Liz Ford: Nobody is too poor to
save, insists Care International, which supports community microfinance
initiatives that offer safe and efficient ways to put money aside
Sarom Eng, 55, has five
children. She perches on a wooden slatted bench in her village,
Preytotung, in Battambang province, as she speaks about her business
ventures. Family members, including her daughter and one of her five
grandchildren, neighbours and animals mill around the garden that
surrounds her small stilted wooden house as we talk. Lined up opposite
the bench are huge plastic bags full of kapok fibres, which have been
plucked from pods that hang from nearby ceiba trees, and are ready for
sale.
Eng has developed a good
seasonal business, buying the pods from farmers who have the trees on
their land, and selling the kapok to companies that make mattresses and
pillows. It has been funded through loans she's taken out from the Khum
Chrey community-based microfinance organisation (CBMIFO). She's on her
third or fourth loan now – the most recent for 1.5m Cambodian riel,
about $370. She employs neighbours and family to help pluck and bag the
kapok, and she expects to get a 50% rate of return when she sells her
goods. "I've never had a problem with paying the money back. I usually
pay back before I need to."
The income generated, along with
money earned from selling fruit up along the Thai border and from
growing rice in a field about 4km from her home, means she can support
her children and grandchildren, and save money.
After all the recent controversy
surrounding microfinance – such as reports of unscrupulous lenders and
the suicides of those under pressure to repay loans, particularly in the
Indian state of Andhra Pradesh, and the very public spat between
Muhammad Yunus and Grameen, the microfinance bank he founded – Eng
offers an example of what can be achieved from the informal banking
sector, if it's done right.
La Morm, from Svay Chrum village
in another part of Battambang province, offers another. Earlier this
year, Morm, 46, borrowed 2m riel ($490) from her local CBMIFO, which she
used to buy two sewing machines for the business she runs from her
home. Morm started her sewing business years ago to supplement the
income generated from the family's fruit farming. People from across the
region come to her house to have their clothes made for special
occasions, and the space under her stilted house is lined with coloured
fabrics and threads twirled around bits of bamboo. She believes the new
machines will bring in an extra $75 a month. "It would take a long time
to save and buy the sewing machine outright," she says. "I wanted to
expand the business because there was more demand. I took the loan out a
month ago and I'll pay it back in a year." The new machines will also
allow her to train neighbours to sew and employ more people.
Eng and Morm belong to
microfinance institutions (MFIs) that are supported by the Cambodian
Community Savings Federation (CCSF), an organisation set up and funded
by the NGO Care International in 1998, but which now operates as an
independent NGO and rural credit operator.
The CCSF helped established
microfinance projects for villages around Battambang, in Cambodia's
north-west, to develop the area after years of abuse by the Khmer Rouge,
which was driven from the region in the late 1990s. Over the past 13
years, small village-based groups have merged to form bigger
institutions that now employ their own staff and have their own offices
where people can come to discuss loans, make deposits or take out
savings at the counter.
The CCSF provides capital to,
and oversees the operations of, up to 33 CBMIFOs now set up in 13
districts in Battambang. It also offers support and training to 230
staff employed by the CBMIFOs. The CCSF gets its funding from
development institutions, such as the sustainability oriented Rabobank
in the Netherlands.
The improved security in the
region and better road access from the capital, Phnom Penh, has led to
an influx of microfinance institutions to the province. This offers huge
opportunities, but also the potential for the problems that we've seen
in India.
Pisey Phal, the chief executive
of CCSF, emphasises that her organisation is concerned with poverty
alleviation, not profits. "The CBMIFOs are like credit banks. They know
the community very well, which reduces some of the problems," she says.
"Traditional banks are very formal and strict in their repayment
schedules. In our case, [CBMIFOs] provide a seven-day allowance for
borrowers. If they are busy on the repayment due date, they can pay
within seven days without a penalty, which helps our members."
And there's a strict set of criteria that have to be met before a loan can authorised.
Anyone who wants to take out a
loan must have a permanent address, an existing legal business, they
must be able to demonstrate the ability to repay and have a good credit
rating – background checks are made with village elders and, if dealing
with large amounts, with commune chiefs (who oversee between 10 and 15
villages) and all loans have to be signed off by the local authorities.
Loans for more than $75 require a site visit to the business. Repayment
schedules are decided when the loan is taken out, which can be up to two
years. In certain cases, borrowers can pay back the money in bulk after
crops have been harvested, or pay back within six months. Interest
rates on repayments are a maximum of 3% a month.
Crucially, though, a borrower must be saving at least 1,000 riel a month with the CBMIFO.
Savings are often the forgotten
part of microfinance, but provide an important safety net for anyone not
able to access the formal banking system. CBMIFOs offer a 7% annual
interest rate on savings.
Sarom Eng has been depositing
money with the CBMIFO for 11 years and would prefer to take out loans
than dig into her savings, which she says she wants to keep for
emergencies and to help support herself and her husband when she gets
older.
Unlike some banks, which require payment to open an account, Eng doesn't have to pay a fee to the CBMIFO to save there.
Ajaz Ahmed Khan, a microfinance
adviser with Care International UK, says there is too much emphasis on
credit and not enough on savings when people talk about microfinance.
"Nobody is too poor to save, but
they can save in inefficient ways. They can save in animals, for
example, or store money under the bed. Not all people want a loan, but
most people will want savings, especially if you get some interest from
it. CBMIFOs provide a safe, secure and accessible way of saving."
New initiative
Cambodia is the latest country
to be added to the list of the states supported by Care International
UK's new microfinance initiative, Lendwithcare.org, which was launched
last year. It wants to encourage supporters from around the world to
offer small loans to people in Cambodia, Benin, Togo, the Philippines
and Indonesia through local MFIs.
Profiles of the people who have
had their loans approved by MFIs in these countries, such as CBMIFOs in
Battambang, are published on the Lendwithcare.org website and the public
can make loans to specific businesses. Once the full amount of the loan
has been pledged, the money is transferred to the MFI to cover the
loan, which will have already been given to the borrower. When the
borrower pays back the loan, the money is then transferred back to the
supporter. The initiative provides another income stream for MFIs, which
means they can support more local people, and it also reduces the risk
of the loans as they are effectively taken over by Care.
Khan says this could mean
CBMIFOs take more risks – such as supporting poorer people, who often
miss out on the benefits of microfinance because they have little or no
collatoral – as Care is covering the costs. "There is no downside to the
MFI," says Khan, who assesses the MFIs before they can be part of the
Lendwithcare.org project.
Khan is clearly a supporter of
microfinance, but is very much a realist about its potential. "People
oversold microfinance. It was never going to be a panacea. But it is a
way to help restore people's dignity. People want to help themselves,
people don't want handouts."
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