Opportunity International - Australia: Frequently Asked Questions

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FAQs

Microfinance

What is microfinance?
Microfinance is the provision of a diverse range of financial services and products including small loans (microcredit), savings accounts, insurance and money transfers. These are designed to assist the entrepreneurial poor who lack access to financial services in the mainstream banking sector to develop their small businesses.

What is microcredit?
Microcredit is the provision of small, collateral-free loans to people living in poverty to use as business capital. Loans are used to start or grow 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. Opportunity has a 97% repayment rate.

What are microsavings?
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.

Without an alternative, the poor hide their money in hollowed out bamboo poles, in boxes under their beds or in holes 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.

What is microinsurance?
Microinsurance is insurance for low-income households that protects against unforeseen events so that savings and working capital can be maintained rather than eroded. 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.

What are money transfers?
Money transfers are domestic and international electronic transfers of money. They are used 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).

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.

What research has Opportunity conducted regarding the effectiveness of microfinance?
Various studies of the impact of microfinance have been carried out over the past 20 years, including large scale studies by the World Bank. These studies have established that microfinance can improve the living standards of poor households and the communities in which they live. The benefits of microfinance include: higher and more reliable income and savings; better nutrition; improved access to healthcare; greater female empowerment; better housing; and more children being placed in school. These studies provide good evidence that microfinance projects can indeed be effective.

At Opportunity, we want to ensure that all of our programs are effective, and that we are maximising our impact on an ongoing basis across all projects, partners and areas. For this reason, we are pilot-testing a new framework for assessing our social impact with our partners in India, known as Social Performance Management (SPM). Using research techniques developed in the last few years, we can assess the poverty status of households, including income levels, living standards and access to health and education. Initial results from our pilot suggest that this is an effective, low-cost and accurate method of assessing the poverty status of our clients and ensuring that our partners’ products and services are targeting the poor households that we aim to assist. What’s more, this will also allow us to track changes in poverty status over time, so that after two to three years we will be able to return to these households and assess the extent to which microfinance services have helped poor households out of poverty.

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. By offering people a means to grow their small businesses to the point where many employ other people, microfinance has flow on effects for local economies, decreasing unemployment and providing incomes for other poor families in the community.

In addition, with an increased income and therefore more money spent on items such as food, clothing and transport, microfinance clients become active participants in their local economies, also benefiting the providers of those products and services, who, positively, are often microentrepreneurs and clients themselves. By boosting local economies, microfinance benefits the developing world beyond the aid of a one-time hand-out.

Our microfinance partners

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 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, such as non-government organisations (NGOs), credit unions, cooperatives, private commercial banks and non-bank financial institutions.

Not all MFIs are socially motivated: ie with the aim to help people our of poverty above all else. Some exist to make a profit and seek commercial returns over social outcomes. Opportunity only partners with socially motivated MFIs that are aligned to our vision of helping people out of poverty permanently.

What processes do you have in place to ensure that your microfinance partners are legitimate, efficient and committed to social outcomes?
Within a country, we use a combination of technical resources and in-country teams to assess which are the most capable MFIs sufficiently aligned with Opportunity’s values that require funding.

Opportunity ensures good governance to protect our social mission. This includes initial due diligence on partner organisations (involving an assessment of social value based on criteria relating to mission alignment, business capability, performance and environmental risks) and constant monitoring and auditing of performance and activities. We also have positions on the Boards of our partners and frequently visit their operations to remain up-to-date on their programs and operations. Transparency is key, and we often travel with donors to our partners so that they can see the impact of our microfinance programs for themselves. In 2011, Opportunity was named runner-up in the prestigious PwC Transparency Awards (revenue $5m to $20m category) for the quality and transparency of our reporting.

As part of our governance mandate, we participate in the decision making at the MFI level and always influence our partners to go for healthy growth, efficient and transparent operations, the adoption of social performance management systems, fair pricing and product diversity (including insurance, remittance services and saving linkages with formal banks). A testimony to this is that some of our partners have reduced their effective interest rates since our investment and are committed to do so as they become more sustainable over time.

Why do Opportunity’s implementing partners charge interest rates?
The interest rates our microfinance partners charge are to cover the costs of their operations and ensure sustainability (the size of loans needed by microentrepreneurs are very small, making transaction costs relatively high). The rate MFIs charge depends on the regions they work in and also the size of the loan, but we make sure we only partner with organisations that are there to serve the poor, not make a profit. For people living in poverty, the alternative source of funds to microfinance are loans from informal money lenders – loan sharks – who charge upward of 10% per month. Rates are always substantially cheaper than those charged by loan sharks.

Opportunity seeks to help create sustainable organisations that do not depend on external subsidies (other than for growth). We do not want them to make super profits, and they don’t either. In some cases where sustainability rises above 100%, those profits are returned to the poor through reduced interest rates for microfinance loans.

