This is the second post in our series about making a difference. If you want to read the all, head over to our page Are you MaD?

There has been a lot of buzz about micro-finance in the past few years, not without reason. That statistic about living on a dollar or two dollars a day in developing countries is very real and it sucks in reality. Translate that into, roughly, the same value in USA terms (I’m no economist—this is a rough estimate): You and your dependents are living on less than $50 a day. You can eat, just. You can “not die”, provided you stay healthy, but you can hardly get ahead, you can hardly pay rent, and you can barely afford school fees or medical bills.

Now, add to this the reality that you have no social welfare system. Many developing countries struggle to provide basic needs such as access to water and a regular electricity supply, much less a welfare system. Now, imagine you need to borrow $300 to pay a medical bill. This is five times your daily income from which you have nothing left over at the best of times. Where would you go for money? The bank? If you’re living on one or two dollars a day in the developing world the bank will not lend you money. Opening a bank account full-stop is a challenge. A bank loan is out of the question. So, family. Your family is equally poor. Possibly poorer. Your family can’t help.

Your friends? They face the same struggle as you. Essentially, many people in developing countries are surrounded by equally impoverished people who have no access to finance; they’re caught in a cycle of poverty that is inescapable without some kind of boost for health, living, educational or business reasons. They may be one of the most potentially brilliant entrepreneurs or scientists or musicians, with excellent ideas, but it doesn’t make any difference if they can’t access finance to grow their business or get it started. By the way, if you read Education above, you can see why that matters—attaining an education is a potential step out of poverty. But we’re on micro-finance here.

So, if you ever felt a yearning to support an entrepreneur to break the poverty cycle, micro-finance is one way to do this. The way this works generally is that you, the financier, provides a small loan to a project or entrepreneur. $100 goes a long way under these conditions in Ghana. The lender repays the loan over time. Micro-finance lending has a hugely successful repayment rate generally in the high 90s wherever you read about the success rate. That’s not to be confused with the rate (amount or interest) that is repaid to the lender over a set period (every month) to pay off the loan, but it rather refers to the repayment success rate of a total loan. It means that more than 90 % of people repay their loans in full, according to the loan conditions. Usually the high 90s and often 100%, as I mentioned. Which means that less than 10%, but more like 2 or 3 % of people fail to repay the loans according to the terms. It worked so well in Bangladesh way back in the 70s when Muhammad Yunnis of Grameen Bank fame began a programme of lending to the poorest of Bangladeshi women, that the idea spread organically to other parts of the developing world.

We introduce three hard-hitters that you could join to help finance a developing country entrepreneur. Incidentally, women are recognized as better repayers than men. Don’t want to start a gender war, simply that this has been proved time and again in research on this subject. It’s also been proved time and again that women are more likely to spend their earnings on their family’s wellbeing whereas men, particularly in developing countries, tend to spend money on themselves, family an afterthought.

Kiva: If you’re already into micro-finance you’ve probably heard of KIVA. KIVA provides financing to small businesses throughout the developing world. We’ve watched them operating on the ground in Ghana and they do what they say they do. But they operate far and wide and you can select a project anywhere in the world, filter them by region or project type, as suits your preferences, and then choose a lender to supply financing to. They are truly one of the best. It’s such a rush to watch the individual’s business develop.

Grameen Foundation. Yes, of that name and fame, but not formally connected with grameen-info.org, also provide micro-finance to small and informal businesses in the developing world. You can help out by making a one-time donation, give on a monthly basis, supporting a child’s education, and even by volunteering. In fact, their volunteer program is called “Bankers without Borders” and, according to their site literature: “connects individuals and companies with opportunities to mobilize their skill sets and use their industry expertise to offer Grameen Foundation innovative solutions to help break the cycle of poverty. It is a Global Reserve Corps of business professionals from a variety of fields…” If you always thought there was no home in impoverished communities for your corporate finance skills, check out their site and see what you can do.

Sinapi Aba Trust. Ghana has a tradition of “Susu” collectors, an age-old savings practice operated in markets all over the country. One individual is trusted with tiny deposits that are often picked up by walking around the market daily, and deposited until the end of the month, at which time the collector returns the savings to its owner, keeping one day’s deposit as commission for themselves. Susu collectors often also provide limited loans to small businesses to help them develop on a small scale. One organisation that’s doing good work in Ghana is Sinapi Aba Trust. They have a good reputation for paying their staff well and for running a well-managed and accountable operation. If you’re interested in supporting Ghanaian organisations directly, check out their site.

The image at the top of this page is courtesy of Creative Commons licence at Wikimedia. It is Dr Yunus himself. The link is here.
From Christiane at Village Exchange: I wanted to mention that besides these major organizations, there are some NGOs (like for example Village Exchange Ghana in the rural areas of the Volta Region and Initiative Development Ghana in the slums of Accra)trying to offer financial services to the poorest tied up with a “social mission”. We believe that the offer of quality non financial services significantly improves the impact of financial services. By social mission, we mean Life Skills education (information on hygiene, nutrition, early child development, malaria, etc.) but also development of basic business skills and entrepreneurial capacities, information on reproductive and sexual health, and on reproductive health rights, child protection, girl child, etc.
We also encourage vigorously the members of our MF groups to register to the National Health Insurance scheme, so that they can access enhanced medical services, which will impact their overall situation and reduce the credit risk through medical coverage.
We believe strongly in this pro-poor holistic approach which is less lucrative than financial services alone but much safer for the populations involved.