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This is a question that my Uncle Mike sent in and I figured my response (and subsequent brief elaboration of Microfinance theory) is something that many others might like to read. This fills you in on my understanding of what I’m doing with HOPE International here in Congo.

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Brian, I forgot to ask you about the microloans. What are the most common amounts and what are the general terms. I noted from your blog that you give out additional loans to some of the “mamas”. What are the qualifications to get a loan and to keep receiving additional loans. -Uncle Mike

Uncle Mike - our loans here start at around $40. Many of the people here are living on less than $1 a day (for the entire family in some cases). Since we don’t have anything close to a credit reporting system we use a “social guarantee”. That is to say that we only offer loans to groups of 25-45 people who have met together for some time, had training from our loan officers and who have begun contributing to a group social fund (something like $0.25 per week). They must meet weekly and elect a president, vice president, treasurer, and two controllers. We require that the borrowers approve one another’s loans and also deposit 10% of the loan amount into savings with us by the time of disbursal. We also do a business evaluation with each client before the loan goes out to make sure that they really have a business and to get them thinking about profitability and cash flow. The group is then responsible to ensure that the loans are repaid to HOPE. The term is four months with weekly meetings where our loan officers arrive to collect the loans. After one successful term, the clients are able to move borrow 50% more each cycle if they continue to qualify and their on-time repayment is good. We have many groups here in Kinshasa that are on their 4th and 5th cycle and they are doing well.

The administration costs are high with small loans- weekly meetings with loan officers mean that each officer’s portfolio can only get so large and that means that local staff payroll is always an issue. Loan officers, like most everyone else here, use public transit and that costs us quite a bit and takes a lot of time. They take the money right to the bank so that it is secure and that takes a lot of time since the formal banking sector here is very slow and inadequate. We charge 18% flat interest which works out to a pretty high A.P.R. but even still we are at this time only 50% operationally self sufficient. Still this means that half of our costs each year are self generated rather than hand-out style relief/development work which is in the business of giving everything away every year. Our goal is to become operationally self sufficient so that all money donated goes to loans instead of also covering local expenses. We serve around 6,000 clients after just over two years and as we ramp that up, the additional loan revenue will help our sufficiency. The idea is to create a financial organization that can eventually operate independently and offer loans to the poor in perpetuity, helping them to rise into a better standard of living. It’s a big goal.

One thing that I like about HOPE is that we strive to be frugal with expenses. You would be amazed how much luxury is taken in the world of Non-Governmental Organizations that are funded through government grants. HOPE works to be efficient and keep costs low and to do excellent work.

As it is now, administration costs are covered by our founder so everything donated goes to the loan operations. We are always looking for people who want to contribute to our work. Microcredit has been around for about 25 years and it has grown more popular in many cases not because people in the developed world were tired of seeing their donations to the poor go down the drain, but because the poor themselves have asked for it. It is growing so popular that there are many organizations wanting to partner with HOPE here in Congo. Our goal is to become known across Congo as an example of “best practices” in microfinance that truly reaches the poor. We hope that many local organizations will copy our methodologies once they are proven.

The ultimate goal of microeconomic development is that instead of creating a dependency, it creates opportunity and allows people to build their own economy.

The great thing is that the assistance helps one person and then another and then another, etc.

-Brian