More than two years ago, The Church of the Good Shepherd (Episcopal) in Ruxton, Maryland, launched its Micro-Lending Program. To date they have made 11 loans totaling $34,750. How did they do it?
Criterion Institute’s 1K Churches program was the inspiration and the catalyst. Since Criterion’s loan implementation guides were not yet available, congregational members pooled their own wisdom to determine the principles and procedures for making their loans. Leaders from a few churches in the greater Baltimore area, who were starting loan programs at about the same time, met periodically to share their experience and encourage one another.
Bob Locke, a retired banker by profession and former treasurer of his congregation, led the Micro-Lending Program (MLP) at Church of the Good Shepherd (CoGS). In this month’s newsletter, he tells their story and describes the practices that were keys to their success. These lessons from the good people of Ruxton, in their own words, reinforce much of the guidance you will find in the 1K Churches Implementation Guide available here.
One Congregation’s Keys to Success in Micro-Lending
The Church of the Good Shepherd in Ruxton, Maryland, has now made 11 loans. The goal of each loan has been to change someone’s life for the better. Each loan has done just that. The smallest loan was $750 and the largest $5,000. As we anticipated, given the right circumstances, a small amount of money can make all the difference between heading down a new path towards success or not.
To date we have funded a local café and a small transportation company that, with the help of our loans, was able to add three new employees. Another loan went to a startup upholstery manufacturer, who plans to hire two employees. We also funded two individuals who had successfully completed their job-training programs but did not have transportation to their new jobs. One of our loan recipients, who runs a one-man hauling company, was hired as the church’s sexton. All loan recipients are from the most depressed areas of Baltimore City.
It is important to note that the purpose of this article is to simply talk about what has worked for us at the Church of the Good Shepherd. It may or may work for your church. Each church is different and has its own set of strengths, weaknesses, and circumstances. We are definitely not telling anyone how to do it. Hopefully we are providing some material that might help you along the way.
At the Church of the Good Shepherd, we feel fortunate to have been able to play a role in what we consider a most fulfilling program, both for the congregation and the loan participants. In looking back, we have been able to discern that there were a number of keys to our success to date.
- It is important that the Rector be completely supportive of the program. At CoGS we are very fortunate that from the beginning the Rector has been an enthusiastic supporter of the program.
- It has been our experience that the Micro-Loan Program needs at least one enthusiastic advocate or two within the church, aside from the Rector. These are the people within the church who drive this program.
- The program needs the support of the entire church, not just a small group. It should be a part of the church’s ongoing program.
- If at all possible, the funding of the program should be totally apart from the day to day operating budget. One of the first questions we were asked by our parishioners is “How can we afford to do this on our tight budget?” At CoGS we are indeed fortunate that we have various funds, set aside over many years, which are available for specific purposes. We were able to use one of the funds to finance our Micro Lending Program. With the approval of CoGS’ Finance Committee and Vestry we were able to allocate 5% of our outreach fund to be used to finance the MLP. Due to repayments, we have been able to lend out over twice the allocated amount.
- Champions from the borrower’s community play the indispensable role of recommending the borrowers to us.These Champions know the potential borrowers well and are well known and respected by CoGS. They are probably the most important part of our program. So far, we have lent money to three distinct cohorts. In each of the cohorts we have at least one Champion. Without the Champions, our program is not possible PERIOD.
- The Champion is not a guarantor of the loan. The Champion has no legal responsibility. If there is a problem with the loan, we do expect that the Champion, not the church, will contact the borrower and work with the borrower to get the loan back on track. It has been our experience that our borrowers are not financially sophisticated, and most problems are simply a result of poor communication.
- It is important that the church has a relationship with the borrower as well as with the Champion. The applications are received and the loan proceeds are disbursed in person. Likewise, we keep in regular contact with the loan recipients and the Champions. When asked, we and the Champion also serve as mentors to our borrowers.
- It is important that the Micro-Loan Program is set up as a loan and not a gift. We are not giving anybody anything. This is a loan, and we do not lend the money unless we have a good chance of being repaid. We make clear to all applicants that we see the loans as an investment in them and their community. We want the money to be repaid so that we can lend it out again to someone in their community.
- We make it clear to our borrowers that if they do not repay us in full, we will take no legal action against them. However, if they do not repay us, there will be no more funds available to those recommended by their Champion.
- All of our loans are at no interest and no fees. This is for the sake of SIMPLICITY. Our loans are administered by CoGS’ business manager. She is very busy and charging interest would be an unnecessary added burden.
- Both the borrower and the Champion sign two documents, each document being one page. These documents were not drafted to be enforceable in court. They are simply outlines of what is expected from each party.
- We’ve found it important to set parameters on our loans. Our largest loan will not exceed $5,000 and the longest term we will lend for is five years. The size and length of the loan is determined by talking with the borrower. Our goal is to set up a repayment schedule that the borrower can handle. Sometimes that means stretching out the repayments over a longer period. If a problem does develop during the course of the loan, we talk with the Champion and borrower and revise the payment schedule to accommodate the borrower. It goes without saying that we want the borrower to be successful. Our average loan is a little less than $3,000.
In conclusion, the above has worked for us. It, or some variation, might work for you. If I were to emphasize any of the above points, they would be in order of importance, #1, 2, 4, and 5. It needs to be noted that over the course of the past two plus years we have had to restructure a few loans. The church needs to be flexible on this. Finally, I wish you all the best in your micro-lending program. It is well worth the time and effort.
Robert W. Locke
Chair of the CoGS’ MLP