People living in rural communities often do not have sufficient capital to take care of all their needs, particularly if they wish to build their own houses, purchase livestock, pay medical bills, or finance the purchase of tools and equipment, or establish small businesses.
Because they live in rural settings, they may not have access to commercial banks nor have any assets that a bank would consider adequate for collateral. As a result, the poor, especially those living in rural areas, simply struggle to survive from day to day with minimal resources or they may recur to money lenders who may charge usurious rates.
Micro loans allow the poor to borrow small sums of money to invest in their businesses or for capital improvements, usually without collateral. The system is based on trust and a person’s participation and recognition within their community, which, in a sense, is the guarantor of a person’s ability to pay back the loan even with interest.
Although, Brazil was an early adopter of the microfinance system and set aside resources for the poor in the national banking system, the development of the microfinance system has been rather slow. In fact, the “People’s Bank” (Banco do Povo) reported that 95% of small entrepreneurs do not have access to bank loans mainly because microcredit is not available in most Brazil’s rural municipalities.
Thus, Promoting Hope’s challenge is to act as an intermediary so that micro loans may become available to individuals within the community who wish to begin small businesses, finance agricultural endeavors, improve their own homes, or finance the education of their children.
from the World Bank (1999), identifies several development objectives of microfinance that we expect to realize through Promoting Hope’s program:
To reduce poverty
To empower women or other disadvantaged population groups
To create employment
To help existing businesses grow or diversify their activities
To encourage the development of new businesses.
(1999) Microfinance handbook: an institutional and financial perspective. Washington, DC. The World Bank.
Promoting Hope’s plan is to provide orientation in the basics of business management and the possibilities of entrepreneurship in the Life-Skills program. While some may not choose to develop small businesses, they may still need small loans to purchase chickens or goats that may improve the nutritional options for the family, and may also generate some additional funds.