Microcredit programmes provide microloans that are a fraction of what banks traditionally grant. They enable people who would otherwise have no chance of accessing finance to realise their economic ambitions. Especially in developing countries, microcredit is an important tool for promoting entrepreneurship and fighting poverty. ‘The granting of microloans has proven very successful in our projects in recent years,’ says Michael Kesselring, Co-Managing Director of the Menschen für Menschen foundation. Without microcredit, the people affected would have no chance of freeing themselves from hardship, he explains, because without capital they would continue to remain in poverty however great their efforts. The Foundation has two types of microcredit: urban and rural. In the countryside, according to Kesselring, the loans are mostly granted for agricultural aids – small farmers benefit equally. In the urban environment, microcredit is mainly granted for the creation of recipients’ own microenterprises.
An opportunity for women
In cities, microcredits are usually more than just financial aid. They pave the way to economic independence. At Menschen für Menschen, loans are mainly granted to women, often single mothers. Kesselring explains: ‘As a first step, the foundation identifies people who are in urgent need and who already have an initial idea of how they want to lift themselves out of poverty on their own.’ In specially founded self-help groups (SHGs) or savings groups (SACCOs), the women receive practical training in simple accounting and business administration. Their business ideas are also further refined. ‘At the same time, the women are obliged to save around 25 centimes (i.e. a quarter of a Swiss franc) per week for three months and to pay it into a joint fund,’ explains Michael Kesselring. This way, they learn how to manage their money and at the same time prove their motivation. Once the groups have saved a certain minimum amount over several months, Menschen für Menschen pays a start-up payment of CHF 90 per member into the self-help group’s joint fund. This amount will not be reclaimed by the foundation.
The microcredit mechanism
After just a few months, borrowers have generally earned enough to repay the microloan. ‘The repayment rate for loans is practically 100%,’ emphasises the Co-Managing Director, adding that this is due to the precise preparations and the support given in relation to the participants’ business ideas. The loans are used to set up a small business. Participants usually invest the first loan in the purchase of raw materials, stock or animals. ‘Some sell vegetables, others open a kiosk. Another person might invest in a sewing machine and become a seamstress, or buy a deep fryer and run a snack bar.’ Interest is around five percent on the repayment – this varies depending on the group, and they set the percentage themselves. As a result, the group’s capital grows steadily, allowing larger loans to be paid off and more women to be brought into the group. This creates a cycle that enables women to bring their business projects to life and achieve long-term success through their own efforts.
