The Fair Earth Foundation CIO, along with the small family of organisations it works with, is focussed on supporting disadvantaged sections of society both within the UK and around the World. A core belief is that there should be equality of opportunity within society, everywhere, and that this benefits society as much as it does individuals. It allows society to harness more effectively the creative potential of all its members and not just an educated few. The millions of working class youth paid to go to university in the 1960’s changed our country through the creative energy it unleashed. Also, and as important, it is ‘fair’ and, because of this, the anger and frustrations felt in society by people can be lessened; a society where all its individuals feel empowered is a strong and a healthy environment for people to live in.
The above being said, and especially as we enter a new world of work in which individuals will have to be more proactive in creating their own and not so reliant on being ‘employed’, raises important issues. All our programmes are designed to raise awareness of young people of the various opportunities open to them and inspire them accordingly. Working class youth in the 1960’s only had in mind a job in a factory or maybe a shop when they left school. ALL our youth should be able to sit at the table of life and be fully cognisant of the diverse range of opportunities open to them; how they chose to live their lives should be their choice and it should be an informed choice.
Beyond awareness and inspiration there should be facilitation. A disadvantaged individual with great talent and inspired to ‘have a go’ will be entering a world of finance of which they have no knowledge or understanding and no support networks to help them. On top of the need for good mentoring is the equally daunting task of raising finance. Traditional banking systems are not of use as there is no security to be offered to the lender, full stop. Micro-financing is therefore critical if disadvantaged people are to be given equal opportunity.
As a Foundation, we have worked with many projects over the years- from starting a chicken farm in Sierra Leone (importing 3000 chicks from Holland and funding the construction of buildings to house them and six months feed, to working with potters across Asia manufacturing pots that we can sell through True Fair Trading CIC with profits going back to the pottery communities, to supporting artisans in the UK, Europe and Globally.
NOW, we have just appointed a Director of Enterprise, Laura Trigg to develop this work further. She comes from a successful corporate background and wishes to apply her skills in a more rewarding and worthwhile way. Her responsibilities will range through bid writing, fundraising, developing enterprise partnerships, product development and business mentoring.
We also want to contribute to the academic work supporting micro-financing initiatives around the world and she has written this initial review of the literature available:
The above being said, and especially as we enter a new world of work in which individuals will have to be more proactive in creating their own and not so reliant on being ‘employed’, raises important issues. All our programmes are designed to raise awareness of young people of the various opportunities open to them and inspire them accordingly. Working class youth in the 1960’s only had in mind a job in a factory or maybe a shop when they left school. ALL our youth should be able to sit at the table of life and be fully cognisant of the diverse range of opportunities open to them; how they chose to live their lives should be their choice and it should be an informed choice.
Beyond awareness and inspiration there should be facilitation. A disadvantaged individual with great talent and inspired to ‘have a go’ will be entering a world of finance of which they have no knowledge or understanding and no support networks to help them. On top of the need for good mentoring is the equally daunting task of raising finance. Traditional banking systems are not of use as there is no security to be offered to the lender, full stop. Micro-financing is therefore critical if disadvantaged people are to be given equal opportunity.
As a Foundation, we have worked with many projects over the years- from starting a chicken farm in Sierra Leone (importing 3000 chicks from Holland and funding the construction of buildings to house them and six months feed, to working with potters across Asia manufacturing pots that we can sell through True Fair Trading CIC with profits going back to the pottery communities, to supporting artisans in the UK, Europe and Globally.
NOW, we have just appointed a Director of Enterprise, Laura Trigg to develop this work further. She comes from a successful corporate background and wishes to apply her skills in a more rewarding and worthwhile way. Her responsibilities will range through bid writing, fundraising, developing enterprise partnerships, product development and business mentoring.
We also want to contribute to the academic work supporting micro-financing initiatives around the world and she has written this initial review of the literature available:
Microfinancing
Microfinancing is a way to provide funds to those who would not otherwise be able to get access to finance for a business venture or idea. The world bank estimates that more than 500 million people have benefited from microfinancing operations. Brau and Waller (2004) published a comprehensive literature review on microfinancing whereby they studied over 350 articles, finding that MFI (microfinancing institutions) have the potential to significantly move forward research and practice on microfinancing in order to make a significant difference to millions of peoples lives.
