A case study of how small and medium enterprises are positively impacting local communities.
The ideas of “holistic” or “transformational” development have been floating around in the missiological realm for quite a few years. In his groundbreaking work, Walking with the Poor (1999), Bryant Myers explains the principles practitioners need to understand in order to do exactly that: walk with those who are poor. Myers’ paradigmatic work has been backed up with other pieces such as When Helping Hurts by Steve Corbett and Brian Fikkert (2009).
These, along with a plethora of other recent publications, have done a thorough job of explaining a theory of transformational development. Meanwhile however, there is still doubt among Christians as to whether transformational development is possible and within certain flavors of Christianity, whether or not Christians should even be engaging in such a ministry.
New Lessons in New Areas
Upon graduating from Houghton College in 2007, I joined InterAct Ministries and within a year found myself in a rather remote part of Central Asia. My job title upon joining was “transformational developer.” Taking into account that the job position was created for me as well as the relatively horizontal organizational structure of InterAct Ministries, I was given great freedom in defining this new position and putting into practice that about which I had spent the last four years reading.
By partnering with an existing not-for-profit organization which my predecessor had successfully established, I began the process of getting to know my new home, at least one of the two main languages, and figuring out with whom to partner.
I soon found that many people were in agreement that the lack of jobs in the villages was one of the major hindrances for the penetration of the gospel. In fact, a number of churches in the capital city were entirely composed of economic migrants who had heard the gospel and responded, but were forced to abandon their homes in search of work in the capital.
Further complicating the issue was the village church’s perspective. Previous failures with entrepreneurship had led to a “hands off” policy which discouraged people involved in ministry to become entrepreneurs. The concept developed to the point that to an outsider it appeared as if a quasi-Gnosticism of holy vs. non-holy (spiritual vs. flesh) that Myers so elegantly denounced had emerged within the church itself. In fact, there were at least three main issues we faced in beginning transformational development in this area.
Issue #1: Submitting to the Local Church. In order to receive the blessing of the local church to work with believers in the villages, we had to submit ourselves to the church. Working without their blessing was not an option. It also meant that if we wanted to last longer than a year, we weren’t going to be given a second chance, and we quickly needed to make a small business that was kingdom-oriented and profitable.
This requirement for an extremely high level of quality led to the creation of our small business development model. Working with materials from the Oregon State Chamber of Commerce and a Business as Missions guide put out by Jesus People USA, in the summer of my first year we set about writing our small business plan development booklet. In its current form, this booklet is fifty pages. It combines the best of simple secular business thinking with a firm biblical foundation.
Issue #2: Finding the Right Person to Lead. We needed the right person to pioneer the first transformational development project. It soon became clear that one of the local men who helps lead the indigenous service in one of the capital city’s churches was the right fit. He and his wife wanted to open a café so we combined our theory, faith, hard work, and access to capital and together we opened our first small business.
Today, this cafe is turning a profit, paying back its initial start-up capital on a regular basis, and providing jobs for economic migrants in the capital city. Furthermore, the cafe has recently been granted permission to build a new extension.
Issue #3: Working in the Midst of an Economic Crisis. The economic crisis of 2008-2009 should have deflated us, but didn’t. In fact, a large sum of money appeared from one of our major sponsors. With the legal avenue of transferring funds established through an agreement with the local organization here and InterAct Ministries, we were able to transfer large sums of money to set up development projects.
Many economists and sociologists acknowledge the difficulties of working in this part of the world from a financial perspective. Nothing is cheap and we understood going in that we were going to need huge financial resources.
I would warn individuals going into transformational development to make sure that the necessary financial resources are available and accessible before beginning work (which of course is a biblical principle; see Luke 14:25-33). Donors need to realize that setting up businesses around the world does not necessarily mean setting up fruit stands along the streets of New Delhi.
There is a world of difference between micro-financing and the development of SMEs (small and medium enterprises). In this part of the world, the smallest amount of capital we’ve given out was $500 for a welding machine for an individual entrepreneur; the largest amount was $61,000 for an accounting firm.
Our desire to not engage in micro-financing was not because there is anything inherently wrong with it. To the contrary, if done correctly, in the right economic environment, it can do a great amount of good. However, our objective was not resale. We based our business development model upon wealth creation through production, which, although absurdly simple, has proven to be trustworthy.
We defined production as any process that takes things of lesser value, puts them together, and creates something of greater value. This can include agriculture, construction supplies, manufacturing, refrigerator repair, etc. The important thing is to use God’s creation around us to be creative ourselves and in that sense, allow our God-given and God-blessed creativity to blossom.
