Lendwithcare helps people work their way out of poverty. The online platform allows users to make microloans (as small as £15) to those in some of the poorest parts of the world, who invest in building their businesses and improving their lives. We caught up with Tracey Horner, the woman behind the project, to find out more…
What is “microfinance”, and how does it differ from conventional lending?
Microfinance is essentially financial services for poor and low-income clients. Although most attention has been on the provision of small loans, microfinance in fact also includes the provision of other basic financial services such as savings, money transfer and insurance for poor people. Improving access to such services allows poor and low-income people to finance income-generating activities, build assets, stabilise consumption and protect against risks. Microfinance can play an important role in improving the lives of poor people.
Microfinance is usually aimed at economically active poor and low-income people who have limited or no access to the services provided by formal financial intermediaries such as banks. Around two-thirds of microfinance clients worldwide are women.
Microfinance is usually aimed at economically active poor and low-income people who have limited or no access to the services provided by formal financial intermediaries such as banks. Since there are so few salaried work opportunities (for example in Zambia which I have just visited, the unemployment rate is four times what it is in the UK) they are usually self-employed micro-entrepreneurs often working from home. Typically, they operate small businesses such as grocery shops, market stalls, car repair, carpentry or other workshops, and in rural areas they tend to focus on food processing, agriculture and raising livestock and poultry. Around two-thirds of microfinance clients worldwide are women.
Why has microfinance become so popular?
There are many reasons for the popularity of microfinance but primarily because it is seen as a long-term and more sustainable approach to helping poor people. When poor people have access to a range of financial services – loans, savings, insurance and money transfer facilities – often accompanied by training in financial literacy and business management, they can improve their lives.
Microfinance is not charity and builds on the principal that teaching someone to fish is infinitely better than simply giving them fish.
Microfinance is not charity and builds on the principal that teaching someone to fish is infinitely better than simply giving them fish. It focuses directly on helping poor people to work and become more self-sufficient. Microfinance became very popular very quickly because it was believed that it could create a virtuous cycle of investment and increased income and thereby break the cycle of poverty in which many poor people are trapped. Much of the focus was on microcredit, and it was believed that with access to successive loans over a longer period of time and through the cycle of further investment and increased income, poor people could through their own efforts gradually climb out of poverty. However, the reality is much more complicated and the relationship between access to microfinance and poverty is not so straightforward, particularly since microfinance is provided by a range of organisations with differing motives, objectives and methodologies in vastly different environments to people with different skills sets and capacities.
How do you reach people in developing countries? Are there any specific marketing strategies you can share with us?
As a UK based peer to peer or crowdfunding initiative whose objective is poverty reduction we work through Microfinance Institution partners in 10 developing countries, we do not select borrowers ourselves. It would be impossible to responsibly assess each client’s loan requirement and capacity to repay ourselves. Local partners know the local context. We always select partners whose mission is to alleviate poverty and who provide financial literacy and business skills training alongside the lending.
Our partners market their services in many ways, but mostly by going into the communities and informing people who already have a very small business.
Those partners “market” their services in many ways, but mostly by going into the communities and informing people who already have a very small business, such as a tiny market stall, how they can access a loan to enable them to grow that business to a level where it provides a reasonable income for them and their families. Word of Mouth is a very important tool, with people seeing how their neighbour has an increased income and better business and asking for a referral.
Is access to the internet ever an issue for loan recipients? If so, how do you solve this problem?
The important thing is that the local Microfinance Institution we partner with has a reliable internet connection as they will need to upload a photograph and loan profile of their client to submit to the Lendwithcare website for funding. Every entrepreneur who had their photograph submitted has to sign a permission form so that we know it has been explained to them that their photograph will appear on the internet. Every country differs but with a rural farmer in Cambodia you have to make sure they understand what this actually means in practice, whereas a Filipino shop keeper is likely to access the internet themselves.
How do you think cryptocurrencies such as Bitcoin might impact or change your service in the future?
There is no doubt that FinTech (financial technology) is constantly evolving. Certainly the use of mobile banking to make small payments is increasing across the world, and this should bring the costs down for many of our Microfinance Institution partners, thus enabling them to improve their services and reduce their interest rates.
Each country operates in a different context and many are only just embracing mobile banking when it comes to the rural poor.
However, each country we work operates in a different context and many are only just embracing mobile banking when it comes to the rural poor. In terms of our website which aimed largely at a UK audience who are interested in supporting the entrepreneurs we are constantly evolving and will be watching how popular cryptocurrencies become and adapting accordingly.
How can DiP readers get involved and help support Lendwithcare?
We would be delighted if readers would consider supporting someone to work their way out of poverty through a small business. Just go to Lendwithcare.org, read about the people who are currently looking for funding, choose who you would like to support and make a loan – you can lend anything from £15 upwards. As the entrepreneur repays their loan into your Lendwithcare account you get to lend it again – or even withdraw the funds.