Wednesday, 28 August 2013

Large loans vs small loans

You lend your money, on trust, to someone in a country far away to help them earn a living.  You choose whether to make a loan to an individual  entrepreneur like Haleema Bibi  (left) who embroiders shawls in her house in Lahore, or to people like Ricardo Santos from the Philippines, (below) who runs  a relatively established business with paid employees and a regular income. The beauty of is that the choice is yours.  

Most microcredit recipients run very small businesses on their own and require very small injections of cash to enable them to gradually increase productivity and consequently their profits. This is true of the entrepreneurs our microfinance partner in Pakistan supports.  They apply for individual loans worth an average of only £110 and many Lendwithcare lenders prefer to make loans to these small scale entrepreneurs.

However,  lendwithcare also facilitates larger loans,  worth £2,000 and more.  The entrepreneurs applying for a loan of this size are mature entrepreneurs who have been in business for several years. They are people who have already gathered business acumen and they need larger loans to grow or diversify.  These more experienced people might have a small to medium enterprise (SME) of their own, and will probably have taken out and repaid several loans with their MFI.  

Take, for example, Ricardo Santos.  He makes and sells traditional sweets. He has a team of 20 regular employees and 40 part-time helpers who regularly receive wages ranging from 150 to 400 Philippine pesos (£2 to £6) a day, a salary above the minimum wage in that country.  Ricardo intends to take on more employees as production increases.  He recently applied for a £4,580 loan but for the past 12 years, his production business went through successes and challenges before it finally achieved its current state. Ricardo’s business is now one of the major suppliers of sweets and candies in various provinces in the northern part of the Philippines. 

When you choose to support someone like Ricardo with a loan, the positive results are amplified by Ricardo’s business ability; many people are helped and there is a bigger impact on their communities. The most important feature of entrepreneurs running small enterprises is that they often employ local people and their businesses become a source of employment in communities suffering from lack of paid work.  These entrepreneurs will not be the only ones benefiting from the loan, they will pass it on in the form of a salary to their employees, usually relatives, friends and neighbours.   And given that the primary aim of microcredit schemes is to alleviate poverty, the positive effect of a loan is multiplied.   

Other examples related to large loans are the women entrepreneurs from Benin who produce red palm oil or transform cassava into cassava flour.  Their typical loan will be worth £1200, but each will employ an average of 3.6 people (mostly other women) in very remote and poor communities.  Other borrowers with an SME take young apprentices and they get the skills and experience that will give them an advantage when an opportunity for paid work will appear.  When people can find jobs in their own communities, the knock on social and economic benefits for all the community can be enormous. 

But, there is also another reason why small and micro enterprises are important in the context of developing countries and that is that these enterprises form the basis for private-sector-led growth.  The private sector can (but admittedly not always) drive the economic growth that is needed to alleviate poverty in developing countries and there is research suggesting that the potential contribution of the private sector to development could far outstrip the potential impact of aid.  (1)

In fact, in some countries, the micro, small and medium enterprises have been recognised at policy level as an engine of economic growth playing an important role in the economic development of the country. 

Lendwithcare offers lenders the option to finance either solo traders, people to whom a very small amount will make a difference but and also to micro and small enterprises owners, who will be able to provide employment to others at low capital cost.   In both cases, there will be a strong, direct and satisfying connection between the person who lends and the person who borrows.

The choice of who you want to lend to is yours, naturally.

Teresa Hall

(1) ELLIS, Karen. The private sector and development (online). Overseas Development Institute (ODI)’s Policy Brief, May 2010 (viewed August 2013). Available from:

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