What does transformational development actually look like? Let me share two case studies.
Case Study #1: Block-making Factory
In one village, we have been partnering with a local pastor to create a block-making factory. A widely practiced way of making blocks in this part of the world is taking leftover coal slag, mixing it with sand and cement, and putting the mortar into a vibrating mold and creating construction blocks.
This small business is now entering its second year of operation. With his own handmade equipment, this pastor is able to crank out between two and three hundred blocks a day. There is a huge demand for construction supplies and this work is capable of earning him $40 a day.
The largest material needed to start up was the purchase of a five-ton truck. Since cement in this village is eighty percent more expensive than in the next nearest city, located five hours away, purchasing a good truck was a necessary step. Our organization was able to provide the necessary organizational skills for writing a good business plan and obtaining the funds for a truck.
We have run into only a few complications. First, we are facing the issue of underproduction. This is largely related to the culture of a non-service-oriented economy. We are working on improving owner/client relationships and becoming more service-oriented through maintaining a sufficient inventory of blocks.
Second, in highly-impoverished communities there is often an unwillingness to sign a labor contract. This can be due to a number of reasons such as being deceived by past employers, a general lack of understanding of labor laws, or a fear that in signing a labor contract, one is giving up part of one’s freedom. Getting three people who are capable of working together and showing up for work on time has been a major challenge. We are, however, convinced that with time and finding the right people, this too will change.
Within this business, however, we have seen reliable profits that have enabled the church to purchase its own fuel for the winter for the first time, instead of relying upon aid from the sister church in the capital. The church has been able to use earned funds to replace all of its windows with new plastic windows. This new business is also providing a more reliable wage for the pastor, his wife, and their four children. He in turn is able to give jobs to believers and nonbelievers alike, which has a positive influence on the community as a whole.
Case Study #2: Agricultural Project
A major challenge in this part of the world is the drug trade. Marijuana, bound for European and Russian markets, grows wildly and abundantly. In many villages, all jobs are somehow connected with the drug trade. Unfortunately, this puts believers at a real economic disadvantage as they are given the option of either moving to the capital city in search of work or watching their families suffer.
We believe there is a third option. In one such village we started an agricultural project. Working with the leader of a house church, we began planting potatoes and oats. In the first year we had a medium potato harvest. Roughly half of the potatoes were shipped to the capital city and sold. The other half was used to pay the laborers. The oats harvest on the other hand was a bumper crop. Five sacks of oats trades for one goat or sheep, so in the first year we were able to acquire fifty head of livestock.
There were enough spuds left over to plant potatoes again. This year, we have already locked into a deal to sell potatoes in a region where the weather conditions do not allow for growing potatoes. This will allow us to receive a premium price for the harvest. We also stored oat seed from the previous harvest which will be planted to trade for more livestock and provide necessary feed. The livestock itself is multiplying and we are expecting roughly eighty head of livestock by fall. Finally, we will be purchasing four cows, which will also provide dairy products for the church family now and beef in a few years.
We have found that medium-scale agricultural projects can be highly successful. Our organization stepped in with consulting, raising funds for start-up capital, and purchasing a vehicle for personnel and harvest transportation. This project has provided jobs so that next year these workers will receive not only potatoes, but actual cash for their labor. Most importantly, however, after years of having to choose between uprooting oneself from one’s home or participating in an illegal trade, participants will be given an opportunity to see themselves as God sees them: valued, loved, and capable of improving their lot.
How We Function
Our organization is working toward the development of kingdom-oriented businesses that recognize Jesus as their ultimate leader, and, in anticipation of his second coming, they are actively pursuing ministry to spread his kingdom on earth.
Our organizational culture is one of our greatest assets and enables us to work toward a common goal. We have monthly meetings in which members who are available get together to discuss business. We hear updates on the development of their enterprises, their needs, and the blessings they are receiving. We also have a business lesson that is based on biblical principles. Imagine “Introduction to Business” meets “Year of the Jubilee.” We always have tea with a snack; sometimes a full meal. We work toward being an authentic team.
One of the biggest parts of my work is monitoring the cyclical fund. We simply don’t operate as a funnel for funds from Western donors to reach entrepreneurs in Central Asia. As an organization of humanitarian aid by law, we have the right to give organization members aid and at the same time collect donations. Our cyclical fund operates along the following principles:
1. After filling out the business plan guide, our entrepreneurs complete the course “Money and Assets” published by Precept Ministries.
