Written by Rebekah Nolan
Tackling poverty needs a big vision, and for microfinance organisation Opportunity International Australia, that vision involves some big goals, a focused strategy and a whole lot of small loans.
Often described as giving people a hand-up not a hand-out, microfinance offers people living in poverty, often women, access to financial services – such as small loans, savings accounts and insurance.
It works like this – by helping a mother buy a sewing machine to start a tailoring business or a father to buy seeds to plant a vegetable garden, a loan as small as $100 allows a person living in poverty to start or grow a business, earn an income and afford food, shelter and an education for their children.
Essentially, microfinance gives people living in poverty the tools they need to help themselves out of poverty, with a real focus on entrepreneurship.
Pioneered in the 1970s, it is only in the last three or four decades that microfinance has been implemented in countries like Bangladesh, the Philippines and India. Effectively, it is still an industry in its infancy, despite the high growth levels of recent years. But recognition is growing – 2005 was dubbed the Year of Microcredit by the UN, and in 2006, founder of Grameen Bank and microfinance pioneer Professor Muhammad Yunus was awarded the Nobel Peace Prize. In 2008, founder of Opportunity International Australia David Bussau was named Senior Australian of the Year for his role in its development. In March this year, Professor Yunus visited Australia for a series of talks. On the subject of microfinance, he asserts: “Conventional banks look for the rich; we look for the absolutely poor. All people are entrepreneurs, but many don't have the opportunity to find that out.”
Not-for-profit organisation Opportunity International Australia has been using this business approach to alleviate poverty in poor communities for more than 35 years, but it was just two years ago that it launched its India Program.
“When we started researching India, it was clear that this was a country of extreme contrasts,” said Stephen Penny, Opportunity International Australia’s Chief Financial Officer. “Chronic poverty sits alongside modern skyscrapers, and the country’s slums and poor rural areas give away the fact that many people in India have not benefited from the nation’s economic growth. We needed some big ideas on how we could have a substantial impact.”
When the organisation’s India Program launched in 2007, estimates from the UN Human Development Report suggested that 80% of the country’s population were living in poverty, struggling to survive on less than $2 a day. Out of a population of more than 1.1 billion, that was close to 900 million people – a huge challenge for any poverty alleviation program. “Where do you start in a country where the need is so great?” said Stephen. “Getting the program off the ground required a lot of local knowledge – research to uncover people’s needs and to discover what was and what wasn’t possible. We did a lot of listening, learning from people who had been involved in microfinance and poverty alleviation in India for decades.”
Focusing on where it could have most impact – with the entrepreneurial poor – the organisation estimated that microfinance was serving around 12 million people in India, a little over one-tenth of an estimated 100 million potential households where microfinance could be a viable intervention. That left at least 88 million households unserved and trapped in a cycle of poverty. The organisation decided to focus mostly in the underserved north of the country where poverty was rife and interventions were scarce.
To manage the program, Opportunity International Australia set up a local subsidiary, Dia Vikas Capital. Its Managing Director KC Ranjani has spent more than 20 years in the Indian microfinance industry, bringing with her a wealth of experience in policy development, risk management and market development. “In India, it’s not about processes, it’s about people and relationships,” she said.
In the two years since its launch, the India Program has grown to 15 partnerships with microfinance institutions who, in turn, serve over one million people. Having invested more than $24 million in India, Opportunity International Australia has partnered with a mix of local start-up and established Indian microfinance institutions to distribute the funds as loans in poor communities. The program is making a substantial dent in the landscape of poverty in India.
Around the world, Opportunity International Australia is currently serving more than two million clients through its programs in India, Indonesia and the Philippines. On why they are called clients, Stephen observes: “They are active clients, not just idle recipients. They are the entrepreneurs and they do the work to make their businesses grow – we just give them the tools to make it happen.”
Approximately 85% of Opportunity International Australia’s clients are women, who, in developing countries like India, typically have fewer options to earn a livelihood and provide adequate food, housing and education for their children. “They are also the ‘change agents’ of the family,” says Ranjani. “Research shows that women are more likely to invest their earnings into improving the lives of their whole family. By encouraging women to build businesses and take charge of their futures, we can impact whole families and communities.”
U2 frontman Bono, an advocate of microfinance, concurs: “Give a man a fish, he'll eat for a day. Give a woman microcredit, she, her husband, her children and her extended family will eat for a lifetime.”
