Poverty and the impact of lending and Borrow- A Theological reflection on financial sustainability in Lusaka rural – Zambia.

Lending and Borrowing herein (Microcredit) is considered by many practitioners and advocates to be a powerful tool to alleviate poverty. The practice consists of lending small amounts to the very poor people for self-employment projects, known as micro entrepreneurship, with the intention of allowing households that would otherwise be credit constrained to engage in income-generating activities.

The church may work with a charity to provide money to groups of10-15 families. Each family has its business ideas appraised and receives eight training sessions covering topics such as book keeping and cash flow. All family members are required to save money as a source of security. Each person receives her loan as a cheque and opens an account at a designated bank.

Individuals in the group then establish small commercial ventures. Groups meet with a micro credit officer every two weeks to review their progress. Repayments against credit are made fortnightly by each group member. Where a business is not going well it is the responsibility of the Micro credit officer to get things back on track.

Credit typically last for four months. Each family member is eligible to receive up to four loans after which their business should be commercially viable. Loans are small – on average ZMK 600,000 equivalent US$100 per individual. Interest of 10% is charged in keeping with the local economy. Should an individual want to develop a business further they may receive a bridging credit of US$ 300, or access our Micro Ventures services.

And here’s the real beauty in Micro credit – because it offers a hand up not a hand out, when the people repay their microloans, it is given to another person….when he/she repays it is again given to another person and so on. We see that the donations keep on helping over and over again

Hence it is noted that, the relationship of micro credit and human history brings hope, dignity, and empowerment to millions of the world’s poor and poorest families. Behold a movement with global outreach that has penetrated beyond city slums and market towns to even the most isolated villages. Behold an industry that embraces thousands of NGOs, credit unions, public and private banks, and an infrastructure of hundreds of thousands of community-based peer lending groups that are enabling many of the planet’s most disadvantaged households to generate the additional income and savings they need to keep their children alive, nourished, healthy, and able to attend schools

Micro credit encourages poor villagers that offers education support to their children and to pledge that they will never enter the market to seek jobs from anybody. They’ll be job givers not job takers. The micro credit officers explains to them that their own a big bank. It has plenty of money to finance any enterprise you may wish to float, so why waste time looking for a job working for someone else? Micro credit is in the business of encouraging entrepreneurship among the poor people of the world – not dependence.

One of the innovations of the micro credit has been to require borrowers to form small, self-selected groups that accept liability jointly. Much of the literature on microcredit has focused on the potential of this type of group-based lending to overcome credit market imperfections. Morduch (2005). Traditional banks have historically been unwilling to lend to the rural poor people in many developing countries, where the high cost of gathering information and enforcing contracts can lead to adverse selection and moral hazard problems. The difficulty in screening potential borrowers is exacerbated by the fact that households lack collateral.

The interest rates necessary to compensate for the risk of lending in these areas are high enough to drive away many poor people from borrowing. Information costs also make it difficult to monitor borrowers’ activities after lending. Family lending is designed to overcome these information problems. If one member of the group defaults, the entire family becomes ineligible for further loans. Family members thus have incentives to screen and monitor each other’s projects. There is evidence that this type of microcredit lending is succeeding in extending credit to the poor people, who would not otherwise get it. It is believed that participation is increasing, in Zambia with estimates indicating that more than a million poor people having been reached, over seven (7) million of whom were counted among the country’s poorest. Micro credit institutions in Zambia are, by these measures, demonstrating an ability to overcome obstacles to providing credit to the rural poor and contributing to human dignity.

The relevant policy question, however, is whether the extension of credit is achieving the original goal, in moving the poor people out of poverty. Being the fact that most micro credit institutions rely on funding from governments and other donors with anti-poverty agendas, and the amounts are increasing.

Hence the need to conduct a survey to found out more on the leading donors and investors who had committed billions of dollars in active micro credit investments and projects as of December 2008, 63% of which consisted of debt. This is due to many critics who are worried, that microcredit programs are essentially untested, however, and might be counterproductive. Being the fact that some of micro credit practitioner has tempted to pushing loans at high interest rates, hence microcredit could ultimately make borrowers even poorer. If micro entrepreneurs are unable to earn profits, perhaps because unfavorable local economic conditions prevent them from selling what they produce, borrowers may not be able to pay off their loans without selling off assets or receiving help from relatives. Micro credit institutions often offer an array of training activities in addition to financial services. There are thus a variety of measures of participation and predictions about outcomes that could, in principle, be tested to measure their success.

For example, micro credit institutions in Zambia provide training in literacy, and business skills like accounting, and encourage family planning and childhood education among their members. The question of whether microcredit increases household income and consumption is of particular interest, given the goal of enabling households to escape poverty. In attempting to answer this question, the literature has focused on household consumption for two reasons. First, the measurement of income, and self employment income in particular, is notoriously inaccurate in surveys in developing countries. Incomes are reported with a high degree of error, and accounting frameworks not employed by the households must be imposed on the data in order to obtain a measure of profit that can be correctly interpreted.

So what is the solution?  What can the local church do in the areas of Micro credit?  Although some business centers heavily discourages churches or small, para-church ministries from setting up microcredit lending programs, I believe—and experience confirms—that churches can use one or all of the following strategies:

Strategy 1:  The church can promote user-owned and managed savings and credit groups.  In this strategy the local church helps the poor to save and lend their own resources to one another.  The church never handles the money, and the church does not run the group.  The loan capital comes from the savings of the poor themselves.  Contrary to what we might think, the poor can and do save.

Strategy 2:  The local church can partner with financially sustainable Microfinance Institutions (MFIs) that exist in various regions.  As the sizes of the poor people’s micro businesses expand, larger loans are sometimes needed than can be generated by the savings and credit groups mentioned in the previous paragraph.  The good news is that there are often Christian relief and development agencies operating MFIs in the same region in which a local church or denomination ministers.  The church can partner with the MFI, the church providing evangelism, discipleship, and other services to the poor while the MFI does all the very hard work of lending and collecting the loans.

Strategy 3:  The local church can provide small business training to the low-income entrepreneurs.  Most big large-scale, sustainable MFIs do not have the time to do this.  They just lend money and collect it back again on their quest to achieve financial sustainability.  Churches can complement the MFI’s loan services by providing a strategy of small business training to enable the low-income entrepreneurs’ to grow their businesses.

Families and individuals in poverty are given an opportunity to find a dignified way out of poverty. The welfare mentality is broken. The whole family is helped. Working with one’s hands to have something to give to others is liberating. The project holders experience the joy of giving and being a blessing. Maintains the biblical family order, in actuality keeping families together. Impacts the rural as well as the urban poor. It breaks the usurious money lenders hold on the poor. Multiplies “thanksgiving unto God”! 2 Cor: 9:12 Generates prayer for those who give to support the program, thus connecting the Body of Christ in a healthy way. “And by their prayer for you, which long after you for the exceeding grace of God in you.” (2 Corinthians 9: 14).

Is Christian micro-credit a useful tool for missions without the downside of dependency? I believe when used correctly and with a strong biblical emphasis, micro-credit is an effective tool in building up a God-reliant church. Because of this, I would strongly recommend a micro-credit program be instituted early on in any church planting effort to get Christians firmly established economically. The emphasis from the start should be on indigenous support of the church, its pastors, evangelists, and outreach, benevolence and building programs. If we are coming alongside an established work, great emphasis should be placed on teaching the proper biblical view of stewardship. I have found that there are like-minded nationals that are eager to “run with the vision” in every place I have studied.

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