When mentioning micro loans in the development field, it is assumed you are talking about all small loans given to those in poverty. Although the majority of microfinance institutions (MFIs) prescribes to similar dogmas and offers comparable loan programs to clients, there is a lot of variety and specificity in the field. Organizations like Village Enterprise Fund offer intensive training programs to help develop the skills needed in order to be successful as an entrepreneur before any monetary assistance is given (grants). Other organizations like the Grameen Foundation, offer minimal training and focus primarily on giving loans. A large portion of MFIs work with their clients in groups, like those utilizing the ASCA model. These organizations focus on utilizing the power of social consciousness and peer pressure to encourage high loan repayment and reinforce messaging. Other organizations, like Kiva, allow lenders to access clients on an individual basis through client profiles, creating a personal connection from donors in the state to those creating business and moving out of poverty around the world. There are MFIs that give zero interest loans and other MFIs that charge interest rates above market rate for access to credit, like Compartamos in Mexico, in order to be more profitable. These differences create a diverse field with a multitude of programs, each with their own goals and therefore different impact implications.
Most importantly, there are significant discrepancies concerning the definition of poverty and/or extreme poverty. There is a definition for both poverty concepts by the World Bank, but even this precise economic definition is confusing. It dictates that individuals living on less than USD 1.25 a day, adjusted to PPP, are in extreme poverty. But the majority of the extreme poor are farmers, meaning that their income is based on seasonal harvests. If they spend all that money in the first few months of the new season, then they might be living on nothing until the next crop comes in. Working under this assumption brings about a completely different approach to poverty and poverty reduction than based off the idea of a daily income, however low it might be. Without specifications concerning target clients too many generalizations can be made in the field that can lead to mission creep and inefficient programs due to an indefinable goal.
So let’s get specific. Nuru has a loan niche. We are not an MFI, but we do offer training, savings and loans to those in extreme poverty. Our definitions are as follows:
- We work specifically to fight extreme poverty. The extreme poor consist of people living on less than USD 1.25 (adjusted for PPP) a day, acknowledging that most of these individuals are farmers receiving windfall income seasonally.
- We work in remote, rural areas, so our focus is specifically on these farmers. This means are programs have a definable target population and we are able to then tailor our programs to meet the specific needs of this population.
- We focus on training first. Our training is given by local leaders that have come to work with Nuru and are able to deliver the training in the local language and relate the new concepts to ideas and stories the community is familiar with. Our training envelops both savings and loan topics.
- We focus on savings second. We believe that if you can’t manage the money you already have, than you will most likely struggle to manage more. Our goal is to provide the knowledge and resources so that individuals can raise themselves to the point where they can whether economic shocks without liquidating productive assets. If they understand the value of saving before acknowledging the potential of a loan, than they will be able to provide for their family consistently and prepare for their future as a foundation, before utilizing loans to diversify their income.
- We charge interest on our loans. Our interest rates are below market rate because we understand we are working with the extreme poor and we don’t want to take advantage of this. However, we are firmly against handouts and don’t believe in free money. We aim to prepare our clients for semi-formal and formal financial institutions as they continue to move themselves out of poverty and interest is a part of that world.
- And most importantly, we are unwilling to raise our loan maximum on the basis of making profits. We are dedicated to helping the extreme poor and focusing our efforts there. If we offer larger loans in order to make more profit, than we are taking resources away from those who need the most attention as they start accessing financial services.
Nuru is different. We are able to define our unwavering goal, our target population, our loan cap and why our programs are on the way to making impact on eradicating extreme poverty.