Banking On the Unbankables

BANKING ON THE

“UNBANKABLES”

BY AMY DURKEE

Small loans are providing an escape from poverty for hardworking, disadvantaged people around the globe. In a world increasingly controlled by multinational corporations and unfair trade agreements, the economically powerless are gaining independence through cooperatives, alternative trade organizations, and microfinance institutions. While such business endeavors are often successful, they need seed money to get started. Enter Oikocredit, a Netherlands-based nonprofit organization, which is the common denominator in the stories above and the largest international provider of microcredit in the world.

Oikocredit works in several ways. It works with cooperatives—for example, groups of small-scale farmers in need of equipment or storage facilities that will increase their marketing power. They also provide large loans to microfinance institutions which in turn divvy up the funds into thousands of small loans to the poor. And they work with alternative trade organizations, like the one mentioned in Argentina, that provide producers in developing nations with a fair market for their products.

The organization was founded in 1975 by a large group

Corazon Endonela lives with her husband and three children in a one-room, dirt-floored house in the Philippine city of Makati. Not long ago, she was working in a slipper factory for 6000 pesos (around US$117) per month and couldn’t care for her family on such a meager wage. But a loan of less than US$100 from Tulay Sa Pag-unlad, Inc, a Philippine microfinance institution, enabled her to start her own slipper business. She grosses as much as 37,000 pesos per month and is able to employ others in her community.

In Fecorsure,Argentina,Americo Rogelio Chapingo and his fellow sheep farmers have finally freed themselves from an unfair trading cycle with greedy middlemen.Thanks to a loan secured by CLU, the Uruguayan wool-processing and trading cooperative, the Fecorsure farmers now export directly through CLU and are earning double the price they used to receive.

Although Alice Amoateng’s husband earns a regular income as a schoolteacher in Ghana, his wages are too low to support his family.To supplement the family income, Alice started a clothing trade. Six years into her endeavor, she discovered Sinapi Aba, a local microfinance institution, and applied for a small loan to expand her business. She now employs several others and has increased her profit margin by 30 percent.

The Amoatengs have used the extra income to educate their children, pay for medical expenses, and grow the business.

Above: In Confianza, Peru, a regulated microlending institution provides loans to more than 80,000 rural and urban microentrepreneurs.

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of churches whose mission was to promote social and economic justice through financial investment. They chose the name Oikocredit because it so aptly represents their vision.

Oikos is the New Testament Greek word for household or a community.The word credit comes from the Latin verb credere, to believe.The organization works from the premise that we are all members of the same community and that when benefits and responsibilities are shared we all profit.A strong belief in the human community is central to Oikocredit’s mission.

The principle is simple: Churches, individuals, and other organizations invest a minimum of $1,000 in Oikocredit for a term of one to five years, at an interest rate of up to 2 percent.

Oikocredit then loans this money to one or more of its 400plus partner institutions in 67 countries. As loans are repaid, the funds are either loaned elsewhere or returned to investors.

Oikocredit levels the playing field by giving the world’s rich an opportunity to share their abundance with the poor.

“We’re known as the bank of the unbankables,” asserts Oikocredit USA Executive Director Terry Provance.“We’re making funds available to those whom traditional banks see as too great a risk.” Most of us assume that those with no assets or collateral and little formal education would be a considerable investment risk, but Provance insists that the reality is quite different.

“These people have a vested interest in repaying their loans,” he explains.“Their lives start to improve as a result of the assistance, and they want to keep a good thing going.”

Don’t take Provance’s word for it, however; Oikocredit’s default rate of 10.8 percent speaks for itself. In their 29 years of operation, they have never failed to return to investors their full principal plus interest. Oikocredit has shown that, when given a chance, the economically disadvantaged can create a sustainable life for themselves and their families.

Investor satisfaction is also high, says Provance. “Most of our investors renew their investments at the end of the term, and many increase the amount of their investments.”

Some ask why Oikocredit chooses to loan capital rather than to give grants. Provance explains that the disadvantaged prefer credit because “they can make more of their own decisions.They have a little bit more control over their economic destiny.”While grants often further dependency, loans offer a relationship of mutual respect.

Furthermore, those who have the capital to share are willing to loan a lot more than they would be willing to give.

“Currently,” says Provance, “[Oikocredit International] has about $264 million on the balance sheet, with about $19 million coming from the U.S. operation.We couldn’t give that much away in grants because we wouldn’t be able to get it from donors.”

As Board President Phyllis Kibui puts it, Oikocredit is like a “tapestry created by God, because it brings people— rich and poor—together so that justice and peace can be brought to the poor. Targeting the poor is God’s business, and it is amazing how God has charted our lives to be with Oikocredit.”

Oikocredit USA investors include just about every major Protestant denomination as well as close to 20 religious orders. In recent years the U.S. office has received a growing number of investments from individuals, congregations, and other institutions as more Christians are deciding that their investment portfolio should be consistent with their values.

Provance reports that Oikocredit USA exceeded its goal of $1 million in new investments for 2003 by $320,000. And they are currently well on the way to reaching their 2004 goal of $2 million.

Oikocredit manages all this on an operating budget equivalent to only 2.5 percent of its lendable capital. Funds for the operating budget are raised separately (a constant challenge, Left: Operating under the umbrella of Opportunity International, a microfinance institution in Asodenic, Nicaragua, has expanded lending facilities to provide 3,520 new loans to microentrepreneurs like this seamstress.

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Ways people are using Oikocredit loans to improve their lives: • Computer training facility for 8,000 students per year in Côte d’Ivoire • Carpentry workshop providing vocational training in Gabon • 80 producers of batik and tie dye fabrics purchase raw materials in Ghana • Nurse’s training center in India • Purchase of mini-buses for public transport in poor Filipino neighborhoods • Marketing of mulberry-bark paper products in Thailand • Low-cost gold-ore processing for 90 small-scale miners in Zimbabwe • 17 doctors and nurses build a new hospital to serve 4,000 rural patients a year in Mali • Irrigation systems for 1,000 small-scale banana farmers in Senegal • Pre-financing of coffee harvest and purchase of coffee mill for a cooperative in Nicaragua • Renovation of low-income housing, generating 5,000 jobs in Argentina • Village banking program managed by women from the informal sector in Peru • Small furniture factory in Romania purchases kiln and renovates equipment • 11 Estonian fishermen replace their outdated vessels with new ones from Western Europe

Above: Microcredit enabled a cooperative of 24 potato farmers in Momchilovtsi, Bulgaria, to establish a warehouse for storing and marketing seed potatoes.

Below: In Share, India, a highly successful microcredit company owned by 20,000 women provides small agricultural and trade loans to its members. says Provance), and costs do not cut into the amount provided by investors.

While Oikocredit investments are increasing, the need for seed money is outpacing their growth.With the U.N. decision to declare 2005 the year of microcredit, Provance hopes that more and more people will become aware of the opportunity to partner with their brothers and sisters around the world who face unfair economic challenges.“There are 6.3 billion people in the world, and half of them live on less than $2 a day.Those are all people made in the image of God. Such economic injustice is wrong,” Provance admonishes.

“But with a little credit, they can pay for healthcare, educate their children, and make more of their own decisions.The evil of poverty around the world is so incredible. Our faith requires us to confess the sin of inequity and make it right.” ■ To learn more about Oikocredit, visit www.oikocredit.org, email office.us@oikocredit.org, or call 202-265-0607.

A freelance writer based in western New York, Amy Durkee is a regular contributor to PRISM.

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