FAQ's

What does “microcredit” mean?
What is FINCA International?
What’s a Village Banking group?
What good can $50 or $100 do?
What are the principal benefits of participating in a Village Banking group?
Why does FINCA lend primarily to women?
How do men react to Village Banking groups?
Does FINCA offer any kind of training in business practices?
What is FINCA’s overall loan repayment?
Can FINCA programs become self-sufficient?
Who funds FINCA?
What is FMH?
What percentage of total funding received by FINCA goes toward administrative expenses?
What is FINCA’s status with Charity Navigator?
What is the demand for microcredit?
How can companies/individuals support or get involved with FINCA?
What steps does FINCA take to protect its clients?
Why does FINCA charge interest?



What does “microfinance” mean?
Microfinance means financial services for poor people. Poor people, like everyone else, need a full range of financial services: working capital for their businesses; credit to help meet life emergencies as well as everyday needs; insurance to reduce vulnerability; and a safe place to deposit savings.
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What does “microcredit” mean?

 FINCA Client Latin America

Microcredit, one of the major components of microfinance, is the provision of working capital to fuel the productivity of the world’s poor majority. Steady jobs and reliable sources of income elude the very poor. To get by, many people create and run their own tiny businesses—"microenterprises"—in the unregulated, "informal" sector. They might sell produce at the market or shine shoes, weave mats, or bake bread. Many poor people in developing countries live in rural areas and work either as small-holder farmers, as re-sellers of farmers’ produce, raising livestock, or in another area of agricultural production or marketing. Microenterprises may be small, but their cumulative impact is huge. Depending on the country, microenterprises employ an estimated 30-80 percent of the working population. Microcredit enables people to work their way out of poverty. Small amounts of capital—typically $50 to $300—can make the difference between absolute poverty and a thriving little business generating enough income to feed the family, send kids to school, and build decent housing.
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What is FINCA International?
FINCA stands for the Foundation for International Community Assistance. Established in 1984, FINCA is best known for having pioneered the "Village Banking method"--one of the major forms of microcredit--and for leadership in microfinance overall. The mission of FINCA International is to provide financial services to the world's lowest-income entrepreneurs so they can create jobs, build assets and improve their standard of living. Our vision is to be a global network collectively serving more low-income entrepreneurs than any other microfinance institution, while operating on commercial principles of performance and sustainability.
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 What’s a Village Banking group?

© Mary Plummer Photography
The Village Banking method is the form of microlending that FINCA pioneered. It is economic democracy in action. A Village Banking group is a support group of 10-50 members—usually mothers—who meet weekly or biweekly to provide themselves with three essential services:

  • small self-employment loans-–as small as $50 or $100--to start or expand their own businesses
  • an incentive to save, and a means of accumulating savings
  • a community-based system that provides mutual support and encourages personal empowerment.

Village Banking group members guarantee each others’ loans and run a democratic organization. The group guarantee is important, since borrowers don’t have the kind of collateral a commercial bank would be seeking to lend them money. Groups represent grassroots democracy in action; members elect their own leaders, design their own bylaws, keep the books, manage the funds, and are fully responsible for loan supervision, including enforcing penalties for non-compliance.
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What good can $50 or $100 do?
To the lowest-income microentrepreneurs in the developing world, $50 is a fortune. They can invest that money to make their labor far more productive. They might buy a used sewing machine so that they can make dresses faster than by hand-stitching. They might invest in a used refrigerator to keep the produce they sell from going bad overnight. They might buy thread for weaving in bulk, at wholesale prices, so they make more on every item. Economist Milton Friedman once said that “the poor stay poor, not because they’re lazy, but because they have no access to capital.” FINCA provides them with capital to help them break out of poverty.
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What are the principal benefits of participating in a Village Banking group?
Village Banking programs break the vicious cycle of poverty. Without credit, low-income people may work hard but stay poor because of a lack of opportunity and capital. FINCA borrowers receive working capital so that their efforts can become more productive. For instance, they can buy rice in bulk at wholesale prices and resell at retail prices. They can buy a used refrigerator to keep produce fresh. They can purchase a sewing machine instead of stitching by hand. As Village Bankers become more productive, they increase their income and are able to accumulate savings for other investments and for emergencies.

