The Direct Impact of Microfinance
Would you invest in a business if you knew it could make 210% net profit in less than 12 months? When staff at Friska, a small business based in Bristol, decided to provide a loan of £140 via Deki to Lydia Nyirongo in Malawi, they believed the loan would help Lydia change her life. What they didn’t realise was just how profound the impact would be.
Lydia is a dairy farmer, and had a cow which produced 2 litres of milk per day. Her family consumes this much milk each day, so Lydia never had any excess to sell.
When Lydia received her loan, she bought medicine and some grain for her cow. These small improvements in the cow’s health and nutrition meant that within a few short weeks her cow was producing over 10 litres per day. Lydia’s family is still consuming 2 litres each day, but she is able to sell the other 8 litres to the local dairy cooperative which earns her around £1.50 each day. Over the course of a year, if you subtract the original loan and an additional £100 investment in medication and grain, Lydia will be left with £300 net profit. £300 might not sound like a lot to those of us in the UK, but to Lydia, this is enough money to buy another cow, or invest in a poultry business. It could pay the secondary education fees for her children and buy iron sheets for the roof of her house. £300 is a huge amount to Lydia and a resounding success by any business standard.
Deki raises loan capital through our online peer-to-peer microlending platform. We work with businesses like Friska, and individual lenders like Irene in the US, Jo in Brighton and Brown in Bristol, to crowd fund loan amounts of up to £400 for entrepreneurs in developing countries. This not only makes individual lenders more likely to empathise with their chosen entrepreneurs, but also makes the loan more transparent; businesses like Friska are far more likely to invest in an idea if they can see where their money is going. Deki’s new video aims to highlight this; just as Bruno can see the direct impact of his £10 loan on the life of Bridget, Friska could see the direct impact that their investment made to Lydia.
But why was Lydia so successful? Is microfinance the tool that will eradicate poverty in developing countries? Is every microfinance story this wildly successful?
If you are reading this, then you almost certainly know enough about development to know there is no single solution to poverty eradication. Microfinance won’t eliminate poverty and not every entrepreneur will be as successful as Lydia. What made her successful, and what makes the way Deki works different, is the fact that we are not just focusing on providing microloans. We also ensure entrepreneurs are receiving additional training and support from our field partners and other third party organisations.
Microfinance is one tool that can help people change their lives, but rarely is just one tool sufficient to create substantial, sustainable change. One tool can’t build a house or cultivate a crop. Like successful development, making a success of these jobs requires understanding of a situation and using multiple tools to try and address several problems simultaneously. Providing medication and grain to her cow would not have helped Lydia earn additional income if another NGO hadn’t set up a dairy cooperative that Lydia could sell her milk too. Likewise, Lydia may not have had the business or financial acumen to use her business loan wisely without the training and advice of our field partner, Temwa. Lydia received support addressing several of her needs, which created an environment where a motivated entrepreneur could change her life with a smart investment and some hard work.
Deki firmly believe that loan capital will only help entrepreneurs succeed when it’s used alongside other training and support tools. For this reason, we also focus on building partnerships with other NGOs and local organisations that will offer a wide variety of support and advice to entrepreneurs. Lydia is just one of many success stories that prove partnering with other organisations is the best way to improve the impact of microlending.
Our ability to continue creating these partnerships, and helping entrepreneurs like Lydia, strongly depends on businesses and individuals getting involved and making loans to the entrepreneurs we support. Please help us share the message about Deki by taking a moment to watch and share our new video “Bridgette, Bruno and Ben” created by Aardman Animations.
To find out more about Deki and to get involved, go to www.deki.org.uk. Thanks for helping us “Change a life with a loan”.