For many of the poorest people around the world, holding onto cash is just as difficult as getting their hands on it in the first place. For one thing, lacking food or basic necessities, there are immediate needs that cash will go to right away. Nothing is invested, which makes it harder for a person to make more money and eventually, escape from poverty. Too many hungry children or parents in desperate need of medicine siphon off cash as soon as it appears, trapped in an endless cycle of poverty.

For this reason, many microfinance and poverty-alleviation institutions are making loans of durable goods like pigs, bicycles, or refrigerators rather than cash. These are called in-kind loans. It’s much harder to give away pieces of a pig (until it’s eventually butchered of course), so it tends to last longer – hopefully long enough to grow from a small, inexpensive piglet to a fat hog that will fetch a good price at the market and allow its owner to repay the loan and, hopefully, reinvest the profit.

This isn’t to say that cash loans don’t help – they can save lives – but it’s also important that the people receiving the loan know how and are able to turn that cash into a durable asset that will reap greater returns and profit in the long term.

Tags: in-kind loans, microfinance, microloans, Poverty