Author Archive
Helping Haiti: Microfinance and Disaster Relief
This week President Obama reminded the world that, despite its slow drift to the back pages of the newspaper, the crisis in Haiti is far from over. What is the role of microfinance in the immediate aftermath of a natural disaster (the first 30 days)? The short answer is that, under the circumstances, microcredit is less effective. A prerequisite for microcredit is a functioning economy. Goods and services need to be worth money for capital infusions to make a difference. For example, an MFI lends money to a woman for the purpose of opening a general store. The woman uses the loan to buy soap from one retailer and soft drinks from another. She hires a local contractor to build the addition on her home, or at least purchases the materials. The money flows around community, and everyone becomes wealthier. But in the immediate aftermath of a natural disaster, the communities served by microfinance are so devastated that the system doesn’t work. There is no electricity, no fuel, no food, no water, and no shelter. Homes have been destroyed and people are starving. A sack of rice becomes invaluable – to a starving person, no amount of money would lead them to part with food. So it becomes a barter economy, if there is anything to barter at all. As with everything, these points are best illuminated by example. The most obvious is the recent earthquake in Haiti. In reality, Haiti needs aid money, and it needs aid workers to deliver services. Microfinance – microcredit, in particular – cannot immediately help during the relief period because there is no economy to stimulate.
The Royal Rumble: Yunus v. Compartamos
“You’re unhappy. I’m unhappy too. Have you heard of Henry Clay? He was the Great Compromiser. A good compromise is when both parties are dissatisfied, and I think that’s what we have here.” – Larry David
Within the international development community, a debate for the heart of the movement came to the fore two years ago with the IPO of Compartamos, the largest microfinance institution in Mexico. Divisive and controversial, Compartamos’ decision to sell shares and publicly list on an exchange is perhaps the clearest manifestation of where the two sides diverge. One side, led by Muhammad Yunus, founder of the Grameen Bank and winner of the Nobel Peace Prize in 2005, contends that, at its core, the sole fundamental mission of microfinance is poverty alleviation. The other side argues that the goal must be maximizing profit and, more specifically, ROE (return on equity) – extending services to a previously unbanked population and expanding via revenue growth. Just about everyone has an opinion on the decision and, at the very least, it allows for a great philosophical and economic debate about the most effective way to assist the billions of people who live below the poverty line.
Agricultural Microfinance: Serving the Poorest
Last week I went to a town called La Castellana about an hour south of Bacolod to visit the NWTF branch there. I was there to meet a handful of Kiva borrowers and interview them about the progress of their loan. Over the course of two days, I met 6 women that currently have a loan with Kiva, and another 4 that I am going to post to the site this week. La Castellana is a town in the mountains that is largely supported by agriculture. It is also one of the major areas impacted by agrarian reform.
The Philippines is a country of ~90 million people, half of whom live in rural areas. Eighty percent (80%) of Filipinos living below the poverty line are in rural communities, supported primarily by agriculture. Over the past three decades, agricultural land ownership in the Philippines underwent a transformation via a series of legislation known as Comprehensive Agrarian Reform Program (CARP) passed in 1988. Designed to provide landless farm workers a piece of land, the program has redistributed several million hectares of farmland in 1.1-hectare units. It is a controversial topic, and its effectiveness at combating poverty is debatable. Regardless of whether or not CARP has worked, the ARBs (Agrarian Reform Beneficiaries) – the recipients of the farmland – are the poorest of the poor. They struggle to plant sugarcane and a piece of land that is too small to profitably grow sugarcane. They try to buy fertilizer and farming equipment but don’t have the capital. The government gave them land but failed to provide adequate funding or training. In many ways, the cards are stacked against them. So, unable to make ends meet, many just rent their land back to the owner. It is a vicious cycle, but microfinance can offer a solution.
Mass Weddings for the Poor
By Josh Weinstein, KF9 Philippines
The happy couple.
This Kiva Fellows job is unique, in that it offers an endless supply of intellectual stimulation and satisfaction. Every day, I learn something new about something interesting. For the time being, what interests me most is microfinance. My knowledge of microfinance prior to working with Kiva could be described as purely academic. Experiencing it firsthand has been rewarding. In particular, I like understanding the details of execution, the challenges faced by the institution, and generally how a microfinance institution works. The amount of information to digest is enormous, so I try to focus on understanding a few NWTF (Negros Women for Tomorrow) programs that I think are in my wheelhouse. The downside of that approach is that I end up overlooking many fascinating and unambiguously positive programs.
