Philip Issa | KF17 | Palestine
Halaa from Palestine! This past Tuesday, I spent the day at microfinance nonprofit FATEN‘s branch office in holy Bethlehem and made my first round of borrower visits. Visiting three borrowers, each in a different phase of their enterprises, I was afforded a broad look at the realities of microfinance in Palestine. Read on about Noor, a young father who just started his business; Johny, a successful barber; and Imad, a mechanic whose garage is located just 200 meters from the Israeli Separation Barrier.
Noor, and his start-up
Fundraising for his first enterprise.
Noor, the first borrower I visited, had obtained his first loan from FATEN to buy fridges for his butcher shop. A true business loan, this is the sort of microloan that the sector loves to tout. Noor is making a capital investment in his microenterprise that will pay back steadily and surely in the long-run, allowing him to expand his capacity, buy in bulk (thus lowering his purchasing costs), and repay the loan.
But what made Noor different from the other borrowers I visited? For starters, he had the youngest business by far — a toddler at 2 years old — and it did not seem as established as the other two I saw. Also, through his experience with FATEN, he brought to my attention two common challenges with microfinance.
I asked him if the loan was helpful for him, and he gave me an affirmative but qualified answer. He told me that a larger loan would have been more useful, but as this was his first, FATEN would not lend him his full asking amount. This, of course, should be no surprise. FATEN must protect itself from excessive risk, and when dealing with first-time borrowers with limited credit histories, they must graduate them to larger loans, as was the case with the other two borrowers I visited.
The other challenge that Noor highlighted was that, for many microborrowers, there are no discreet business, family, and individual bank accounts. Money lent through microloans is more fungible than we are accustomed to in the United States and can flow without much oversight between private and business expenditures. But lenders, fear not! Microfinance institutions are fully aware of this. Just because the separation of accounts is not as defined as it is in the developed world, it does not necessarily mean that borrowers are not spending the monetary equivalent on their stated loan use, nor that they will be unable to repay (Kiva, after all, has a >98% repayment rate).
Johny, and his establishment
Johny is animated about his work.
Johny, the barber, the most animated of the borrowers I visited, is in a far different phase of his business plan than Noor. He’s been in business for a very long time. In fact, he used to cut the hair of his loan officer back when the officer was a young teenager 20 years ago! His shop was well located, well decorated, clean, very professional — and, it seemed, the least likely to need a microloan. So I asked him, why did he get a loan from FATEN?
In three bullet points, he described the practices of a successful MFI:
1. Unlike that other MFI down the street, FATEN could make a loan small enough and tailored enough for his purposes. Too big, as the other MFI had offered, and he feared he could not pay it back.
2. FATEN’s rates were better, for whatever reason.
3. FATEN could process an application and spit out a loan in a hurry.
“If you’re so succesful, why not go to a real bank?” I had asked him.
“Oh, the bank is such a headache,” he said. “They want this document, they want that document, they don’t want to take risks, they want all sorts of collateral. You know they told me it would take six months to approve my loan? Forget it! FATEN is much quicker. My loan officer already knows me, my collateral is my salary, and I get the loan in a week.”
I was not expecting to see microfinance being used by long-established businesses, even self-employed ones, but apparently there is a market to be served here. (I should point out that I don’t know exactly how successful Johny has been: all I have is his word. “Fighting or no fighting, people will always need to get their hair cut.”)
Imad, and the Separation Barrier
Imad, with the Separation Barrier built across his street behind him.
Imad is in a third phase of enterprise. Unlike Noor, who is just starting out, and Johny, who seems to be doing quite well, Imad is the steward of a once-prosperous business that is now (and once again) threatened by the geopolitical realities of the region. Imad owns a car garage on a street that is blocked off by the Israeli Separation Barrier.
Imad’s business used to be accessible from a major avenue that is now cut off by the Barrier. Since the blue gate shown above was closed two years ago, business has declined precipitously. Imad told me that the economy of the whole neighborhood has slowed down since the Barrier went up, and this has added another dimension to his difficulties. Not only is he struggling to get new customers, but old ones are coming up short with the money they owe him. One car has been in his garage for eight months because the owner has been unable to pay for the necessary parts for the repairs.
The Barrier from the avenue once accessible to Imad’s business.
With such an enormous impediment to his success, why does FATEN continue to lend to Imad? In short, because he pays them back. He is currently on his third loan from them. He supplements his income from the garage by working at a dealership in another neighborhood part-time. But his real pride is his garage. It was passed down to him by his father, and in spite of the Barrier, it’s still not a total loss-maker. This is because Imad and his father are renowned in Bethlehem; long-time customers still know the backroads way to his shop. Imad, the loan officer told me, is a mechanic with “hands of gold.”
There you have it: 3 borrowers and a handful of lessons for one day. I’m going to be visiting many more borrowers this week, and I look forward to having many more stories to share.