Major role of NGO microcredit practitioners
May 21, 2010 by Microfinance Africa
By NELLY FAVIS-VILLAFUERTE, Manilla Bulletin –
Today, microfinance has slowly developed to be a worldwide movement. Microfinance refers to the supply of financial services to the poor to improve their financial condition. Oftentimes, the word microfinance is used interchangeably with the word microcredit. Strictly speaking, microcredit is the extension of small loans to entrepreneurs too poor to qualify for traditional bank loans. Microcredit is a component of microfinance. Probably the most important component.
An effective tool against poverty and hunger, microfinance has been changing people’s lives for the better. Not through charity but by providing small loans to the poor. Upholding the credo of Muhammad Yunus, the founder of the Grameen Bank that credit is a human right; that every person has the right to credit to improve his/her livelihood.
One popular provider of microcredit loans are Non-governmental organizations (NGOs). More specifically, the NGOs are non-formal providers of microcredit loans.
On microcredit loans granted by NGOs, one may ask: Why are the microcredit interest rates charged by NGOs higher than the conventional commercial bank? Meaning, that the NGO microcredit is much costlier for a poor borrower than that of a commercial bank. Those who are familiar with the Ngo credit methodology/approach know the answer to this question. But not many are familiar with the NGO credit methodology.
Not many know that there is no collateral needed in microfinance loans. Unlike in a commercial loan where there is a collateral. More often than not, clients of microloans have no credit history. And they have low educational attainment. Some are illiterate, too. Since the clients of microloans often live in remote areas, there is cost involved in reaching their doorsteps and regularly monitoring repayments.
Also, NGOs normally conduct value formation seminars and entrepreneurial skills training for members who are prospective borrowers of funds. Commercial banks do not offer this service to poor borrowers. Microcredit loans are approved fast. These small loans do not usually meet the commercial banks requirements on borrower’s cash flows. The poor borrowers do not have to go to commercial banks, wait for long periods and mingle with better-dressed clients of the banks. These are psychological costs that the poor borrower does not incur if he borrows from an NGO in the countryside. No wonder poor borrowers prefer NGO credit to commercial banks. The NGO credit service is more personalized, with more intensive supervision and monitoring of the utilization of funds.
Here in the Philippines, the NGO microcredit practitioners charge interest that range from twenty-four (24%) to thirty (30%) percent annually computed monthly – usually two (2%) to three (3%) percent every month. The rate of microcredit interest, at its face value, appears to be higher than the interest rates charged by commercial banks. Not really. When we consider the so-called psychological costs that the poor borrower saves by not borrowing with the commercial bank. The wonder of it all is that the repayment/recovery rate of NGO credit is very much higher than the repayment rate of commercial loans. Here and abroad. Despite criticisms of high interest rates charged by NGOs. Highlighting the fact that the poor consider access to credit more important than the actual interest.
Incidentally, the interest rates charged by NGOs is still lower than the interest rates charged by the moneylenders of the “5/6 loan.” Some says that the daily interest of “5/6” loan amounts to a daily interest rate going as high as twenty (20%) percent.
There are cases where donor agencies or governments absorb some of the costs of credit for the poor. Subsidized interest rates so-called. In these cases, the microloan programs distort markets and generally suffer, low repayment rates, limited growth and institutional dependency.
Indeed, the NGOs are playing a major role for providing savings and credit services to the poor here in the Philippines and in other countries as well.
#No, 06, Shriniwas nilaya, Santosh Nagar, opp-Lake
Near Ganpathi Temple Hubli
Karnataka state India-580032
chinyard1@rediffmail.com
Website: http://www.chinyard-india.org
Ph: (91) 0836-2356184
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Ref. No: 1511/2010/11 Date: 12/10/2010
To
We are writing this letter on behalf of CHINYARD, hereby we would like to enlighten you about our organization. CHINYARD is operating in North Karnataka region over the last 21 years. Chinyard is one of the development initiatives rendering service to poorest of the poor. Chinyard’s prime vision is to bring destitute people into main stream society. Because underprivileged masses are deprived from economic, social and institutional opportunities. Chinyard was registered under the Bombay Public Trust Act-1950. For overseas assistance purpose Chinyard was registered under Ministry of Home Affairs for the Foreign Contribution and Regulation Act-1976.
