One Way to Alleviate Poverty

It’s that time of year again. The Salvation Army bell ringers are stationed in front of stores, markets, and malls, soliciting donations. My email inbox is full of requests for funds from organizations as diverse as World Vision and National Audubon. Our small group has “adopted” a single mom and her three kids—we’re helping with decorations, gifts, and special meals. We’re all familiar with the idea of donating food and clothing, or perhaps simply cash, especially during the holiday season.

But do these donations really help?

To answer that question, we need to distinguish between relief and development. Relief is meeting a short-term need—providing temporary housing after an earthquake, importing nonperishable food during a famine, donating Christmas presents after a parent has lost her job. But relief efforts do little to solve long term problems, and some relief efforts actually do more harm than good.

North American Christians have shipped so much used clothing to some parts of Africa that the local tailors and dress shop owners have gone out of business. The result is a culture of need, with locals becoming dependent on such donations. Such a situation demeans the intelligence and initiative of those we’re trying to help.

Development, on the other hand, creates opportunity. It provides a way for people to use local resources and labor to create wealth. The result is self-sufficiency, self-respect, and a sense of dignity.

Many development projects require a lot of infrastructure, as with irrigation systems or large manufacturing facilities. NGOs are poised to help in these ways. But some development initiatives are small scale—so small that they often fall under the radar when it comes to government and non-profit aid. We call these microenterprises.

Investopedia defines microenterprise as “a small business that employs a small number of employees. A microenterprise will usually operate with fewer than 10 people and is started with a small amount of capital. Most microenterprises specialize in providing goods or services for their local areas.” This small amount of capital often comes in the form of a microloan.

While most banks won’t lend very small amounts of money, more and more organizations are creating “micro banks” to lend micro amounts or extend micro credit.

Here’s an illustration of how this process might work out: Hilda, a single mom with six kids, needs a job to support her family, but there are no jobs near her home. She knows how to sew, but she can’t earn enough from her sewing without a sewing machine to increase her productivity, and a sewing machine costs $75—far beyond her means. However, an organization in her area has started a local bank that will lend her $70. Adding her life savings of $25, she now has enough money for both a foot-treadle machine and some fabric and thread.

Hilda sews a dozen aprons and sells them for $7 each through a local co-op, grossing $84. She pays down her loan, buys more fabric, and keeps some of the profit. Within a few months, she is self-supporting. She can now afford nutritious food for her family. Everyone is healthier. The children can even go to school. Eventually, Hilda might even buy three more sewing machines and hire her friends to help.

One interesting tidbit is that, unlike more traditional loans, micro loans are repaid almost 100% of the time. While most lenders are more interested in helping than in making a lot of money, microfinance does create a profit.

Another approach is for a community of women (and it’s mostly women) to gather together and form their own “bank.” The woman are mentored by an expert in small businesses. They meet weekly to learn new skills and to network. Every week, each woman brings 15 cents to add to a growing bank account. It’s not much, but it’s what they can afford. Eventually, those 15 cent contributions add up to enough to finance a start-up. One woman may plant mango trees, while another grows palms and weaves the fronds into mats and baskets. As their businesses prosper, the women repay their loans with interest, enabling more women to begin their own businesses. Again, with a bit of peer pressure providing an incentive, the vast majority of these loans are repaid on time.

This Christmas, consider how you can help a promising entrepreneur get started on the road to self-sufficiency. Many organizations have gift catalogs where you can choose the type of business in which to “invest.” (My favorite is Partners International’s Harvest of Hope catalog.) One year, I gave my husband a goat for Christmas. Much to his relief, it went to live in the Dominican Republic, where it is providing both milk and baby goats for a poor family.

As you scan through the wide variety of ways your gift can keep on giving, I’m sure you’ll find the perfect item for every person on your list.

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