Sustainable Community Development Three Stories Collide to Create One Remarkable Solution
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MICROFINANCE A brief introduction
The idea to bank to the “poorest of the poor” is innovative in the intentional motion to incorporate a group of people who are in the most need of resources and capital and once were systematically excluded from them. In the past, traditional outlets of finance have produced a sustainable system of capital that can be replicated on a mass scale to many people.1 However, this traditional system primarily focused on those who were not impoverished; therefore, this capital remained out of reach from a certain category of people who could use it. Additionally, non-governmental organizations have created a purpose of targeting people who live in poverty.2 A critic of this approach, however, maintains that these projects that are implemented are not financially sustainable over time and cannot be replicated without creating a new pool of funds for these projects. Therefore, many projects, such as housing, water, and infrastructure, which all could increase the standard of living in these communities, are insufficient in creating a lasting impact because they
run out of capital once the project is completed. The concept behind microfinance is to marry these two ideas of a sustainable system with an overlooked target audience. Therefore, many micro-finance institutions (MFIs) differ from traditional commercial banks in that they seek out impoverished persons to provide resources and capital. Moreover, micro-finance housing a broad umbrella of ways that MFIs aid the poor with different programs, such as: microcredit, micro-franchising, insurance, entrepreneur education, and community services. Even though many institutions influence on another, they use this broad spectrum to tailor it to the community in which they work. Before delving deeper into the workings of micro-finance, it is important to understand the various demographic factors that create the target population. Typically, they are characterized by three factors: 1) they live in poverty, 2) they are women, and 3) they live in rural areas. The word “poverty” conjures up many images of what people gen-
erally perceive of those who live in such conditions without adequately providing a definition of it. Poverty is generally perceived as an economic issue without raising awareness to the social implications that result due to certain conditions. On a basic level, percapita income can inform you about the money one deals with without giving you insight on how they access resources that might come from other outlets that are
result of a lack of access to a consistent food and health care. Isolation carries a double meaning— the first being a geographic isolation in rural areas (especially in developing countries), and the second refers to a lack of social mobility in society to due illiteracy and unemployment. Vulnerability is an “exposure to risks and defencelessness”5 which leaves the poor exposure to both external shocks (such as, natural disasters)
Survival: access to basic needs (food, health care)
Security: access and control over productive assets
Self-Respect: having dignity and autonomy Figure 1
unrelated to monetary value. Robert Chambers presented a list of five categories that give a better description of poverty: a lack of assets, physical weakness, isolation, vulnerability, and powerlessness.3 A lack of assets refers to the first basic economic issues in which the poor fail to have “access to productive capital (such as land, livestock, skills, etc)”.4 Additionally, physical weakness comes as a
as internal ones. Lastly, powerlessness is the combination of the problems. It is no coincidence that women are a target group for MFIs and other non-governmental organizations (NGOs). Micro-finance is an avenue for women’s empowerment. According to Muhammad Yunus’ account, there are many benefits for including women in these programs. Women, for instance, are more reliable to invest
the money gained from the MFI in the household, which includes both the family and the home. Additionally, women are traditionally the least financially secure in society; they are usually first to go hungry in the home and can be easily dismissed from the house.6 Therefore, it is understandable that women are typically discriminated against at the banks as well. Rajasekhar argues that poverty and gender go hand in hand, and MFIs step in to
break this cycle. Most micro-finance institutions find themselves to be most useful in rural areas, where many who live there manage only substance farming. Sixty-three percent of impoverished people live in rural areas worldwide,7 even though there are a growing number of interests of MFIs in urban centers which a disproportionate amount of a poor population located there.
Notes 1. Fisher, Beyond Micro-Credit, 20. 2. Ibid, 20. 3. Rajasekhar, Microfinance, Poverty, Alleviation and Empowerment of Women, 11. 4. Ibid, 11.
5. Ibid, 12. 6. Yunus, Banker to the Poor, 88. 7. IMF
The Story of Limonada Guatemala City is Guatemala’s national capital as well as home to the largest slum in Central America. Surprisingly enough, in this two mile area lives between 60,000 and 100,000 people. Many of these people are refugees from rural areas who came to Guatemala City in order to escape the violence of a thirty-six year long civil war which began in 1960. The result of this migration is La Limonada, an impoverished community of the greater Guatemala City.
as the nature of extreme poverty, most of the population is caught in a cycle of violence and destitution. The people of Limonada are at an major disadvantage. Rival gangs maintain a crucial level of influence in this community, regularly exposing it to drugs and violence. Moreover, the people who live in La Limonada are “trapped� due to a negative social stigma that discourages employers from giving jobs and keeps these people out of away from enjoying access to sustainable capital.
Due to the high concentration of people in such a small area as well
Lemonade International at La Limonada Established in 2008, Lemonade International is a non-governmental organization (NGO) created to work specifically with the La Limonada community. It is based in Raleigh, NC. However, many of the founders of this organization have been involved in this community since 1994. This organization is guided by Christian principles and has built two schools, a safe home for abandoned children, created a vocational training program, and recently added FAC International to its list of ventures to help this community.
FAC Internacional currently has thirteen business clients, all of which are women. Many of the initial participants were schoolteachers from the ones operated by Lemonade International. This shows how FAC Internacional uses the already established community ties to Figure 2 bring interest and trust to the program by the locals. They share various testimonies on how FAC Internacional has bettered their lives. Between starting a business or simply using capital to expand one, they are making progress. Marta, pictured above, has her very own Avon business. She is also a loans group leader. Chepita is photographed at the left in her store, which she was able to expand once obtaining her loans.
