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Tuesday
Oct042011

Microfinance: “Just one of the possible arrows in the fight against poverty”

Thanks to organizations like Grameen and Kiva, microfinance and investing in entrepreneurs has received a lot of media attention over recent years.  Breaking Ground is excited to have moved in this direction in 2010, but we are aware that it is not a silver bullet. First and foremost, the Women’s Entrepreneurial Program teaches valuable skills, creates a supportive community and encourages women to imagine, and then materialize, a better future.  We added a financing element to respond to a real need in the community and we have determined that loans are the best method to ensure the sustainability of the program: when women repay their loans it is deposited into a fund for future graduates of the business class.

Before making the transition to loans, we spent a lot of time researching the pros and cons of microfinance models, and have designed an approach that we believe will be effective for years to come. 

Community Appropriate:

One of the central values of Breaking Ground, is that each program must be designed with the community it serves, so that it meets the unique needs of that community. Our approach is specific to the needs of the women in each community. This means we change the course and the loan model for each group with whom we work. 

Low interest rates:

Many microfinance institutions charge high interest rates, to cover the high risk of lending,  but because Breaking Ground is providing the capital for the loans, our partners are willing to take a much greater risk than usual, at a greatly reduced rate. We have negotiated a 5% interest rate with our microfinance partners. Of this 5%, 2.5% goes to the bank, to cover the cost of servicing the loan, and the other 2.5% goes back into Breaking Ground’s WEP fund to cover the risk of default.

A flexible repayment schedule:

Breaking Ground works with each of our entrepreneurs to establish a repayment plan, before she receives her loan. These plans take into account the specific timeline of her business and when repayment will be feasible.  This gives women the flexibility necessary to make bold moves and take substantial steps forward.

The size of our loans:

Breaking Ground understands that part of entrepreneurship is making big moves, so we give loans that range from $200 to $1000, depending on the experience and needs of each entrepreneur.

Recipient selection:

Loan recipients are selected by a committee that consists of members of Breaking Ground, members of GADD (the organization that runs the course),  representatives from our partner microfinance institution, and two of the women’s peers. This selection process ensures that each recipient’s business plan is carefully evaluated from many perspectives before being selected.

Size matters:

Because we aren’t looking to make a profit, we keep not only our interest rates, but the number of women receiving loans, low. This allows us to give each woman the support that she needs to succeed.

The title for this blog post, is a quote from "Poor Economics" by Abhijit V. Banerjee and Esther Duflo. I highly recommend this book to anyone interested in learning in more detail, about the role of microfinance in the developing world.

 

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    Breaking Ground - Blog - Microfinance: “Just one of the possible arrows in the fight against poverty”
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    Breaking Ground - Blog - Microfinance: “Just one of the possible arrows in the fight against poverty”

Reader Comments (1)

Has BG found that there is a high rate of repayment
of the microloans of WEP grads?

October 7, 2011 | Unregistered CommenterJenna

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