It is one of the great paradoxes of the developing world. Those individuals in most need of banking services and credit are the most likely to lack sufficient collateral to support it. In the past decade, there has been increasing focus on microfinance as a tool to alleviate poverty and sustain business models.
Microfinance is not charity. There is an increasing perception that charity perpetuates poverty whereas it is believed that microfinance can enable an individual to build on their skills and provide a sustainable method of improvement.
You lived and worked in Bosnia-Herzegovina between 2000 and 2006. Could you please tell us about the work that you did there? What motivated you to make the move to BiH?
Although I spent most of my time in Bosnia & Herzegovina, I was also working in Kosovo from 2002 onwards. Initially, much of the work involved the physical reconstruction of homes, schools, health facilities and water supply systems, that is the infrastructure that had been damaged or destroyed during the conflicts. However, after the reconstruction phase most of my work revolved around creating employment and income earning opportunities. My particular area of expertise is microfinance and I helped to create two microfinance institutions, one in each country that provided thousands of loans to microentrepreneurs, mainly women, to develop their businesses.
Prior to working in the Balkans I had spent around nine years working in Latin America, largely with small scale farmers, and was looking for a new challenge. I had during the 1990s followed the Balkans conflicts very closely. There was a particular resonance for Muslims such as myself who had been born and brought up in Europe – at the back of our minds there was always a feeling that if this could happen in Eastern Europe could it happen in Western Europe as well? I was grateful when the opportunity arose for me to work in the Balkans and make a small difference to improving the lives of those affected by the conflicts. I left the Balkans to go on to work in Pakistan following the Kashmir Earthquake and then Sudan.
Microfinance is a relatively new concept but one that uniquely puts members of the public in a position where they can achieve a great social good. It is different from and more sustainable than giving charity. Could you please describe microfinance in simple terms?
Microfinance is the provision of financial services to those who traditionally have been socially or economically excluded from the formal financial sector. Microfinance includes a number of different financial services such as savings, remittances and insurance but has become synonymous with the provision of small loans or microcredit. The concept of microfinance has in fact been around for a long time but it is really only in the last 30-40 years that it has started to be seen by the international community as an effective tool in alleviating poverty amongst the working poor.
Improving access to financial services allows poor and low-income people to finance income-generating activities, build assets, stabilise consumption and protect against risks. It is in this regard that microfinance can be seen as a dignified and sustainable approach to the fight against poverty.
Can you tell us a bit about Lendwithcare.org?
Lendwithcare.org is a micro-lending initiative from CARE International UK and in association with The co-operative. Lendwithcare allows people in the UK to lend from as little as £15 to an entrepreneur in the developing world. We work with local MFIs (microfinance institutions) from a number of developing countries to provide small loans to entrepreneurs working to lift themselves, and their families, out of poverty. By providing a platform through which entrepreneurs seeking microloans can be linked to people in the developed world who can provide capital, Lendwithcare not only enables low-income and poor families from around the world to work their way out of poverty but also gives lenders the satisfaction of seeing the direct impact their money can have on the lives of those they are helping. The money that is lent through Lendwithcare.org goes directly, and interest free, to the MFIs who administer the loans locally and once the entrepreneur starts repaying their loan this money goes back to the lenders who supported the loan request, where they can decide to re-lend their money to another entrepreneur or withdraw it.
Which countries does Lendwithcare.org currently operate in? Why were those countries chosen?
Lendwithcare currently works in five countries. It began in Togo and Benin in West Africa and then expanded to the Philippines, Cambodia and since late 2011 Bosnia & Herzegovina. There are several reasons why we selected these particular countries. Firstly, they are all countries where CARE has worked in the past in the field of microfinance - indeed some of the MFIs we now work with were established and developed by CARE in the past, although all are now independent entities so they are somewhat of a known quantity to us. Secondly, we feel we have identified the ‘right’ MFI partners, that is organisations that have a strong social development mission. There are also other factors which we need to consider such as the ease of transferring funds back and forth and whether we can develop links with the fair trade supply chains of our sponsor The co-operative.
Photo credit: CARE/Emilie Bailey
Is there a plan to expand into further countries this year?
Yes, from February 2012 we hope to include Ecuador and we are also currently exploring the feasibility of working with MFIs in South Africa, Indonesia and Pakistan.
Do you have any statistics on the numbers of individuals that Lendwithcare.org has assisted in the past?
Since Lendwithcare’s launch in September 2010, 1,249 entrepreneurs have been fully funded and just under half a million pounds lent. December 2011 has been our most successful month with over £109,000 being lent and 229 entrepreneurs fully funded.