Our clients

Who are our clients?
Opportunity’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'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 can impact families and whole communities.

Why are the majority of clients female?
In developing countries, more women are involved in the informal labour sector. Men are more likely to be employed in contract work as labourers or overseas workers. Women are often left to support their families or supplement their husband’s income by using any skills they possess. With limited resources to start or expand a small business, microfinance is attractive to women who are prepared to work hard to give their children a brighter future.

Microfinance generally targets poor women because they have proven to be reliable credit risks and when they have the financial means, they invest that money back into their families, resulting in better health and education and stronger local economies.

How do loan officers identify potential clients?
Loan officers are often local people who can easily build a rapport with communities. Usually, loan officers will hold information sessions in village halls or churches, at which local people can express their interest in applying for a loan. Many MFIs have a strong reputation built on many years of working in these communities, so potential clients will approach them.

What kinds of businesses are operated by Opportunity 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-scale farmers and others who are engaged in small income-generating activities such as food processing and trade.

Opportunity has clients that 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 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.

What guarantee do we have that a loan will be paid back?
In over 40 years of operation, Opportunity 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. Loan officers walk alongside clients throughout the loan term, helping them deal with problems they may be facing in their businesses and offering support in order to overcome it.

A major incentive for clients to repay loans is their ability to secure subsequent, larger loans once initial loans are repaid. This enables entrepreneurs to grow their businesses more and more with each subsequent loan – increasing their productivity, income and living standards of their family.

Opportunity’s high repayment rate means that 97% of money is returned (usually within six to 12 months) and loaned out to the next poor entrepreneur who, in turn, repays the loan, creating a system of truly sustainable development.

What are common reasons for loan default?
Clients’ businesses are vulnerable to a range of factors. In most cases, our MFI partners will provide information and basic business training to equip clients with the knowledge and skills they need to make the most of their loan.

Major factors which influence repayment are as follows:
- Environmental factors – natural disasters, adverse weather and drought can disrupt a client’s business in the short and long term, particularly if they grow or sell food.
- Social factors – religious festivals, political elections and social unrest can disrupt normal business operations and cause income to fluctuate. Major events in a client’s life, like the birth of a child, a family wedding or the death of a family member can affect their ability to operate their business and can also increase their daily expenses.

Opportunity’s microfinance partners aim to offer products that meet client’s needs and take into account factors that may affect repayment when negotiating loan terms.

What happens to people who cannot repay their loan?
Part of the role of the loan officer 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 sometimes be recovered through compulsory savings. Some is written off as bad debt and the borrower is then excluded from access to future loans.

In rare cases where a person cannot repay their loan and there is no alternative, our partners will forgive loans – after all, their aim is to make things better in the lives of our clients, not worse.

How can poor people afford to pay interest?
In deciding whether to take a small loan, clients compare interest costs to their overall business and household costs. The poor are accustomed to managing their money carefully and will take into account the impact of the loan capital on their business income. They will also investigate other alternatives, such as borrowing money from a family member or a local moneylender (loan shark).

Interest rates charged by moneylenders are much higher than MFIs. The standard moneylender loan in the Philippines is the ‘5/6 loan’ – for every five pesos in the morning, six must be repaid by evening. This amounts to a daily interest rate of 20%. MFIs offer a much more affordable option.

By paying interest rates to MFIs, clients also prove that they would be able to manage a larger loan, and by doing so, they can eventually move on and become clients of the formal banking sector.

About us

What motivates Opportunity’s work?/What do you mean by ‘inspired by Christ’?
In the gospel of Luke, Jesus tells a crowd the story of the ‘good Samaritan’. The parable talks of a man who was mugged by some robbers, beaten and left to die on the side of a road. Three people come across the man, but only one stops – the Samaritan. On such a dangerous road, all three had their reasons to keep going, but only the Samaritan pushed his reasons aside to help.

Opportunity aims to be like the Samaritan. Moved with compassion, he pushes aside cross-cultural boundaries to show real and costly love to someone in desperate need. In the stories of Jesus’ life, we see the same character displayed. Jesus mixed with some of the most despised people of his time – prostitutes, tax collectors and other outcasts. He helps and believes in all people – religion, race and gender don’t come into it.

In our work with the poor, we come across a number of people who demonstrate ‘Christ-like’ behaviour every day. Some of these people are Christians, some are not. Some are the leaders and staff of our partner microfinance institutions who work in the most isolated, difficult areas imaginable; some are our staff who labour tirelessly to give a voice to the voiceless. Some are our clients who, despite their own circumstances, walk alongside others in their neighbourhoods to help them grow successful businesses, too. Together, we work to reach out to people in need – religion, race and gender don’t come into it.

