Microfinance Helps Others Help Themselves

By Kai T. Hill

The sermon of the day was on discipleship.

At the pulpit, the impassioned deacon of St. Matthew Catholic Church told the congregation of a fateful day that led him to put aside his hot latte and health woes to fix the flat tire of a stranger. In the basement hall of the Baltimore church, Tom Shaw of Catholic Relief Services shared a similar message with parishioners who gathered to make a difference in the world.

"It's about how others have access to nothing and how we can help," says Shaw, a CRS technical advisor on microfinance. Through microfinance, CRS has been able to help more than 1 million impoverished villagers, especially women, start savings and internal lending groups or access loans from a local microfinance institution.

"This is a key tool to help people change their lives, not simply to give something, but by helping them help themselves," says Shaw, emphasizing that "these populations have little access to formal credit and banking resources.

CRS' approach to helping the poor access financial resources is twofold.

Since 1988, CRS has partnered with local microfinance institutions to provide microcredit loans to impoverished households and individuals who do not qualify for traditional bank loans. In Nogales, Mexico, for instance, CRS and our partners helped establish a microlending project that provides loans between $100 and $600 to entrepreneurs, like Maura Armenta, who want to start or expand small businesses.

Approximately 300,000 poor households across Africa, Latin America, Eastern Europe and the Middle East have benefited from access to "microcredit" loans that range from 30 to a few thousand dollars, enabling them to increase their financial security and improve their livelihoods.

This includes people like Fatou Mata Sall, a founding member of her village bank in Senegal, which now has 50 women members. She has completed 11 six-month loan cycles, progressing from a $30 loan to a $1,100 loan and has so far saved $1,300. With the money, she has upgraded her ramshackle stand to an established shop.

No Small Change

"She saved three times the country's average per capita income and the equivalent of someone in America saving $84,000 in three years," remarked Shaw. "That's powerful. That's change."

Making a donation to CRS' microfinance programs helps us help the poor rise above poverty. And by discipleship, Shaw says, "we become friends and neighbors. We can act upon the learning we have."

Aside from microcredit loans, CRS also realizes that there is a larger group of destitute households for whom even a $30 loan would be too much to pay back. For these very poor families CRS developed a successful and widely used group savings approach, called Self-Help in Asia and Savings and Internal Lending Communities in sub-Saharan Africa. With the support of these village-based savings groups, over 700,000 very poor families amass sufficient savings to pay for basic life necessities and grow their businesses. They are also able to borrow small loans from their savings groups.

"Overall, our microfinance programs aim to empower and not indebt people," says Wendy-Ann Rowe, a technical advisor for CRS.

"The beauty of the CRS model is that it targets different segments of the population with appropriate microfinance services. People fall into different levels within the poverty spectrum and one microfinance plan will not meet everyone's needs. It is because of this reason that we have expanded our microfinance approach."

Savings, she says, is one of the greatest tools to empower poor families, many of whom live on less than a dollar a day.

Whether in a classroom or under a tree, savings groups convene regularly to pool their money and disburse loans. Each member's savings serves as the collateral against which the member can borrow from the group, or—in the case of lower-caste women in India—the group can collectively borrow from a formal banking institution. The small loans, consisting of amounts as low as $5 and $10, are paid back with interest.

Shaw said studies show that the poor are more likely to use their savings and loans to invest in small businesses and meet household needs such as purchasing quality food, improving family housing and health care, paying children's school fees, and saving for emergencies.

Also, contrary to the notion that poor people cannot save, Shaw explains that once given the know-how, they become diligent savers because they "don't know what tomorrow will bring."

As a result, people who lack the very basic necessities have been able to change their own lives substantially.

Kai T. Hill is an associate web producer for CRS. She works at the Baltimore headquarters.