When people hear the word charity, they immediately associate it with the standard
model of “you ask, I give, you spend, you ask".
But with more than 200,000 registered charities now doing the asking, and our giving habits in the UK becoming tighter and tighter, charities are rightly trying to think outside the box in an attempt to differentiate themselves and raise money for their vital projects.
While Microfinance Institutions (MFIs) have been kicking around since the early 90s, it is only recently that we have started to see them proliferate and enter the mainstream – accelerated, of course, by the ease with which digital technology connects donors with beneficiaries and their stories.
Developed and refined by Nobel Peace Prize recipient Muhammad Yunus, popularised by Kiva.org in the US and pioneered by MicroLoan Foundation in the UK, the model encourages the donor to invest rather than donate and the beneficiaries become “clients”. Care International is the latest charity to adopt the model, with the launch this year of its Lend With Care microsite.
All of this aims to show donors that their money will be more effective when spent with those charities rather than competitor charities: with the click of a mouse, their money is lent to the client and then paid back once they have been helped to set up a business (often small stores in their villages); the money is then re-lent with the same money effectively helping countless people.
Perfect! Right? Well no, not necessarily. Any charity thinking that they can simply breeze into the world of microloans, aided by the ease with which digital technology links supporters with those in need, is foolhardy. The biggest pitfall of all is the creation of a cycle of debt by lending to the drastically poor who have not been given sufficient training, or are just not right for microloans.
The other consideration is making sure the charity’s infrastructure is set up correctly.
Microloans are actually more in line with running a bank than a charity, in an operational sense. At the MicroLoan Foundation, we employ local people who are familiar with the local economy and sensitive to how to develop it.
A strong repayment rate is also critical and one which is directly affected by the expertise of the loan officers who train and mentor the clients. If the clients do not receive adequate training and support, their businesses will fail and they will not be able to repay the loan, leaving them much worse off than before they were “helped”.
All in all, microloans are a great idea. They empower the poor to work their way out of poverty. But they are also a highly complex animal with the best organisations being those who specialise in it, rather than those who see it as a quick fundraising and communications win.
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