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Small Loans in Development – Valtteri Nurminen

Microfinance provides chances for poor people – who cannot get regular bank loans – to chase their dreams and increase earnings by starting their own businesses. Microloans enable the poor people themselves to fight their way out of poverty, with their own terms and means.

A recent study shows that increasing the distribution of microfinance could help to lift more than 10.5 million people in developing countries out from extreme poverty. This is because microfinance brings money and economic opportunities to the communities that couldn’t otherwise get any positive boost to their economies.

However, microloans are also criticized. They usually have higher interest rates and can lead to serious cycles of debt. Most of the time, they are also not big enough to be used for funding small or medium-sized enterprises – the ones that actually foster economic growth – but are rather just helping the informal economies in small villages.

But these risks can be mitigated. First off, it is important to realise that microloans itself should not be the only strategy of poverty alleviation but used together with other instruments of development, such as education, to achieve great results. Secondly, providing support and entrepreneur education to borrowers is crucial to making sure that the loans are repaid and that they affect positively. Also, it is important to note that microfinance serves a different purpose than offering loans to medium-sized businesses. The purpose of microloans is to enable the enterprises to grow so that they can in the future take out bigger loans from traditional banks.

COCO’s small loans are distributed by our Tanzanian partners, The Hoja Project. The loans are approximately 50 000 TZS (£20) each with a repayment schedule of six months. The programme started in 2007 and since then over 6000 loans have been given. The loans have been given out for different types of enterprises, such as restaurants and shops. Despite the diversity in borrowers, the results have been very similarly successful!

Our research shows that the borrowers have, by average, experienced a 50% increase in income within the first six months of taking out the loan. The increased income has been used to new investments so that the businesses can grow even bigger, sending children to schools and improving the life quality of the entrepreneurs and their families.

COCO provides fairly priced and well-designed loans, which are accompanied by an extensive support system to ensure that the borrowers can truly make the best out of our loans. We provide training for hopeful loaners and require them to write business proposals before granting loans. This is how we ensure the sustainability of our loans.

COCO’s small loans programme has recently expanded and now we are providing bigger and three new types of loans. Those who are successful in running their enterprises can after their first loan, apply for a bigger loan, up to 500 000 TZS (£170) but the amount depends on the business and the business plan. Two of the new loan types are group loans: one that is given to groups of five women and the second that is given to groups with at least three women. The third new loan is for individuals who have successfully set up an enterprise in a group. With the development of our small loans programme, COCO aims to offer even better

Finally, let’s look at a great example of how COCO’s small loans have improved people’s lives. Theodosia Emmanuel used to be a street vegetable seller, earning 3000 TZS (£1) each day. Two years ago she was granted a loan of 50 000 TZS (around £20), which she used for opening a drink shop. Theodosia used the loan to purchase big amounts of water bottles and after making a profit with this she was able to expand to sell snacks, sodas, juice and milk. Now she earns three to four times (10 000 – 12 000 TZS – around £4 each day) more than when selling vegetables. Theodosia’s increased income has enabled her to send her son to schools and otherwise improve the quality of life for her family.

This transformational impact would not be possible without your continued support, thank you! If you would like to help support more women like Theodosia you can do so by donating to COCO here!

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