Small business loans include risk on the entrepreneurs front, and less wealthy individuals or younger entrepreneurs are not able to stand this risk, or offer collateral to secure the loan. In addition, in poor countries, the investment is not in place to offer. Equity funding in the form of grants solve many of these issues, especially for those in marginalised areas. The grants are able to help lift the company off the ground and enable loans to be secured in future in order to assist further growth. The grants move the brunt of the risk to the financier rather than the entrepreneur.
One issue that should be addressed with respect to business grants is ‘welfare mentality’, whereby the grants are not put to productive use and the entrepreneur waits for the next instalment of the grant to finance themselves. This can be avoided by offering the grants in groups, or rounds, and creating a network between the recipients, encouraging peer pressure and a sense of responsibility to use the grant in the most productive way.
Twelve financial institutions around 7 countries were studied in order to highlight success factors of various micro financing schemes (Hulm and Mosley, 1996). There were several main conclusions drawn: market interest rates, intensive loan collection, saving, insurance and incentives to repay all have a role in determining success of the programme, both on an individual and a group level. Secondly, most schemes had positive effects on incomes and poverty, and positive indirect impacts on the behaviour of other providers of finance to the poor. However, there were restricted impacts on employment and technology due to the overlooking of the tendency of borrowing to augment the borrowers risk.
Another finding was that a trade-off existed between income impact and poverty impact. This could be overcome by improving institutions financial performance, lowering transaction costs, or removing demand constraints to which the borrowers are subject.
Based on these findings, there is a case of temporary performance based subsidies for innovative credit institutions to offer consumption loans.
Small business loans include risk on the entrepreneurs front, and less wealthy individuals or younger entrepreneurs are not able to stand this risk, or offer collateral to secure the loan. In addition, in poor countries, the investment is not in place to offer. Equity funding in the form of grants solve many of these issues, especially for those in marginalised areas. The grants are able to help lift the company off the ground and enable loans to be secured in future in order to assist further growth. The grants move the brunt of the risk to the financier rather than the entrepreneur.
One issue that should be addressed with respect to business grants is ‘welfare mentality’, whereby the grants are not put to productive use and the entrepreneur waits for the next instalment of the grant to finance themselves. This can be avoided by offering the grants in groups, or rounds, and creating a network between the recipients, encouraging peer pressure and a sense of responsibility to use the grant in the most productive way.
Twelve financial institutions around 7 countries were studied in order to highlight success factors of various micro financing schemes (Hulm and Mosley, 1996). There were several main conclusions drawn: market interest rates, intensive loan collection, saving, insurance and incentives to repay all have a role in determining success of the programme, both on an individual and a group level. Secondly, most schemes had positive effects on incomes and poverty, and positive indirect impacts on the behaviour of other providers of finance to the poor. However, there were restricted impacts on employment and technology due to the overlooking of the tendency of borrowing to augment the borrowers risk.
Another finding was that a trade-off existed between income impact and poverty impact. This could be overcome by improving institutions financial performance, lowering transaction costs, or removing demand constraints to which the borrowers are subject.
Based on these findings, there is a case of temporary performance based subsidies for innovative credit institutions to offer consumption loans.
Who does it target?
Those from a low-income background who have business ideas that would not otherwise come to fruition without these grants. ‘It is the lack of capital that most frequently keeps a person from becoming self-employed’ (Sonfiled & Barbato, 1999,p.3). For an individual to succeed, both ability and capital are necessary and through our offering we can provide the capital and enhance the skills.
There are 500,000 microenterprises in UK (businesses with no more than five employees) and only 3-4% are able to obtain credit from commercial, government and sector sources combined (Copisarow, n.d.). Worldwide, there are around 7,000 to 10,000 institutions providing microfinance (MFI’s), out of which no more than 100 - 200 are both profitable and serving tens of thousands of clients due to cashflow issues. When granting microfinance loans, with repayments based upon trust, the upper and lower limits of the amount loaned should be recognised. Too high, and the borrower will not be able to repay the loan or interest. Too low, and the loans are unable to help long term, especially the poorest and more destitute. For these microcredit institutions to be sustainable, there needs to be cash flow surplus to compensate for defaulted repayments.
