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Grants,
Credit, and Poverty Reduction
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Mobilizer
–– Trainer Notes .
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This is a
brief handout for the field worker to understand the basic principles of
strengthening that lie behind the techniques of low-income community empowerment
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| Many
good hearted people have seen the hardships of poverty, often during times
of huge disasters, some by nature, some human made. |
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Those
good hearted people have made various attempts at income generation for
the victims. |
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| Some
have supplied the victims with sewing machines, others with food. |
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What
was a common feature of all these schemes was that the reduction of poverty
among the victims could not be sustained after the charity was over. |
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Our vision is to
help the poor, not help them to become dependent upon continued charity
(thus to remain poor) but to help them become strong and able to
live and grow without handouts.
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| In
the training materials on this web site, the overall theme is one of "empowerment,"
where the beneficiaries are not given charity, which trains them to depend
upon more handouts, but are instead guided towards becoming more stronger
(empowered) so that they become more self reliant, and less dependent
upon handouts. |
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There
is giving and giving. Some gifts, although well meaning, persuade the recipients
to expect, hope for, and become dependent upon further gifts. (See "The
Dependency Syndrome"). Other gifts to the poor help them on their way
to no longer being poor. That is the kind we desire and support. |
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| Oh,
we are not opposed to charity in times of emergency response. |
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There
are times when the victims are rendered helpless, earth quakes, civil conflict,
floods, war, storms, bombs, plane crashes. |
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| At
times like that we have an obligation to provide food, shelter, medicine
and assistance for without them the victims would not survive. |
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But
there then becomes a time when charity becomes a burden, perpetuating weakness
and poverty, rather than helping the victims to become strong. |
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Drawing the line
between the two situations is not easy, and shifting from a charity mode
to a development mode is not easily accomplished.
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| Based
upon the principles of empowerment, the method of reducing poverty in this
series advocates the creation of new value added (wealth), the avoidance
of giving charity to relieve or alleviate poverty, and the use of credit
at fair market, commercial, not subsidized, rates of interest. |
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What
is provided without remuneration, where possible, is the organizing and
management training necessary for the beneficiaries to make use of the
credit to generate (create) genuine value added (wealth)
for income. |
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| Some
people might argue that for income generation, we should provide grants
to poor people. |
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Grants
are gifts. They are not expected to be repaid. |
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| When
we see people in considerable need, we are tempted to help them out by
giving them things. |
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Giving
them things, however, encourages them to expect and hope for more things. |
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| Right
after a disaster, giving them things necessary to survive (food, clothing,
shelter, medicine) is good; if, without those things they would not
survive. |
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Once
they have survived, however, continuing to giving them things helps to
create and intensify the Dependency
Syndrome, and thus sustains their poverty. |
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| The
"Charity Attitude" incorrectly
tells us that we should continue to give them things in their need. |
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"Development
Analysis," in contrast, tells us that charity is not sustainable, contributes
to long term poverty, and does not help them to become stronger and more
self reliant. |
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| When
some people hear about "income generation," they think that the
transfer of funds to the beneficiaries is the income generated. ... It
is not. |
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No
wealth has been generated by a mere transfer of money from one owner to
another. |
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| The
transfer alleviates the symptoms of poverty for the recipients, but only
in the short run. |
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It
does not attack the causes of poverty, and does not reduce or eliminate
poverty. |
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| Thus
the money transferred in this methodology is in the form of credit, that
is in the form of a loan that must be repaid. |
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If
what the recipients do with the loan results in an increase of income,
including enough income to pay back the loan as well as help their cash
flow, then genuine wealth has been generated. |
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Once it has been
established that loans rather than grants will contribute more to sustained
poverty reduction and the genuine generation of value added (wealth),
then the next question is, "Should interest be paid, and at what rate?"
