Kiva Stories from the Field

On a recent trip into the Ukrainian countryside, I spoke to a woman named Yelena.  She’s a Kiva client who sells office supplies to local businesses, and has been in business for herself for nine years.   The top worry in her mind, she said, was the global financial crisis.

This woman was confident, well educated, and witty.  She spoke of her business with pride and determination, and joked that she’d allow me to film because it gave her free marketing in the USA.  But when I asked Yelena about the hardships she’d had to overcome in order to make her business as successful as it is, she got serious.  “Economics.  It’s always economics and stability.”

Ukraine has called for an IMF bailout for their crisis.  Dominique Strauss-Kahn, Managing Director of the IMF, said Friday, “Many countries seem to be experiencing problems because of the repatriation of private capital by foreign investors or the reduction of credit lines from foreign banks.”  This is basically what caused the Asian Economic Crisis of ten years ago.  It is a very dry way to report the fear and hearteach of millions of entrepreneurs and private citizens.

A brief parable, to explain the economics jargon:

Imagine that you live in Ohio, and want to buy a little summer home on the beach in Crimea.  You give the current owner US Dollars, and she gives you the deed to the property.

During the winter, you rent out the little home to locals while you have family holidays back in Ohio.  The locals give you UAH (“grivnas” in local slang) and you give them a place to stay.

Now there’s a wad of US Dollars sitting in a bank in Ukraine, and a wad of UAH sitting in a bank in the US.  The Ukrainian bank can use these US Dollars until the dollars’ owner goes to the ATM and wants them back.  Likewise, the US bank gets to use the UAH until its owner wants them back.

Now, imagine a few million of these little retirement homes (or businesses, factories, apartment buildings, stocks, etc) have been purchased by people sitting in the US.  There’s now a great big wad of US Dollars sitting in Ukrainian banks.

Until two weeks ago, when one of the biggest and most established Ukrainian banks went under.

You won’t hear about this collapse on the news.  It’s been officially called a re-structuring, just as Washington Mutual went through this past summer.  The bank still exists, and the buildings are still there, but all of its activity has been shut down.  For the past two weeks, the ATMs have not worked.  Businesses who bank there have been unable to send out payroll checks; they can see the money sitting in their account, but cannot access it.  The bank’s customers have been told that they will have access to their money sometime in December.

There is no FDIC in Ukraine.  People who put their money into a bank here must trust that the bank is stable, because if it collapses, they lose everything.  That has happened here, not once but twice in a generation.

This is understandably scary, and it’s not widely reported in local news media.  People here learn the financial news around the water cooler, playing an intricate and country-wide game of Telephone to figure out what happened to the money and what might happen next.  There are major industrial cities in the country that have cut back to entirely part-time labor; factories have told their employees that they cannot afford to pay for more than 4 workdays per week.  Whispers up and down the chain of command seem to say that the extra money is being used for the 700 million UAH “emergency election“ fund, called for by the President apparently out of political spite.  “We don’t want another election,” I was told.  “We want the financial crisis averted and unemployment lowered.”

Now you sit in your chair in Ohio and watch the news about banking and political crisis in Ukraine, so you decide to sell your little vacation home and get out of Dodge.  You also don’t want anything to do with the grivnas you’ve got sitting in the bank, so you convert them back to US Dollars.  This is a perfectly rational thing to do, from your perspective.  You pull out and put your money at home.

So does every other person in the world, at the same time.

Suddenly, everyone in the world gives Ukraine back their grivnas, and takes out their dollars, pounds, euro, and yen.  Ukraine already has grivnas in its local money supply, and the addition of a such huge amount of it drives the value down overnight.  Inflation skyrockets, and keeps going up as the foreign investors keep pulling out.

And that big, shaky Ukrainian bank gets even shakier, so none of the other banks in the world want to do business with it; the bank cannot trade, get loans, or get a stable supply of foreign currency.  The other banks all take their football and go home.

And Yelena is watching the news and the stock tickers.  She goes to the ATM to get money to keep the lights on in her store, and the ATM doesn’t work.  Her employee may not get a paycheck, because it’s siting in limbo somewhere as useless 1s and 0s.  Her Kiva loan through HOPE Ukraine has already been used to purchase the inventory she’d specified, but Ukrainian banks have been known to call loans immediately when they get into trouble, and so she does not entirely trust HOPE’s reassurances.  She is very nervous.

“I am confident that God will see us through, and will take care of His people,” a HOPE staff member told me in a quiet and wistful voice, looking at the floor.  “But what will happen… I don’t know.”