Across the UCC: Microfinance
Written by Carol L. Pavlik
February - March 2009
Oikocredit offers hope to start-up businesses in developing world
||Saida Caizalitin, a farmer at the Nevado Ecuador rose farm, bundles flowers for sale. Nevado Ecuador is a cooperative initiated with funding from Oikocredit. Photo provided.|
In many impoverished countries, the logistics of borrowing money poses difficult obstacles. Say, for example, a young farmer from Cambodia walks into a bank and wants to borrow money to buy chickens and materials for a chicken coop. For one thing, he may not have money to start an account; nor does he have collateral to offer. In many cases, he might even be illiterate and unable to read the necessary forms and paperwork. Borrowing from local loan sharks is an option, but only at profit-gouging interest rates.
Microfinance, which provides financial services to low-income clients, is a way that the working poor worldwide can have a chance to improve their lifestyle without just receiving a handout. More than a loan, microloans can break the cycle of poverty, offering low- or no-interest loans to give marginalized workers the means to pave their way to financial independence. At the same time, they can familiarize themselves with the fundamentals of investment, savings, sustainability and insurance.
The UCC is no stranger to the concept of microfinance and its effect on poverty. In 2003 at General Synod 24 in Minneapolis, the UCC adopted a resolution to enter into partnership with Oikocredit USA. Oikocredit is an international, privately owned cooperative society that has become one of the largest financiers of its kind in the microfinance world. It has a 30-year history of offering investors a way to put their money into ethical business opportunities, while earning a modest 2 percent return on their investment.
Oikocredit (from the classical Greek word "oikos," meaning "house, community or world" and the Latin "credere," meaning "to believe") reaches across the world with regional offices in Latin America, Asia, Africa, Central Europe and Eastern Europe. Oikocredit U.S. offices are in Washington D.C.; its executive director is Terry Provance, who happens to be an ordained UCC minister.
Although Oikocredit is not a faith-based institution, its values and mission appeal to faith-based communities. UCC investors, ranging from conferences and associations to local congregations, or mission-minded individuals, are an important part of the microloan process. Investors can specify a region of the world where they'd like their funds to go. In turn, Oikocredit pools the capital and distributes it through local microloan institutions, which choose loan recipients based on need. In 2007, Oikocredit USA surpassed its goal of raising $4 million. For 2008, an even higher goal of $5 million was set. The company's recent launch on MicroPlace, an online platform of eBay, allows investors to make online payments. The expected result is increased investments.
Many UCC churches, such as Bellevue (Wash.) First Congregational UCC, have chosen to devote a sizable portion of their yearly outreach budget to Oikocredit for microloan disbursal. Helen Leuzzi, Bellevue's Outreach Chair, says Oikocredit met her church's requirement to find a global outreach interest that balanced its active local involvement in a homelessness initiative.
Although the Bellevue congregation, like many, has earmarked mission funds for Oikocredit, Leuzzi hopes that the church will soon invest more funds that are otherwise sitting dormant, to better the world. "Say a church is sitting on money set aside for a building project that's five years out," she says. "That money, instead of sitting in our bank, could be earning up to 2 percent interest and helping society; then we get the money back when we need it."
And through the work of Leuzzi and other church and community members, more people are learning about microfinance. Leuzzi sits on the board for Oikocredit Northwest Support Association, a Seattle-based interfaith group whose sole purpose is to educate the public about Oikocredit.
Leuzzi finds that most people have a basic understanding that microloans are to start businesses for people living in third-world countries. "But what they may not know is that Oikocredit has team leaders out in each of these countries who help educate the loan borrower on how to manage their finances and grow their business."
Leuzzi especially embraces the concept behind the cooperatives formed by several borrowers, creating a community of encouragement and fiscal responsibility. "If there's one woman who wants to start a sweater-knitting business, she's encouraged to group up with others, and they all support each other. They become invested in each other's successes.
"This is a way to make our saved money active in the world. That's what got us hooked on Oikocredit."
Kiva microlending targets individual needs
Kiva is an online microlending organization based in San Francisco that has enjoyed a spike in popularity after being featured on "Oprah" and in former President Bill Clinton's 2007 book, "Giving." The website offers a hands-on venue where investors can make small microloans, as little as $25, to entrepreneurs living in third-world countries.
Lenders choose the recipient after reading through profiles that include a photo of the entrepreneur and a brief description of their business. Kiva investors can narrow their search based on region of the world or type of business. Many of the businesses are agricultural, while others are retail or merchandise based.
Kiva's unique characteristic is that it allows the online lender to choose their own recipient; track the entrepreneur as the loan is received; then track repayment of the loan in monthly increments at no interest.
The idea is a popular one: Just a week after Christmas, Kiva announced on its website that in that week alone, a loan was made every 26 seconds. The result was 14,000 new lenders funding 2,808 entrepreneurs. Total amount lent in just one week: $968,325.
Stephen Wilmarth, a member of Westbrook (Conn.) Congregational UCC, was on the church's Outreach Committee when the congregation chose to make microloans through Kiva. To date, the congregation has impacted at least 26 businesses.
"We're a small church, and we do a lot of community-based, hands-on projects," says Wilmarth. "I know other churches in the UCC family are faced with similar situations. They want to do good deeds on a community basis. Kiva feels like community, because you can actually see and track the person you are giving to, and have a dialogue with him or her," he says. "The web-based application makes it easy to understand the concept and embrace it."
Wilmarth, a semi-retired educator, has formed a non-profit foundation of his own to build schools and learning communities in northwest China. "My wife and I are pretty hands-on people," says Wilmarth. "We don't stand still when it comes to taking action on things we think are the right things to do."
Wilmarth's experience teaching young people about web-based technology makes him a huge fan of sites such as Kiva, which offers a real-life lesson in responsible investing. In his opinion, Kiva offers a unique experience for Sunday School classes and youth groups. "Young people can play the role of a small venture capitalist [using Kiva]. They can invest in somebody with [as little as] $25, then can communicate with them, write e-mails, ask how to help on an advisory basis. [Young people] are more naturally inclined to use the tools where they could communicate more directly with the people receiving the loans.
"Lord knows, there are enough good causes to give to; there's no shortage of many organizations willing to take a check as a contribution," says Wilmarth. Making people comfortable with using a credit card online can be challenging (Kiva uses PayPal), but Wilmarth feels confident that the wariness and skepticism of online lending will eventually wear off.
"Of course you've got to be careful, you've got to treat it with a degree of seriousness and critical thinking that's necessary with anything you do," he says. "But what's happened on Wall Street just goes to show, just because somebody's got an MBA and a fancy office, doesn't necessarily mean they're honest."
Kiva's strength lies in the fact that lenders are not only giving the money, but tracking it, recovering it, then reinvesting it.
"It's a cycle that's in and of itself a financial management lesson," says Wilmarth. "And it's truly a lesson that service is its own reward. Giving in the community is sort of a fundamental precept of operating in this new economy."
For more information visit http://www.kiva.org.