Poverty triangle

Most of the world is not rich. You may have heard this before. Most of the world, however, is also not destitute. There are people in the world who rely on bilateral transfers: donated food, water, clothing, and more. Think natural disasters, refugee camps, post-conflict zones, droughts and famine. We are philanthropically called to answer those needs.

How can we best answer the needs of the economically active poor? This is most of the world.

Microfinance institutions (MFIs) provide services and products that target specific groups of economically active poor clients, just as commercial banks segment the services and products they provide. In the illustration above, the small tip of the triangle is the world's rich (probably you) and the bottom base is the destitute poor. In between these grayed out zones are three very broad segments of economically active poor.

The upper segment of poor clients (purple) generally demands small- and medium-sized enterprise (SME) loans. These SME loans range from $5,000 to $50,000 – think dentist's office in Romania. Have you heard that in America, it is harder to get a loan these days? In Romania, it can be very hard to get a loan, especially something bigger than $500.

The middle segment of poor clients (blue) typically demands small business loans in the range of $50 to $5,000. This range is where most MFIs do their business, including HOPE International. Do you know what the minimum loan size is for Citigroup in Congo? I'll check, but I think it's about $1m. That small "m" stands for million. It's hard to jump from poor to million dollar business renovations overnight.

The lower segment of poor clients (light blue) is not ready to take out a $50 loan, or maybe they are too remote to access an MFI. This group may not have any experience handling money or making business decisions; may want to work, may not have the opportunities. Here is an opportunity for a savings and credit association (SCA). A group of widows in Rwanda start saving about $0.10 a week, six years later these women are leveraging their savings to buy a couple of used cars to resell for profit. Instead of being a microfinance "provider", the SCA organization becomes a microfinance "promoter." That's what I do. We empower the poor to use their own savings – along with our education, materials, support – and build financial independence from where they are. That's good outreach. That's bootstraps economics … and the thing is, that's what works, too. They own their own successes, keep their capital in their communities, build social networks and self-confidence, and one day they'll be taking out the business loan from some MFI and they'll be hiring employees from the community.

We're eventually trying to make that little gray triangle on top get bigger.

[The triangle concept and stories are borrowed from Jesse Casler, but the Rwanda story is local, that's from Marie Jeanne.]