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FAQ's

FAQ's


1. What is microfinance and why is it needed?

Microfinance is about establishing access to savings schemes, small loans and business skills training in areas where there is otherwise no access. It helps tackle poverty from the bottom up, helping people to work their own way out of poverty in a sustainable way, by enabling them to establish small businesses, and gain the financial skills and services to help sustain them.

1.5bn people in the world have no access to basic financial services and this is often a key factor in the perpetuation of the cycle of poverty. Through its work with local partners Five Talents provides training and small loans to create jobs, fight poverty and transform lives.

2. Why can microcredit be more effective than aid donations?

Microfinance is not a substitute for aid in all circumstances, for example microcredit would not be appropriate to help the desperately poor in famine or conflict situations. However it is more effective than aid where it provides poor people with the opportunity and means to work their own way out of poverty, enabling self reliance and sustainability rather than dependancy.

Unlike most aid, microfinance has a substantial multiplier effect, enabling individual recipients not to simply survive but to create a business, improve their family's income and security and often also to employ other people who would otherwise be in poverty. Additionally unlike donations, loans are repaid, and recycled again and again.

3. How big are the Loans?

The biggest loans are around £700 per person. The smallest are £25 per person. The average loan per person across Five Talents' programmes is around £90. In most of the Five Talents programmes the loan itself is made to a group of entrepreneurs who each take their share of the loan and who all co-guarantee the repayment schedule. In other programmes, the loan is made to the individual but he/she is accountable to the wider group for repayment and recycling (- other people are waiting to use the money). The groups can vary in size (in some programmes 5 people, in others 50 people).

Due to cost of living differences, a small loan of £25 is actually a significant cash-injection to a small business and can yield an impressive rate of return to the business owner. Loan sizes grow with subsequent loan cycles.

4. What Interest Rate is charged on the loans?

Interest rates vary across programmes but are typically between 1% - 3% per month on a flat or declining balance basis. Loans are normally repaid over term of 4-6 months. Interest is charged in order to cover the client training, mentoring, loan defaults, and local administration of the programme, in order that as far as possible, each programme can be self-sustaining.

These rates may seem high but interest and inflation rates are generally high in developing countries. Rates and fees are set up by the local Five Talents programme management in the contry concerned to reflect local conditions. Commerical banks charge similar or higher fees (but of course these products are inaccessible for our clients) and street moneylenders (loan sharks) charge much higher rates and have no policy of forgiveness.

Neither Five Talents nor its partners are motivated by profit making, and are not trying to earn money for shareholders or investors. Five Talents is a member of Microfinance Transparency (www.mftransparency.org) which promotes full disclosure to clients and donors on the charges, fees and rates accompanying our services.

5. What are the repayment rates?

The repayment range across the current programmse is between 85-100% repayment. The rate can go up and down over time. Where loans are repaid late, the Loan Officers continue to follow them up, until they are written off as a bad debt (see below - "What happens when a client can't pay back his/her loan"). A critical factor in achieving high repayment ratesis wise group selection, training and follow-up by the partner's Loan Officers. As we expend the reach of Five Talents to new clients and new programmes, this is always going to be a challenging area. But we anticipate some defaulters as a consequence of funding start-ups and working with the poor.

6. What happens when a client can't pay back his/her loan?

Neither Five Talents nor its partners takes security or penalties if loans repayments are delayed or missed. It is important however to aim for full repayment if programme sustainability is to be achieved, and so non repayment does affect access to further credit.

Where repayment difficulties occur the following procedures are typical, and would generally apply in sequence:

The other group members pay on behalf of the member in difficulty. Then they repay one another on a private basis.
The Five Talents Loans Officer will visit the group and may re-schedule the loan, as well as offering advice and encouragement.
The shortfall is paid from the group's prior-savings account. Typically a group will save 10% - 30% of their loan amount prior to disbursement.
The group (and individual members) repayment record will negatively impact on applications for any subsequent loan from the Five Talents partner organisation.
The Loans Officer continues to follow-up the client. Ultimately the loan will be written off as a bad debt after 6 months overdue period (depending on the local accounting practice).

7. How are local partners chosen?

Five Talents identifies local partners after a rigorous application and assessment process which is led from our International Office. The criteria include vision, needs assessment, market competition, delivery aspects, local church links, leadership and governance. Interested partners should contact info@fivetalents.org to enquire about the application process.

8. Why do you work with the church?

Five Talents is the microfinance development initiative of the worldwide Anglican church. The church provides a ready made infrastructure - a physical presence of people and premises at the heart of even the remotest communities. This makes Five Talent programmes effective in their ability to reach local communities and efficient because set-up costs are often lower.

The Christian church has a particularly strong presence in Africa (approx. 300 million members), and the network also covers all of Asia and South/Central America (though less strong). This provides a powerful means to identify local partners and reach local communities - importantly benefiting entire communities, not just Christians.

"Christian institutions are rooted in their communities. They have developed a credible leadership familiar with the needs of the poor, familiar with cultures, histories and contexts of its people. Religious communities approach their development work from a unique perspective that reinforces the moral and ethical values systems of these communities." World Bank, Faith in Development 2001

9. How Religious is Five Talents?

Loan clients can have any or no religious background. We do not discriminate in who can access our services. Our values are founded in the Christian Faith (anglican denomination), emphasising integrity, good stewardship, and service to the poor. Our leadership in the UK and overseas are Christian professionals with skills to provide a quality service. Our loan programmes are usually linked to an Anglican church as a means of reaching the poor in the community, avoiding corruption and providing local accountability and credibility.

