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| Philanthropy |
Priming the Free Enterprise Pump
Jan Alexander
02/02/2004
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At the final level of the money trail, the much-touted repayment rate—about 95 percent, according to MicroBanking Bulletin—is questionable. The biggest players have instituted loan management policies borrowed from the commercial banking industry; Accion requires its affiliates in Latin America and Africa to report as "at risk" any loan overdue by 30 days or more. Unscrupulous borrowers or their advisors have in some cases reported unpaid loans as up-to-date. There are occasional stories of a borrower putting up his or her own Potemkin village-style facades for visiting benefactors, borrowing a neighbor’s cow, for example, and claiming it was purchased with a micro-loan. And no doubt whole communities of micro-entrepreneurs fall off the radar screen if they default and their lending bank’s reporting is flawed.
Community Collateral
Yet among those communities of successful borrowers, the mechanisms are
in place to make the entire system of
borrowing, repaying and borrowing again work in a way that fosters dignity, sustainable capital growth—even if on a small scale—and that crucial, albeit New Age co-opted concept, empowerment. Typically, a borrowing program involves about 20 to 30 community residents banding together to form a trust group, each member receiving a loan in the double or low-triple digits, and each cosigning the others’ loans. Interest rates can vary from as low as 2.5 percent to upward of 20 percent, but the higher rates are usually found among the banks with less underwriting. Needless to say, only the most responsible and hard-working members of the community get chosen for loans. Peer pressure replaces collateral. The group meets regularly, usually twice a month, and usually with a loan officer who collects payments and gives them business counseling, sometimes even health advice. Some groups require each member to start a micro-sized savings account.
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