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Microcredit to Strengthen Local Organizations to Support Family Livelihoods

22-0806-06

Throughout Sumatra, families who have partnered with Heifer Indonesia to improve their nutrition and livelihood often generate only enough food and income to cover their basic needs. When prices fluctuate or weather or other events affect production, family income is affected, and economic and social gains are jeopardized. Families must either borrow funds, sell some of their assets (often livestock), or reduce their spending. Usually, a major result of reduced income is that children must drop out of school.

To improve their income flow and overall security, small farmers need to expand or diversify their production. Many would do this if they could borrow money at reasonable interest rates in their local villages. Loans would allow them to purchase additional animals, agricultural supplies, or other materials to establish home-based industries. Another purpose of the loans would be to provide an alternative to families having to sell their productive livestock resources.  Premature selling of breeding-age female livestock may fulfill a short-term cash need, but can have negative long-term implications. Families may not be able to build up their livestock enterprises to a profitable operation if they continue to sell their breeding stock prematurely.

But such credit is not readily available. Reputable banks are a long distance from the farms, and they see small agricultural enterprises as high-risk loans. Local sources of credit often exploit the borrowers. Loan sharks and shady businessmen require high interest rates and short repayment their schedules. Some lenders extract terms for debt payment that may require farmers to relinquish their harvest for less than prevailing market prices.

The program will provide small loans at below market interest rates to local NGO who will in-turn loan to the funds to partner community based organizations (CBOs).

CBOs that have at least 50% women membership or leaders, or family membership, will be prioritized. By the end of this project, up to 20 CBOs will have been stimulated to increase their group savings, thus increasing the CBOs’ capacity to better serve their member’s credit needs.

ACTIVITIES

In running the program, Heifer Indonesia collaborated with with several local NGOs as project partners.  Funds will be disbursed through the NGOs and a network of CBOs. The system will be established as a series of revolving funds. Principal and interest paid back on the loans will fulfill the Passing on the Gift agreement.

TRAINING

Heifer Indonesia will use its organizational capacity building training funds from its BiC project to train NGOs and/or CBOs that do not have this experience, or who require training in related topics.

MONITORING AND EVALUATION

Semi-annual progress reports and financial reports will be submitted. A special form will be required for this project that requires the NGO to report when they have disbursed and received funds from the CBOs. CBOs will also be required to submit semi-annual reports to the NGO detailing how many families borrowed funds, how much each family borrowed, and the purpose of borrowing the funds. The NGO will include this information in their reports.

PASSING ON THE GIFT

Each CBO will be required to repay the loan with interest to its partner NGO, and subsequently each NGO will be required to repay the loan, with interest, to Heifer Indonesia after one year. The loans will then be made available the following year to other CBOs (via their partner NGOs). After the three-year project, Heifer will continue to provide loans to NGOs and CBOs in a manner similar to that outlined in this project.

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