Rather than focusing on evangelism, discipleship or church planting (roles that other organisations are fulfilling), we see our role as responding to one of Jesus’ main messages – to love our neighbour as ourselves. 1 John 3:16 says this: “This is how we know what love is – Jesus Christ laid down his life for us. So, we also ought to lay down our lives for others.” Opportunity is trying to answer this call.

Can $50 help? What’s the smallest amount that is lent out?
$50 dollars can most certainly help – any amount can help. Opportunity receives a range of donation sizes from its donors, and we have seen time and again how these donations combined can make a incredible difference in the lives of people living in poverty.

In a country like India or Indonesia, $50 can buy a lot more than it can in a country like Australia. In many cases, it is enough to start a small business – the loan sizes of Opportunity’s partners start at even below $50 and go up to several thousand dollars for those on subsequent loan cycles. The average loan size is $200.

Does Opportunity do more than microfinance?
At its core, Opportunity partners with microfinance institutions to provide small loans and business training to poor entrepreneurs in developing countries. These partners offer a wide range of financial services, such as savings accounts, insurance and money transfers, in addition to small loans.

As well as microfinance, many of our partners offer complementary community development services to their clients, in order to strengthen business, families and communities. This occurs in the areas of health care, the provision of clean water and sanitation, education, support for housing and food security.

Combined, microfinance and community development services offer a sustainable solution to poverty – empowering the poor to take their lives into their own hands.

What is Opportunity International’s organisational structure?
The Opportunity International Network is a membership organisation in which all partners participate as autonomous members with local Boards. Opportunity International is comprised of the following:
- The global Opportunity Network, including implementing partners (microfinance institutions based in developing countries) and support partners (such as Opportunity International Australia).
- The Opportunity Network Board of Directors which governs the Network. The membership of the Board is broadly representative of the Network membership and is elected by the member organisations. Opportunity International Australia’s Chair, Chris Sadler, is a member of this Board.
- The Opportunity Network Services Office, which provides Network members with assistance in coordinating with other members, and with technical services, management assistance and help in building governance capability. It carries out these Network-wide functions using expertise located throughout the world and operates under the authority of the Network Board.

While Opportunity International Australia is guided by the Opportunity Network’s direction and seeks to cooperate with the Network, we are autonomous in terms of governance. We develop our own strategic and business plan, assess implementing partners and determine which partners we will support. Opportunity International Australia also has a significant influence on the direction and strategy adopted by the Opportunity Network due to our ongoing leadership role in the Network.

How does this organisational structure best serve Opportunity International Australia’s mission?
Opportunity International Australia is one of five support partners with the primary role of raising funds to start up or support existing implementing partners (microfinance institutions), as well as engaging donors in alleviating global poverty. Opportunity International Australia has agreed with the Opportunity Network to focus on partnerships in the Philippines, Indonesia and India. This allows for cost effectiveness, increased efficiency in monitoring and reporting, and the ability to build close relationships (which is the backbone of effective development).

Can we link with a community that we support through Opportunity?
Opportunity provides a range of reporting on its programs in order to keep donors up-to-date with the communities that we serve. This includes detailed country reports, newsletters, Annual Reports, videos, events and so on.

We also offer Insight Trips for groups of supporters who wish to visit our work in the field. This includes meeting the partners, attending lending group meetings (but not necessarily those funded by the donors for logistical reasons) and visiting client businesses.

However, direct contact between Opportunity supporters and individual clients is not encouraged for a variety of reasons, including:
- Many of our clients are illiterate and language barriers prevent meaningful interaction
- It is poor stewardship of implementing partner staff time to link donors with specific clients – we would prefer for them to be using their time to help more people out of poverty.
- It can be challenging for the client to have to relate to donors from wealthier countries like Australia on an ongoing basis.

How much of my dollar goes to the field? What are your costs?
In 2010, Opportunity’s fundraising and administrative ratio was 16% of fundraising revenue (calculated over a five-year period). This has been reducing over the last few years, and Opportunity continually endeavours to reduce costs wherever possible.

In addition, the nature of microfinance means that donations to Opportunity are continually at work. Leveraging and the recycling of loans mean that the one-off costs it takes for Opportunity to run our programs represents a continually diminishing proportion of your donation. As time goes on, the percentage of the initial cost we used to manage the program and provide technical assistance, governance, advocacy, reporting and administration gets less and less. There are no more costs, but your donation remains at work, increasing your impact.

I would like all my money to go exclusively to funding a loan. Do you fund other in-country costs?
Opportunity also does not simply fund the loan portfolio of our MFI partners. Because we want our partners to become increasingly efficient, we support the MFI as a whole – including capacity building and complementary programs. As we understand that microloans on their own are not enough to lift a person out of poverty, we are committed to helping our MFI partners provide their clients with a range of flexible financial services. We also support them as they provide complementary services such as health and education initiatives. These initiatives help offer a solution to community issues that can’t be overcome by microfinance alone.

