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Contents:
Contents:
GRANTS, CREDIT, AND POVERTY REDUCTION
by Phil Bartle, PhD
Mobilizer – Trainer Notes
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
Introduction:
Many good hearted people have seen the hardships of poverty, often during times of huge disasters, some by nature, some human made. Those good hearted people have made various attempts at income generation for the victims. Some have supplied the victims with sewing machines, others with food. 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.
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.
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 stronger (empowered) so that they become more self reliant, and less dependent upon handouts.
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.
Oh, we are not opposed to charity in times of emergency response. There are times when the victims are rendered helpless, earth quakes, civil conflict, floods, war, storms, bombs, plane crashes. At times like that we have an obligation to provide food, shelter, medicine and assistance for without them the victims would not survive.
But there then becomes a time when charity becomes a burden, perpetuating weakness and poverty, rather than helping the victims to become strong. Drawing the line between the two situations is not easy, and shifting from a charity mode to a development mode is not easily accomplished.
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.
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.
Grants Versus Loans:
Some people might argue that for income generation, we should provide grants to poor people. Grants are gifts. They are not expected to be repaid. When we see people in considerable need, we are tempted to help them out by giving them things. Giving them things, however, encourages them to expect and hope for more things.
Right after a disaster, giving them things necessary to survive (food, clothing, shelter, medicine) is good; if, without those things they would not survive. Once they have survived, however, continuing to giving them things helps to create and intensify the Dependency Syndrome, and thus sustains their poverty.
The "Charity Attitude" incorrectly tells us that we should continue to give them things in their need. "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.
When some people hear about "income generation," they think that the transfer of funds to the beneficiaries is the income generated... It is not. No wealth has been generated by a mere transfer of money from one owner to another. The transfer alleviates the symptoms of poverty for the recipients, but only in the short run. It does not attack the causes of poverty, and does not reduce or eliminate poverty.
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. 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.
Rates of Interest:
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?"
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." As above, this "Charity Attitude," if practised, contributes to poverty not to the elimination of poverty.
A programme aimed at helping people to become self reliant and able to help themselves, is ultimately a training programme. 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.
Refer again to the story of "Mohammed and the Rope" in the "Stories" handout. 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, to tie with the rope to carry it, and to sell in the town and earn his own money to buy food. The beggar got advice and capital instead of the consumption good he had requested. The gift helped him be more self reliant and less a beggar.
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).
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.
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. 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.
The credit offered in this method of poverty reduction should be provided at available rates of interest; not free and not subsidized.
A Note About Religion:
Many religions, notably those in the Judaic / Christian / Islamic traditions, have rules against loaning for interest (or for high interest).
These came about because of the extortionate high levels or interest rates that amounted to theft. Loan sharks have been around since biblical times. Charging abnormally high rates of interest is called "usury." We do not advocate usury here.
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.
Do not fear; there is a solution. We recommend that you do exactly what banks do in Islamic countries.
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, is permitted. 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.
As well as avoiding the "Charity Approach," also avoid usury.
Who Does the Banking?
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.
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.
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.
Rather than provide a grant to the recipients, use the money for training that is integrated with the provision of the credit. Rather than subsidize the interest to be paid on the loan, use that amount for more training.
Train your beneficiaries to survive and grow stronger in the real world of rates of credit.
Conclusion:
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.
If anything should be provided for free, it is not the cash, but the organizing and the training.
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Training Tour; A Visit to the Bank:
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