Why Ukraine Needs Microfinance
10 October 2008 at 15:09 Evie 10 comments
As a former Soviet state, home of the Orange Revolution, and under-journalized European backwater, Ukraine certainly has an image problem. It brings to mind images of inscrutable bureaucracy, frozen winters, and monotonous apartment blocks. Except to those of us who have visited the country or known citizens of Ukraine, it does not bring to mind the sorts of struggling poor that microfinance institutions typically serve.
Indeed, in the capital of Kyiv (aka Kiev), microfinance banks don’t operate. The cost of living is too high, and the living standards are those of a middle-income country. You can buy a pizza or condo or a Mercedes in Kyiv. But even here, life is harsher than it is in the West. Public transit, while ubiquitous and cheap, is slow, crowded, unmarked, and in poor repair. The bathroom in an apartment, often as not, is a post-remodel afterthought located in the kitchen. Tall buildings do not necessarily contain elevators. Internet access is in stunningly scarce supply, even in the capital.
Yet despite an average per-capita income of less than $20,000 a year in Kyiv, an apartment that nine years ago cost $4,000 now costs $100,000. Banks no longer give mortgages, partly in reaction to the 30% inflation rate, partly as a ripple effect of the US subprime mortgage crisis. The Producer Price Index is well over 40%. (Imagine that McDonalds’ beef suppliers raised the price of a pound of beef from $1 to $1.40. Quite reasonably, you might expect that last year’s $4 Big Mac is now this year’s $5.60 Big Mac. The beef price hike is Producer Price Index, and the Big Mac price hike is Consumer Price Index. Roughly.)
Outside the capital, life is closer to the edge. Per capita income is down into the $10,000 range (estimated; 2008 figures haven’t been released yet), and agricultural land is still impossible to legally purchase – a holdover from communist times. Corruption is ubiquitous. Unemployment is roughly 7%. With badly tended roads, few successful industries, and little communications infrastructure, there is essentially nothing to do and few prospects for prosperity. Never underestimate the economic power of abject boredom.
2003 figures estimate that poverty levels are 37.7%; it’s difficult to say what the intervening years and the weakened dollar (to which the hryvnia had been de facto pegged) have done to this number. As late as 2001, Ukrainians were still working without pay under a half-collapsed central planning system that left many of them unequipped to transition to a new market economy. Anyone over the age of 35 grew up without banks, credit, or business as part of their existence. Entrepreneurship was stamped out during the twentieth century, and the working poor, no longer secure in even an inefficient social safety net, have had to teach themselves new skills.
They make their living where they can, often in small shops reminiscent of those found throughout the developing world. While walking through a tumble-down market above a subway stop in Kyiv, the director of the HOPE Ukraine microfinance bank gestured to a woman selling cigarettes from a tiny glassed-in kiosk. “Microfinance client,” he said with an ironic tone. “Or she would be if we operated in Kyiv. All the market sellers would be.”
The picture is bleak, but into the infrastructure gap has emerged the Ukrainian microfinance industry. MixMarket lists three active microfinance institutions in the country, with a combined total of about 55,000 current borrowers. These small business loans average around $1,600, and can provide for several months’ worth of inventory, repair costs, or household expenses. Additionally, HOPE sponsors business education camps for the children of their borrowers, giving the next generation the tools they need to survive in the new Eastern Europe.
Learn more about Kiva’s field partner, HOPE Ukraine, here. And consider lending to these entrepreneurs for your next Kiva loan.
HOPE Ukraine serves clients like Tatyana all over the country
Entry filed under: HOPE International - Nadiya Ukraine, KF6 (Kiva Fellows 6th Class), Ukraine. Tags: .
1. eviemaye | 3 November 2008 at 16:16
Thank you Pac! I have heard that there’s a push to start doing more microfinance here in the capital, however it’s difficult to do through Kiva due to the loan cap.
2. pac | 2 November 2008 at 20:16
Hi Evie,
I liked to read your blog on microfinance and the situation in the ukraine. I just wanted to add that there is a microfinance bank in Kiev. It has roughly 80 branches all over the country, 20 of them in the capital. Enjoy your time here in the Ukraine. I guess it is a great experience to be so close to the crisis.
best regards
pac
3. eviemaye | 20 October 2008 at 12:36
Thank you Jan & John, and Dan.
The maximum loan size that Kiva can work with has put a crunch on many partners in Eastern Europe, where inflation is high and the exchange rate is unstable and is lower than other countries. The economic ripples of the US crisis has affected this region too. But even the successful entrepreneurs here are struggling, and living in many cases without things we take for granted – like hot water. I am glad there are people like you who recognize these people’s efforts.
4. Kiva: Why Ukraine Needs Microfinance? | The MiFi Report | 20 October 2008 at 00:14
[...] Indeed, in the capital of Kyiv (aka Kiev), microfinance banks don’t operate. The cost of living is too high, and the living standards are those of a middle-income country. You can buy a pizza or condo or a Mercedes in Kyiv. But even here, life is harsher than it is in the West. Public transit, while ubiquitous and cheap, is slow, crowded, unmarked, and in poor repair. The bathroom in an apartment, often as not, is a post-remodel afterthought located in the kitchen. Tall buildings do not necessarily contain elevators. Internet access is in stunningly scarce supply, even in the capital…{click here to read the rest of this article} [...]
5. Dan | 18 October 2008 at 23:35
Evie – Thanks for putting some statistical perspective to the Ukrainian situation. Ukraine has been one of the countries we have emphasized in our portfolio, although there was a time when there weren’t too many loan opportunities available on Kiva. I feared that the maximum loan size was keeping Hope away–although more recently I have again been seeing Ukrainian opportunities. Keep up the excellent posts and please continue to share with us your growing understanding.
Dan
6. Jan & John, KivaFriends | 14 October 2008 at 16:02
One of my first loans was to a young girl selling towels in a market in Kahovka. She looked cold. I live in Canada and I know how difficult it is to live with the cold winters but it is warm here in our malls. She has since paid that loan and I have another one for a young man who fixes cars in Novomoskovsk. I will continue to watch for and lend to the Ukraine. Thanks, Evie, for reminding us that these people are poor through no lack of trying on their part. Jan
7. Evie | 14 October 2008 at 10:00
Thank you John.
Honestly I had the same thought myself when I first saw HOPE Ukraine as a Kiva partner, long before I ever thought I would be living here. While most Kiva Fellows blog posts are stories – and they’re meant to be – once I got here I thought that this article needed writing, so that others could understand why Kiva operates in Eastern Europe at all. We appreciate your trust tremendously, and want to ensure that we can eventually give an explanation that justifies that faith.
8. John Robbins | 12 October 2008 at 23:46
Thanks for this posting. I’ve made several loans to Ukrainians personally and as administrator of my company’s Kiva portfolio. I had asked myself, “can this be right, these people don’t seem like they need Kiva loans.” But I went on trust that Kiva wouldn’t facilitate loans to people who didn’t qualify.
Your posting was very helpful. That stubborn pang of guilt is gone!
9. Evie | 12 October 2008 at 09:54
хорошо! Or rather, it’s coming along as best as I can after a week in country.
Thank you for your kind response. I am tremendously glad to know that this article will help HOPE Ukraine through your loans. That’s truly my mission as a Kiva Fellow!
10. Whitney | 10 October 2008 at 22:02
Well done, Evie – thorough, intriguing research. Persuasive use of facts and figures to paint a complete picture of the current situation in the Ukraine.
My next round of Kiva loans will certainly include the Ukraine – how’s your Russian coming along??