FAC Internacional video
Notes www.facinternacional.org Figure 3
www.lemonadeinternational.com
FAC Internacional
Figure 5
FAC
Internacional in English translates to the “Community Empowerment Fund International.” It was founded as a joint venture by Lemonade International and the Carolina Microfinance Initiative at UNC-Chapel Hill. The program was first piloted in La Limonada during the summer of 2010. The interesting story behind FAC Internacional was that it was created due to a necessity when other MFIs failed to show interest in working with the La Limonada community. The mission purpose of FAC Internacional is “to empower and provide opportunities for the people of La Limonada
Figure 4
through access to financial services, entrepreneurship education, and relational support.”1
Currently, FAC Internacional is led by one person on the ground, Nestor Sicaja, who is a Guatemalan and grew up in La Limonada. In conjunction with CMI students who create the programs and control and funding and guidance from the Lemonade International board, they run FAC Internacional. This institution differs from many other MFIs in the nature of its programs and the characteristic of their loans.
The structure of FAC is divided into four programs: Education, Micro-Loans, Savings, and Incubator. The education program has multiple objectives; the first is to create a class of entrepreneurs. This involves workshops on finance and product management. Additionally, these education classes seek to empower entrepreneurs with confidence and skills that not only help lead a business but will potentially be a positive influence on the commu-
purpose of many micro-finance institutions, which lend to the poor or the purpose of giving them capital. These micro-loans are intended to be used for both productive purposes (such as running a business) as well as consumption (for example, purchasing food or other household items). What makes FAC unique is the extremely low interest rates that are placed on these loans in comparison to other MFIs. The typical rate for these small scale
It’s a red zone, which means there is too much risk involved.
The micro-loans given to clients in La Limonada would be entirely too small to collect any sustainable profit to run an MFI in that area.
The violence makes the place unattractive. Figure 6
nity as well. The lessons are created by Carolina Microfinance Initiative members and tailored to the needs of FAC Internacional clients in La Limonada.2
loans range from ten to fifteen percent; whereas many other MFIs tend to use higher rates such as a thirty-five percent interest rate.
Micro-Loans are the fundamental
The Savings program under FAC
also encourages the clients to build up personal wealth by investing and saving towards certain goals. The design of this program makes clients save towards a certain goal or item that they want to purchase, which tends to produce a higher savings rate in Latin American communities. Once a client meets his or his goal, FAC will match that goal by twenty percent.3 Lastly, the Incubator program is one of the most innovative arms of the FAC structure. The purpose of this program is to create various forms of advertisement (such as banners and business cards) and other identifiers (for example, logos) for the FAC clients. 4 This program addresses competition that businesses face in the market; even though they might have relatively small startup costs and be in an environment where they are not many other alternatives (such as a rural areas); La Limonada is located in the middle of Guatemala City. Therefore, many of the small businesses compete within the impoverished community for business as well as against other more well to do businesses outside of La Limonada. The Incubator pro-
gram recognizes that a business must not only be created, but it must be competitive to last as well. In the future, FAC intends to create another program for wouldbe business owners who do not have an entrepreneurial mindset, called micro-franchising. Microfranchising is typically referred to as a “business in a box.” FAC members would determine which businesses would be
The Carolina Microfinance Initiative (CMI) is a student organization housed under the Campus Y at the University of North Carolina at Chapel Hill. This organization is “dedicated to the ideals of education through action, self-reliance, and student opportunities in microfinance.” Figure 7
different from others in the area as well as be necessary for the surrounding population in order to gain business. Purposed projects for this program are creating a vision care shop, where women would prescribe inexpensive glasses to local clients whose vision is impaired as well as small convenience stores that would benefit the community.5
FAC Internacional is crucial to this community because it provides services that other local MFIs fail to sufficiently produce, especially since they choose to not work with the residents of La Limonada.
Notes 1. Carolina Microfinance Initiative, 3. Ibid. (Savings Program) International Programs 4. Ibid. (Incubator) 2. FAC Internacional, International 5. FAC Volunteer Guide
References Carolina Microfinance Initiative, http://www.carolinamicrofinance.com/ FAC Internacional, http://facinternacional.org/ Fisher, Thomas. Beyond Micro-Credit. Herdon, VA: Stylus Publishing. International Monetary Fund. “Economic Issues No. 26—Rural Poverty in Developing Countries Implications for Public Policy.” Last modified March 2011. http://www.imf.org/external/pubs/ft/issues/issues26/ index.htm Rajasekhar, D. Microfinance, Poverty, Alleviation and Empowerment of Women: a Study of Two NGOs from Andhra Pradesh and Karnataka. Bangalore, 2004. Yunus, Muhammad. Banker to the Poor. Great Britain: MPG Books, Bodmin. Figure 1: Rajasekhar, 12. Figure 2: Marta Tzun, picture, (www.facinternacional.org) Figure 3: Chepita, picture, (www.facinternacional.org) Figure 4: La Limonada, picture (www.lemonadeinternational.org) Figure 5: La Limonada, picture, (www.facinternacional.org) Figure 6: Lemonade International, www.lemonadeinternational.org Figure 7: Carolina Microfinance Initiative, www.carolinamicrofinance.com