Imai et al (2010) studied the effectiveness of microfinance in rural areas compared to urban areas in India. They studied 5,269 households to study the poverty-reducing effects of loans from MFI’s and found that the impacts were significant. The presence of MFI’s in rural areas was more effective than in urban areas, contributing to significant levels of poverty reduction in rural areas over urban areas. In rural areas, new impact methods new to be considered to improve the effectiveness of microfinancing. Risks need to be reduced in order for the grant or loan company to recuperate funds and continue operating.
Shaw (2004) looked into the impact of microfinance on development and poverty reduction in rural, semi-urban and urban Sri Lanka and found that microfinance improves upon the poverty level of all categories, but individuals in semi-urban and urban areas were impact much more. This may be attributed to the fact that individuals in rural areas of Sri Lanka face very significant geographical and sociocultural barriers, leading to a lack of diversification of economic activities undertaken by rural households, which, in turn, led to a heavy concentration of risk among these rural communities. He also found that in rural Sri Lanka, microenterprises face issues due to the poor infrastructure, because of this, urban business seemed to benefit more from microfinance. If local authorities can work together with microfinance institutions and try to overcome this, more positive changes may be observed.
There are 500,000 microenterprises in UK (businesses with no more than five employees) and only 3-4% are able to obtain credit from commercial, government and sector sources combined (Copisarow, n.d.). Worldwide, there are around 7,000 to 10,000 institutions providing microfinance (MFI’s), out of which no more than 100 - 200 are both profitable and serving tens of thousands of clients due to cashflow issues. When granting microfinance loans, with repayments based upon trust, the upper and lower limits of the amount loaned should be recognised. Too high, and the borrower will not be able to repay the loan or interest. Too low, and the loans are unable to help long term, especially the poorest and more destitute. For these microcredit institutions to be sustainable, there needs to be cash flow surplus to compensate for defaulted repayments.
Imai et al (2010) studied the effectiveness of microfinance in rural areas compared to urban areas in India. They studied 5,269 households to study the poverty-reducing effects of loans from MFI’s and found that the impacts were significant. The presence of MFI’s in rural areas was more effective than in urban areas, contributing to significant levels of poverty reduction in rural areas over urban areas. In rural areas, new impact methods new to be considered to improve the effectiveness of microfinancing. Risks need to be reduced in order for the grant or loan company to recuperate funds and continue operating.
Shaw (2004) looked into the impact of microfinance on development and poverty reduction in rural, semi-urban and urban Sri Lanka and found that microfinance improves upon the poverty level of all categories, but individuals in semi-urban and urban areas were impact much more. This may be attributed to the fact that individuals in rural areas of Sri Lanka face very significant geographical and sociocultural barriers, leading to a lack of diversification of economic activities undertaken by rural households, which, in turn, led to a heavy concentration of risk among these rural communities. He also found that in rural Sri Lanka, microenterprises face issues due to the poor infrastructure, because of this, urban business seemed to benefit more from microfinance. If local authorities can work together with microfinance institutions and try to overcome this, more positive changes may be observed.
Example Impact
Catalan
A paper focused on the role played by MFI’s in the improvement of women’s micro-entrepreneurship. The paper studies the allocation of resources to business projects led by women, as well as analysing personality traits and business initiatives. Between 1998 and 2006, data was gathered from 549 business funded projects. These were all companies seeking start-up or expansion. Findings showed that social credit is a good source of capital for women of all ages, and MFI’s have played an especially big role in social integration of immigrant women (Estape-Dubreuil and Torreguitart-Mirada, 2010).
East Africa
The Village Enterprise fund is a US NGO providing equity grants in Kenya, Uganda and Tanzania (Pretes, 2002). The project was set up on the back of microfinancing success in developed countries. The paper argues that start-up grants and equity finance are a positive addition to start-up loans, and in some cases are more effective. The main purpose of the Village Enterprise Fund is to transfer wealth from donors in developed countries to entrepreneurs in developing ones. The entrepreneurs must apply in groups of a minimum size of five, but the individuals within this group do not have to be running the same company. The main purpose of this is to avoid ‘welfare mentality’ and to encourage healthy competition between the recipients. The foundation also asses entrepreneurial ability, based on knowledge of working habits, skills and ability to learn. If eligible, applicants fill out a one-page application from with the help of a field coordinator. If the applicants show promise but not the capability to run their own company, they may be placed under a more capable entrepreneur until deemed ready to run their own idea.
