Archive for April 11th, 2008
Final thoughts on Ghana
I’ve been back in Chicago for about 2 weeks now and have had time to sit and digest my Kiva Fellow experience. Going into this I tried to keep a completely unbiased and open-mind about microfinance. I’m a huge supporter of microfinance, but I have heard critics argue that it does little to actually lift people out of poverty. So I tried to take my opportunity to see first hand how it affects borrowers.
During my 2-month stay in Cape Coast, Ghana I had the privilege to meet over a hundred borrowers successfully running their own businesses. I heard stories of individuals being able to pay their kids’ school fees because of their loan, a life-long farmer opening up a general store when she became to old to work the fields simply because of her loan, and businesses expanding and profits increasing because of a couple hundred dollars. During all my interviews and meetings I never once heard a borrower say they were unhappy they took the loan. Not one person thought the loan had hurt their business, but many had ideas and suggestions on how to improve the microfinance process. One on-going theme I saw was that the large group loans aren’t that popular with individuals because they often find it hard to find 10 reliable entrepreneurs to join their group. They often suggested to make the groups smaller and to have individual loans available. The reason MFIs have group loans is for security. Since no collateral is ever collected, social pressure is used as a way to ensure collections, but having cookie-cutter plans and principles that hinder borrowers will only hurt a MFI in the long run. Another common theme was interest rates.
During my stay in Cape Coast, I often had local individuals start conversations with me and want to know what I was doing in Ghana. When I told them I was working with a microfinance organization, almost everyone immediately said, “Oh, but the interest rates are so high!!”. I always took the time to explain why the interest rates were high, but no one seemed interested in my economics of microfinance speech, they were only concerned with how interest rates would affect them, and rightly so.
MFIs provide extremely valuable services in countries all around the world and have helped millions of people improve their lives. However, much more can be done to lower interest rates and further help the very people microfinance is aimed at helping. This is exactly why Kiva is so beneficial. Providing MFIs with 0% interest loans, these institutions can finally think about making steps to further help their clients that otherwise would not have been possible. I believe Kiva needs to be aware of this and make every active effort to encourage partner MFIs to lower their interest rates once they have become comfortable with raising money on Kiva. Right now Kiva is doing their part to help MFIs overcome certain barriers in raising low-cost funds, but these MFIs need to be held responsible with providing clients reasonable interest rates.
My stay in Ghana has been a priceless experience and I am only further convinced microfinance is the way to end poverty, but much more needs to be done to ensure the borrowers are the ones receiving the real help.
Add comment 11 April 2008
Getting Deeper into a Microfinance Institution
I’ve been working with Hluvuku in Mozambique for a month now and had the chance to live for at least a week in 3 different branches (including the headquarters). I was lucky enough to live the day-to-day life of a small branch office with only one loan officer and to witness a transition of portfolio, as this loan officer, Paula, was moving back to a bigger branch and a recently promoted 1st year loan officer, Luciano, was taking over her portfolio. By than it was crystal clear the huge importance of a loan officer at the microfinance world: without their knowledge of local people and local culture, a microfinance cannot work. How would Luciano know what to write about the person’s character without the guidance of trusted people Paula appointed? And how would Hluvuku disburse a loan to someone they don’t know if they can trust and if it will pay back? Quite interesting the dynamics between a loan officer and a microfinance institution… It is almost as if each officer was an institution by itself…
However, I really got deeper into Hluvuku after Bernardo, the founder and general director, asked my help to review their 2007 annual report before it went to their board of directors. The first thing one would notice is how profitable Hluvuku was in 2007, even with substantial increase in expenses due to the opening of a new branch office (which is still not profitable). The obvious question to Bernardo, that in fact I didn’t have to make, he answered before I even started talking, was: if Hluvuku is a non-profit, had social projects and still had a lot of profits, what are the next steps to the organization? What to do with the money? How to think about financial projections and sustainable growth?
I had the most interesting 4-hour conversation with Bernardo ever. He shared all his knowledge of the microfinance world, all he learnt during seminars he attended all over the world and his views on Hluvuku’s future. Yet it was not clear to me he is prepared for a sustainable growth and to move forward without major risks. Bernardo does not count with a knowledgeable board of directors and he actually has reduced academic background (he never went to university). My basic knowledge of microfinance, yet reasonable knowledge of finance, let me to think that a significant reduction in the interest rates charged is possible. Today they charge between 35% and 55% annual interest rate (depending on the industry and loan use), calculated on a decreasing basis over the outstanding loan. After hearing a few complaints from clients I visited, I came to the conclusion Hluvuku does have margin to reduce it. On the other hand, Hluvuku could use this profit to increase their social efforts (such as the soccer team or the help to create water holes for communities that do not access water) and therefore reach more people than just their clients, and at the same time protect itself against any downturn and need of own capital.
I wonder how other MFIs around the world are dealing with this “good” dilemma. And I wonder what is the future of MFIs in Mozambique, Africa and in the world. Any comment or guidance is highly appreciated!
On a completely different subject, yesterday I met a client and while walking to her house to take her picture in front of the house she is building, she mentioned that her family was against her marriage in the beginning because her husband was poor. She was raised in the capital Maputo and her father was a carpenter, but gave all the 6 children access to school and basic needs. And that was enough for her to be richer than her husband. They have been married for 13 years and today her family loves him. Nothing like putting life into perspective, no?!
Ate mais.
1 comment 11 April 2008
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