Frequently Asked Questions About Microfinance
(Click on the question to see its answer.)
What is Microfinance?
How does your Microfinance Institution (MFI) work?
Is First Step Initiative For-profit or Non-profit?
What interest rate do you charge?
What are the loans used for? What types of businesses?
What kinds of repayment rates do microfinance institutions get?
Why do women default on their loans?
How many loans have you made to date?
What is your operating budget?
Why do you only help women?
How many Congolese are employed by First Step Initiative?
How can I empower others?
Microfinance is the extension of small loans to poor entrepreneurs who are unable to qualify for traditional bank loans. It is one of the best tools for fighting against global poverty, enabling those without access to lending institutions to borrow at bank rates, and start small business.
2. How does your Microfinance Institutions (MFIs) work?Five to eight people form a group and join a community centre (which comprises of 10 groups or 80 individuals). The group meets weekly in their communities with several other groups and a Loan Officer from First Step Initiative. Each member contributes a small amount of savings for six months. Money is loaned at a market interest rate. Loans are repaid on a weekly basis over a 6-month term.
3. Is First Step Initiative For-profit or Non-profit?
First Step Initiative is a non-profit organization. Any contribution made to First Step Initiative is tax deductible.
4. What interest rate do you charge?First Step Initiative charges interest on its loans below the market rates in DR Congo. Most of our loans have a simple annual interest rate of 30% compared to the
market rate of 54%. The alternative for most Congolese is to borrow money from loan sharks who may charge 100-120% per month! Access to a First Step microcredit loan therefore, prevents the poor from being trapped by "money lenders". Also, by keeping our overhead low, the organization is thus able to redistribute loan payments to others in need and extend the value of the investment even more.
5. What are the loans used for? What types of businesses?
First Step Initiative provides small collateral free loans ranging in size from $50-150 to start and grow businesses. These loans provide capital needed to grow
fruit, raise livestock, purchase fabric, operate salons, open stores, and travel to markets where goods can be sold.
Although these loans may seem tiny, to the recipient they offer extraordinary value by generating income for food, housing, health care, and education for entire
families.
6. What kinds of repayment rates do microfinance institutions get?Most microfinance institutions around the world have repayment rates that are incredibly high, around 95% or higher. This attests to the creditworthiness of poor borrowers around the world, despite not having collateral for their loans. For most poor people, a microcredit loan represents someone putting faith in them and it is their chance to make a better life for themselves. Invariably, most microcredit borrowers want to pay back their loans, prove their creditworthiness, and create a good credit history for themselves.
7. Why do women default on their loans?In our experience, the majority of those who default on their loans do so because there is a death or illness in the family and medical expenses consume all available cash, leaving nothing left for a repayment. Rarely does a client default on a loan because they have squandered their resources or because they are trying to defraud the Microfinance Institutions.
8. How many loans have you made to date?As of the end of our pilot project, First Step Initiative has made 60 loans to poor entrepreneurial women in DR Congo. Our goal for 2007-2008 is to reach and provide loans to at least 400 women.
9. What is your operating budget?Our current operating budget is $20,000 and our projected budget for 2008 is $195,000.
10. Why do you only help women?In most developing countries, women are typically the primary or sole family caretakers. They are the ones who find a way each day to put food on the table for their family, clothe their children, and provide for the educational and health needs of their children. Women spend much of their time finding ways to generate income that will put food on the table and buy the medicine and school uniforms and clothes for their children. The family revolves around the mother and mothers will always do all they can to ensure their children don’t starve to death. Time and again, microfinance institutions have found that women are excellent credit risks and if you want to help children and families, it is through the mother that you can do so.
11. How many Congolese are employed by First Step Initiative? All of our field staff in the Congo are native Congolese. We currently have six staff members in the DR Congo.
12. How can I empower others?First Step Initiative is in constant need of capital to fund new loans to clients and to expand into new areas to serve more clients. The best way to help is to make a donation. You can become our ambassador and tell your friends and associates about the work of First Step Initiative. Also, you can help us create awareness by encouraging others to get involved.
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