Microloan Program Description
Banking institutions in Liberia, like many financial institutions around the world require that borrowers have an elaborate business plan and collateral to qualify for financing. Economically disenfranchised families in rural communities who have no such collateral or education to fulfill the rigorous financing requirements of banks are often denied credit opportunities. Furthermore, banks are generally not interested in making small loans like $100 to $250 — as interest benefits might be inadequate to pay the administrative costs for the transaction.
Balama Development Alliance (BDA) Micro-lending Program bridges this gap by offering micro-loans to the poor— those previously considered “un-bankable” because of their lack of collateral to back loan applications submitted to commercial banks. The Balama Project economically empowers families in rural communities by providing them with small business start-up loans of US$100 to US$200 to help them start and grow self-sustaining small businesses. This amazingly simple approach has proven to empower very poor people in Balama and other parts of the world pull themselves out of poverty.
By the use of traditional skills and entrepreneurial instincts, we have witnessed the people of Balama make use of small loans to improve their families’ standard of living by starting a retail stand, garden, craft making, cook shop (restaurant) and more. This model of lending disproves conventional thinking and has become one of the most effective and sustainable tools in the fight against global poverty. The model sees the poor as entrepreneurs needing an opportunity for “hand-ups and not handouts”.
Micro-lending gives economically disenfranchised people an opportunity to be creative and explore income generating sources. Some of the business opportunities available to the people in Balama and surrounding villages include:
- RETAILING - Farm-to-Market retailing is where a retailer purchases local produce (dried/smoked meat, Palm oil, vegetables etc) at wholesale prices in village markets, takes the product miles away to villages, and resells the products at higher margins through Roadside markets in mid-size towns. On the return trip, the retailers then buy other commodities and retail them at higher margin in the village.
- ANIMAL REARING – An applicant may secure a loan to purchase pairs of goats, sheep, and chickens as rearing stock for multiplication. Some of the eggs and meat produced are used as food for the family, and the excess sold to the local market to generate income needed to purchase other much needed commodities for survival.
- CRAFT MAKING – Those with specialized traditional skills may secure loans to purchase tools and supplies needed to start craft making or basket weaving business.
- GARDENING – A family may secure a loan to plant and raise a garden for food and sell the excess at local markets for money needed to purchase other commodities.
An equally important part of our lending activity is the recycling of funds which gives many people loan opportunities to start businesses. We initiate early payback discount strategies to increase the rate at which funds are repaid thereby producing the cash flow needed to make new loans. As the loans are paid back usually within eight to twelve months, the proceeds are distributed as a new loan to families on the waiting list; thereby multiplying the effects of the program. Our lending activities are guided by the following values and commitments:
- Dedication to exploring how micro-lending can be a platform for socio-economic empowerment;
- Priority for lending to the poor through effective targeting, recruitment, and promotion of sustainability; treating applicants with dignity and respect regardless their socio-economic status;
- Commitment to micro-lending as a proven solution for the problem of poverty and resulting hunger;
- Commitment to keeping donor and constituencies updated on progress through monthly reporting;
- Producing measurable results with strong commitment to Christian values and ethical business practices as means of achieving the ultimate goal – the reduction of poverty and resulting hunger;
- Commitment to transparency and accountability on all levels, and adoption of international financial accounting and reporting standards where necessary;
- Strong commitment to professionalism and promotion and leveraging of volunteerism where appropriate.
The Lending Process
The lending process follows these outlined steps:
- Step 1—the Balama Project receives donor funding and plans a distribution as micro-loan packages
- Step 2—applicants are encouraged to attend a pre-screening meeting and to explore business possibilities;
- Step 3—with the applicants’ consent, a credit check is performed and scored to inform the lending decision;
- Step 4—approved applicants are then invited to participate in a week-long small business workshop that teaches applicants how to choose, start, and grow self-sustained small businesses; after which the applicants are placed in Solidarity Circles/Peer Group of odd numbers for support and team building purposes;
- Step 5—the final step in this process is to sign/make a thumb imprint on a loan contract and receive cash in the presence of their solidarity circle and village authorities.
The problem with lending money to the poor is the dark clouds of doubt at whether they have the ability to payback the loan. BDA increases the payback rates of loans through the use of Peer Group Support Methods—where family units are placed in peer groups during recruitment and training for support purposes. For example, if a family gets discouraged, the support group helps pull that family through. The support groups increase the rate at which funds are paid back and recycled thereby enabling BDA to extend credit opportunities to as many people as possible.
BDA uses the Community Credit Scoring to evaluate and vet applicants’ credit worthiness. In the absence of a credit reporting agency, and with the applicants consent, individuals in the community are arbitrarily contacted to vouch for each applicant’s credit worthiness. Comments received from the references are scored and used to inform the decision of whether or not to extend credit to a given person or family.
Evaluation & Outcomes
The program has both tangible and intangible outcomes. BDA applies the Progress out of Poverty Index (PPI) as a management tool for success indicators. This Index helps us determine: Specific family needs and the business venture that would be most profitable and suited for the individual or family’s needs. The outcomes vary based on individual family circumstances. However, BDA is committed to measurable outcomes that are indicative of the applicant’s ultimate success. Some specific measures include: (a) applicant’s ability to pay back the loan principal and interest within one year and maintain inventory levels greater than or equal to the starting inventory; (b) amount of profit generated; (c) overall inventory; (d) the number of people served during the year; and (e) sustainability of businesses established.