The other day my coworkers were telling me about the upcoming Foundation day at one of the branches. Every year, each branch that meets a certain threshold of repayment and performance can have a Foundation Day party, which has upwards of 2,000 attendees (mostly clients). I was supposed to go to one in Cauyauan on Saturday, but I got food poisoning the day before and was bedridden. At some of the Foundation Day celebrations, NWTF holds something called a mass wedding. This is one of those programs that I find really interesting for different reasons. Let me explain why. (more…)
Community Loans: Another Level of Microfinance
By Josh Weinstein, KF9 Philippines
I spent the last week with the research department touring the region, tagging along on a market research survey. On the last day, we were driving through a coastal town when the paved road turned to dirt. According to the driver and director of the research department at NWTF, when the road turns to dirt, you know you are headed in the right direction. Sure enough, within a few minutes we reached a squatter community bustling with people. (In the Philippines, the government protects squatters, and large communities spring up on other peoples’ lands.) The road was just wide enough to fit the van and lined with nipa huts and sari sari stores. We passed by two makeshift basketball courts before coming to the end of the road. We parked the van and split up to walk around and talk to the people. Unfortunately, the interviews are all in Illonggo, so I chose to follow the director down to the shore. He began talking to a group of women on the beach holding their infant children. He asked a few questions, one of which is particularly interesting. If they could have a loan to spend on anything in their community, what would it be? Their response: a storage tank for diesel fuel or an icemaker. I’ll explain why this is important, but first some background. (more…)
Who is Poor? Defining Poverty
by Josh Weinstein, KF9 Philippines
How do you define poverty? A basic needs index looks at whether (and to what extent) fundamental needs are fulfilled – food, water, shelter, clothing – and whether people have access to critical services – education, information (newspapers, etc.), sanitation facilities, healthcare, financial services. This is an absolute poverty calculation, which uses a standard threshold that can be compared across countries and continents. Another method is to use a national poverty line, usually a percentage of median income. For example, if the median income is $10,000 USD, and the poverty line is 60% of that, any family making below $6,000 is technically below the poverty line. This is a relative poverty calculation, because it is country-specific. Using this method, it doesn’t make sense to compare across countries, since the poverty line in wealthier countries with higher median incomes will allow for greater purchasing power than in much poorer countries. In microfinance (and development in general), you often hear about the percentage of the population that lives on less than $1/day – the definition of extreme poverty – or $2/day, or some other defining statistic of poverty.
Statistics are important for microfinance institutions (MFIs). When you know what you are dealing with, you can more effectively target the population with programs that are proven to work. It is important for an MFI to understand its clients and where they exist on the spectrum of poverty. This is actually more difficult to assess than you’d think. It is not feasible to ask clients how many dollars a day they spend, or even try to determine their income relative to the rest of the population. Instead, MFIs use social performance metrics – simple tools to help them to define exactly what they are as an organization and whom they are serving. They are basically proxies, which, when examined in aggregate, give the MFIs a profile of the poverty level of their clients.
Microfinance and Education
The road to the home of a Kiva borrower
by Josh Weinstein, KF9 Philippines
I spent the last three days in “the field,” a term used to describe the front lines of microfinance where the money is distributed to the clients of the MFI. Beginning early Tuesday morning, I set out for the town of Valladolid, a rural municipality about 50 km from Bacolod City. The road snakes along the coast through increasingly less urban communities, until reaching Pontevedra, where the NWTF (Negros Women for Tomorrow Foundation) Valladolid branch is located. The branch manager, Linda Saraet, took me to see the first of 15 borrowers we would try to track down over the course of the three-day trip (with a 67% success rate). Riding in the metal grates on the back of a tricycle, where I’d spend most of my trip, we rode to a small village called a barangay to interview several women about their business and loan. The community here is small, and stopping for directions usually produced a friendly guide that brought us directly to the home of the borrower. Home constructions vary from 2-3 room nipa huts – bamboo structures with thatched roofs and dirt floors – to cement frames with roofs of corrugated aluminum. Sometimes the house has electricity and running water, sometimes not. Over the course of the week, I’d see all types represented. Housing loans are popular among borrowers, and many homes have been built with loans from NWTF. (more…)
