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Alternative ways for financial empowerment

What about less conventional ways to financially empower communities? At the end of the day it is about making communities self-sufficient.

Photo of Karine Sarkissian
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  • Micro-financing is a concept created by Muhammad Yunus. It was implemented through his organization, Grameen Bank. It consists of lending money to entrepreneurs and small businesses lacking access to banking and other such services.

However, having studied various cases, often at times, the micro-financing system creates problems with its clients, as people get carried away and end up being more indebted then when they initially asked for the loan.

How can we insure that the loans be beneficial to the users? How can we insure they are made use of correctly? Education and awareness seem key.

  • LESS CONVENTIONAL WAY OF LENDING MONEY:

What about people lending money to one another- rather than larger institutions?

There exist organizations such as the Lending Club (www.lendingclub.com)- A system created between Borrowers and Investors.

The lending club is an online platform that acts as a peer to peer credit marketplace, where individuals can lend/borrow from other individuals. To put it in other words, it is a place where individuals can use their savings to provide financing to people who need a loan (for many different reasons) but couldn’t otherwise obtain it from a bank.

In a first instance, an individual would make an application for a loan in the Lending Club website. After being reviewed and accepted (could be declined as well), each loan gets assigned a risk factor and appears in the marketplace for potential lenders to evaluate. Once in the market place, each lender (who also has gone through an approval process before being accepted) can make an offer for a loan.

Let’s use an example where A has been accepted to apply for a $100 loan, and B, C, and D are people looking to lend money in the marketplace. B, C and D all see A’s loan opportunity and are interested, so they all make an offer. B wants to give A $100, however, C only wants to give A $50, and D also only wants to give A $50.

In this case, A can choose to get the full $100 from B,or he can also choose to accept C and D’s offers (which combined give $100).

This system encourages a trust to be created between the investors and the borrower. Does the lending club appeal to ‘those who need it most’? It seems to be focused on the individual (the borrower)- How can we encourage the community aspect within this challenge?

  • AN INTERESTING SYSTEM HAS BEEN CREATED:

Heifer International (www.heifer.org):

What if it’s not only about donating the money, but rather giving communities initiative to grow, prosper, and become self-sufficient?

Heifer International  gives people opportunities to become self-sufficient. By providing cattle to communities and teaching them how to make use of those resources, they encourage them to be strong and survive on their own. It encourages collaboration and enhances trust within communities.

Further question to ask ourselves:

HOW CAN WE USE EXISTING RESOURCES OF COMMUNITIES TO ENCOURAGE THEM TO BE SELF SUFFICIENT INSTEAD OF IMPOSING (OUR) SET METHODS?

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Photo of Trevor z Hallstein

Hi Karine. You mention Microlending and Lending Clubs as possible tools. I was wondering if you have any experience with microinsurance and how well it helps the insured? I posted a brief research note on it to see if anyone in the community has some anecdotes to share: https://openideo.com/challenge/financial-empowerment-challenge/research/microinsurance-as-a-way-to-provide-low-income-people-with-a-safety-net

Photo of Karine Sarkissian

Hi Trevor,

You bring up a very valid question. I don't really have experience with micro-insurance- however I've been reaching out to a micro-financing company in Beirut, Lebanon. I will try and get some answers and ask many more questions about obstacles in general. I will let you know what I find out!

Photo of Trevor z Hallstein

Great!

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