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Patrick Hynes asks what can be done to make fair finance available in developing countries
When I started my partnership, I was a poor subsistence farmer, unaware of my own potential’ so says Irene Castro Quilca from the project Confianza in Peru. She says ‘Confianza made a great impact on my life’. It not only provided me with tools to improve the productivity and income of the farm, but also gave me confidence in myself and convinced me that I could change what I previously thought was unchangeable. I used the income of the first three years to expand my production. I started with a small piece of land where I grew potatoes; now I have two pieces of land, animals and houses to transfer to my sons and daughters who have also started their own business with loans from Confianza.
The people who benefit from loans are the greatest advocates of micro-finance, aware that the entire community benefits from their success.
If you find it harder to obtain credit, in the wake of the ‘credit crunch’ affecting the world’s financial institutions, then you will be in company with the world’s poor. Difficulty in borrowing on fair terms is a problem that ensures that the poor stay poor, unless someone intervenes to make a difference.
The World Alliance of Reformed Churches set out the situation clearly in 2004: ‘we live in a scandalous world that denies God’s call to life for all. The annual income of the richest one per cent is equal to that of the poorest 57 per cent, and 24,000 people die each day from poverty and malnutrition’. The Alliance’s General Council stated that ‘Working to create a more just economy is essential to the integrity of the Christian faith’. But what can we do when the world’s economic problems appear to be deep rooted, complex and sometimes political? Who will solve the ongoing credit crunch in developing countries?
Founded in 1975 by the World Council of Churches, Oikocredit began as a pathway for churches and church-related organisations to invest in situations where the poor and disadvantaged had little access to fair finance. At the time, many church organisations were beginning to ask what sort of return they should expect from their investments. Was maximised profit really the central objective? For those who decided to invest in Oikocredit one option was to invest in projects which offered a richer reward to both recipients and lenders than the simple pursuit of financial return.
holding in two currencies
It was FURY who in 1977 organised a project to raise money for the United Reformed Church’s first shares. The URC nationally now has a share holding in two currencies worth around 36,000 pounds.
One way in which Oikocredit works is through locally based microfinance institutions (MFIs) which provide small loans, the local equivalent of £5 to £300, to disadvantaged people. Through Oikocredit, the United Reformed Church and other investors provide MFIs with credit, so that small loans can be made to micro entrepreneurs, subsistence farmers and the self-employed. Oikocredit does not disburse grants or subsidies, believing that the best way to help people is to let them help themselves. And unlike traditional financial service providers, lack of collateral such as land or property does not exclude the recipient from receiving a loan. In fact, Oikocredit’s experience shows that the commitment of people themselves is often a more powerful guarantee of success than the ability to put forward collateral.
A typical loan recipient could be a smallholder who works his land and sells his produce within the local community, or a mother running a clothing business from her home, who needs money to purchase a sewing machine. The aim is always to help the recipients better their circumstances, improve their quality of life and take more control of their future.
greater understanding
Once a loan has been made, the relationship between Oikocredit and its project partners is just beginning. Local staff closely monitor the projects and assist when necessary. A greater understanding of local situations and needs creates a better chance of success.
During the early phases of Oikocredit’s investment programme there was a degree of scepticism directed towards this type of investment, with many believing that investing in the poor involved an unacceptably high financial risk. Thirty-years on, the ‘unbankable’ recipients have faithfully repaid their loans to a degree no one could have predicted. Only around 10% of the total amount disbursed since 1975 has had to be written off - firm proof that the vast majority have been successful. Especially when you consider that unforeseen circumstances such as natural disasters, civil wars and economic collapses, have made it virtually impossible for some to repay their loans. Furthermore, no investors in Oikocredit have ever lost any of their savings. Provision is made for potential loan losses out of income to ensure that Oikocredit investment is sustainable for the future.
community benefits
The guidance is simple enough: to do justice, love kindness and to walk humbly with our God. However, a recent study found that people, even with deeply held convictions found it hard to put their money where their values are. ‘When it comes to choosing where to save, most ethical consumers don’t live up to their principles’ says Professor Alex Gardner. ‘While they regularly recycle and are happy to pay more for ethical products, like Fairtrade coffee and organic food, they ignore their basic values when it comes to their banking choices’. Professor Gardner identified several main reasons; these included the complexity of money matters and apathy, but also that we are very attached to financial returns when we are privileged enough to have savings.
individuals invest
It is, however, individuals who provide most of the investment. Of the £200 million invested in Oikocredit, 86% comes directly from individuals. People who invest part of their own savings for a modest 2% return. These small sums of money together make the difference to the lives of people living in poverty. Through Oikocredit, people quite simply, invest in people.
Patrick Hynes is Oikocredit’s UK Representative Oikocredit is a worldwide ecumenical co-operative which challenges churches and others to share resources through socially responsible investments
The URC point of contact is Linda Mead at lmeadcforl@gmail.com |
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