Julie Levis, Partner discusses how Opportunity International helps with micro finance in India.
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Julie Levis, Managing Partner, Sydney
Recently I spent a week in Northern India at the invitation of Opportunity International, one of the charities supported by the Clayton Utz Foundation. The purpose of the visit was to look at micro finance projects and meet with micro finance organisations funded by Opportunity International.
Microfinance is a form of charity where money provided by donors, like the Clayton Utz Foundation, is used to make loans to impoverished people in very small amounts - the average being the equivalent of 75 Australian dollars. The loans are repaid with interest and the money is recycled into more loans to other people. Administration costs are largely met from the interest component, making the organisation sustainable. The recipients of the loans use the money to set up a business, to improve their and their children's lives.
I admired the concept but wanted to see how it worked in reality.
India is an amazing country with a population of approx 1.15 billion. Everything operates at a frenetic pace. It's old and full of history, but has very little infrastructure. 79% live in poverty, with fewer than 7% in formal employment. 75% of the population are illiterate, but the scale of the issues facing the government in trying to help its people, is overwhelming.
Opportunity International took us to three different microfinance organisations. The first was Shikhar Development Corporation in New Delhi.
Shikhar lends to the bottom 10% of the population and helps their clients with money but also with building their business and starting them on the road to literacy. The loans are made to groups of about 10, mainly women.
If one woman defaults, the others are all liable and none of them are entitled to apply for second or third stage loans. This concept is called a solidarity loan which achieve fantastic repayment rates. In FY 09 their default rate was 0%.
We went out to a Shikhar branch office in a slum area in the city where about 12 clients, mostly women, explained what they had used their loan money for and how it had impacted their lives.
Overwhelmingly these women said they wanted to educate their children so they could get them out of the slums and so they did not have to live with the hardships their parents had.
Our second visit was to the Margdarshak microfinance organisation in Lucknow.
Margdarshak lends bigger amounts to fewer people to ensure entrenched success and engage more people in the enterprise. They therefore look for people with entrepreneurial flair who have the potential to employ others. Some clients have food stalls or do embroidery. Jaibbur is a weaving village. If you are born here you spend the rest of your life weaving. Many families work at the loom in shifts for 24 hours a day which barely earns a family $3.50. This only just keeps them alive.
Our last stop was Varanasi on the Ganges to see the work of an organisation called Cashpor.
Cashpor, a professional and very business like organisation which has been running for quite a few years, provides debt funding to microfinance organisations. They have provided funding to approximately 300,000 people, mainly women. Their primary aim is to lift people above the poverty line. The groups they lend to meet regularly and at the end of the meeting pledge to uphold the obligations of the loan. The result of this simple gesture, is a default rate of 0.69%, which testifies to the success of this approach.
Overall the trip reinforced for me that the concept of microfinance does work in reality.
Opportunity International and its Indian partners are really making a positive difference to people's lives in giving them a hand up, and not a hand out, and I am very proud that the Clayton Utz Foundation supports enterprises like these.