The mission of Going Global is to educate and inform Midwest technology companies on what local technology companies are doing internationally so other firms can learn from the successes of like-minded peers.
OAK BROOK, Ill. Ė Opportunity International, which is based in Oak Brook, Ill., strives to reach the worldís poorest people through its microenterprise development programs.
Its mission is to provide opportunities for people in chronic poverty to transform their lives. Its strategy is to create jobs, stimulate small businesses and strengthen communities among the poor. Its method is to work through indigenous partner organizations that provide small business loans, training and counsel.
John Kamperschroer joined Opportunity International in July 2000 and is its vice president of marketing. He is involved in recruiting, training and managing several major gift fund-raisers.
He is also involved in the areas of planning, communications, marketing and donor acquisition for the organization while serving a major donor portfolio of his own. Kamperschroer has visited Opportunity International programs and the clients they serve in Albania, Romania, the Dominican Republic, Honduras, the Philippines, Ghana, Uganda and Africa.
International expert Michael Muth sat down with Kamperschroer to learn about the organizationís financing structure.
Michael Muth: How big or small are the microenterprises with which you work?
John Kamperschroer: About 80 percent of microloans are group lending loans where 25 to 40 women come together and cosign for each other (making them jointly liable to repay the loan). If there is one or more delinquent borrower, the others have to cover the loan before the whole group can graduate up to the next loan of greater amount.
MM: How big and how small are the loans you make?
JK: Opportunity International issues group loans as small as $25 to $30 in India and Africa and collateral business loans up to $5,000 in eastern Europe. The initial group loan for each person is $79. It has to be a minimum group of 20 people to make the metrics work and be sustainable. About 20 percent are collateralized loans. About 87 percent go to women. If you look for the poorest of the poor, theyíre women.
MM: How can those amounts amount to much?
JK: Opportunity microfinance loans enable people to buy in bulk, which is something they were previously unable to do when living on $2 or even less per day. Bulk purchasing enables people to then repackage and resell their merchandise for a greater profit margin.
MM commentary: They are encouraging a very basic distribution play.
MM: At what kinds of terms or interest rates does Opportunity International loan money?
JK: Our group loans are loaned out in cycles of four to six months. The collateralized loans can be 12 to 18 months. The interest that is charged is at the local bank rates. In the Dominican Republic, itís 3 percent per month. This isnít as expensive as it sounds. When the only alternative is the loan shark at 20 percent a week, we donít get many complaints.
Itís what we have to charge to be sustainable. Interest and fees offset costs of the loan program. If we no longer raised funds in the developed world, our work would go on. There are some unscrupulous lenders called ď56ersĒ who they loan out 5 pesos on Monday and the poor pay back 6 pesos on Friday. Thatís 20 percent per week.
MM commentary: Even though terms might seem outrageous to us here in the U.S., it can work so long as they compete with local market rates.
MM: Where do the other 18 cents go out of every dollar that doesnít go directly into your programs?
JK: Itís 8 percent for the general administration of the support partners and 10 percent for fund-raising costs. We have a total of 35 employees in the U.S.: a small advocacy office in D.C., others in development offices throughout the country and a staff of 20 in Chicago.
MM commentary: A payout of 82 percent for donations is a good ratio.
MM: How do you loan such low dollar amounts? Cash?Check?
JK: Itís primarily cash. Transactions are in local currency. Meetings are held at homes and the loan officer takes the money back to the bank. The poor can make deposits and receive a receipt for the deposit where our implementing partners have accounts.
MM: How many loans do you make per client?
JK: Typically our borrowers go through three or four cycles. They sometimes go through eight cycles. Perhaps they graduate to a collateralized loan and then grow to a commercial bank. We hope to grow them out of our program.
MM: How can some of the worldís poorest people be good credit risks?
JK: About 98 percent of our borrowers repay. Only 2 percent are delinquent. Itís really our methodology. People in the communities we serve know one another. They know the good and bad risks. We call this lending trust banks.
The other borrowers have to cover those who donít pay. Delinquent borrowers are confronted at regular meetings and are required to meet with their creditors every week.
MM commentary: Peer pressure can be a powerful tool in encouraging borrowers to repay their debts. Angels and VCs would do well to incorporate this notion.
MM: How much attrition occurs in your trust banks?
