News

12.01.2010

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Marika Mathieu

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Lending is not giving

You may want to help without knowing how to do it. ‘Should I send a donation to an NGO?’ Or, ‘Should I lend money directly to a micro-entrepreneur in a developing country?’ Whichever option you choose, be it the first, the latter, or both, you may know that these two modes of action are providing different answers to different needs and motivations.

You may want to help without knowing how to do it. ‘Should I send a donation to an NGO?’ Or, ‘Should I lend money directly to a micro-entrepreneur in a developing country?’ Whichever option you choose, be it the first, the latter, or both, you may know that these two modes of action are providing different answers to different needs and motivations.

Although the French are dedicating a lot of their time to others and are amongst the top European countries in terms of volunteering, they are far from being the most generous in terms of donations. In 2006, the amount of tax-deductible donations in France have reached €2.7 billion (1), whereas Americans have donated $229 billion, which is, bringing it back to comparable populations, 19 times more than in France. Brits as well are about 15 times more generous than the French. Only 5% of French taxpayers donated more than €65 when across the Channel, half of the donations were superior to a £1000 (€1200) a year.

Cultural reasons, the need to develop a certain level of trust with the NGOs and charities, and the lack of information are some of the factors which possibly impede the development of donations. To this extent, microcredit represents a genuine alternative to donations, even though the opportunity to sponsor micro-entrepreneurs through micro-lending remains relatively obscure to a large share of the population. According to the Microfinance Barometer 2010, three out of four French people wish to see microcredit grow, but only 7% of them declare knowing what it is precisely.

Unlike donations, microcredit involves lending money which will have to be reimbursed with or without interests. Donations and loans are complementary instruments but they are different ways to address the challenge of development. Donations are consistent in an “assistance-based” approach often adopted in situations of extreme urgency, when a population is stricken by famine, natural disasters or war, whereas microcredit is more long-term orientated. It aims at financing and supporting micro-entrepreneurs business projects and enables them to generate sustainable revenues for their families and communities.

Sometimes, microcredit is not the solution and loans are not going to change anything. Victims of famine and natural disasters, refugees who flee war zones, families whose financial situations are precarious and who have no hope of starting a business, are examples of people to whom microcredit is not adapted. According to the website lamicrofinance.org : “The use of microfinance to deal with situations in which people are deprived of the most basic means of subsistence has rarely achieved any success”.

In order to make an educated choice of the most effective way to get involved, the best is to keep informed. It is also important to be cautious when it comes to choosing the organisation or online platform you are engaging with. In any event, these intermediaries have to be professional and regulated bodies, especially in the field of microcredit.

(1) Reference: IFOP cross-sectional study carried out in April 2009 among 2000 people (aged 15 and over) on the image and brand-awareness of NGOs, charities and other organisation funded by donations.

Translated by Alexandre Queneau

This article is part of the special report: