Kiva Stories from the Field

On Thursday this week, two of my office mates at HOPE Ukraine drove with me to their nearest field office, 2 hours away.  Driving through the countryside was like going through Ohio or the Ardennes.  Low, rolling hills were lined with deciduous trees, 20-acre farms, and little clusters of old brick buildings.  It was far more beautiful than I expected. 

We went to interview 3 of the 5 Kiva clients at this brand-new office.  They’ve been in business for 2 months and have gathered 11 clients total.  The loan officer, Vitalik, took us through a marketplace that looks just the same as cloth-covered market kiosks around the world.  You could see it at a farmer’s market in Seattle or the Chatachung Market in Bangkok.  (The knock-off Prada handbags were, I admit, more reminiscent of Thailand than of Washington.  None of the Kiva clients were selling such things.)   All three clients had opened two locations and had at least one employee, two were widows who had raised children by themselves, and all of them originally went into business because they lost their jobs during perestroika and had no way to feed their families.  All had been in business for more than 9 years.

The interviews were quick, painless, and eye-opening.  It really did give me a good sense of what kind of entrepreneurs microfinance works with, and what kind it doesn’t.

 

They were more middle-class than I had thought they would be.  One lady, Galena, owned her own private house and had completely reconstructed/remodeled it, sent all 3 of her kids through university, and just sent her son to Crimea for vacation.  She owns 2 small shops that sell bed linens. 

Yet her loan, for purchasing several months’ inventory in bulk, was for only $1200.  That’s a substantial amount of money in her town but is too small for most banks, and thus she qualifies as a microfinance client and has been able to really benefit from loans.  She started out from scratch, twice, being an unemployed widow with kids and grandkids.  At one point her store was robbed of everything, and she had no insurance.  Through microfinance loans she rebuilt her business and now has ambitions of opening a while network of stores.  That’s absolutely a success story of microfinance substantially improving someone’s life.

I also saw little old ladies that lay out bedsheets on the sidewalk and pile fruit on them, and sell it with the help of a small, old scale.  They are too poor to be microfinance clients, because they live so close to the edge of poverty that they’re not generally able to repay loans.  Which is a smart decision on HOPE Ukraine’s part; the bank has to be self-sustaining in order to be able to continue their work, and so must select their clients carefully.  Because the loans are not collateralized, the loan officer must spend a good deal of time assessing the business.  He checks through the entrepreneur’s inventory to ensure that the business is stable and active, visits her home to verify that her standard of living supports business expansion, speaks to her neighbors to gauge her credibility.  One loan officer might serve up to 150 clients this way.  It’s an enormous workload.  And it keeps the microfinance bank – indeed, the entire microfinance industry – afloat.

This system still leaves a whole class of poverty totally unaddressed.  I knew in advance of coming here that microfinance is applicable to only a particular subset of the poor.  At risk of belaboring the obvious, microfinance only works with business owners.  Even more precisely, it works with business owners who are successful enough to want to expand their business.  Just subsisting is not enough, any more than it would be enough for a small business owner in the States.  A homeless, destitute, starving person is not a microfinance client.  A wealthy business owner in a developing country is not a microfinance client.  Rather, a lower-middle class to middle-class entrepreneur in a developing or former communist country is a microfinance client.

(Middle class in these countries is substantially different than middle class in North America or Western Europe.   Here in Ukraine it might mean that you can afford university tuition, but don’t have a car.  You have running water, but perhaps not hot water.  When I speak of social class, I mean relative to that country.)  

I also understand much more viscerally the problem with success in humanitarian work.  It’s easy to look at the client and say, “If she’s a microfinance client, why does she have enough money to send her son to a beach 14 hours away for summer break?”  This is clearly a woman who lives well above the local poverty line.  So why does she need our help?  What is Kiva doing working with clients like this? 

The answer is that she was poor in the way we think of abject poverty, and is now a member of the middle class.  The exchange rate means that she’s still qualifying for loans that are very small by Western standards, but her lifestyle takes her out of the standard mission of “eliminating poverty.”  We have already eliminated her poverty.  She’s the “after” picture.  

But she is still working and expanding her business.  She is still too small to interest an international bank, or even a national bank headquartered in an expensive capital city.  A little bit of money still goes a long way, and her alternative is still local moneylenders who vastly inflate interest rates.  

A business owner in her position, a success story such as Galena, is now living in a gap in the system.  Too wealthy to qualify for international aid, too poor to qualify for traditional bank loans, too successful to utilize the social safety net (even if it existed in her country), too struggling to enter the global business class – she is the perfect microfinance client.  And yet as philanthropic Westerners, our first instinct is to look at Galena and think, “She isn’t poor enough to need my help.”  I had this thought upon meeting her, and I’m sure I’m not alone, so I’ll reiterate the thought:

She isn’t poor enough.   

We want to help eliminate poverty.  That’s what I’ve dedicated a year of my life to doing, and what many people have dedicated vast sums of their own money to doing.  But once we’ve done that, the very people we’ve helped become, somehow, less deserving than they were when we started.  Because microfinance works, because we have succeeded in our task, Galena is now less deserving than the little babushka who sells fruit off a bedsheet.    So what is she to do?  If we turn away from her when she has entered this gap in the system, we risk letting her slide back into poverty.

Where do the boundaries of poverty begin and end?  And within those boundaries, where does our reponsibility lie?  Once you have helped someone overcome one obstacle, do you abandon them before they encounter the next?  At what point does Kiva, as midwife to small businesses, step back and let them succeed or fail on their own?  When do we tell Galena that we’ll no longer be a partner for her?

I have no answers to this, only more questions.  But if the questions serve to spark debate, perhaps the community can find answers.  When you speak to friends about poverty and microfinance, please remember Galena.  She is real.  Your answers affect her life.