How does micro-credit work?

With access to micro-credit loans, hope is not out of reach for families living in poverty. Micro-credit describes the relatively small size of a typical loan, from $50 to $300. While this may not sound like much in a more affluent country, in some economies the amount of the micro loan may be equivalent to a year's income.

Lending is made to a group of people, not directly to an individual. Often called a solidarity group, the people who receive loans work together to help insure the success of each business. Each member of the group is held accountable for the loans given to the group members. These groups discuss their business ideas and financial issues and serve to screen out bad credit risks. Personal tragedies are often unavoidable, so it is important to have help from trusted individuals who have a vested interest in making sure the business succeeds.

Why does micro-credit work?

Many skeptics ask whether or not micro-credit really works. The answer, in a word: Yes! Micro-credit lending succeeds because it is based on a business model, and these kinds of loans are changing market fundamentals in the economies of some developing countries. In fact, micro-credit loan repayment rates are often better than in mainline banking systems in the United States, leading many to ask why traditional banks don't make more of these kind of loans.

The answer, again, is simple: Many people in the developing world do not have collateral or stable incomes, so receiving a traditional loan is often out of the question. The same mistake is often made by charity organizations, which treat the poor as dependents incapable of becoming self-sustaining. The prevailing attitude seems to be that the poor are poor because they are inferior. In fact, poor people are extremely capable, intelligent, and worthy of respect.

Don't charities give money to poor people?

Yes, but micro-credit lending is not traditional charity. It is a business that charges customers for services rendered, much like a bank. We don't give people money, we lend it to them. Loans are paid back with interest.

Aren't these people too poor to pay back loans?

No. In fact, poor people have excellent repayment rates.

How do you meet your business expenses?

You can't charge a lot of interest to poor people, can you?We charge an interest rate slightly higher than the interest charged on a conventional loan, but still far more reasonable than the loans offered by many local-level money lenders. For example, professional money lenders in the Philippines charge 20% interest per month, or 240% per year. It is no wonder these people can't afford to live!

How do you determine what type of business to start so the poor will be successful?

We don't tell people what type of business to engage in. These people know the types of businesses that will work. They understand the local economy and what it takes to be successful.

What good can $100 make in a person's business?

Very small loan make the difference between success and failure, between survival and desperation. A hundred dollars can be used to purchase a gas stove, cooking supplies and ingredients, or it can purchase some piglets and feed for four months of fattening. These are real examples of businesses that generate profits.

If I give money to World Hope's micro-enterprise development projects, what happens to my donations?

Contributions are used to capitalize a lending program. As loans are repaid with interest, these micro loan programs become self-sustaining over time. The interest charged on loans covers all operating expenses

Are gifts made to World Hope International tax deductible?

Yes. Donations are tax deductible in the U.S. and Canada. Receipts will be provided.