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SIA Small Business Fund – explained

I just read a blog post by Aaron Ausland of “Staying for Tea” outlining how large micro-finance institutions seem more interested in profit and donors than the people receiving loans.

Reading his “six shifts in the face of microfinance that make it almost unrecognizable to someone like me made me very pleased to be working for Spirit in Action. We remain true to our focus on empowerment, trust, and holistic assistance.

I want to take this opportunity to contrast Aaron’s six points with our current practices, showing how our Small Business Fund (SBF) is still truly helping poor entrepreneurs around the world.

1. shift from poorest of poor to the moderately poor The solution was to abandon the very poor and begin lending the moderately poor – a safer and more profitable lot.

Spirit in Action’s practice: We still target the people most in need in a community. Our SBF Coordinators use a “Community Profile” and a “Poverty Assessment Tool” to help them determine which households qualify as the poorest in their community. The grants are targeted to these poorest households. They have the most to be gained by our small grants.

2. shift from rural to urban To lower the operating costs many MFIs began operating exclusively in places with a higher population density – i.e. cities. This limited the time and cost required for a loan officer to service his caseload.

Spirit in Action’s practice: All of our 8 on-the-ground SBF Coordinators help coordinate new small businesses in rural areas of their country. Often, they will travel to small villages 30-40 miles away and seek out poor households in each community. This month Dennis Kiprop traveled 60 miles southeast of Eldoret, Kenya to visit Rose Aiyabei and her group and check in on their progress. Rural villages do not often have any access to formal financial services.

Rose Aiyabei with her newly purchased chickens.

Rose Aiyabei with her newly purchased chickens.

3. shift from starting businesses to growing businesses So, those who already had some capital and income generation were given access to more, while those who had none lost the opportunity.

Spirit in Action’s practice: We do not have specific guidelines about this. Many of SBF businesses are indeed new and other times our small grants help a small business to expand. However, we do not give additional grants to the same group. Instead, we ask the groups to budget at least 10% of their profit for business reinvestment and expansion.

4. shift from peer lending to individual collateralized lending It turns out that it is also a lot less time consuming to work with a bunch of individual lenders than it is to manage the complexity of peer lending groups or community banks. (…) This has been the saddest shift for me. Peer-lending was the key to solving the incentives puzzle in the first place. It was a practical way to value the relationships people had in their own communities as an asset you could bank on.

Spirit in Action’s practice: We have always seen the value of working with groups of people and encouraging cooperation and consensus decision-making. All SIA’s SBF grants are given to groups of 3-5 people. Also, one of our latest grants was to support the creation of the Manyamula Village Savings and Loans Group in Mzuzu, Malawi. We see this as a way to strengthen the whole community and take advantage of leaders and networks already established in the community.

Members of the Micro-Savings and Loans group discuss their lending guidelines.

Members of the Micro-Savings and Loans group discuss their lending guidelines.

5. shift away from auxiliary services As the focus shifted toward making profitable loans and away from alleviated poverty, the ability to justify expenses to investors that were unrelated diminished. Quasi-related services like literacy and health training were the first to go.

Spirit in Action’s practice: No way! We believe that an important step towards empowerment is receiving skills training, in addition to a grant. After a day-long training new business leader Moses Kigen reported, “We didn’t know at first how we will coordinate the activities within the group, but when Samuel and Dennis trained us about listening prayer and reaching consensus agreement, we saw a ray of light come our way and began to understand there’s a higher power, higher guidance, a higher understanding.” Indeed, 75% of business leaders report that they greatly appreciate learning how to run a business as part of the SBF program.

6. shift from the poor as the primary beneficiary to the investor

Spirit in Action’s practice: We believe that our relationship with SIA international partners and grant recipients is the core of our organization. Without their dedication and energy we could not keep operating. Donors without grant recipients don’t produce change! We focus our energy on encouraging the new business leaders and we trust them to make decisions that will benefit their communities.

I hope that after reading this you not only understand more about how we function, but also understand why I am so pleased to work for SIA, and organization that is working with integrity to give people a leg up in the world!

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