The Poor Start Businesses And Make Big Changes With Small Loans

$400 can point the way out of poverty

Mijo Suseno of Indonesia used to make a scrape-by living from raising coconuts and a few cows and goats. Now he and three employees sell 18 tons of carp a year from hand-dug fish ponds on his land and run a chicken and egg business. His three sons are in college.

The helping hand that made the difference in Mr. Suseno's life was a small loan from Opportunity International (OI), a US nonprofit group based Elmhurst, Ill. Its mission is to help the world's poor start or expand small businesses.

Its reach has been extensive. Launched 26 years ago by Alfred Whittaker, a retired executive, OI now lends about $15 million a year through partner organizations in 27 developing nations.

In Zimbabwe, for example, Genevive Nalovu employs a staff of seven to provide student uniforms to nine local schools. In the Philippines, Lola Tasuna used to scavenge local garbage dumps for a living; she now buys glass bottles in bulk from a recycler and turns them into kerosene lamps and sells them.

The average OI loan is about $400. Payback rates run about 95 percent. Interest rates are comparable to those of commercial banks to cover costs and promote responsibility. Most borrowers can't qualify for a bank loan. Many return for repeat loans.

Theresia Mbsersa of Harare, Zimbabwe, for example, has repaid four loans totaling $3,000. She employs nine people to run two grocery stores, a firewood stall, and a hair salon. She also sells freeze pops and runs a game arcade.

The concept behind Opportunity International is riding a new wave of popularity. Last month, the first global, industry-wide conference on microenterprise development was held in Washington. An estimated 200 groups are experimenting with the approach. The Clinton administration is asking $125 million for its support from Congress this year.

"There's a real effort to move this whole idea to the front burner," says Eric Thurman, a former journalist who sold his own television-production company five years ago to take over the reins as OI president.

Still, some experts warn against expecting too much from increased access to small credit. Beth Ryan, director of the office of microenterprise development at the US Agency for International Development, says the concept has been "oversold" as an answer to global poverty. National economies still largely determine business opportunities, she insists. Access to credit is "one more step" that can help the poor take advantage of such opportunities but in itself cannot enlarge or reshape them, she says.

The Grameen Bank of Bangladesh, a group with a similar mission that operates in only one country, is better known than OI and lends more money. Yet Opportunity International, founded five years earlier, considers itself the pioneer in the self-help field.

"Opportunity International has gone beyond the Grameen Bank model in a number of important ways," says Michigan State University development expert Donald Mead.

Like most microenterprise efforts, he says, OI extends small loans for "survivalist" businesses that "help the extremely poor become a little less poor." But the organization goes further by extending some larger loans and assistance for rapidly growing enterprises that have the potential to move borrowers "up and out of poverty," Dr. Mead says.

Careful assessment

Each prospective loan is carefully assessed. "You've got to make sure the borrower is providing something people really want and can buy," insists Mr. Thurman. Borrowers get intensive training in business skills from record keeping to profitmaking. OI closely tracks the number of jobs created per dollar loaned.

"Credit alone is not the answer," Thurman says. "We want to know, not how many loans were made, but how many people are better off ... We want to see a lasting change in people's lives."

OI estimates that its loans produced 100,000 new jobs last year. The impact on one family can be enormous.

Families that ate only once a day may begin to sit down for three meals. Children who begged on the street or helped with a fledgling business finally may be sent to school.

Many borrowers tap new profits to improve their homes. Cardboard and bamboo often are replaced by metal and concrete. During a visit to the Philippines last fall, OI vice president Mark Lutz noted the particular pride with which Nanie Dotillos pointed to cinder blocks that have replaced the corrugated metal walls of her home.

A three-time OI borrower, she and six employees run three small businesses out of her home. Her three children are all in school. "This really is a win-win situation for her," Mr. Lutz says.

Much of OI's strategy has come through trial and error. "We stumbled around a lot in the beginning," Thurman says.

OI decided to approach business leaders in each country to form a local charity partner group and work as a volunteer board to oversee the whole OI loan and training operation. Borrowers thus repay a local group. The money stays within the country.

Repayments now account for about two-thirds of OI's annual lending. More than one-third of the new money added comes from individuals, foundations, and churches in the US. The rest comes from US government programs and from abroad. OI has support groups in Germany, Australia, and Britain.

OI's executive board in the US consists of 100 top business leaders. Each gives as an individual, underwriting virtually all of OI's administrative and fund-raising costs. "It's a high level of commitment - you can't be on the board without giving," Thurman says.

A call to serve

Though representing a variety of religions, board members agree on the importance of Jesus' call to serve the poor. "We're not a religious organization per se, but we do share a Christian ethic," Thurman says.

OI's annual lending has more than tripled in the 1990s as the organization has moved into Africa and Eastern Europe.

Flexibility is crucial. In industrialized Russia, for example, where the transportation system is in disarray, loans often pay for the lease of trucks to cart anything from vegetables to books from one area to another.

Newly formed business clubs serve as a chamber-of-commerce network for new entrepreneurs. They talk about such topics as how to avoid Mafia shakedowns and compliance with business laws.

"Information is a real commodity here - so bringing people together is very important," says Stacie Schrader, OI's country director for Russia, in a phone interview from Nizhny Novgorod.

Loan types also vary. The poorest of the poor, often women with no job experience, are encouraged to take out "trust bank" loans.

Five or six women get together, take joint training, and elect a leader who will get the first loan. The others help her with anything from child care to moral support until her loan is repaid. They in turn qualify for loans.

The technique is considered highly successful. The Women's Opportunity Fund, an OI subsidiary launched four years ago to design and service programs specifically for women borrowers, focuses almost exclusively on this strategy.

"The creativity ... is just amazing," Thurman says. "Nobody makes a dollar go farther - these people are survivors." OI claims to have spawned some 500,000 jobs in the developing world. Its goal is to reach as many of the world's poor as possible.

As one route to that end, OI has been experimenting in Peru in the last few years with a new technique by which private banks provide 75 percent of any new loan to the poor. The OI-linked partner group gives the other 25 percent, does the paperwork, and agrees to take the first loss.

Thurman says he hopes to extend the practice soon by trying it in three or four other countries.

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