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| Again,
good hearted, but charity minded, people might argue, "These are poor
people, so they should not have to pay interest, or at least the interest
should be subsidized." |
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As
above, this "Charity Attitude," if practised, contributes to poverty
not to the elimination of poverty. |
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| A
programme aimed at helping people to become self reliant and able to help
themselves, is ultimately a training programme. |
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When
you see a beggar on the side of the street, and you give that beggar a
coin, you are training that beggar. You are training that person to become
more of a beggar, by rewarding the begging. |
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Refer again to the
story of "Mohammed and the Rope" in the "Stories"
handout.
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| When
the beggar asked the Holy Prophet (Peace be upon Him) to give him
food, the prophet gave him rope and advice to use the rope by going to
the forest and collect firewood, tie tie with the rope to carry it, and
to sell in the town and earn his own money to buy food. |
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The
beggar got advice and capital instead of the consumption good he had requested. |
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The gift helped him
be more self reliant and less a beggar.
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| This
principle in mind, the methodology here recommends that the credit provided
be offered at what is available without your project (whether fair market
rates or government decreed rates). |
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If
you give credit for free or at subsidized rates, you train the beneficiaries
to be able to operate at free or subsidized rates, not in the real world;
you must train them for reality. |
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| If
you look at the unofficial and illegal market of loans, ("loan sharks")
you will find that the rate of interest will be at criminally extortionate
levels, eg 200% or more. |
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In
the overall methodology here, you will be assisting the recipients to eventually
qualify for bank or credit union loans, and be able to avoid depending
also on loan sharks. |
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The credit offered
in this method of poverty reduction should be provided at available rates
of interest; not free and not subsidized.
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| Many
religions,
notably those in the Judaic / Christian / Islamic traditions, have rules
against loaning for interest (or for high interest). |
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These
came about because of the extortionate high levels or interest rates that
amounted to theft. Loan sharks have been around since biblical times. |
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| Charging
abnormally high rates of interest is called "usury." |
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We
do not advocate usury here. |
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| Where
you are operating an income generation scheme, like this one, in an Islamic
society, you may think that you are on the horns of a dilemma: (1) sustainable
poverty reduction requires that interest be charged, and (2) religious
dictums forbid charging interest. |
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Do
not fear; there is a solution. We recommend that you do exactly what banks
do in Islamic countries. |
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| The
charging of interest on a loan is really a rental charge for the temporary
borrowing of money. Charging rent for other things, like renting a house
or renting a car, are permitted. |
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The
banks charge a service fee or a rental fee, in lieu of interest. Find out
what they are, and charge the same in your income generation scheme. |
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As well as avoiding
the "Charity Approach," also avoid usury.
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| While
this method advocates that the money to be used by the beneficiaries be
provided at fair market rates of exchange, it also advocates that the credit
be obtained by the beneficiaries at a bank, credit union, or similar legitimate
institution licensed to practice banking. |
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It
is better to provide the loan (to the umbrella group of recipients that
you set up) through a bank, rather than providing the money directly.
This improves transparency and also helps to inoculate yourself against
accusations (and temptations) of corruption and diversion. |
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If you and your agency
or department, responsible for organizing and strengthening communites,
handles loans, your ability to empower and mobilize dwindles. Perhaps you
are very honest, but you will be suspected of using the money for personal
purposes, and mistrusted. Mistrust reduces your effectiveness.
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| Rather
than provide a grant to the recipients, use the money for training that
is integrated with the provision of the credit. |
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Rather
than subsidize the interest to be paid on the loan, use that amount for
more training. |
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Train your beneficiaries
to survive and grow stronger in the real world of rates of credit.
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| This
handout explains why, when you want to strengthen the beneficiaries, avoid
promoting dependency, and help them reach self reliance, you avoid charity
in the form of grants of goods or money, you loan the money as credit (through
licensed financial institutions), and charge available fair market
rates of interest on the credit. |
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If
anything should be provided for free, it is not the cash, but the organizing
and the training. |
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2007.05.21.