More than loans

Small loans are core to microfinance – giving people a tool to start a business and work their way out of poverty. But microfinance is about more than just credit.

Microfinance involves providing access to all kinds of financial services: loans, savings accounts, money transfers and insurance; often alongside non-financial services such as business training.

Essentially, microfinance empowers people who wouldn’t usually qualify for regular banking services because they have no form of collateral, formal identification or regular income. Without it, many people are trapped in a cycle of poverty. Microfinance offers the hand up they need to break that cycle – making the ‘unbankable’ bankable.

  

Small loans

People living in poverty use small, collateral-free loans as business capital, starting or growing a microenterprise that helps give them a regular income – whether it’s a small farm, food stall, jewellery-making business or taxi. They may use loans to buy stock or equipment, creating a sustainable livelihood for themselves. Through the profits they earn, they are able to provide for their families and repay the loans over time.

Loan terms vary, but loans are usually repaid within six months to a year. Once repaid, the money is recycled and lent out to someone else, multiplying the value of each dollar (or donation) in reducing poverty around the world. 97% of all Opportunity’s loans are repaid and, as businesses grow, many go on to employ other people and help empower whole communities.

Microfinance institutions do charge interest, recognising the dignity of the poor by enabling them to build businesses in fair-market conditions. Rates vary around the world, and for socially focused microfinance providers like Opportunity’s partners, exist to cover the cost of operations.

Rates are also considerably less than the other available options for clients – local moneylenders will often charge exorbitant rates of interest. Defaults on microloans are rare, as is evident with Opportunity’s 97% repayment rate – higher than for personal loans in the developed world. Once their first loans are repaid, many clients go on to receive larger subsequent loans as they grow their businesses and leave poverty behind.

Savings accounts

The recent onslaught of natural disasters around the globe has highlighted the devastating  impact they can have on people, regardless of where they live. The damage, however, is particularly felt when victims have no form of financial security. Currently, more than a billion adults worldwide still do not have a basic bank account because they do not have the minimum deposit most commercial banks require – their savings come in such small increments that most banks are not prepared to offer them an account.

Without an alternative, the poor hide their money in hollowed out bamboo poles, in boxes under their beds or in the ground.They also put their money into assets, such as livestock or pieces of jewellery, which offer little real security: they can be stolen, deteriorate or be destroyed by natural disasters.

Microsavings are deposit services offered by financial institutions that allow the poor to securely store small amounts of money. Many of Opportunity’s partners offer savings facilities - some even make them compulsory, encouraging families to plan for unexpected expenses so they can have the freedom to invest in healthcare, education, housing and their businesses when the need arises.

In Indonesia, our partner TLM is piloting a mobile banking program to bring savings services to people in remote communities. The initiative will see vehicles equipped with banking technologies travel to markets across West Timor, providing clients with access to electronic transactions so they can deposit savings as well as make loan repayments and withdrawals. A number of electronic banking machines will also be established in strategic locations across the province to reach those who have traditionally been left out from conventional banking services. 

 

Microinsurance

According to the International Labour Organization, only one in five people worldwide have adequate access to social protection (such as healthcare and pensions), and more than half have no social security whatsoever. Microinsurance is helping to fill this gap. Like savings, it helps provide security against the many risks faced by those living in poverty.

Innovative products offered by microfinance institutions cover policyholders with crop, loan, health, life and property insurance – offering clients a safety net when an unexpected hardship occurs so they are not forced back into poverty.

ASKI, one of our partners in the Philippines, provides death and disability insurance to its clients to help protect family members, while health and life insurance are also offered to dependants. With an affordable premium – Php.300 (A$6.80) a month – ASKI’s clients are able to ensure their families will be looked after should anything happen to them. Annapurna, one of our newest partners in India, also offers insurance to clients. A total of 15,000 families in Pune and Mumbai have so far been provided with health insurance policies, offering protection for themselves and their families in times of illness. Beneficiaries are able to receive treatment in any of the 150 hospitals Annapurna has links with.

Money transfers

Money transfers are used for a variety of purposes. They may be required at a domestic level (sent from people working in cities to family members living in rural areas) or at an international, cross-border level (sent home by migrants working overseas).

Many developing countries lack any viable money transfer services and substantial volumes of global remittances continue to flow through informal, and sometimes dangerous, underground channels, outside government supervision and regulation. Microfinance institutions are increasingly trying to seek alliances with banks and money transfer companies to offer safe, convenient and lower-cost transfers to their clients, some utilising mobile phone technologies.

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