Is there a single case or success story that stands out for you amongst the people that Lendwithcare.org has assisted?
Yes, a recent one actually from Bosnia & Herzegovina. Mrs Djerdji Merdjanovic and her husband both lost their jobs as the company where they were working ceased to operate after the Bosnian War. They decided to start raising livestock, growing vegetables and raising and selling earthworms to specialist fishing shops in the capital Sarajevo. Djerdji applied for a loan to buy a second hand van and was featured on Lendwithcare. One of our lenders who incidentally manages a business called Worms Direct UK and is a major supplier of worms for fishing bait saw her story. Because the particular type of worm she raises is quite rare he contacted us to see whether it is possible for Djerdji or indeed other suppliers in Bosnia and Herzegovina to export and sell the worms through his company in the UK.
What are the biggest hurdles that entrepreneurs face and what can be learned from mistakes made in the past?
Lack of affordable, accessible and timely capital is certainly one of the major hurdles that small businessmen and women the world over face. We feel that Lendwithcare, in a very small way, is helping microentrepreneurs overcome this hurdle. However, lack of markets, physical infrastructure such as roads and crop storage facilities, information, technical assistance and support and women’s mobility are all hurdles and their importance varies from one context to the next.
If you could give a message to prospective lenders out there, ones that might be hesitant or apprehensive about lending money through your organisation, what would that message be?
Not only can you help someone but you can also see where your money goes, we do not take anything from your loan to cover our costs, and you invariably get your money back!
I believe that borrowers are in fact charged interest on their loans. Is this consistent with Islamic finance or are special arrangements made for those borrowers (for example, those within BiH)?
Although Lendwithcare provides interest free capital to our MFI partners, the MFIs do charge interest (or other fees in the case of Shari’ah compliant institutions) to entrepreneurs. However, we do check to ensure that their interest rates are ‘reasonable and fair’ according to the local context.
If they are to survive then MFIs must of course cover their operational costs. And the costs associated with providing very small loans, on occasions supported with training and other services, to often geographically isolated borrowers, especially when they visit them at their homes to disburse loans and also collect repayments, can be considerable. Indeed if they wish to grow and develop MFIs will need to make a profit.
However, while there is an obvious need to ensure financial security for themselves so that they can continue operations, they are rarely under pressure from shareholders so do not need nor desire to make ‘excessive’ profits. What the interest free capital allows the MFIs to do is extend their operations and lend to poorer clients than they might otherwise, or to move into more remote areas - this has been the case with our MFI partner in Togo for example which is now lending in more isolated rural areas. In other cases, such as the Philippines and Bosnia & Herzegovina the MFIs have actually passed on the benefits of receiving interest free capital from Lendwithcare to their clients through much lower interest rates. At present we do not have any Shari’ah compliant MFI partners, but this is likely to change during 2012 with potential partners in both Indonesia and Pakistan.
Photo credit: CARE/Emilie Bailey
There are other microfinance organisations out there. What differentiates Lendwithcare.org from those others and who is your target market?
There are a number of government bodies, NGOs and development agencies working in the field of microfinance. However, Lendwithcare.org is the first person-to-person platform to be backed by a leading international aid and development organisation. Moreover, Lendwithcare is able to combine CARE International’s decades of expertise and innovation in the field of microfinance with this revolutionary initiative to provide the highest quality products and services to the working poor.
Do you have advice on what young people can study if they would like to become involved in international agencies such as yourselves?
I think more important than what they study is that they must have a passion to work in international development. It is useful though to have formal qualifications in technical subjects such as agriculture, health, and engineering as the first job is often at the grassroots level working directly in the field. Also, foreign languages are always useful.
Apart from becoming a lender, what can people do to support your organisation?
Since 100% of the loans made through Lendwithcare go to the entrepreneurs we have very little marketing budget and therefore need to find a way of telling people about Lendwithcare.org through word of mouth. We encourage all of our lenders to talk about Lendwithcare with friends and family and if they use Facebook or Twitter to visit and like our Facebook page www.facebook.com/lendwithcare or tweet using our @lendwithcare address.
As an organisation, CARE International UK has a number of ‘How you can help’ options, which can be found on our website http://www.careinternational.org.uk/how-you-can-help and regular Challenge activities that raise funds and awareness through enjoyable and often exhilarating events. In March this year for example, the CARE team are challenging people to walk 10,000 steps a day for one week as part of their Walk in her Shoes campaign for more information.
Thank you very much to Dr Khan for taking the time to speak to me and to answer my questions. I feel like I have a much wider appreciation and understanding of microfinance and feel confident in becoming involved in this great initiative..
