Micro-credit and  Business Education Program in select suburbs of extreme poverty surrounding Iquitos, Peru.

Goal: Provide economic opportunity to individuals so they can pull themselves out of poverty.  At the same time, creating a more vibrant economic atmosphere and increased market activity which benefits the entire community. 

Objectives: 1) Provide access to capital through a micro-loan program 2) Provide business enterprise training

Program Description: During the 3rd quarter 2008, we started a new micro-credit loan program near Iquitos with 31 beneficiaries.  The program is under the direct supervision of The Hope Alliance's headquarters.  The initial clients received loans of $100.00 each to create or expand their business ideas.  The target of the program in 5 years is to have the program grow to around 1000 clients and $150,000 worth of loanable capital.

1.  In order to receive a micro loan, the potential beneficiary had to summit a business plan, ID or "proof of living".  The people we work with don't have access to the formal banking system in Peru because they have no collateral or income records. 

2.  The loans are to be paid back in 4 months where the client can apply for a new loan if certain criteria have been met: paid on time and in full, attended 80% of our business training classes and participated in the saving plan (requirement is S/.7 per week which is equal to $2.38). 

3.  Business training will be provided once a week for three months.  The business concepts taught are very basic and include such topics as proper accounting and simple marketing and customer care. 

4.  The interest rate charged is 3.75% per month on a 16 week cycle or 5% on a 12 week cycle, which is comparable or, in some cases, less than the bank rates in the area.  The rate seems high, but is typical for microfinance institutions because of the expensive transaction costs of distributing and collecting large numbers of very tiny loans and the business training involved.  Also, the only other forms of loans available to these people are by loan sharks that typically charge 20% per month in interest.  As the loans become larger to an individual, the interest rate decreases because of organizational scale. 

5.  With just the 31 initial loan clients, if you include their families, approximately 200 people are direct beneficiaries. 

6.  Our loan model is based on a combination of the Grameen Bank and FINCA Village Bank methods where groups of prospective borrowers are formed.  All members of a group are responsible for all the loans given to group members.  Because of this requirement, there is substantial group pressure to keep up with payment of the loans and successful operations of the businesses of the individuals in the groups.  In this sense, the collective responsibility of the group serves as the collateral on the loan. 

Bottom line results so far:

• Client Sales have increased by about 25%
• Changes have been made in the marketing of their business
• They are beinning to keep formal records of their Incomes and Expenses
• They are showing signs of a feeling of importance

As of June, 2009, we have 64 active loan clients and are on target for the growth of the program. 

The following topics have been taught so far in our Business Concept education classes:

• The 25 General Rules for Entrepreneurial Success
• What is an entrepreneur?
• What are the benefits when you have your own business?
• The business plan, what is it and its importance
• Finding good opportunities
• Good Health Habits- stay healthy for a healthy business
• The importance of and how to keep records of the Incomes and Expenses.

Formal Business concept classes started January 15, 2009.  We began the training with our original clients from our loan cycle that started in the 3rd quarter of 2008.  The clients were divided in two groups (Las Colinas and San Antonio communities).  We have divided the training course into 12 classes (one per week).  Our program coordinator, Jessica Bravo (seen in the picture above) is in charge of teaching the class.  We also have rotating student interns from the United States who will be serving for terms of 3 months each and will be assisting Jessica with all aspects of the microcredit program and business training. 

In January, Jessica also introduced us to a new group of potential microcredit candidates (36 candidates) for the next phase; this new group was interviewed by Vicky Davison and Kathy Thatcher in order to evaluate their business plan and to evaluate the viability of their businesses for our program. 

We have been having tremendous success with the program.  The attendance records for the business training classes have been 95% for the current beneficiaries and 80% for the new group of potential candidates.  A new policy has been established for the second group of loan recipients.  They need to attend a certain number of business training classes before they can get final approval to get the loan.  We are tracking the improvement in their business and we are evaluating how the Training Course is helping them to improve their business. 

In our eighth consecutive year of operation,The Hope Alliance continues to flourish by empowering villages through successful projects and training programs.  Our micro-credit program, although small, continues to grow.  Over 200 families participated by the end of 2006.  98% of the loans have been made to women; however, a few men meeting our qualifications are operating successful businesses.  Even borrowers who had no prior experience are doing well running small businesses they started with their loans.  Re-payment rates remain high.  The loans and educational programs empower the borrowers, mostly women, to be successful in their communities and to be role models in their families.  Local staff operates the program, creating a sustainable program.  Borrowers with a long history of successful repayments are being allowed to make significantly higher loans.  Some of the borrowers are considering hiring employees to work in their businesses as they expand due to higher loan amounts.  We are considering loans to villages to fund village enterprises that are larger in scope.   

A successful business, started with one loan!	Candidates for our Micro-credit program.
What is Microcredit? Microcredit is the extension of very small loans to people who live in extreme poverty.  The typical size of a first loan to one of The Hope Alliance's clients is $50 to $100 (300 soles).  Our clients don't have access to traditional credit that exists in their cities because they can't meet the minimal qualifications to be approved for a loan.  Our targeted clients show entrepreneurial spirit but don't have steady employment and don't have any collateral.  The cost of servicing such small loans also prohibits traditional lending institutions from lending to these people.  The key purposes of The Hope Alliance's microcredit program are to Encourage entrepreneurship Increase family income and quality of life for our clients Promote saving habits Integrate our clients economically and socially into the mainstream of their local communities.  One of the key strengths of microcredit is the impact it has on women.  Over 90% of our borrowers are women and we have seen that microcredit has not only made women more productive, it has also empowered them.  As the women contribute to the family income, they also begin taking a more active role in decision making and we see a distinct change in their confidence.  We have also found that women (more often than men) contribute their earnings to the direct benefit of the family.
The Hope Alliance's Microcredit Program Principles- The Hope Alliance's Microcredit program is based on and follows proven guidelines of the programs of both Mohamed Yunus' Grameen Bank and John Hatch's FINCA International program.  Both of these methods have proven effective and we feel we have combined the best of both to meet the needs of the community that we work in.  People seeking loans from our program must submit a loan application and business plan.  The average size of our loans is $100 (300 soles) and must be paid back over a 3 month period.  The clients are combined into groups of 10 to 20 and each group is considered a "village bank".  The village bank members elect leadership and handle the giving out of the loans and the payback of deposits into a traditional bank.  The decisions of who stays a member of their village bank is left up to the membership as each member is responsible for the payment of the fellow members loans.  We have an in-country employee, Jessica Bravo, who guides the villages in all aspects of the operations of the village bank and teaches the business training classes.  Jessica is supported by volunteer interns who assist her in teaching, help the villages select candidates for loans and reviews their business plans.  If the clients successfully pay back the loans at the predetermined times and if they participate in our formal business training and savings programs, the clients may apply for a new loan and for a larger amount if justified.  As for our savings program, we require the clients to each save at least one sole per week for twelve weeks in order to teach the concept of saving for an emergency and to have some money set aside in case one of their members defaults on their loan.  Additionally, in order to increase repayment rates, new loan amounts won't be given out until each participant in the village bank has repaid her/his loan in full.  Because of this method, we have been able to achieve a 95% payback rate so far.