JK: We lose two or three out of 25 in the first cycle. Maybe they no longer need it or they were voted out by other members of the trust bank. The group elects its officers. This may be the very first time theyíve held office. Many have never voted. They may just dissolve, start another one or bump up to a solidarity loan.
MM commentary: They are getting into insurance products as well as opening banks and savings and loans in countries where they operate. They are becoming a full-service financial services company.
MM: Are there other ways to evaluate your programs other than just repayment rates?
JK: Weíre now doing a client impact monitoring system (CIMS) evaluation. It has a list of 10 indicators of how weíve impacted their lives politically, economically and socially. Are we making a difference? Weíre not in the business of making the poor less poor. Weíre interested in fully transforming the poor holistically. Microfinance is the vehicle. Transformation is whatís most important.
MM commentary: Angels, banks and VCs might do well to consider more guidance other than just the business to transform their borrowerís lives.
MM: With which banks do you work?
JK: Our implementing partners work through the Barclays and standard charter banks in the developing world.
MM: If 3 billion people live on less than $2 per day, how can you make a dent?
JK: As an industry, we serve a total 10 percent. About 90 percent arenít yet served and could use the services of Opportunity International. While there are many other microfinance operations around the world, few others are sustainable and can scale. We have 1.4 million people insured for a $6 annual premium with a death benefit for up to 5 dependents.
MM commentary: If you have the stomach for it, there may be a market opportunity here.
MM: What are your restrictions in reaching that remaining 90 percent?
JK: About 500 million people could use the services we provide. Awareness, capital resources and human resources are the biggest obstacles. Most people donít realize there is a sustainable and scaleable solution. We need to better inform people of our services.
MM: How do you calculate that one $10 loan impacts 7.5 people?
JK: It was based on the borrower, the number of dependents and recycling the money results in that impact. It also takes into consideration 0.5 employees for each borrower. Thatís really the beauty of what we do. We recycle the money. Itís loaned out, assets created, repaid, loaned out to another borrower, assets created, repaid and on and on and on.
MM commentary: Hey, VCs: Have you calculated how many people your investments have impacted?
MM: How do you calculate the number of jobs created?
JK: Based on our research, the average is 1.5 jobs created or strengthened for each client. That can be over three to five loans or cycles. Itís a healthy number.
MM: Whatís your relationship with the Womenís Opportunity Fund?
JK: Itís a fund within Opportunity International that focuses on women and womenís needs. We address leadership issues and special initiatives that relate to women.
MM: What do your programs have to do with HIV and AIDS?
JK: Poverty and AIDS go hand in hand. What we do is lift them up out of a risky and potentially deadly lifestyle with a loan, training and support. An apprenticeship program teaches orphans who didnít learn a trade before their parents died. Theyíll also be eligible for a loan.
Weekly meetings are a place for women to gather and talk about taboo subjects like AIDS, sex and death. AIDS is part of their life. They have to talk about it in their meetings. Many of our clients have it. Their deaths do impact our trust banks. Thatís why insurance comes into play. We had to do something about it.
MM commentary: Angels/VCs: Have you considered using your pooled leverage to offer insurance savings for your portfolio companies?
MM: Does Opportunity Internationalís money come through grants or donations?
JK: About 50 percent of our worldwide income comes from government sources and their counterparts in other countries. The remainder comes from private sources.
MM commentary: Entrepreneurs: Have you optimized your opportunities by considering government financing options (such as through the SBA)?
MM: Why isnít there more corporate involvement?
JK: Weíve had our greatest success involving private individuals who tend to be entrepreneurs or finance types. They appreciate a sustainable business solution to poverty. Private individuals can get involved quickly without losing time to the bureaucratic process required by corporations.
MM commentary: This says to me that the better source of funds is via angels rather than more bureaucratic banks and VCs.
MM: How else do you receive donations other than credit cards?
JK: About 10 percent to 15 percent comes in as appreciated assets, stocks, bonds, real estate and other assets. These are all tax deductible on the private side. Itís a huge area. About 90 percent of our wealth is in non-cash. Once you have it in place, it becomes a more consistent cash flow.
MM commentary: Entrepreneurs: Have you considered how these might work for you?
This holiday season, please consider making a contribution to Opportunity International.
Join us next Tuesday for part two of this three-part series
where we will learn about the influence of technology on the organization.
Michael Muth is managing director of GATA, an international business development consultancy that helps technology companies build international partnerships. He can be reached at email@example.com.
Click here for Muthís full biography.
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