Small loans to businesses in Third World pay off big

July 02, 1993|By Angela Winter Ney | Angela Winter Ney,Staff Writer

Until recently, Daniel David was unemployed and struggling to survive in Bangalore, India. Despite a good engineering education, he could not find a bank to lend him money for a metal-working business.

Today, he employs 11 machinists and expects to add a second shift.

The difference for Mr. David was a small loan that enabled him to buy two used machines. The loan came from Opportunity International, a nonsectarian, not-for-profit Christian organization that lends money to people in 17 of the world's poorest countries.

The loans go to people who have no money and no credit, says Severna Park resident David Simms, a member of the board of directors.

For more than 20 years, Opportunity International has promoted economic growth abroad by lending an average of $500 to start small businesses, from chicken farms to watermelon stands.

The businesses may sound insignificant to Western ears, but one snack bar can make enough money to feed a family of 13, says Mr. Simms, who is also chief operating officer of the Greater Chesapeake and Potomac Regional Blood Services with the Red Cross in Baltimore.

"There's no safety net in the Third World: If you don't have a job, you don't eat," says Mr. Simms, who travels the East Coast raising money for Opportunity International. "We lend to people viewed as not worthy of credit, but we've proved they are creditworthy."

He quotes a recent audit by the U.S. Agency for International Development that found Opportunity International has a loan repayment rate of more than 90 percent. Money repaid goes back into the loan pool for others in that country.

The loans are made at close to market rates within the country to protect the loan pool.

Last year, Opportunity International made $6.6 million in loans to 13,634 men and women in 17 countries, creating or salvaging 44,000 jobs.

The loans were distributed by agencies in those countries. Forty-five percent of the loans went to women.

Lending small amounts of money to preserve or start small-business jobs is called micro-enterprise lending. But Opportunity International, unlike other micro-lenders, sets up an affiliate or partner in the local country, and once the affiliate is self-sufficient, the agency steps away.

In the past 15 years, Opportunity International has created about 75,000 jobs, salvaged more than 150,000 others, made 45,000 loans averaging $500 and recycled $31.5 million in loans through overseas partners.

"Opportunity doesn't provide temporary relief," Mr. Simms says. "Instead, we enable people to support themselves for a lifetime."

For $431, the organization can create a job that will feed a half-dozen people, he said.

In La Paz, a tiny community in El Salvador, families live on a hill in one-room shacks, without water, electricity or sanitary services, 50 yards from a garbage dump.

The Women's Opportunity Fund of Opportunity International began a pilot project there last year, making small loans to dozens of poor women.

Luz Martinez was a street vendor until an earthquake destroyed her home, reports Jill Dailey Smith, co-chairwoman of the fund. She was about to be evicted from her shack when she received a loan of $120 to start a "convenience store" -- a table in her shack from which to sell onions, tomatoes, candles, eggs and snacks.

An Opportunity International volunteer helped Ms. Martinez take inventory, and another coached her on accounting. The Women's Opportunity Fund also helped Ms. Martinez purchase eyeglasses and visit a medical clinic.

"The program is only a few months old, and already small loans are enabling dozens of extremely poor women to overcome the poverty which has crippled their lives," Ms. Dailey Smith says.

Ms. Martinez has made her first loan payment and hopes to expand with neighbors to start a restaurant.

Mr. Simms attributes the program's success to the process for selecting loan recipients, which is in the hands of Christian residents of the target countries.

"They use church networks to judge the character of people. Loans are not made just to Christians; we use it as a mission outreach, but the people making the loans are making them to people they know something about," he says.

Another factor in the high repayment rate may be that because the money stays in the country, there's not a feeling "that it's North American money, so I don't have to pay it back", Mr. Simms says.

Opportunity International was designed about 20 years ago by Christian businessmen who felt that the way to combat hunger and poverty was make sure people had jobs. It was started in the Baltimore-Washington region and is now based in Chicago.

Typically, the organization will start a loan fund in a country with half a million dollars, Mr. Simms says. There, citizens of that country make the loans and also teaching loan recipients record-keeping, product pricing and other basic business skills.

Last year, workers in the program made more than 50,000 "consulting visits" to borrowers.

Support for the program often comes from entrepreneurs in the United States who understand how important credit is, Mr. Simms says, as well as from individuals and U.S. churches.

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