Frequently asked questions

What is microfinance?

Microfinance is the provision of microcredit, as well as a diverse range of financial services and products such as savings, insurance and money transfers designed to assist the entrepreneurial poor who lack access to financial services in the mainstream banking sector to develop their small businesses. Typically, the provision of Opportunity International Australia's services starts with a loan.

Who are our clients?

Opportunity International Australia’s clients are typically self-employed, often household-based entrepreneurs, who do not have access to financial services in the traditional banking sector.

At present, 94% of Opportunity International Australia's clients are women. Women are typically poorer than men and have fewer options for earning a livelihood to provide adequate food, housing and education for their children. They are also the 'change agents' of the family; research has found women are more likely to invest their earnings into improving the lives of the families. By encouraging women to take charge of their futures, Opportunity International Australia can impact families and whole communities.

What kinds of businesses are operated by Opportunity International clients?

In urban areas, microfinance activities are diverse and include shopkeepers, service providers, artisans, street vendors, manufacturing, and so on. In rural areas, they are typically small farmers and others who are engaged in small income-generating activities such as food processing and trade.

Clients receiving microfinance services run businesses such as convenience stores, shoe stores, clothes vending, meat vending, bakeries, carpentry, fruit and vegetable stalls, transport, tailoring, food manufacturing, repairs, trade, animal husbandry, canteens, recycling shops and many other businesses.

How do poor people save?

The poor usually save in ways that we may not consider 'normal' savings - investing in assets, for example, that can be easily exchanged to cash in the future (gold jewellery, livestock, cash crops, building materials etc).

There are problems with some of these informal ways people save. For example, it's hard to cut off one leg of a goat that represents a family's savings mechanism when the sudden need for a small amount of cash arises. The poor need savings that are both safe and liquid. They are more interested in the security of these savings than the interest they can earn, since they place such a high premium on having savings readily available to meet emergency needs and accumulate assets.

What is microinsurance?

Microinsurance is insurance for low-income households following an unforeseen event so that savings and working capital can be maintained rather than eroded. In addition to protecting clients' finances, insurance gives our partner’s staff the opportunity to provide support to a client and their family at a time of emotional and spiritual stress.

Opportunity International Australia offers different insurance products like credit, life, property and weather-indexed crop insurance, as well as funeral benefit insurance. Insurance products have benefits for the Opportunity International Australia's partners as well as our clients. For example, credit life insurance protects the partner in the event that the borrower dies, becomes disabled or terminally ill during the course of the loan term. It benefits the client because the partner does not need to enforce the 'mutual guarantee' policy following the death of a group member and the family is not burdened with making the outstanding repayments.

What are money transfers?

Money transfers are domestic and international electronic transfers of money. Money transfers are used by microentrepreneurs for a variety of purposes including regular bill payment, one time only money needs, delivering money from people working in urban areas to their family members in rural areas, and sending money from migrants to family members in their country of origin (remittances).

Money transfers are generally used by the recipients for food, clothing, children's education, medical expenses and housing. Migration increases the output of developing countries by enabling workers to move to places where they can be more productive and earn higher wages. In this way, money transfers are becoming an instrumental part of poverty reduction. They also improve a developing country's credit worth for external borrowing.

How does microfinance help the poor?

Experience shows that microfinance can help the poor to increase income, build viable businesses, and reduce their vulnerability to external shocks. It can also be a powerful instrument for self-empowerment by enabling the poor, especially women, to become agents of change, not just economically, but also socially as they emerge as leaders in their community.

Income generation from a business helps not only the business activity expand, but also contributes to household income and its attendant benefits of food, security, children's education, etc.

Research has revealed the extent to which the poor are vulnerable to shocks such as the illness of a wage earner, weather, theft, or other such events. These shocks place a huge burden on the limited financial resources of a family, and can drive a family deeper into poverty if they do not have access to financial services like credit, insurance and savings.

How does microfinance help the overall economy?

A significant proportion of the working population in many developing countries survive through involvement in the informal sector or selling small quantities of goods. By boosting local economies through microfinance, the developing world will benefit beyond the aid of a one-time handout. Opportunity International Australia continues to transform communities by empowering the working poor to lift themselves and their families out of poverty.

What guarantee do we have that the money loaned will be paid back?

In over 35 years of operation, Opportunity International Australia has proven that the poor are credit-worthy. Our clients maintain an average repayment rate of 97%. Defaulting on a loan is an unusual occurrence, with every client part of a larger program which monitors and assists them in repaying the loan. A high repayment rate means the money is soon returned and loaned out to the next struggling entrepreneur who, in turn, repays the loan, creating a system of truly sustainable development.

What are microfinance institutions (MFIs)?

A microfinance institution (MFI) is a registered organisation that offers financial services to the poor. To administer these services MFIs need to develop and grow so that funds can be effectively managed on an on-going basis. MFIs need to develop strong board leadership; train and equip staff; build new branches; and create efficient systems and processes that meet the needs of clients. Instead of funds having a one-time impact as with many humanitarian aid groups, MFIs leverage and recycle funds over and over, having a far greater impact, over a longer period of time.

