Oxfam: Micro-finance and business-services support

Micro-finance and business-services support in Samegrelo, West Georgia

The Small Business Development Foundation (SBDF), which was formed in 2001, now has about 1,400 loan clients, and has been developing its products and services as experience has been gained.

It was a client of SBDF’s existing micro-finance service who identified kiwi fruit as a cost-effective crop to grow and sell. However, kiwi vines take three–four years to grow to maturity. This meant that SBDF’s one-year loan scheme would not enable farmers to engage in this profitable new activity. In 2002, a two-year loan with a lower interest rate was therefore introduced for growing kiwi. The farmers were allowed to use 20 per cent of the loan for other income-generation activities, to help to give them a stable income throughout the year. As a result, 43 farmers have been given support to grow kiwi, and there is a huge demand now for these loans. A modest prediction is that a kiwi farmer could earn up to US$6,100 a year in the future. Nineteen permanent jobs, and about 100 seasonal jobs, have been created through the initiative. These jobs attract US$140 a month (which is higher than the minimum, monthly consumption basket for a household of four in the region, according to the Georgia State Department of Statistics, 2003).

SBDF’s objective of becoming operationally stable has been reached after three and a half years. However, while working towards this, SBDF has not been able to target the poorest members of communities directly. At this stage, existing clients continue to need support as well, because their businesses are not yet sustainable. An expansion of the portfolio is therefore now a priority if SBDF is to expand its services, carve out the niche that it seeks in the provision of soft agricultural loans, and reach poorer clients. There needs to be more understanding too of whether women’s aspirations for change are being supported sufficiently. In the case of kiwi farming, this is traditionally a male preserve, and the 43 kiwi farmers supported by SBDF are all men. Within the kiwi-farming initiative alone, more loans are needed if production is to expand enough to benefit from economies of scale, for instance by enabling producers to co-operate in organising transport to markets, and for producers to gain access to wider markets and strengthen their position in negotiations.

Prospects for SBDF’s development are now stronger as a result of amendments to the legislation regarding micro-finance institutions. After determined lobbying by Oxfam and others, Parliament has clearly identified micro-finance institutions as non-banking institutions working for poverty alleviation, and has eased taxation procedures for them.

The loan fund for kiwi farming has amounted to £33,000 since 2002.
An assessment of our micro-finance programme in Mauritania shows the importance of good business advice and support in market analysis for small-scale producers, alongside microfinance services. About 6,000 women have received small loans through Oxfam’s micro-finance partners in the programme, and many women speak enthusiastically about earning some income for the first time, and being able to decide how to use this money. However, in Kaedi, which is known as the ‘capital’ for dyeing cloth, making micro-credit available led to an enormous increase in dyeing, and this saturated the market. Women are therefore having to consider other ways of earning money; one option that some of them are exploring is buying and selling the cloth and chemicals needed for the dyeing trade. The assessment of this programme also finds that low levels of credit are constraining the development of women’s enterprises, and that the micro-finance organisations will need to promote a large growth in local savings if their services are to become sustainable without external financial support.

In the UK, campaigning has brought the issues of debt and the exorbitant interest rates charged by doorstep lenders to the attention of civil servants and politicians.
Programme Impact Report, Final: July 2005

Debt on your Doorstep in the UK

After concerted campaigning by Debt on your Doorstep (DOOD), the government allocated an additional £120m to pilot new models for delivering financial services to people in poverty, and providing low-cost credit, and advice on debt and money management. Oxfam has supported DOOD, a network of 150 national and local organisations, in the development of its work over five years. People who had experienced debt were involved in drawing up the campaign, and spoke directly to politicians and senior civil servants. The differences in women’s and men’s experiences of debt were highlighted.

The campaign stimulated wide-ranging media coverage and successfully drew the attention of civil servants and politicians to the issue of debt, and extortionate interest rates outside mainstream financial services. Identifying the significance of debt in child poverty, a priority area of government concern, heightened the attention paid to the issues being raised.

One of the main objectives of the campaign — the imposition of a ceiling on interest rates for loans — was not achieved. The government felt that, with insufficient alternatives to high-interest doorstep lenders at this time, desperate people might be pushed toward the illegal, unregulated credit market if a ceiling was set. So DOOD’s campaign provides an interesting example of where, although a main objective was not achieved, the policy debate that was stimulated achieved a huge amount, and money was allocated for service developments. The environment in which the campaign can continue is now much more positive.

Oxfam has contributed about £36,000 to this work over five years.