Microfinance

The Power of a Small Loan

Microfinance is a small, soft, loan given to someone in poverty who wouldn’t be able to access a loan from a traditional bank. With microfinance people have the opportunity to lift themselves out of poverty.

This is a picture of a group of local women holding their micro-finance loan and sewing machines in Uganda

Above, community ladies receive sewing machines and funds to set up small businesses

The Impact

  • Access to credit allows poor people to take advantage of economic opportunities. It enables households to invest in small businesses which can help improve their daily income
  • A soft loan can empower women to generate income and so promote equality and improve the wellbeing of households
  • Microfinance makes people more resilient and better able to cope with the crises they may face (such as a death, or crops failing), thus reducing the need to sell assets to meet basic needs
  • By reducing vulnerability and increasing earnings and savings, microfinance enables poor households to make the transition from every day survival, to planning for the future.
  • Increased earnings leads to children staying in school longer, better nutrition, and better living conditions, which in turn results in a lower incidence of illness.

Areas in which Amigos provides microfinance

  • Seeds
  • Tools – for carpentry, or farming
  • Sewing machines
  • Start-up costs for a small business, such as selling doughnuts

We are led by the people we seek to help. If someone comes to Amigos with a good business plan we are always ready to listen.

Increasing Income by a Third

Our long-term goal is always for development, rather than aid – we believe in empowering people to help themselves and believe there is plenty of untapped potential in marginalised communities. To this end, we set up a new initiative in 2014 to provide microfinance loans (small, soft loans) to support the caregivers in the Child Sponsorship programme. This idea grew out of the community (the best ideas always do!) and Amigos agreed to provide small cash injections to money saving groups formed by the caregivers.

As a result of these groups, the lives of 540 people were improved when 45 guardians and caregivers received funds to start, or improve, small enterprises. This could mean buying beans wholesale to sell at the market, or setting up a small doughnut business. So many people we work alongside have the ideas, initiative and burning desire to lift themselves out of poverty, but they’re living hand to mouth and simply lack the small capital to get started.

This successful project resulted in all households involved seeing their income increase by an average of 35%. As a result, these families can benefit from three meals a day, they can afford health care and medicine for their children, and they can provide academic materials and school fees for their children who are not part of the Child Sponsorship programme. This ensures sponsored children in families do not progress in isolation and that the whole family benefits from the programme. All caregivers have successfully paid back their loans in full, ensuring this new initiative has longevity and sustainability, so more groups can be formed and more people can benefit.

Microfinance in Action

William had a troubled childhood and was only able to complete his primary education because his family couldn't afford his school fees. As a teenager William spent one year at Kira Farm Development Centre and then set about transforming his life.

This is a picture of kira graduate William with his wife, child and bike used for delivering milk

LOAN 1: Seeds. With this loan from Amigos William and his wife Monica started cultivating a number of crops including maize, bananas and cabbages. Prior to his time at Kira William would have eaten a simple diet of maize, potatoes and beans, without any fruit or vegetables. Today, William is able to enjoy a well balanced diet and is stronger and healthier as a result.

LOAN 2: A sewing machine. Although William and Monica managed to generate a substantial income through farming, they believed they could do more. William approached Amigos for a micro-finance loan for a sewing machine, making it possible for Monica to make clothes and curtains for sale.

LOAN 3: A business loan. Spotting a hole in the market William decided supplying milk to local shops and restaurants would be a profitable venture. His only challenge was that he needed substantial resources to launch the business – enabling him to purchase and distribute the milk. William found someone willing to give him a loan, but in his haste he didn’t understand the terms and the interest of the loan was close to 40% (microfinance with Amigos is 3%) and William struggled to pay back the loan.

LOAN 4: A motorbike. Once he’d managed to pay back the high-interest loan, William approached Amigos for a loan in the form of a motorbike, enabling him to supply milk quickly and efficiently. Most micro-finance loans are around £50, but William had proven his ability to re-pay his loan, so Amigos agreed to provide William with a business loan worth £920. Within a year William had paid back his loan thanks to his thriving business.

William says: 'My past was full of thorns. The fear of my children being pricked by the same thorns drives me and energizes me to make sure they have a better future. I’m so grateful that God put me in touch with Amigos, which has not only equipped me, but supported me to channel this energy into transforming my life with His help. All the glory should go to God.'

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