Within the microfinance industry the term 'microfinance institution' has come to refer to a wide range of organisations dedicated to providing these services - NGOs, credit unions, cooperatives, private commercial banks and non-bank financial institutions (some that have converted from NGOs into regulated institutions) and parts of state-owned banks).

What is a formal financial institution (FFI)?

Formal financial institutions (FFIs) are regulated financial institutions that can take the form of commercial banks, development banks, or credit unions, and can accept deposits, borrow money and accept investments.

To operate in developing countries, microfinance institutions (MFIs) must conform to the legal systems. Governments are introducing new regulations to protect clients and encourage institutions to improve their sustainability. This means that organisations, which previously operated as NGOs, are becoming formal financial institutions. In some countries, regulation is a prerequisite to lend legally.

Regulation benefits MFIs in that it enables them to take deposits and increase their productivity, improving their overall performance. In the long-term, regulation will allow the microfinance industry to reach its full potential. Many of Opportunity International Australia's partners have converted or are in the process of converting to regulated FFIs.

What motivates Opportunity International Australia's work?

Opportunity International Australia is an organisation founded on Christian values; motivated by a genuine love for poor people. More than a not-for-profit, Opportunity International Australia is an impact investor in the 'for-people' sector. Our objective is to invest in the lives of those living in poverty without prejudice or a need for capital reward. The profit of others is our return.

We have a 'glass half-full' view of life - where others see obstacles and barriers, we see a way forward. We believe every person is equal and has God-given potential. We endeavour to empower poor people because powerlessness reinforces poverty, but empowerment promotes dignity and results in dramatic change.

We believe that poverty is unjust and unacceptable and are compelled by Jesus Christ's call to serve the poor. We specialise in microfinance and enterprise development services because it works.

Opportunity International Australia's programs serve people of all faiths, without prejudice or preferential treatment. Our aim is to provide people living in poverty with financial services and training, without regard to ethnicity, gender or religious affiliation, in order to see them lifted out of poverty permanently.

What processes do you have in place to ensure that your MFI partners are legitimate, efficient and committed to social returns?

Within a country, we use a combination of technical resources and in country teams to assess which are the most capable MFIs that require funding and who are sufficiently aligned with Opportunity International Australia values.

We follow a standard due diligence process involving an assessment of social value based on criteria relating to mission alignment, business capability and performance and environmental risks. We score MFIs on the basis of these criteria and have defined criteria for each score of 1-5 so that the process becomes less subjective and is as transparent as possible.

Microfinance partners that belong to the Opportunity International Network go through a regular peer accreditation process that involves a review of systems and processes of all areas of operations. Opportunity International Australia project managers are tasked with monitoring the implementation of the projects and ensure that the MFIs have adequate technical support. MFIs receive regular visits from programs team and are required to report on each project to a level which satisfies the Australian government/AusAID.

What happens to people who cannot repay their loan?

Part of the role of the loan officers is to understand the reasons why loans are not repaid and address any issues where possible. If a loan is not repaid, the loss can often be recovered through compulsory savings. Some is written off as bad debt and the borrower is then excluded from access to future loans.

In the rare cases, where a person cannot repay, our partners will forgive loans if there is no alternative, as the aim is to make things better in the lives of our clients not worse.

How is the global economic crisis (GEC) affecting Opportunity International Australia?

The credit crunch has raised the cost of capital for investment. Falling investor confidence has raised interest rates on debt and reduced the availability of many sources of income.

In Australia, the effect of the GEC is resulting in fewer donations and so we are not able to spend as much on our programs. We have had to contract expenditure, for example through staff retrenchments and reduced travel.

Economic trends in the last year have also made working conditions more challenging for our clients. As food costs account for more than 50% of household costs for the poor, huge increases to the cost of basic foods has put a lot of pressure on poor households. However, food and energy prices have declined from the peak in 2008 which has had a positive impact on many of the poorest. Falling interest rates and fuel prices will also have an easing effect on economic conditions.

As developed countries’ economies slow-down, employment of foreign migrants from developing countries will fall. This will reduce the amount of money remitted back to developed countries by these workers, which could have a big impact on poor households. The better news is that poor markets are likely to outperform developed world markets because they are at least partly protected from the sources of the credit crunch. This makes investment in microfinance a good option for investors worldwide.

Poor people in the developing world are the most vulnerable group. They are the least equipped to deal with uncertainty, rising prices and falling income. For this reason, the need for assistance from Opportunity International Australia will be even greater and we will be looking to do all we can to assist our clients.

What are the United Nations Millennium Development Goals?

In 2000, the 191 members of the United Nations, including Australia, committed to achieving eight Millennium Development Goals by 2015. The goals are:

1. Eradicate extreme poverty and hunger:

2. Achieve universal primary education:

3. Promote gender equality and empower women:

4. Reduce child mortality:

5. Improve maternal health:

6. Combat HIV/AIDS, malaria and other diseases:

7. Ensure environmental sustainability:

8. Develop a global partnership for development:

The work of Opportunity International Australia directly addresses goals 1, 3, 6 and 8 and indirectly deals with the other four.