How is 50/50 different from other microfinance organizations?

• Whereas most microfinance organizations make funds available in the form of loans (often with very high interest rates that are difficult for borrowers to repay), we take a different approach. 50/50 provides half of the total start-up funding needed in the form of an interest-free loan (which the entrepreneur must repay), and the other half as a grant (of which there is no expectation of repayment).

• As microfinance has attracted more attention in recent years, many of the microfinance organizations operating today have become for-profit enterprises. In contrast, our goal is not to make money for 50/50, but rather to help people who are struggling start or grow their own businesses that will generate income for themselves and their families. Accordingly, 50/50 is recognized as a non-profit organization with 501(c)3 status.

• Many U.S.-based microfinance organizations act only as middlemen, funneling the donations they collect to other microfinance institutes (MFIs) based in developing countries, which are then in turn ultimately accountable for the terms of the loan and collection of payments. Unfortunately, this system has often resulted in poor oversight and worrisome abuses, including coercive lending and collection practices and interest rates that many of us would find appalling. In contrast, 50/50 engages in direct relationships with the entrepreneur, which allows us to set and follow our own fair and ethical lending practices, minimize overhead costs, and make sure the money is not being misused. Lenders, 50/50, and entrepreneurs—no middlemen or intermediaries involved.

• Because most organizations are dependent on an existing MFI infrastructure, they are only able to operate in countries where the field is well-established. Under this system, in many places poor people who would like to start their own businesses are simply out of luck—either because their countries are deemed too dangerous or because local authorities have placed hurdles in front of microfinance groups. However, because of 50/50’s light footprint, direct relationships with entrepreneurs, and willingness to go where others do not, we are able to work with potential entrepreneurs even in some of the toughest and most remote places in the world.

• In order to lower their exposure to risk, many microfinance organizations lend only to people who already own a business and can demonstrate a track record of consistent earnings. In doing so, these organizations exclude the poorest of the poor—those who are most in need of the opportunities entrepreneurship can offer. Taking a different approach, 50/50 is willing to work with everyone from the already-successful small businesswoman to the impoverished man who wants a better life for his family but doesn’t know how to acquire new skills or put them to use. 50/50 purposefully seeks to match the poorest—and most in need—to new, creative business opportunities designed to succeed through hard work and effort.

• Many microfinance organizations justify charging entrepreneurs high interest rates in order to cover their considerable overhead and administrative costs. In contrast, 50/50 is committed to finding ways to minimize or eliminate many costs that other organizations incur by:

• Lowering default rates by building successful businesses: Many microfinance organizations have high rates of default on their loans. In large part, this is because many MFIs focus foremost on rapid growth and their own profits, expending little (if any) effort on helping their borrowers build successful businesses. When these businesses struggle, it’s no wonder that many of them struggle to pay back their loans and default. In contrast, we consider it our obligation to make sure that entrepreneurs build successful businesses. To accomplish this, we give them training, help with marketing, run their business alongside them for a short period at the outset, and stay in constant communication with them to make sure that if any problems arise, we can help the entrepreneur to fix them and get back on track right away. By focusing on building successful businesses in partnership with our entrepreneurs, we can mitigate the risk of default.

• Using technology creatively: In many developing countries, extremely inexpensive mobile payment systems now allow the transfer of money between people in even the most distant places, allowing 50/50 to send funds to our entrepreneurs, and, in turn, permitting them to make loan repayments without trekking to the closest bank, which is often far away. Simple everyday technologies like e-mail and VOIP-to-mobile phone calls enable our entrepreneurs and our volunteers to be in touch on a daily basis, eliminating the cost of dispatching a loan officer to a remote village.

• Employing an all-volunteer staff: Everyone on 50/50’s team provides their time and hard work without compensation. When possible, we also call on our wide network of friends and volunteers—among them web designers, attorneys, and accountants—who provide their skills pro bono, allowing 50/50 to save money on items that would otherwise run up hefty charges.

• Eliminating wasteful practices: Many charitable organizations accumulate significant overhead costs by spending donations on property, travel, direct mail, calendars, and lots of other items that add up but aren’t necessarily central to their mission. At 50/50, we are committed to eliminating these costs when possible, reducing them to a minimum when they’re required, and making sure that our resources are being spent on what’s really important—helping people escape poverty by building their own business.

• Ensuring complete transparency: When you support 50/50 and our entrepreneurs, you can do so with full knowledge of where your money is going because of our commitment to transparency. Our entrepreneurs list where each dollar (or shilling, leke, or dinar) is going so that you can understand and evaluate their business plan in detail. And if you decide to invest, say, 25 dollars with one of our entrepreneurs, every cent of your money will go to him orher; not to reimburse a loan that has already been made, and not to 50/50’s overhead costs. Similarly, our budget—including how we spend every dollar we receive from you and our other supporters—is listed on our website so that you can always check that your money is being used how you intended it to be.

• Over time, we think there has been a subtle but important shift in the way many microfinance organizations operate. Rather than ensuring that they are helping the poor obtain the means to better their lives and emerge from poverty, too many organizations now view the poor first and foremost as a segment of the population from whom they can make a profit. This shift is reflected in the adoption of “financial inclusion” as the stated goal of many microfinance practitioners. Though seemingly benign, setting the far less ambitious “financial inclusion” rather than “poverty alleviation” as the ultimate aim leads to an entirely different set of policies and ways of interacting with the poor. In practice, this has meant many MFIs seeking to grow at an untenably fast pace in the name of "including” as many of the poor as possible in order to maximize their profits. This has come with an obvious cost: they have not always ensured that the poor understand what they’re signing up for and have at least a decent shot of eventually being able to repay their loans. And by placing profits and growth above the goal of reducing poverty, their priorities have been reflected in the often disastrous outcomes of their practices--rather than improving people's lives, organizations have often contributed to destroying them (see here and here for just a few of the many examples out there). We have set out to change that. Rather than earning profits for ourselves or mere “financial inclusion,” 50/50’s goal is to help people develop successful, profitable, and sustainable businesses that will provide a reliable source of income and enable them to work their way out of poverty.