© Robert Bengtson Photography
By participating in a Village Banking group, mothers can better care for their children. FINCA borrowers often say they spend increased earnings on children first, improving nutrition, health, and educational status, in that order. In most cases, borrowers greatly expand—even double—family food purchases with the first loan. As nutrition and health improve, women then invest income in education, followed by home improvements.

Having a steady income and a savings account raises a woman’s self-esteem and her status, even in a society where women are consistently treated as second-class citizens. A woman in Uganda told us how the bank had affected her, "My knees are softer," she said. "I used to have to kneel to my husband to beg for money for every little thing. Now I don’t have to kneel much, so my knees are softer."
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Why does FINCA lend primarily to women?
For several reasons. First, the feminization of poverty is a worldwide trend. Seventy percent of the world’s poor are women, largely because of their limited access to education or to productive resources like land and credit. Another worldwide trend is an increase in woman-headed households, in which a mother provides the sole support for her children. Most victims of severe poverty are children. According to UNICEF, at least half of the 12 million children aged five or younger who die each year, die from malnutrition associated with severe poverty. The most direct way to improve childrens’ survival and welfare is to strengthen their own mothers’ ability to take care of them.
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How do men react to Village Banking groups?
In some cultures, men initially express fear of women becoming empowered from their participation in the groups. However, after a few loan cycles, most men realize that Village Banking activities benefit the family as a whole, and so they support the effort. In some instances, men even become partners or employees in their wives’ enterprises.
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Does FINCA offer any kind of training in business practices?
This varies from country to country. Some countries offer classes in bookkeeping, accounting, or basic business practices. Some offer module training in business management areas such as pricing and marketing. Most of the businesses, however, do not demand that level of sophistication. There is no formalized, network-wide training curriculum.
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What is FINCA’s overall loan repayment?
Despite the fact that we’re working with some of the world’s poorest, the repayment rate is outstanding. Globally, our average, on-time repayment is more than 97 percent--as good or better than most commercial banks expect.
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Can FINCA programs become self-sufficient?
FINCA International’s aim is to help all FINCA country programs become self-sufficient – i.e., reach the point that they can cover all their costs and rely on their own resources or the commercial capital markets instead of donations - so that they can all greatly expand their outreach to the poorest of the working poor. Several FINCA programs that began with donated capital have moved on to commercial sources. Three FINCA programs–-Ecuador, Uganda, and Kyrgyzstan–-reached self-sufficiency long ago and have transformed into licensed, regulated financial institutions so that they can take deposits from the public to fuel their growth. A number of FINCA programs regularly generate enough earnings to cover all their costs and other affiliates are making steady progress towards self-sufficiency.
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Who funds FINCA?
FINCA funds its work through a variety of sources: borrowings from commercial capital sources; interest income from the programs themselves; and donations. Our donated funding comes from the U.S. Agency for International Development (USAID), United States Department of Agriculture (USDA), other nations’ governments, private foundations, corporations, service and religious organizations, and individual donors.
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What is FMH?
FMH stands for FINCA Microfinance Holdings, LLC . After 25 years of successful global growth, on June 17, 2011, FINCA launched a new, first-of-its-kind, socially-responsible investment partnership for microfinance - FINCA Microfinance Holdings, LLC (FMH). For more information, please click here.
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What percentage of total funding received by FINCA goes toward administrative expenses?
The FINCA Board of Directors mandates that administrative costs, including fundraising, never exceed 25 percent of our total expenses. For the fiscal year ended August 31, 2009, FINCA’s fundraising costs represented 2% of total expenses, with general and administrative costs of 5%, leaving 93% of the budget for direct program expenses.
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What is FINCA’s status with Charity Navigator?
Over the course of our history, FINCA has been ranked one of the best philanthropic organizations by all types of philanthropic ratings organizations, including Charity Navigator. As you may know, for seven consecutive years Charity Navigator rated FINCA as one of the most efficient and effective charities in operation, awarding us its coveted 4-star rating, a recognition that put us in the top 1% of rated charities. You might also know that we received a lower rating beginning in 2010, despite our growing scale and increasingly efficient operations, and our success at keeping our administrative costs at the same levels.

