr. Narmuchamedov.
"This laid the foundation stone to our successful business today." Since then, Alikulov i.K. has grown to 50 employees
from nine. During peak periods, they hire another 150 part-time workers. A new line
of bank credit has helped buy the equipment to start manufacturing, and construction companies have responded well to the
new range of cobblestones, railings and other metal products that the company offers. "Alikulov
i.K. invested a substantial amount of money into marketing and management training for their office staff, who did a great
job in putting ideas they got out of their training into successful business practice," says Mr. Schandera. "This
shows that the services offered by Sodbi do make a difference-and that the profit centre approach, raising fees for training
opportunities and collecting rent from enterprises who succeed in getting business, works very well." The UNV works closely with the staff of Sobdi, advising on small business operations, NGO and volunteer
management, fund-raising and donor relations. Key partners of the Sobdi Incubator,
which trained 150 people in information and communication technology, include technical universities offering ideas on technology,
successful businesses investing and giving advice to newcomers and banks granting credit. Panama: Women Want Rice Mill; Men
Say They're Crazy For the women of Santa Librada, this
isolation meant that husking the rice had to be done the traditional way-pilar arroz, pounding which is done in a pilon, a
conical and hollow piece of wood, a process that is long and exhausting. Marisol
Mitre Arenas, Francisca Cabrera and Maria Elena Mitre thought a rice mill would make the process much easier on women, and
would provide them with some badly needed income. The three women initiated efforts to start the Agroindustrial Peasant Association
of Women on the March to set up a rice mill and learn how to manage this business on their own. "The men in town said we were crazy, that our project would fail," says Mrs. Arenas. "It΄s been said
that women have no rights. We organized to help one another because we are capable of managing any type of business,"
said Mrs. Arenas, who is now the Accountant Manager of the rice mill named La Uniσn. Starting
from scratch They were worried about their management skills and lack of experience in business matters, especially money and
bills. "Most of us have gone only as far as sixth grade in the primary school," Mrs. Arenas pointed out. At least,
she said, most of the women knew how to read and write and knew basic math. Their
cause, however, received sup-port from BioDarien, a project financed by the United Nations Foundation, the Global Environment
Facility and UNDP. The project was created to protect the Darien National Park, 579,000 square kilometres along the border
with Colombia, the largest park in Central America and a UNESCO-declared Biosphere Reserve. The Inter-American Highway is only a dirt road here, and the rice mill, owned and operated by the women of Santa
Librada, has reduced travel time for farmers in neighbouring communities. The project
aims to improve life in the surrounding towns and villages to reduce the pressure on the local population to move into the
Darien National Park. In 2000 the BioDarien project granted the women a microcredit of $3,000 to buy supplies and set up the
rice mill. But the women had some critics. "Many men think that a woman's place
is home. They are "machistas," says Mrs. Arenas. However, her husband has been supportive. "He comes with me
to workshops because he believes in what we are doing." The rice mill has only
one part-time employee, Ignacio Nelson Moreno, who has been working at the mill three days a week for the last three years
and he carries the heavy 100-pound rice bags on his shoulder. The members of Women on the March do all the administrative
work and distribute profits. Mr. Moreno is also responsible for filling bags with
pulidura, a leftover that is used to feed cattle, pigs and chicken. The rice husk is free and farmers use it as fertilizer.
Most customers bring their cargo to the mill on horses, but some drive cars,
as Martina Valdes does, when she brings in 10 100-pound bags. "I like the work of these women. They are well organized
and give good service. If they were not here, I would have to go very far with my rice," says Mrs. Valdes. Bosnia: Returning Refugees Start New
Enterprises Well into his 50s,
Mr. Barnjak never dreamed of becoming an entrepreneur, but now he is planning to expand his business. "I'm a well-educated
man, maybe even the most educated baker in the area," he says. "But now in this country, it's not realistic to expect
to get a job in big factories, especially as a returnee of different ethnic background than the majority one." Mr. Barnjak was able to grow his business with equipment he received from UNDP that enabled him to expand
his product line. Now he provides jobs for five employees and produces 35 different kinds of bread and patisseries. But the
equipment is still not enough. "You also need cash," he says. But he says
the business is now going well. "I have regular customers. For some kinds of bread I have only three to five customers,
but I bake them every day; five pieces only, but for us, every customer is very important." Four years of war have resulted in a stagnant Bosnian economy. Seven years ago, at the end of the war, industrial
production was only five to 10 percent of the country's pre-war capacity, and unemployment had soared to 90 percent. The largest
loss of jobs came from the collapse of the large, state-owned enterprises that provided many jobs before the war, particularly
in textiles, metalwork and wood products. The microcredit loans are part of
UNDP's Integrated Resettlement Programme, which is aimed at revitalizing agriculture, animal husbandry, food production and
processing as well as the development of skilled trades and light production. Assistance is provided to anyone, returnee or
not, as long as their proposed economic activities can sustain themselves. In the past six years, the economic component of
this UNDP programme disbursed 384 micro grants, with a better than 60 percent success rate in the seven municipalities in
the Central Bosnian canton. Indonesia:
Kitchen Snack Shack Turns Profit With the shop in their home in Ciwidey, a town in West Java, the family is again back at work today making the pan-fried
snacks for shops and kiosks in the neighbourhood. Six of the eight family members
work in the enterprise. Mr. Nandang and his wife prepare the dough and fry the snacks in their small kitchen. Mr. Nandang's
father is responsible for buying the ingredients and supplying the products to sellers, while his wife Tati, does the bookkeeping.