Like all big ventures, Opportunity International Australia’s India Program has not been without its challenges. “There were the legal and regulatory hurdles of foreign investment and setting up a non-banking finance company in India. We utilised some good advisors to get through these,” says Stephen. “We also placed stewardship paramount. As an organisation that funnels donated money to people in need, we made sure we were good stewards for our donors. We created a strong due diligence process for our investments and placed a strong emphasis on good governance. We also don’t partner with microfinance institutions that aren’t aligned to our mission. Rather than a financial return, it’s social – seeing people make their way out of poverty is our return.”
The impact of microfinance in India has been tangible. Today, poverty estimates for the country have dropped to 75.6% of the population, illustrating the impact it and other poverty alleviation initiatives have had in the region.
Growing recognition of microfinance also illustrates the increasing acceptance of the poor as a good credit risk. Traditionally, microfinance is offered in a group environment – no collateral or credit history is required, as many people in poverty are unable to provide these sureties. Instead, members in a lending group co-guarantee each other’s loans, and share the repayment if one member is unable to. Repayment rates for microfinance loans are surprisingly high. Across Opportunity International Australia’s portfolio, an incredible 97% of loans are paid back, allowing funds to go on to help someone else. Each business feeds a family, and some even go on to employ others, eventually empowering a whole community. It’s this sustainability that is causing microfinance to be recognised as one of the most innovative and effective poverty alleviation tools in the world today.
“One the great things about microfinance is that it is a sustainable tool to fight poverty,” says Stephen. “Loans are repaid and the funds are re-lent to another borrower, so each dollar goes further as it’s reused many times. Money is also multiplied through leverage – when we invest equity in a microfinance institution, they can leverage that investment by borrowing from commercial lenders to bolster the amount they have to lend to the poor. In India, it’s typically around 4-6 times for industry standard norms.”
“Sustainability in all links in the chain is important. We partner with sustainable microfinance organisations so they can be around for the long haul and not require ongoing donations to keep them afloat. Additional funding means they can grow their client numbers and lend to more people, not spend funds on maintaining their operations. We don’t want our capital in these organisations to diminish over time.”
From a donor point of view, business professionals, entrepreneurs and corporations such as PricewaterhouseCoopers have supported microfinance as a business solution to poverty, attracted to the concept that they are supporting entrepreneurs in other countries and giving people a start in life. Allan English, founder of Silver Chef and Ambassador of Opportunity International Australia, explains: “My business was built around providing funding for entrepreneurs in Australia, and to be associated with an organisation that has such a magnificent vision and impact helping entrepreneurs in developing countries inspires me to take action wherever I can.”
One of the most recent shows of support for microfinance is the Macro for Micro 80-day ride across Australia. Having launched off on 8 March, International Women’s Day, Geoff Dittrich and his team are cycling the 5,600km from Sydney to Perth to raise awareness about microfinance and more than $50,000 for Opportunity International Australia. Keep an eye out for them as they make their way across the country up until 29 May. “With Macro for Micro, we wanted to take on a significant physical plight in order to bring attention to a much more serious global challenge,” said Geoff.
Guy Leech, former World Ironman Champion and health and fitness expert, is supporting the initiative, having participated in the first leg from Sydney to Wollongong. “I’ve spent time overseas working to help people living in poverty and can see the enormous benefits microfinance can offer to the working poor. Macro for Micro is a chance to help raise funds for an extremely worthwhile cause.”
If you’re interested in finding out more about microfinance or Opportunity International Australia, please visit www.opportunity.org.au
To donate and give poor entrepreneurs in countries like India, Indonesia and the Philippines a hand-up through microfinance, visit https://www.opportunity.org.au/Donations---Events.aspx
Four years ago, Padmavathy and her family lived in a slum in Kawadiguda, India. It was dirty and crowded, but without any money, they had nowhere else to go. Unable to afford to school and too young to be left alone, Padmavathy’s children meant she was unable to work. Her husband was the sole provider for their family, and despite the long hours he put in, he often struggled to keep his family fed and clothed. Three years ago, Padmavathy heard about a microfinance program in her area. She spoke to her husband about getting a loan to start a vegetable stall. She could open it in front of their home and still look after the children. Today, business is booming. Bags of potatoes, carrots and lettuces line the sidewalk where Padmavathy works from early in the morning to 10 at night. Her income now pays for her children to go to school.
Looking for a way out of poverty for her children, Sunita, a slum dweller from Delhi, used a loan of $171 to purchase some pigs, hoping to raise them and use the profits from their sale to provide for her family and invest in more livestock. But not long after, Sunita’s pigs were stolen, and local police would only help if she would pay a bribe that she could not afford. So Sunita bravely started again. She received another loan, purchased more pigs and started to breed them at a farm outside of Delhi. Today Sunita has more than 60 pigs and can afford to send her children to school and even employ others in her community.
