Futures

Background to Micro Enterprise Development

ChildFund serves families characterised by low income and a lack of assets, where economic vulnerability is a daily challenge. Because of the correlation between family income and parents’ ability to meet the needs of their children, ChildFund supports micro enterprise development (MED) programs. Through increased income, parents will be able to meet their families’ basic needs and, in turn, address the basic needs of their children. In addition, parents also gain a feeling of self-worth when they are able to better care for their family.

ChildFund’s MED Approach

ChildFund’s approach to MED strengthens parents’ income-earning capacity by providing access to micro-credit and business development services. In all of ChildFund’s interactions with families, ChildFund focuses on fostering family self-reliance, responsibility, and sustainable income generation.

The following key principles guide all ChildFund MED programs:

  • Target services to the poorest and most vulnerable, focusing particularly on women.
  • Use mutual guarantees rather than physical collateral for loans.
  • Expect full and on-time repayment of loans.
  • Offer small initial loan sizes that are appropriate to the borrower’s capacity and needs.
  • Achieve full financial sustainability in less than 7 years.
  • Integrate MED with other sector programs such as HIV/AIDS and emergency response programs.
  • Establish systems to monitor the impact of MED on families, especially children.

The ChildFund MED Network is formed by representatives from each ChildFund program country and supported by technical staff at ChildFund headquarters in Richmond, Virginia and regional MED technical advisors in Africa and Asia.

ChildFund provides program options, standards, and guidelines to help local program managers choose the lending methodology that is most appropriate to the culture and traditions of the country and target group. Lending methodologies used by the ChildFund MED network include village banking, solidarity group lending, self-help groups, and loans provided through credit unions and other community-owned and governed structures. Regardless of the methodology selected, all programs adhere to the best practices of the micro-finance industry.

Examples of ChildFund’s MED Programs

  • Restoring Livelihoods in Post-Conflict and Emergency Situations (Afghanistan, East Timor, Liberia, Sierra Leone, Sri Lanka and Uganda): Providing individuals affected by conflict or natural disaster an opportunity to again support themselves and their family is a key step toward promoting the return of normalcy and encouraging those affected to assume a productive role in rebuilding their communities. In the immediate post-war period in Sierra Leone, ChildFund’s MED activities included small loans to help establish micro enterprises and vocational skills training for community members, including returning ex-combatants, many of whom were child soldiers. MED activities brought community members together, thus supporting the reintegration and reconciliation efforts that preceded the MED intervention. Having a job to go to each day gave participants a sense of purpose and hope. In Sri Lanka, ChildFund has designed special loan products to help victims of the tsunami rebuild their businesses and homes.
  • Establishing Independent Microfinance Institutions (Senegal and Guatemala): Delivering financial services through an entity that is separate from traditional ChildFund programs avoids any confusion between relief and humanitarian assistance. Consequently, a plan is put in place within the first three years of a ChildFund National Office program commencing lending operations to transition these operations to a separate, legally-registered entity. As a result of this approach, two members of the ChildFund MED network are now operating as autonomous microfinance institutions (MFIs) – IMCEC in Senegal and FUDAMEDI in Guatemala. Several other programs are in the process of making this transition.
  • Providing Financial Services through Community-Based Infrastructure (East Timor, Sri Lanka, and Thailand): ChildFund has successfully used community structures to deliver credit services. In East Timor, self-help groups (SHGs) give women an opportunity to save and manage their own loan funds. Using the existing ChildFund child sponsorship project structure, a network of local governing entities, called Affiliated Community Organizations (ACO), has been created to provide technical support to SHGs and supplement their internal savings with external loan funds. MED staff in East Timor support the ACO Network by offering skills training, administrative systems, and additional loan capital that the ACOs can on-lend. This strategy has been found to be cost-effective, and has allowed quick expansion of MED activities throughout the country. ChildFund has also successfully strengthened community management capacity for MED programs in Sri Lanka and Thailand.