 

As a result, FINCA has proactively engaged with Charity Navigator’s leadership to help them understand our more sophisticated business model. Charity Navigator agrees that their current evaluation model is not designed to recognize the specifics of FINCA’s unique business model. Their methodology only considers information reported on United States IRS Form 990, and thus fails to take into account FINCA’s consolidated financial statements, which more accurately represent the breadth of FINCA's international network of 21 programs.

Based on our conversations, a joint decision was made that the best course of action is for FINCA to be delisted from the Charity Navigator rolls until a set of suitable metrics can be established to rate organizations like FINCA.

For more information about FINCA’s Charity Navigator rating and our effectiveness in managing your contribution click here >>
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FINCA Client Latin America
What is the demand for microcredit?
To understand microcredit and the demand for it, we need to look at poverty in the world today. Almost half the world's population, 2.1 billion people, live on less than $2 a day. They are trapped in poverty so severe they cannot adequately feed, clothe, or shelter themselves or their families. More than half the globe’s population--3.2 billion--survive on less than $400 a year per capita.

So far, an estimated 13 million microentrepreneurs have benefited from microcredit, using their loans to increase their incomes and lift their families out of poverty. But the need is estimated to be 200 million people.
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How can companies/individuals support or get involved with FINCA?
There are many ways you can help FINCA and support its mission. You can help make a sound investment in self-reliance by making a contribution to provide FINCA clients with loans. You can also make a commitment to empower the poor by supporting the Village Banking Campaign, spreading the word about FINCA, suggesting that your company or organization make a donation, asking your employer to make a matching donation to FINCA, or by giving in honor of a loved one.
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What steps does FINCA take to protect its clients?

As a supporter of our work, you know that FINCA is a mission-driven organization whose highest responsibility is to our poor clients. We know that, for any business to be successful, it must operate from a position of integrity, and a set of rules that governs the conduct of all participants to ensure that high standards are maintained. FINCA’s Village Banking model, where people come together to support each other, and where our loan officers work tirelessly to make sure our clients have the financial information they need to be smart about their finances, was structured to ensure adherence to fair practices, and has become a standard bearer for the microfinance industry around the world.

FINCA is firmly committed to fair practices, enforced through a strong code of conduct, strict policies about loan collection practices, and stringent behavioral rules for credit officers. Before making loans, FINCA instructs clients about credit and how to manage cash flow, retain a portion of their profits for savings, and determine whether they have the capacity to expand their businesses. Our loan officers are committed to helping clients build successful businesses while ensuring that they are protected from unnecessary risks. Only by putting the needs of our clients first can FINCA continue to be a successful microfinance organization.

As a leader in the microfinance industry for more than 25 years, FINCA has joined with other like-minded, mission-driven microfinance institutions to help to chart a path forward for our relatively new industry. FINCA is a founding member and continued supporter of the SMART Campaign, which adheres to a core set of Client Protection Principles including avoidance of over-indebtedness, a focus on organizational transparency and responsible pricing. Read more about the SMART Campaign >>.
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Why does FINCA charge interest?
In addition to topics about client protection, the media has raised issues regarding the interest rates that microfinance institutions charge their clients, so it’s worth taking time to clarify how FINCA deals with the issue of interest rates.

The interest rates FINCA charges on our loans are based on the type and size of the particular loan, vary depending on local regulations, and must be competitive with the rates charged by other microfinance institutions and, sometimes, local banks. The interest income we earn is used to fund the operating expenses of our affiliate programs, allowing them to achieve operational and financial self-sufficiency which guarantees their long-term viability in the countries where we operate. This means that they are able to cover their overhead expenses including costs associated with staff and infrastructure, as well as the cost of capital to grow outreach. Once programs have achieved this milestone, they may qualify to tap into flows of commercial capital, which allows them to expand outreach to even more people in need of FINCA’s life-changing loans.

FINCA strives, at all times, to keep interest rates as low as possible. Our clients understand that they need to make a profit in order for their businesses to thrive, and that FINCA needs to be sustainable to remain a resource for them. They also know that our rates are fair.
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FINCA is a non-profit, tax-exempt charitable organization under Section 501(c)(3) of the
United States Internal Revenue Code. Donations are tax-deductible.
Our tax ID number is 13-3240109. ©2014

1201 15th Street, NW, 8th Floor, Washington, DC 20005    P 202.682.1510    info@FINCA.org