Thursday, July 05, 2007

What is Christian Microenterprise Development? (pt. 1)

Since Joni and I will be working with a Christian microenterprise development agency, I’d need to explain what that is. “Microenterprise” captures 2 ideas: microcredit lending and entrepreneurial development.

First, microcredit:

The 2006 Nobel Peace Prize went to Mohammed Yunus and his Grameen Bank for their efforts in pioneering microcredit lending. It's "bottom-up" poverty relief, as opposed to the more "top-down" macroeconomic approach of Jeffery Sachs and others, which I talked about in my previous post.

What is microcredit? It’s the extension of very small loans to entrepreneurs who are not bankable; people with no collateral, credit history, or any way to get money for their business ideas without paying astronomical interest rates.

Yunus discovered he could make small loans, just a few dollars, to his students who would then use those funds to earn money and then pay him back on time. He understood that often times poor people have some good ideas and opportunities to earn income, they just lack start-up capital to get it.

If you want to start a business in the U.S., you typically go to a bank or a venture capitalist and ask for a business loan. They assess your ability to repay, evaluate your business plan, and, if they approve, extend you a loan. You use that loan as your initial start-up, and once your business gets rolling you pay if off and either get another loan to help you grow faster or begin self-financing your firm from profits or bring on investor equity by selling shares of your company.

Most people in poor countries don’t have this option. Banks only loan out very large amounts to account holders and require collateral and other things up front. Thus, entrepreneurs are left to either wait a long time to start a venture, or never start one at all.

Microcredit groups enter the picture to fill in the gap and provide small loans to poor people. These groups typically assess credit risk by talking with family members, friends, and community leaders; maybe even requiring them to co-sign on the loan so that the borrower has social pressure to repay. It may require the person putting up small collateral, like their wedding jewelry or something small in monetary value but steep in sentimental value.

It may be $10 for a person to buy some shoeshine materials. Or $20 for a single mom to buy a wheelbarrow to cart vegetables to sell around her neighborhood. Or $50 for someone to buy a cell phone and start a pay-phone service in their village. It allows them to begin earning money, which they can use to grow their business. As they spend their money (on more vegetables, for example), they help employ other members of the community. The local economy starts to grow. People begin to live outside of poverty.

Some questions that are often asked about microcredit is:

“Why loans? Why not just give the people money?”

By giving them a loan that they’re obligated to repay, the borrower has an incentive to use his/her money as efficiently as possible. They will work to make sure they can meet the requirements.

The microloan process shows the recipient that this isn’t a one-shot game. It’s about establishing a relationship. They will have the opportunity to earn greater rewards by being faithful in the first loan they receive. Otherwise, they would just take the money and run.

“Aren’t you just saddling these poor people with more debts they can’t pay?”

Micro loans help them generate revenue through business and get out of the poverty. Microcredit institutions experience near 100% repay rates in every country. That’s considered to be the “miracle” of the process. Whether through the relationship process, or by bringing in members of the community to vouch for the loan recipient, people repay and economies grow.

Think about what might happen when the loan-givers building the relationship are Christians. They now have a way to build a relationship with many people in the community and share with them about Christ. More on that tomorrow.

“Why do we care about growing businesses? Shouldn’t we just care about sharing the Gospel and planting churches?”

As mentioned before, microcredit is a way for the Church to share the Gospel, but it’s also much more. It’s about the Church being salt in its community by helping keep it together. In many former Soviet countries (and in Mexico), people are migrating to other countries as quickly as they can in order to find jobs. This breaks up families as husbands and fathers leave their homes, perhaps never to return. The entire structure of society begins to break down. Younger educated people do not want to invest time and energy into the community that they just want to get out of. Anyone with leadership ability or talent exists the community, leaving a gaping void. The resulting economic and social collapse in these countries bring about anarchy, crime, war, and usually a harsh totalitarian-style regime. This makes it hard for the Church, whose members are also looking to leave the country. Churches in these types of community face the daunting challenge of reaching out when the society is coming apart.

With Christian microenterprise development, members of the Church have the ability to give back to their community by helping create jobs and stability. It allows them to be hugely influential the community and build relationships with people who might not have ever darkened the churches’ door. It shows the community that Jesus is not just a nice story or creed, but He’s a Savior who cares about their needs. He cares about giving a them cup of cold water, or clothing, or a way to keep their families together.

BPN, the organization Joni and I are working for, is more focused in helping people beyond purely small microloans. They mostly fund people who have “graduated” to higher levels of borrowing, in the $2000 range.

Here are some of their stories in Moldova. Check them out. They’re simple, but very effective. Tomorrow I’ll talk about the “enterprise development” side of the story and how the church is deeply involved.

1 comment:

Ryan said...

Awesome explanation and sounds terrific!