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Microenterprise Development Program: How Microloan Works
1. The entrepreneurial poor apply for loans:
A traditional bank loan is unattainable for most of the world’s poor. They have no credit, they may own no property, and if they have a business, it’s likely struggling despite long hours of hard work. Through a variety of strategies like group lending through community banks, and cross-guarantees, loans can effectively and efficiently be provided to people who lack collateral but who demonstrate an entrepreneurial spirit, trustworthiness, a good work ethic, and sound business ideas. The proof it works: 96% of loans are repaid on time!
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2. World Vision disburses microloans:
Loan sizes vary from $50 to $5,000, most typically in the $100 to $2,000 range. Usually loans are given to groups of five to 30 microbusiness operators who band together for self-administration, mutual encouragement, and accountability. This ensures that even the poorest of the poor can have access to credit because these entrepreneurs cross-guarantee each other’s loans and support each other’s businesses. Most World Vision loan recipients are women, who consistently use their extra income to benefit their children.
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3. Credit officers coach loan recipients:
Credit officers begin coaching clients before they receive their first loan, and continue with regular follow-up throughout the term of the loan. Business coaching includes assistance with accounting, marketing, and managing—all based on biblical and ethical business principles.
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4. Growing businesses thrive:
With a loan, entrepreneurs start carpentry shops, improve farming, operate flower businesses, purchase livestock, run food services, and weaving businesses, to name a few. These businesses create jobs and generate additional goods and services, thereby enhancing the entire community. Last year, over 185,000 jobs were created or sustained through our clients’ business successes.
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5. Loans are repaid:
The poor are a good credit risk, repaying their loans more than 96 percent of the time. As loans are repaid, borrowers become eligible for larger loans. The reasonable interest rate sustains the loan program, while maintaining low arrears and efficient operations.
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6. Families gain self-sufficiency:
Families who receive small loans report better family health, an increase in their business earnings, and the ability to spend more on food, medicine, and education. According to a study by George Washington University of microloan recipients in World Vision projects:
- More than 90 percent reported improved business skills.
- 75 percent reported an increased sense of empowerment.
- 80 percent reported improved family health in East Africa.