In areas where poverty is entrenched, the establishment and ongoing success of an MFI presents immense challenges. Without non-financial support, MFIs may struggle to grow or effectively meet the needs of their clients. Managing an MFI as it grows is a complex task, and there is a high risk that financial support in isolation will promote inefficient use of funds and risk of failure of the MFI. Social investors committed to a sustainable impact on poverty should be willing to invest in the capacity and future sustainability of the MFI, not just its loan portfolio.

Poverty and development

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:
- Reduce by half the proportion of people living on less than a dollar a day.
- Reduce by half the proportion of people who suffer from hunger.
2. Achieve universal primary education:
- Ensure that all boys and girls complete a full course of primary schooling.
3. Promote gender equality and empower women:
- Eliminate gender disparity in primary and secondary education preferably by 2005, and at all levels by 2015.
4. Reduce child mortality:
- Reduce by two thirds the mortality rate among children under five.
5. Improve maternal health:
- Reduce by three quarters the maternal mortality ratio.
6. Combat HIV/AIDS, malaria and other diseases:
- Halt and begin to reverse the spread of HIV/AIDS.
- Halt and begin to reverse the incidence of malaria and other major diseases.
7. Ensure environmental sustainability:
- Integrate the principles of sustainable development into country policies and programmes; reverse loss of environmental resources.
- Reduce by half the proportion of people without sustainable access to safe drinking water.
- Achieve significant improvement in lives of at least 100 million slum dwellers, by 2020.
8. Develop a global partnership for development:
- Develop further an open trading and financial system that is rule-based, predictable and non-discriminatory, includes a commitment to good governance, development and poverty reduction - nationally and internationally.
- Address the least developed countries' special needs. This includes tariff- and quota-free access for their exports; enhanced debt relief for heavily indebted poor countries; cancellation of official bilateral debt; and more generous official development assistance for countries committed to poverty reduction.
- Address the special needs of landlocked and small island developing States.
- Deal comprehensively with developing countries' debt problems through national and international measures to make debt sustainable in the long term.
- In cooperation with the developing countries, develop decent and productive work for youth.
- In cooperation with pharmaceutical companies, provide access to affordable essential drugs in developing countries.
- In cooperation with the private sector, make available the benefits of new technologies, especially information and communications technologies.

The work of Opportunity directly addresses goals 1, 3, 6 and 8 and indirectly deals with the other four. For detailed information on how microfinance helps achieve the MDGs, see the following InForm paper: http://www.opportunity.org.au/Resources-Files/Downloads/Factsheets/MDG-Flyer-Apr-09.aspx

I feel like I should be looking after my own backyard in Australia. Why should people support international development?
On Australia’s doorstep, women, children and men are dying. Our region has some of the highest rates of child malnutrition and deaths during childbirth in the world. These are problems that can be solved through support for development initiatives like microfinance.

Charity might begin within your own neighbourhood, but it doesn’t stop there. The idea that charity should stay within Australia sets up a false choice/false contest between helping those suffering at home and helping those suffering overseas. Every person deserves to live without hunger and with access to education and medical facilities – not just Australians.

There is massive and urgent need in the developing world – in 2010, eight million children died from preventable causes, two million people died from AIDS and 350,000 mothers died during childbirth when they needn’t have and every night, over 1 billion people around the world go to bed hungry (ACFID). Every year we delay means that hundreds of thousands of people die – this is literally a life and death decision. Poor people can’t afford to wait and miss out on their next meal, the right vaccination to survive and education to thrive.

Supporting development initiatives benefits Australians. It makes a more secure, stable region and a safer world. It can work to lessen refugee flows and opens up new, stable markets for economic growth. It is also an investment in our own prosperity. Some $300 billion comes back to Australia in money from exports from countries that Australia supports with aid and development assistance (ACFID).

It’s also worth noting that the international community offers support to us when we are in need, even when many of the poor countries around us have little to give. For example, Indonesia gave $1 million and sent a forensic team to Australia to assist after the terrible Black Saturday Bushfires. The forensic team had originally been trained by Australians and were determined to assist in our time of need. Indonesia, Papua New Guinea and East Timor offered assistance to Australia in 2011 after our summer of devastating flooding and fires. In return, it is important that we offer help where it is so desperately needed by our global neighbours.

If we, as members of wealthier countries, don’t support developing countries, who will? The cycle will continue and the need will get worse. We want to introduce sustainable poverty alleviation interventions to empower individuals, communities and countries to work their way out of poverty so they no longer need our help. It’s not about a hand-out but a hand-up, through interventions like microfinance.

What We Do

Ambassadors' Program

FAQs

Microfinance

Our clients

About us

Poverty and development

Microfinance

Our microfinance partners

Our clients

About us

Poverty and development