Wait, Poverty Still Exists? #2: Micro-loans
Welcome back! If you read through our first blog of this series (Wait Poverty Still Exists, #1), then you are all caught up. If you have not, then check out this brief summary of what we discussed:
  1. The Problem of Poverty and Dependence

For a great majority of the late 19th and 20th centuries, missionaries led the way in the “era of dependence”. Where many of those who were attempting to alleviate poverty, actually ended up doing more harm than good. If we are helping our impoverished brothers and sisters out of guilt from our own good fortune, this is usually a recipe for disaster, as it usually ends in one form of dependency on those who are giving. Luckily there is hope!

  1. Solution #1: A Change of Mindset

In order to be actually effective in alleviating poverty, it starts with a shifting of the mind for two groups of people. Group 1:us (charities, churches, givers, and the like). We need to stop and reevaluate our motivations in giving. Do they stem from our own guilt? Or do they stem from wanting to actually help? Helping out of guilt usually results in quick actions and unnecessary solutions. In order to be savvy in our giving, we have to think a little deeper.

Group 2: those we are giving to. Many who have grown up in extreme poverty have become accustomed to survival mode. Which puts you in a mindset that makes it really hard to understand the importance of saving. We must walk alongside those in poverty and teach them the necessity of saving. From our own experience, we’ve seen it do amazing things!

So what are we talking about today? Solution #2.

Give the people what they need, but perhaps in a slightly different way 

We can’t win the battle with only money, however we can’t win it without any money. Lack of funds is still a huge problem. As our RecycloCraftz Founder would say, “You can teach a man to fish all you want, but unless he has the money to buy a fishing pole, you’re back at square one”. So what do you do?

For many of our artisans, just saving is not enough. They have several mouths to feed, a home to run, and so many other tasks that many of their long term dreams stay just that way; as dreams. Sometimes in order to really make a difference in their lives they need more of an investment. However, where do they find someone to invest in them? It’s not as simple as walking into a bank and asking for a loan for their new hair salon. Or asking a bigger business to invest some capital into your micro-sized business. According to an article put out by The World Bank, “Close to 60% of MSME (Micro, Small, and Medium Sized Enterprises) in Zambia said lack of access to financial services, including bank credit, was a huge constraint to their operations”. In layman’s terms, that basically means they have dreams of small businesses they could start, but no means to get the funds to start them. That’s where a lot of our artisans were; they had the skills, the knowledge, and the perseverance to do the job, but the funds were lacking.

So we introduced our micro loan program.

What are Micro-loans? 

A micro-loan is defined as a small amount of money loaned out with little to no interest. With our micro loan program, we charge no interest.

These loans range in size from $100 to $1500. The idea behind these loans is to give those who are ambitious enough to take on a dream/goal/or project to be able to do that. Each loan is paid back very gradually at an agreed upon time and amount, some months it’s just $5, others $10. Most loans are paid back within a year or so.

However, it’s not as simple of a solution as it sounds. As an article in Forbes magazine points out, there are a lot of factors that are necessary to ensure that these micro-loan programs work. Many microfinance institutions (MFIs) have focused too hard on getting their return on these loans too quickly, not allowing for actual economic change to take place. The article stated that, “(these) organizations need to work on longer time-scales, helping borrowers become more financially literate and stable and account for cultural factors that have inhibited growth thus far”. These Micro-loan programs, if done effectively, can take years or even decades to see real fruit of change.

Another huge problem? Education. Forbes notes that illiteracy is a huge issue. Many of the borrowers cannot read or write, let alone understand the terms and conditions of a micro-loan agreement. The Zambian Business Survey states that one of the priority areas in improving the productivity of Zambian Business is expanding access to basic education.

