What benefit to the community does the Village Microfinance Fund provide?

The Fund addresses the issue of economic development for poor Cambodians and offers fair interest rate loans to the poor without collateral.

Why are these loans important?

Small loans, sometimes as little as $50, in the hands of a poor entrepreneur can transform the lives of individuals, families, and entire communities. Since it is extremely difficult for the poor to borrow money at fair interest rates, JWOC is providing an invaluable opportunity for Cambodians to help themselves out of poverty.

What options are available to poor Cambodians who want to borrow money to start or expand a business?

It is nearly impossible for the poor to establish credit without collateral because banks refuse to give loans to poor people in Cambodia. After conducting household surveys in a countryside village, we found villagers paying exorbitant interest rates of 100 - 250 % on their small business loans to their wealthier neighbors. Because of the high interest rates and without other options to start a small business, many of the poor find it difficult to implement their business ideas and help themselves out of poverty.

What are the steps to the loan making process?

1. Disperse information about the Village Microfinance Fund and hand out applications to potential candidates.

2. Collect applications and review applications by both JWOC and the Dollars for Scholars students.

3. Select loan recipients and organize into five person groups.

4. Give loans to first 2 people in the group.

5. Dollars for Scholars students go the village once a week to collect repayments.

6. If both people have paid back after two weeks, then give 2 more people in the group. (Repeat for the last member of the group).

7. When all loans are repaid in full by the entire group, the process is started over again with the participants entitled to another loan of a higher amount.

Who selects the loan recipients?

After receiving loan applications, JWOC meets with Dollars for Scholars students and together discuss each business idea. The proposals are then ranked on a scale of 1-5. The method for choosing the recipients is based on a combination of how likely we think the borrower is to pay back, input from neighbors in the village, and a recommendation from the village chief. Thus the selection process for each loan recipient incorporates a wide range of information so we can make the best possible choice.

What interest rate on your loans?

JWOC charges an interest rate of 0.5% per week (24% per annum). While high by Western standards, this is well below the rate other creditors charge.

What is the average loan amount?

Once selected, first time loan recipients have the opportunity to borrow up to $100. Once they pay back the loan with interest, they are then entitled to receive a second loan of $124 (24% higher than their original loan).

What is the time frame for the loans to be paid back?

Borrowers have the option to choose either 6 months or 1 year to pay back their loans.

What staff is required to coordinate the loan making process?

JWOC utilizes help from the Dollars for Scholars students to fulfill the loan making process. The students travel to the villages each week to collect payments, offer advice for the businesses, and keep accounting records. The Dollars for Scholars students are university students, who agree to give back to their local community 5 to 10 hours per week as part of their scholarship.

What is the administration cost involved in running the project?

Using the help from scholarship students, we are able to keep the costs of the project very low. The students work as unpaid interns in order to fulfill their weekly community service requirement of their scholarship. Other administrative costs include making copies to disperse information and loan applications and also gas for motorbikes to travel to the countryside villages. The costs are covered by JWOC so that the entire portion of any donation to the Village Microfinance Fund is used to directly benefit the community.

What types of businesses have been created with the help of these loans?

JWOC loans are helping to create and sustain small commercial ventures such as food shops, tailoring, recycling, and pharmacy businesses.

What happens to the interest collected from the weekly repayments?

For the interest of 0.5% per week, the collected repayments each week goes back into the general fund to be used for other loans. Thus if a borrower takes out a loan for $100 at 24% per annum (0.5% per week), assuming they pay back in full, they are then entitled to a second loan of $124. So the money they pay back each week, cycles back into the Fund, and eventually is used to make their second loan. It is not used for any administrative funds.

What is the incentive for the loan recipients to pay back each week?

As each loan is paid back in full, the borrower then has the opportunity to borrow additional loans of larger amounts. This ‘carrot’ approach has proved very successful as JWOC has over a 90% repayment rate from all loans to date.

Your loans are no collateral loans. What is the repercussion if a recipient defaults on a loan?

If the original loan recipients are late in their payments, then it is up to the others in the group to apply an amount of social pressure so the rest can receive their loans in the future. The repercussion for not paying is that it affects the rest of the group - others will not receive their loans. So long as the group is making regular payments, then JWOC will continue to give new loans to others in the village.

Can you give some examples of some of the successes you have encountered?

Yes! Please meet members of the community who are thriving due to Village Microfinance Fund.

Where does your funding for the project come from?

Funding for the Village Microfinance Fund started with the help of private donations, and JWOC continues to seek additional funding from both foundations and private donations. With additional support, JWOC will continue to increase the number of loans given to maximize the benefit to numerous villages throughout the province of Siem Reap.

I want to help by making a donation. How can I do this?

That’s great! There are two ways – either through mail or an online contribution.

To find out more please follow the link to find out how to help.