The grants are for $100, paid in two $50 installments. Along with the grants, business training is provided. This includes general management, bookkeeping, and training on how to grow and sustain the company. The VEF has funded over 6,500 businesses, distributing $650,000. Through the program, the quality of life of the recipients has greatly increased:
A paper focused on the role played by MFI’s in the improvement of women’s micro-entrepreneurship. The paper studies the allocation of resources to business projects led by women, as well as analysing personality traits and business initiatives. Between 1998 and 2006, data was gathered from 549 business funded projects. These were all companies seeking start-up or expansion. Findings showed that social credit is a good source of capital for women of all ages, and MFI’s have played an especially big role in social integration of immigrant women (Estape-Dubreuil and Torreguitart-Mirada, 2010).
East Africa
The Village Enterprise fund is a US NGO providing equity grants in Kenya, Uganda and Tanzania (Pretes, 2002). The project was set up on the back of microfinancing success in developed countries. The paper argues that start-up grants and equity finance are a positive addition to start-up loans, and in some cases are more effective. The main purpose of the Village Enterprise Fund is to transfer wealth from donors in developed countries to entrepreneurs in developing ones. The entrepreneurs must apply in groups of a minimum size of five, but the individuals within this group do not have to be running the same company. The main purpose of this is to avoid ‘welfare mentality’ and to encourage healthy competition between the recipients. The foundation also asses entrepreneurial ability, based on knowledge of working habits, skills and ability to learn. If eligible, applicants fill out a one-page application from with the help of a field coordinator. If the applicants show promise but not the capability to run their own company, they may be placed under a more capable entrepreneur until deemed ready to run their own idea.
The grants are for $100, paid in two $50 installments. Along with the grants, business training is provided. This includes general management, bookkeeping, and training on how to grow and sustain the company. The VEF has funded over 6,500 businesses, distributing $650,000. Through the program, the quality of life of the recipients has greatly increased:
Nigeria
Nigeria has seen an increase in the incidence of poverty recently, especially for women in rural areas. This is mainly because they are denied access to productive resources - including credit. NGO’s have been set up to fill in the gap and provide microfinancing for the rural poor (which is most of the country). The paper studies the Farmers Development Union, who are providers of microcredit, to assess the extent to which poor rural women were taken into consideration in microcredit administration. To do this, 164 beneficiaries were analysed, Results found a conscious gender balance. Men had more of their loan requests granted, but the amount granted on average to a woman was higher. The average income before and after the microcredit was analysed, and although the male reported income was higher, both genders saw an increase. The average income after the loan for the beneficiaries is more than $1.00 per day; enough to alleviate poverty in some cases.
Effectiveness of Rural Micro-financing
Imai et al (2010) studied the effectiveness of microfinance in rural areas compared to urban areas in India. They studied 5,269 households to study the poverty-reducing effects of loans from MFI’s and found that the impacts were significant. The presence of MFI’s in rural areas was more effective than in urban areas, contributing to significant levels of poverty reduction in rural areas over urban areas.
Shaw (2004) looked into the impact of microfinance on development and poverty reduction in rural, semi-urban and urban Sri Lanka and found that microfinance improves upon the poverty level of all categories, but individuals in semi-urban and urban areas were impact much more. This may be attributed to the fact that individuals in rural areas of Sri Lanka face very significant geographical and sociocultural barriers, leading to a lack of diversification of economic activities undertaken by rural households, which, in turn, led to a heavy concentration of risk among these rural communities. He also found that in rural Sri Lanka, microenterprises face issues due to the poor infrastructure, because of this, urban business seemed to benefit more from microfinance. If local authorities can work together with microfinance institutions and try to overcome this, more positive changes may be observed.
Nigeria has seen an increase in the incidence of poverty recently, especially for women in rural areas. This is mainly because they are denied access to productive resources - including credit. NGO’s have been set up to fill in the gap and provide microfinancing for the rural poor (which is most of the country). The paper studies the Farmers Development Union, who are providers of microcredit, to assess the extent to which poor rural women were taken into consideration in microcredit administration. To do this, 164 beneficiaries were analysed, Results found a conscious gender balance. Men had more of their loan requests granted, but the amount granted on average to a woman was higher. The average income before and after the microcredit was analysed, and although the male reported income was higher, both genders saw an increase. The average income after the loan for the beneficiaries is more than $1.00 per day; enough to alleviate poverty in some cases.