So what do you do? Again, we at RecycloCraftz do not have all the answers but we have seen huge success from the micro-loans we have rolled out. What’s our secret? Here’s our top four key factors:

  1. Have a relationship with the people you are lending money to. This is important for several reasons. First, they are much more likely to be consistent in re-payment if there’s a relationship that they respect and honor. Second, if you understand them and are excited about their dream, you’re invested not only financially, but relationally. That makes a difference in the success or failure of their business, trust us.
  2. Ensure they have access to basic education. Here at RCZ, one of our foundational pillars is education. The majority of the people we work with don’t have an education past the second grade. As stated above, it’s a lot harder to take on a loan let alone start your own business without a proper education. To learn more about what we do in education watch our video, Why does RecycloCraftz Care About Education?.
  3. Be in it for the long haul. Change is not going to happen over night. Especially when you’re talking about starting a small business. There are so many factors to consider: labor, supplies, products, etc. A pay-back agreement of 3 months simply is not realistic.
  4. Understand the culture you’re working in. Not everyone in the world is from America, and that means not everyone works 30 hours a day 8 days a week. The culture we work in sees time much more fluidly. Not a bad thing, but important for us to understand and not try to change. Understanding how to communicate to our people (even if that means learning a hard language) is also really important.

The really cool thing about all of this? We’ve seen fruit from it! Here’s two stories of members in our project who have started small scale micro-businesses.

Beatrice Banda is a 55 year old mother of 5 and step mother to 3. She and her husband are also raising 2 orphaned children. Before RecycloCraftz, Beatrice worked as a rock crusher, an extremely dangerous and strenuous job. Because of RecycloCraftz she no longer has to do that job! Her funds from RCZ help her run her small street business selling fruits and vegetables from her home. But that’s not even the coolest part. Back in 2019, she asked for a loan of $300. Beatrice used her small $300 loan to buy a plot of land, supplies, equipment, and hired labor all to build a small house next to her home. What for? She found tenants and started renting this home out. She now has a steady income that she uses to buy food for her family and send her kids to school. And as of November of last year, Beatrice paid off her loan.

rental house and child                           rental house

Our second success story we want to share, is from our project manager, Barnabas Mwindula. Back in May of last year (2020) he asked for a loan of $950. At our RecycloCraftz ministry home in Zambia, we had a slightly dilapidated chicken house. So he asked for a loan to fix it up and start a chicken rearing/broiling business, while this may sound strange to us as Americans, this was actually a really genius idea. He made an agreement with all the artisans in our project that said if they would butcher the chickens (we’ll spare you the details on that one), each of the artisans would get a chickens head and the intestines for free (yum). This is free labor for Barnabas and free protein for the ones who participate. Plus, a lot of our members purchase their chickens from Barnabas. It is a really ingenious business opportunity that would have never been possible without the help of a micro-loan. And guess what? He’s all paid up as of November.

chicken house

I get so excited writing about the success we’ve found in rolling out our micro-loan program. This program gives our members the tools to move one step closer to stepping above the poverty line. Not because we’ve handed them the money to do that, but because we’ve empowered them to do it themselves. The work is hard and the labor is long, but the reward is oh so great.

I hope these two short blogs on finances have helped you better understand the global poverty crisis. It’s not an easy fix, and we don’t have all the answers – but with the Lord’s help, guidance, and wisdom, we’re getting there. Pray for more fruit in our ministry and others out there doing the same.

Questions? Please reach out! sarah@recyclocraftz.org

Want to help? Donate here! https://www.newinternational.org/give/campaign/recyclocraftz-tracy-Murray#make-donation-form

Resources:

Zambia Takes a New and Closer Look at Micro, Small, and Medium Sized Enterprizes, The World Bank, https://www.worldbank.org/en/news/press-release/2010/06/16/zambia-takes-a-new-and-closer-look-at-micro-small-and-medium-enterprises

The Long Game: How Developing Countries can Get Microfinance Right, by Casey Hynes from Forbes, https://www.forbes.com/sites/chynes/2017/08/14/to-alleviate-poverty-microfinance-institutions-must-work-on-much-longer-time-scales/?sh=a779f1e54fee

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