Chinyard’s operation is recognized in drought prone areas; most of the marginal and poor farmers depend only on agricultural, due to scarcity of rains land remains fallow. Therefore peasants are not getting adequate employment opportunities here. Hence farmers are migrating towards metropolitan cities for search of livelihood options. Consequences of parent migration children are deprived from education. Chinyard organization has been implementing several social development programmes for upliftment of destitute people. These programmes are as follows.
1. Promotion of Livelihood Activities: Under this programme Chinyard has organized various livelihood activity trainings like tailoring, dairy farm, poultry, embroidery and vermin-compost training to women self help groups. After the training Chinyard has helped them startup their own enterprises and provided market linkage to sell their product in the market.
2. Rural Small Micro Entrepreneurship Development Programme: Under this Chinyard has given training to 976 women on various rural micro enterprises. After the training Chinyard supported them to begin their own enterprises.
3. Women Empowerment: Under this programme Chinyard formed 5243 women self help groups and provided bank linkage. Chinyard believes in UNITY IS STRENGTH keeping this quote in mind Chinyard organized women into self help groups. For this accomplishment Chinyard has received state level second award. For women self help group member’s skill up gradation purpose Chinyard has organized various trainings and workshops.
4. Biodiversity Conservation and Natural Resource Management Programme: Under this project Chinyard formed watershed committee, community based tank management committee and village forest committee this projects prime objective was to create awareness about Biodiversity Conservation and Natural Resource Management. For this accomplishment Chinyard received National level productivity award, given by central agricultural ministry of India.
5. Capacity Building Training for Self Help Group Members: Under this programme Chinyard has given training on the concept of SHG, Credit Management, Unity and Cooperation, Problem Solving, Panchayat Raj System, Right To Information Act, Leadership and Effective Communication, Book Keeping and Account Maintenance.
6. Road Safety Awareness Programme: By this programme Chinyard has taken initiative to provide road safety awareness among vehicle owners, school and college students through street plays, photo exhibitions and dramas.
7. Eradication of Violence against Woman: Through this programme Chinyard organized several human rights awareness programmes among rural people under this Chinyard gave awareness about gender sensitization and mitigation of dowry system. And those who were facing violence Chinyard has provided legal assistance for them.
8. Tribal Handicraft: Through this programme Chinyard has taken initiative to conserve ancient tribal handicraft, and give technical training to upgrade their handicraft skills. Promote market linkage to sell their product in the market. Chinyard has given training to 300 Kasuthi Artisans, 107 Mirror Artisans and 40 Quilt Production Training.
9. Scholarship Amenities to Merit Students: Through this programme Chinyard has been providing scholarships to economically background merit students to continue their studies through this yearly 150 merit student’s benefit.
10.Computer Literacy Programme: Through this programme Chinyard is providing computer education to rural and slum students. Chinyard has also been giving basic computer training to unemployed youths.
11.Animal Welfare Programme: Through this programme Chinyard has taken initiative to construct water ponds in rural areas and started animal fodder center from this center Chinyard has been disbursing fodder to farmers.
12.Micro Credit Programme: By this programme Chinyard has been supporting Micro Credit facility to rural poor masses. This programmes prime vision is support to startup micro enterprise and to generate income generation activities to rural masses. Chinyard has supported 53,200 women self help groups. Till date women self help groups cumulative savings is 4.50 crore and Internal lending is 9 crore.
13.Drinking Water Project: Under this project Chinyard has given bore well repair training to 35 Tribal women to take initiative to repair bore wells.
14.Documentation: Chinyard has been keeping day to day activity reports, if higher authorities, donors require Chinyard will submit the report immediately. Chinyard has done rating care by M-Cril rating agency, Mumbai and also done external evaluation of rural women empowerment by Mahamad Guttigar. Chinyard has published annual reports. Chinyard provides opportunities to researchers to do a study at the organization.
15.Human Resource: In Chinyard’s organization there are 32 well qualified, experienced staffs working over the last 21 years. Chinyard’s staff has passion towards social work and work for underprivileged development upliftment purposes.
Now we are unable to carry out the above activities, due to lack of financial sources. In this connection we are requesting your assistance for further development work. Your one contribution can bring brightness among the underprivileged masses. Your kind donations will get tax exemption under 12(A) and 80G Income Tax Act-1961. Further any more information, visit our organization website: http://www.chinyard-india.org
If you have friends, or donors who would like to donate for this noble cause please kindly forward these details to them and help in serving the purpose.
Looking forward to your positive response.
Yours Faithfully
Tracey. Rodrigues
(Secretary-Chinyard)