Effectiveness of Rural Micro-financing
Imai et al (2010) studied the effectiveness of microfinance in rural areas compared to urban areas in India. They studied 5,269 households to study the poverty-reducing effects of loans from MFI’s and found that the impacts were significant. The presence of MFI’s in rural areas was more effective than in urban areas, contributing to significant levels of poverty reduction in rural areas over urban areas.
Shaw (2004) looked into the impact of microfinance on development and poverty reduction in rural, semi-urban and urban Sri Lanka and found that microfinance improves upon the poverty level of all categories, but individuals in semi-urban and urban areas were impact much more. This may be attributed to the fact that individuals in rural areas of Sri Lanka face very significant geographical and sociocultural barriers, leading to a lack of diversification of economic activities undertaken by rural households, which, in turn, led to a heavy concentration of risk among these rural communities. He also found that in rural Sri Lanka, microenterprises face issues due to the poor infrastructure, because of this, urban business seemed to benefit more from microfinance. If local authorities can work together with microfinance institutions and try to overcome this, more positive changes may be observed.
references
Ayanwale, A. and Alimi, T., 2004. Microfinancing as a Poverty Alleviation Measure: A Gender Analysis. Journal of Social Sciences, 9(2), pp.111-117.
Brau, J. and Woller, G., 2020. Microfinance: A Comprehensive Review Of The Existing Literature. [online] Hdl.handle.net. Available at: <http://hdl.handle.net/20.500.12018/207> [Accessed 17 August 2020].
Estapé‐Dubreuil, G. and Torreguitart‐Mirada, C. (2010), "Microfinance and gender considerations in developed countries: The case of Catalonia", Management Research Review, Vol. 33 No. 12, pp. 1140-1157.
Hulme, D., 2000. ‘Impact Assessment Methodologies for Microfinance: Theory, Experience and Better Practice’. World Development, 28 (1): 79–98.
Imai, K., T. Arun and S. Annim, 2010. ‘Microfinance and Household Poverty Reduction: New Evidence from India’. World Development, 38 (12): 1760–1774.
MARR, A., 2012. Effectiveness of Rural Microfinance: What We Know and What We Need to Know. Journal of Agrarian Change, 12(4), pp.555-563.
Pretes, M., 2002. Microequity and Microfinance. World Development, 30(8), pp.1341-1353.
Shaw, J., 2004. ‘Microenterprise Occupation and Poverty Reduction in Microfinance Programs: Evidence from Sri Lanka’. World Development, 32 (7): 1247–1264.
https://onlinelibrary.wiley.com/doi/full/10.1002/jsc.1911?saml_referrer -
Brau, J. and Woller, G., 2020. Microfinance: A Comprehensive Review Of The Existing Literature. [online] Hdl.handle.net. Available at: <http://hdl.handle.net/20.500.12018/207> [Accessed 17 August 2020].
Estapé‐Dubreuil, G. and Torreguitart‐Mirada, C. (2010), "Microfinance and gender considerations in developed countries: The case of Catalonia", Management Research Review, Vol. 33 No. 12, pp. 1140-1157.
Hulme, D., 2000. ‘Impact Assessment Methodologies for Microfinance: Theory, Experience and Better Practice’. World Development, 28 (1): 79–98.
Imai, K., T. Arun and S. Annim, 2010. ‘Microfinance and Household Poverty Reduction: New Evidence from India’. World Development, 38 (12): 1760–1774.
MARR, A., 2012. Effectiveness of Rural Microfinance: What We Know and What We Need to Know. Journal of Agrarian Change, 12(4), pp.555-563.
Pretes, M., 2002. Microequity and Microfinance. World Development, 30(8), pp.1341-1353.
Shaw, J., 2004. ‘Microenterprise Occupation and Poverty Reduction in Microfinance Programs: Evidence from Sri Lanka’. World Development, 32 (7): 1247–1264.
https://onlinelibrary.wiley.com/doi/full/10.1002/jsc.1911?saml_referrer -