10. Does my donation reach the poor?

80% of our expenditure helps the poor. We are constantly trying to raise this percentage. The remainder pays for our overheads, fundraising and governance. If you are a UK tax payer and eligible for Gift Aid, then we can allocate 100% of your personal donation to the programmes and use Gift Aid (25p in every £1) to cover our overheads. You can take a look at our full accounts via the Charity Commission website for more details.

The microfinance method requires more monitoring than many other types of Aid programme to make sure that the loans are repaid and recycled many times over. So your donation to Five Talents is making a sustained impact to many people.

11. How do you target the Active Poor?

The Active Poor are those below the poverty line (defined as a dollar a day) who are seeking to help themselves through employment or self-employment. Most Five Talents programmes are located in poor areas, and active poor join the programmes through self-selection. Loan Officers may reject applications from middle-class entrepreneurs seeking loans, even though such clients might be easy "profit centres". In most cases the middle classes prefer Individual loans and they do not want to co-guarantee loans in a group methodology.

12. Why are the majority of loans made to women?

Approxmately two thirds of our members are women. We are glad to empower women with business training and the facility to save and borrow money. The former President of Tanzania, Julius Nyere once said: "When you educate a man, you educate an individual. But when you educate a women you educate an entire family and a nation"

Oxfam estimates that there are 1.3 billion people living in extreme poverty worldwide and over two-thirds of them are women and girls (see http://www.oxfam.org.uk/oxfam_in_action/issues/gender.html). Women are good at working in groups, they prioritise the needs of their families and children, and in many cases they are shrewd business people. See our page here http://www.fivetalents.org.uk/page-empowering-women.html for more information on gender issues.

13. Does the money really re-cycle indefinitely?

This depends on repayment rates (see above). The loan capital in each programme is loaned out to groups, and repaid by groups with interest, repeatedly. In a mature programme, the interest meets 100% of the running cost of the programme, leaving the loan capital intact. In some cases, the interest can exceed the running costs (eg. 110%) in which case the local programme committee can decide whether to buy a piece of equiment for the office (e.g a computer or a motorbike), or save it for reserves, or transfer the excess to the loan account. In other cases, the interest is insufficient to cover all running costs and the shortfall is met by funds from the Five Talents International office (for young programmes) or from the loan capital (for uner-performing programmes). This is carefully monitored through monthly reporting by both the local Programme Committees and by the Five Talents International office.

14. Why are some programmes called "Five Talents" and others are not?


"Five Talents Uganda" is established as a national micro-finance institution (MFI), and all of the Uganda projects bear the Five Talents name and logo. This was because the Uganda projects were amongst the first ones supported, and because the local groups requested to use the name. Since then Five Talents has supported many other local microfinance institutions (MFIs) which have chosen, had (and have kept) their own local names - for example GERHATI in Indonesia; Centre for Community Transformation (CCT) in the Philippines. Our strategy is now to support existing MFIs and not to start any more new ones from scratch, hence the project names are often locally specific.

15. How professional are the Loan Programmes and their staff?

All supported loan programmes are managed by local Boards made up of local business people and Christian leaders with good women's representation. These Boards are responsible for recruitment of the loans officers, book-keepers/accountants and project managers. In general, the book-keepers are all university graduates qualified in their field. Project Managers must have prior MFI experience and suitable qualifications. Monitoring is based on performance measures, such as a portfolio at risk, and operational self-sufficiency. 

The programmes Director or Executive Director from Five Talents International or Five Talents USA or UK tries to attend at least one local Board meeting for each project each year.

16. How are lending programmes monitored (accountability)?


Each five Talents' programme partner submits quarterly reports to Five Talents in a standard format addressing financial and non-financial performance. Each programme is also subject to an annual financial audit in-country to maintain their NGO status and satisfy their local governance and Board of Directors. Five Talents also makes a schedule to visit each field partner on site and in person once a year for supervision as well as encouragement and relationship building. We are developing a programme of external evaluations to assess each programme, learn lessons on a rotating basis.

17. Who funds Five Talents?

Five Talents is a charity registered in England and Wales (no. 1113969) receiving funding from a range of sources including indivdual supporters, trusts, businesses, churches, schools and other institutions. We have a diversified funding base which is a secure fondation for growth. Please see our latest annual review http://www.fivetalents.org.uk/page-annual-reports.html for a detailed breakdown of our funding.

18. Why should I give to Five Talents?

Your gift will help provide loan capital which will be loaned - repaid - loaned again - repaid - and so on indefinitely, helping many currently active poor people to create jobs and lift themselves out of poverty with dignity and self-esteem. 

For every £100 loaned to an entrepreneur, on average this will create a job and support 5 other people (dependents). 

That same money can be loaned twice in a year - making 2 jobs and benefiting 10 people. Over 5 years, £100 will generate 10 jobs and benefit 50 people. Imagine what a gift of £1000, £10,000 or £100,000 can do?! Your gift will be use effectively, multiplied over and over again.

19. How can I get involved?

You can volunteer with us, visit with us, pray for this work, attend one of our events, receive our newsletter. Please click the "working with us" tab for more opportunities:- http://www.fivetalents.org.uk/page-working-with-us.html 
 

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