Microcredit helps communities help themselves
When Prof Muhammad Yunus and the Grameen Bank he established in Bangladesh in 1974 won the Nobel Peace Prize last year, for many in the Western world it was an introduction to the microfinance movement. Yet for millions throughout the developing world, microfinance has been a life-changing reality for more than three decades.
Churches too have been part of the effort to provide microcredit to the poor and disadvantaged. Founded in 1975, the Netherlands-based ethical investment fund Oikocredit is a vehicle for churches to invest in communities where people have little access to conventional loans.
The Methodist Church of NZ has a small shareholding in Oikocredit and is one of hundreds of church organisations that has invested in its sustainable lending programme.
|An Oikocredit project partner from Senegal.|
Through Oikocredit, churches provide microfinance institutions with credit, so they can give small loans to small-scale entrepreneurs, subsistence farmers and the self-employed.
Unlike some donor organisations, Oikocredit does not disburse grants or subsidies. It believes grants are important in such areas as health care, relief work, and education, but for creating income loans are more suitable.
But unlike traditional financial institutions Oikocredit loans to people who lack collateral. Experience shows that the commitment of the people themselves is often a more powerful guarantee of success than the ability to put forward collateral.
A typical loan-recipient could be a smallholder who works his land and sells his produce within the local community, or a mother running a clothing-business from her home who needs money to purchase a sewing machine.
The aim of such loans is to help the recipients better their circumstances, improve their quality of life, and take more control of their future.
Once a loan has been disbursed, the relationship between Oikocredit and its project partners is just beginning. Local Oikocredit staff closely monitor projects and assist if and when necessary.
Recipients have faithfully repaid Oikocredit loans to a degree no-one could have predicted. Only about 10 percent of the funds loaned have been written off.
An important factor influencing the success rate is the mutual respect found between the lenders and the recipients. Pride and dignity take the place of gratitude and dependency.
According to information in the Micro Banking Bulletin, 63 of the world's top Microfinance Institutions had an average rate of return of around 2.5 percent of total assets. This is roughly in line with Oikocredit, and proves it is a sustainable endeavour.
Oikocredit says today sustainability is an important concept as society comes to realise that with consumption comes responsibility. Within microfinance, sustainability and responsibility also go hand-in-hand.
The people who benefit from loans are the greatest evangelists for microfinance. They are aware that the entire community benefits from their success. As loans are repaid, money is channelled back into the community in the form of further loans. Oikocredit hopes that if this is repeated often enough, the idea of microfinance for the poor will become a thing of the past.
Mission and Ecumenical secretary Rev John Roberts says the Methodist Church of NZ has 11,000 Euros worth of shares in Oikocredit. “Each year when Oikocredit declares a dividend, we get a few more shares added to those we already have. We have not drawn on that shareholding at any time,” John says.