Credit with Education, Freedom from Hunger, 2004
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FREEDOM FROM HUNGER CREDIT WITH EDUCATION: A SELF-FINANCING WAY TO FIGHT CHRONIC HUNGER AND POVERTY For over a decade, Freedom from Hunger and its partner organizations in more than 16 countries across Africa, Asia and Latin America have developed an approach to combat chronic hunger and poverty with integrated financial and education services. This approach is called Credit with Education and its proven benefits include empowerment of women, increased food security, and improved nutritional status of children. Credit with Education was designed to address the problems of chronic hunger and poverty because: 1) access to financial services (loans and savings) offers poor households a flexible and potentially sustainable means for enhancing their livelihood strategies and reducing their vulnerability; 2) research has shown that income increases that will have the most direct, positive impact on food security and nutrition are those earned by the poorest households, controlled by women and earned in steady and regular amounts; and 3) income in itself is unlikely to have a substantial impact on malnutrition of women and young children unless key practices affecting maternal and child health and nutrition are also adopted. Credit with Education services focus on women as the group that has the greatest ability to impact children’s nutritional status. Women play an essential role in the family’s well-being because of their dual economic and domestic roles within the household. The significance of women’s traditional work—purchasing, preparing and serving food, child care, infant feeding, maintaining a clean and safe environment, overseeing children’s personal hygiene, and securing preventive and curative health services—to the nutrition and health of the family has long been appreciated. Women’s productive or economic work is also critical to the health of the family, yet it is women who typically have the most limited access to formal development-oriented services such as credit, savings and life-skills information. Evidence of Impact Credit with Education provides participants with small working capital loans, a safe place to deposit savings, and education in health and nutrition topics as well as better business management. When delivered to very poor women who have come together to form joint liability borrower groups, these components synergistically can yield an increase in household food security and individual nutrition and health status, due to increases in women’s incomes and savings, their improved nutrition and health practices, and, their enhanced self-confidence, or empowerment. 1 Evidence from Credit with Education programs indicates that many of the desired impacts are being achieved. Two carefully controlled, multi-year impact evaluations were undertaken in Ghana and Bolivia1 and examples of the findings include: • In Ghana, Credit with Education clients enjoyed a significantly greater increase in monthly nonfarm earnings—almost double—as compared to nonparticipants in the same communities or residents living in control communities. Clients most commonly attributed their increased incomes to business expansion, reduced input costs as a result of buying in bulk or with cash rather than on credit, and new activities or products made possible by access to loans. • In Ghana, there was a significant and positive increase among participants in giving their newborns the first antibody-rich milk, colostrum, rather than discarding it, relative to the two nonparticipant groups. Mothers in the program also exclusively breastfed their babies longer—closer to six months—and thus did not unnecessarily expose them to contaminants found in food or liquids other than breastmilk. • In Bolivia, the baseline research indicated a key topic for the education component was the need for rehydration of children suffering bouts of diarrhea. Many mothers explained that when children had diarrhea they withheld or reduced liquids, thinking they would only exacerbate the problem. Between the baseline and follow-up, a significant and positive difference was found in the percentage of clients reporting they gave children with diarrhea “more liquid than usual” (liquids of any kind, including breastmilk) as compared to nonparticipants. • Also in Bolivia, participants’ one-year-old children showed significant and positive improvement in the percentage having the DPT3 vaccination relative to nonparticipants’ children. This is particularly noteworthy because there is typically a drop-off in immunization coverage for those vaccinations given later in the series. • In both Ghana and Bolivia, there was evidence that access to the financial and education services had positively impacted women’s self-confidence and status in the community. Participants in Ghana rated themselves significantly more confident that they would earn more in the future and that they could prevent their children from getting diarrhea and other illnesses. Participants in Ghana were taking on more active roles in community ceremonies, such as funerals, and participants in Bolivia were running for and holding offices in local governing bodies. In both countries, participants were significantly more likely to have given others advice about practices for good health/nutrition and better business. • Measurements of children in Ghana showed the nutritional status of participants’ one-year- olds significantly improved relative to the children of residents in control communities. For example, the percentage of participants’ children categorized as malnourished, based on height-for-age, decreased by eight percentage points between the baseline and follow-up periods, while the percentage of malnourished actually increased in control communities. 1 Full reports and briefs for each evaluation are available on the Freedom from Hunger Web site at www.ffhtechnical.org/publications/index.html 2 THE CREDIT WITH EDUCATION MODEL The Credit Component The credit mechanism of Credit with Education is based on the village bank methodology pioneered by the Foundation for International Community Assistance (FINCA). Credit with Education programs organize and train women to form Credit Associations, groups of 20 to 30 women made up of 4 to7 solidarity groups, each solidarity group having 4 to7 members. After group formation, Credit Associations participate in several trainings when each member deposits saving and learns how to manage the group, including keeping financial registers and understanding payment and deposit procedures. The trained Credit Association receives a group loan, which it then on-lends to its members as individual loans to finance income-generating activities. The members guarantee repayments of each other’s loans, so they must all agree that each borrower is capable of making sufficient profit from the proposed income-generating activity to repay the Credit Association loan with interest. The loan duration typically ranges from 4 to 6 months. Members repay the loans in regular installments with interest and also make savings deposits at meetings. These meetings can occur on a weekly, bi-monthy, or monthly basis. When the first loan is repaid, a well-organized Credit Association is eligible for a second loan and additional loans as each is repaid. Within the communities, Credit Associations are run by the women members themselves. Participants form their own Credit Associations, then elect three members to be the president, treasurer and secretary of the group. The entire Credit Association then decides the rules under which the group will function, including penalties for late loan payments and requirements for meeting attendance. They also do their own loan analysis, evaluating which women are qualified to receive loans for what amounts. Access to cash credit enables women to expand and diversify their income-generating enterprises and often replaces more costly sources of working capital or inputs. Borrowers usually invest their loans in activities in which they are already skilled and need no technical assistance or training, such as food processing and selling, raising chickens, operating a small shop, and making or buying and selling clothing. It is crucial that each borrower earn enough cash to pay back her loan with interest, deposit some personal savings, have enough money to purchase food and other necessities for the family, and additional amounts to grow her business. The Credit with Education product is designed to become self-financing within 18 months to 3 years after start-up. The interest rate charged is based on an analysis of the costs of delivering the services efficiently as well as taking into consideration market conditions. The rates charged are typically substantially lower than money lenders or supplier credit, but tend to be higher than those offered by commercial banks—who typically do not lend to this clientele. The interest income finances the credit and savings services as well as the education services. The Education Component Each Credit with Education practitioner organization promotes a different mix of topics in its village bank meetings. Choice of topics depends on local needs and demand, organizational objectives, and availability of good-quality local services (e.g., immunization; primary health 3 clinics), the use of which can be promoted by the education. Typically, during a loan period of four to six months, one or two topics are explored in depth in a series of learning sessions, each session building on the previous session. The Credit