Question from Billah: "Rafiq Miah, why loan and not grant"
In the first iteration of DP Challenge in 2006/2007, we had loans....results at http://www.drishtipat.org/dpchallenge/results.html
. Some projects were successful, others were not as much - what you can expect from any portfolio and especially when starting a new program.
This year we changed to loans because it increases accountability and likelihood of success. The entrepreneurs must have "skin in the game", and the need to repay a loan (over 24 months) provides a healthy incentive to perform and execute. We need to get away from donor dependency. So this program is about funding viable small businesses, not handing out charitable donations.
The loan rate is 12% simple interest per annum, to be paid back in 2 years. For an average loan of $5000, the business will owe $6200 in 24 months. The rate is competitive with bank loans, which are significantly harder to get for someone with little "backing", "collateral", etc. And it is extremely favorable compared to the high rates charged by NGOs for microfinance. Are there cheaper loans in Bangladesh? Yes, surely! Our goal is not to be the cheapest loan rate but to be competitve and fair. On a risk adjusted basis, this rate is deeply discounted. Risks include potential for default.
The "social benefit" is also not something we need to agonize over: creating gainful employment, creating products and services - the basics. Of course some projects will have more tangible benefits from a social standpoint compared to others - we will consider that.
What can you do?
- Read more at drishtipat.org/challenge, download the flyer
- Send the info to someone you know who may have a good small business idea
- If you have skillsets which are suitable to be a business mentor, let us know (may be much easier if you are in Bangladesh)
Please send more questions/thoughts/comments....