Deni and Itermawan, Mukhtar's younger brother and sister, who attend school during the morning hours, pack the snacks into
bags and boxes in the afternoons. The family is proud of their business, which employs
and comfortably sustains all of them. They save profits in a bank account and only recently allowed themselves the luxury
of buying a radio, a television and a videocassette player. It was a loan obtained
through UNDP's Community Recovery Programme that laid the foundation for the Nandang family's recent prosperity. The Programme
targets community members who live below the poverty line and opens up possibilities for self-employment and income generation.
Shah Alam Mia, a UN Volunteer from Bangladesh, has helped advise the Nandang family
business since it got started in mid-2001. As a field officer for the Programme responsible for West Java, she supports and
counsels community-based organizations in human resources, accountancy, administration and business analysis. Together with
community organization staff, the volunteer visit borrowers and support them in product marketing, establishing their personal
repayment plans and training in basic bookkeeping skills. "Mukhtar received
his first loan a year ago and managed to repay it within the six months according to his business plan," says Ms. Mia.
"Reliable borrowers like him normally receive four loans during a period of two to two-and-a-half years." Mr. Nandang says, "The micro- credit helped us to overcome our cash-flow problem. It helped
us to regularly buy ingredients, produce and deliver to sellers." But he feels that the most important practical advice
for his business came from Ms. Mia, who helped them determine what percentage of the profits should be reinvested into the
business, to repay the loan and save for any emergency that comes their way. Uzbekistan: One Small Loan Leads to Another Traditionally, there have
not been many opportunities for women to earn money outside the household on the Uzbek steppe, but tapping into a new microcredit
programme run by UNDP, Mrs. Ochilova was able to borrow some 30,000 Soum ($30), and by combining that with her limited remaining
cash on hand, about 50,000 Soum, she was able to buy a cow. The UNDP microcredit
project began in 1998 in Kashkadarya in the semi-autonomous Republic of Karakalpakstan. After four years of operation, focusing
largely on women's non-governmental organizations, the UNDP-supported projects have laid the groundwork for national legislation
passed in August 2002 that allows the development of micro-lending by NGOs, international donors and local non-banking financial
institutions. For Mrs. Ochilova, the earnings from the milk, katik (yogurt), butter and kaymok (cream) soon allowed her to
repay the loan. Through the programme, she was then able to borrow more money, 80,000 Soum to start a canteen business in
rented space. As her cooked soup, lagman (noodles) and fried mutton became well
regarded, it was not long before her business was thriving. Her daily income from the canteen is now about 70,000 Soum, of
which 15,000 Soum is profit. After borrowing a fourth loan of 110,000 soum, she added drinks to her canteen. With the new
loan, Mrs. Ochilova was able to buy new dishes for the canteen and sacks for the milk processing. "Now that I am busy with the canteen," Mrs. Ochilova says, "my sister is helping me with the milk
processing. As a result of the microcredit, I can provide my sister with a job and I can help to feed her family. She takes
milk and other milk products home everyday. And when I have earned enough money, I will own the building the canteen is in." "Before I used to ask money from my husband for my own expenses," says Bioqobilova Oisada,
another microcredit beneficiary. "But after becoming a member of the micro-credit programme, I have enough money to cover
these expenses. This gives me more confidence in myself," Mrs. Ochilova adds. Pakistan: Rickshaw Drivers
Double Income by Shifting to Natural Gas Many automobile owners throughout the city have converted their vehicles to run on less polluting compressed or liquified
natural gas, which is cheaper than gasoline, and businesses that install and sell natural gas are growing throughout the urban
centres of Pakistan. But rickshaw owners who have inefficient two-stroke engines have not joined the trend, and the air in
Dhok Hassu has remained tinged with the rickshaw fumes. The cost of the more expensive gasoline has been borne by the rickshaw
drivers and their customers, with the costs of the air pollution carried by the entire community. Rickshaws using natural
gas go further than those using gasoline-a rickshaw can cover 18 kilometres on one litre of gasoline while it can cover up
to 52 kilometres on one kilogramme of natural gas, equivalent to 1.3 litres of gasoline. To tackle the pollution problem, a small NGO, Al-Falah Development Organization, approached the Global Environment
Facility's Small Grants Programme in UNDP Pakistan for assistance aimed at cleaning the environment by encouraging rickshaw
drivers to use natural gas instead of gasoline. According to Sumaira Gul, the NGO's chairperson. "We were aiming to promote
the concept of community development through empowerment and self-help leading to socio-economic benefit, along with addressing
the environment issues." So far, the programme to convert the rickshaws in
Dhok Hassu has been successful by providing small loans to the rickshaw driver, and NGO officials say that the demand for
natural gas conversion kits for rickshaws is growing exponentially. More than 500 rickshaw owners, drivers and mechanics from
Rawalpindi have participated in training sessions to learn about the environmental and economic benefits of the new fuel system.
The project has helped raise the income of the rickshaw drivers and in a majority
of cases, rickshaw drivers have seen their income doubled. According to Onder Yucer, UNDP Resident Representative in Pakistan,
"The project has taken the beneficiaries out of the $1 per day poverty trap and are contributing to efforts to meet the
MDGs. The rickshaw drivers have more income to spend on health, education and sustenance for their families." The rickshaw drivers, it is estimated, save from Rupees 100 to Rupees 200 ($1.80 to $3.60) per
day-depending on the number of hours that a rickshaw is driven-and that translates to an increase in income from Rupees 3,000
to Rupees 6,000 per month. Private entrepreneurs have also started providing kits on microcredit to the rickshaw drivers in
Rawalpindi, and rickshaw owners in other parts of the country have now shifted to natural gas. Originally published
in Choices Magazine, June 2003 |
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