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A small loan that went a long way in an Indian village

6 March 2001 – New Delhi - Small sums can make a big difference to poor people in the developing world. So it proved for Hafiza Bee, a mother struggling to look after a family of six in a remote village in the Indian state of Andhra Pradesh.

All it took to transform Hafiza's existence was the rupee equivalent of just US$80. It was the sum she needed to buy a buffalo and set her and her family on the road to a better life.

The buffalo produced three litres of milk a day that Hafiza was able to sell. With the additional income and the help of further small loans, she was able to buy sewing machines for her sons so that they could expand the family tailoring business.

As well as passing on her sewing skills as a teacher in a local government-run stitching centre, she now gives advice on village start-ups. Soon other budding entrepreneurs in the village were following her example. The knock-on effects of the original loan benefited an entire community.

The Hafiza Bee success story was made possible by a system of microcredit lending supported by Deutsche Bank in cooperation with the non-governmental organization SHARE (Society for Helping and Awakening the Poor through Education).

The Deutsche Bank Microcredit Development Fund (MDF) backs small loans for poor people through 12 organizations around the world. The loans give people a chance to buy basic equipment and raw materials to set up or expand a business, thus breaking the poverty cycle. Unlike alternative lending schemes, microcredits require no collateral or previous credit experience and so are accessible even to the poorest of the poor.

Initial loans are small and short-term, and additional, bigger sums are made available according to the borrower's ability to make repayments. Credits are often accompanied by training schemes and advice tailored to the needs of each entrepreneur.

The Fund provides very low interest loans of around $100 000 to local microfinance institutions, who use the money as collateral to reach deals with local banks, enabling them to offer small local currency loans to micro-entrepreneurs. In this way, Deutsche Bank MDF is giving microfinance organizations such as the SHARE Group in India the financial support they need to expand their programmes and become self-sufficient.

"The microcredit fund is a powerful instrument in the fight against poverty in the developing world." said Michael Holz, global director of public affairs at Deutsche Bank. "In line with the Global Compact, the Deutsche Bank Fund is supporting human rights by encouraging jobs to be created on people's home turf."

According to Deutsche Bank, their Microcredit Development Fund brings community-wide economic benefits while supporting the UN Global Compact with business in its three key areas of human rights, labour standards and the environment.

Combined with the training provided by Deutsche Bank and the local organizers, microcredits encourage people in poor areas to achieve commercial sustainability, rather than depending on handouts or becoming swamped in frighteningly large debts from loan sharks. Repayment rates for Deutsche Bank MDF loans are typically between 95% and 98 %.

Many of the successful projects that benefit from the Fund are very simple and often involve surprisingly small initial credits. A sum of $50 made all the difference to Chiquinquira Tellez in Colombia who used her loan to set up a snack-producing business called The Good Taste. The snacks are made by hand from locally grown guayaba fruits.

With additional financing, Ms Tellez has been able to increase the factory's production capacity five-fold over nine years so that she now makes 400 000 snacks a month and has contracts with third-party distributors. Increased profits have also enabled the business to invest in a new truck to distribute their goods directly.

The Deutsche Bank Microcredit Development Fund is active in India, Pakistan, Russia Bosnia, South Africa, Colombia, Chile, Mexico and the USA.