2. Upon receiving a written recommendation from their pastor, they are given the opportunity to present their entrepreneurial vision at one of our monthly meetings.
3. The members present vote whether or not to allocate funds from our cyclical fund to finance the project.
4. Upon reaching an agreement for receiving funds, if the future entrepreneurs are not already members, they must apply for membership within the organization.
5. They must then write a special request for the funds in which they specifically describe how the funds will be used.
6. If the entrepreneurs do not use the funds as allocated, we have the option of referring to the law enforcement authorities. (However, in the past three years of operations we have never had to exercise this right.)
When we started creating our approach to transformational development, we decided that we would have a ten percent interest rate. However, the local believers were shocked since scripture speaks time and time again against usury. Our understanding of usury became any act of giving money with interest; therefore, we had to be creative.
7. Instead of implementing an interest rate, when people receive funds for their enterprise, we expect repayment in the course of five to seven years. We believe this is a biblical approach, and with rare exceptions, we will not entertain ideas that will take more than seven years for repayment. This money is loaned without interest.
8. At the same time, these entrepreneurs have become members and there is an expectation that they will continue partnering after the initial start-up capital has been paid back. This gives us a great advantage in that we can raise large sums of money quickly among entrepreneurs who want to participate in the development of other kingdom-oriented businesses.
9. As more and more small businesses return their start-up capital to the cyclical fund, and therefore attain a higher level of profits, we will be developing this means of quickly raising funds. We have already used this model to fund the start-up of a knitting facility.
10. When we enter into contracts with entrepreneurs, we also make an internal agreement that upon bankruptcy our organization will acquire the assets that the entrepreneurs used for the start-up capital. This protects us if bankruptcy occurs.
We are also working on a way for individuals interested in investing in SMEs to earn money as investors without having to refer to a stock broker or a bank. We are developing a system of loaning money to existing entrepreneurs who will use the money to produce raw materials. Upon the sale of the finished product, they will return the initial investment with a predetermined additional sum. We call it Asset Based Investing (ABI). ABI is based upon actual value added to a product, not a timeframe. This model also allows our investors to receive a much higher Return on Investment (ROI) than is available at banks.
This first attempt at asset-based investing was successful and we’re hoping to expand these creative investment opportunities in the future.
Benefits to the Local Church
How does this help the church meet its financial objectives? Due to our sinful nature, it is easy for us to waste money on non-necessities. It takes a tremendous amount of discipline to actually reallocate newly-raised revenue. Therefore, we are developing a concept called Teaching Sacrificing (TS), in which we acknowledge that the entrepreneurs are paying back a debt. This is done on a monthly basis.
What we are encouraging is that once the debt is paid back in full, the entrepreneurs will continue to set the same amount of money aside on a monthly basis, but now redistribute it with a large portion going to the church as a sacrifice (this is on top of their regular tithe), part of it going to our organization (thus generating revenue to pay overhead) and part being reinvested in the business itself. While we are currently three years away from fully implementing TS, education is taking place. Our entrepreneurs understand and are excited about God using their resources for his kingdom.
Having attended the 2008 transformational development conference at Calvin College in Grand Rapids, Michigan, I can’t help but recall the words of the conference’s emcee. On the opening night she read a lecture whereby she started out with (to paraphrase), “The reason Christian development organizations are not doing better than secular development organizations is that we don’t do anything differently.” These words stayed with me.
I am concerned that we, as Christian transformational developers, all too often put our eggs in the same baskets as the world. I like to think that what we’ve done here in Central Asia has taken the best parts of various approaches and enhanced each one with what’s revealed to us in scripture.
No doubt we have a long way to go. However, we are quantitatively moving in that direction. We are excited about what God is doing in Central Asia through transformational development and its effect on peoples’ lives as their faith is being reflected in their economic activities.
Corbett, Steve and Brian Fikkert. 2009. When Helping Hurts: Alleviating Poverty Without Hurting the Poor and Yourself. Chicago: Moody Publishers.
Myers, Bryant. 1999. Walking with the Poor: Principles and Practices for Transformational Development. Monrovia, Calif.: World Vision International.
VZ (pseudonym) graduated from Houghton College in 2007 with a degree in intercultural studies. Having taken multiple trips to Central Asia, he was thrilled to become a “transformational developer” with InterAct Ministries. Currently, he oversees the development aspect of a local Central Asian not-for-profit.
EMQ, Vol. 49, No. 1, pp. 64-70. Copyright © 2013 Evangelism and Missions Information Service (EMIS). All rights reserved. Not to be reproduced or copied in any form without written permission from EMIS.