Small loans make big changes
When you make only $1 a day, deciding to spend $50 on a toilet or $100 for a micro-irrigation system is not an easy decision.
That’s why iDE champions the use of very small loans to enable even the poorest consumer to purchase life-changing products.
Local banks and credit unions are for-profit enterprises. They view loans to people without collateral or dependable incomes as risky and unprofitable. Those that do make these loans restrict how many they will take on. This kind of market limitation is what iDE aims to resolve.
iDE commissioned a study in Cambodia with our research partner IDinsight to determine if offering a microfinance loan affected a person’s decision to purchase a latrine. We were surprised to learn that customers were four times more likely to buy a toilet when they were able to spread the purchase over a year with a loan. Based on these results, iDE is expanding access to finance for latrines as an effective way of boosting sales and access to improved sanitation.
Being unable to buy products and services on credit poses a serious obstacle for small farmers. Without upfront capital, they cannot invest in irrigation equipment, seeds, tools, or fertilizers that increase their productivity. As part of our integrated market approach and understanding of the unique characteristics of the places we work, we facilitate small loans for farmers in Honduras through community-based groups called Cajas Rurales, through small “conditional cash transfers” to household farmers in Bangladesh, and through “revolving fund” loans in Mozambique.
Fewer trade offs
Although iDE designs all of its clean water, sanitation, and agricultural technologies with extreme affordability in mind, sometimes a higher quality product is worth the extra cost if a loan is available. When we can partner with the right microfinance providers in the right places, we will be able to significantly multiply the impact of our work.
To reduce the risk and costs for microloans, iDE collaborates on innovative solutions that can address the barriers to finance for people in the poorest locations. For example, for people like farmers who do not receive regular paychecks (a common requirement for lenders to determine creditworthiness), iDE has investigated the use of donor funding to provide collateral for loan repayment as well as looked into new data gathering (history of cellular phone records, including usage and payment, authorized by the client) to establish income and repayment ability. The rise of cellular phones in particular have given rise to the ability to reduce collection costs for small loans by enabling regular micropayments that can be done through mobile money services.
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