Amelegan Amegningnon; a smiling WAGES entrepreneur

By Taylor Akin, KF9, Togo

I began writing this blog on a scrap piece of paper just north of the Burkinabé/Ghanaian border. I had spent my morning walking across the border carrying a 40-pound pack and subsequently spending far too much money on a taxi into the nearest town. My Kiva Fellowship had ended a week and a half earlier, and I was sitting in a hot, dirty hotel room with a concrete floor, grimy walls, and inconsistent electricity. I was desperate for entertainment. I had finished the only book I brought on this three-week post-fellowship excursion, my computer was lifeless without the electricity to charge the battery, and my broken iPod seemed to be mocking me with its inaccessible entertainment. I was entirely alone. So, I took some time to process the last four and a half months.

Antoinette, a dedicated WAGES loan officer collecting a repayment

As a Kiva Fellow, I learned a lot about microfinance. Microfinance is, at its core, just a bank. Loans are disbursed and repaid, interest is charged, and businesses are fuelled. The MFI clients can hardly be homogenized – some are ambitious and grateful for their loans, and others openly admit to preferring hand-outs over helping hands. The MFI staff are as diverse as the entrepreneurs they serve. While some are entirely dedicated to ensuring that their clients have access to credit, others see their job simply as a task that helps keep bills paid and mouths fed. Although, at a micro level microfinance may not always feel like a social good driven by passion and benevolence, it is nevertheless a means to a necessary end: poverty alleviation and empowerment. This target no doubt makes up for the lack of warm and fuzzy feelings we may have in the process of reaching that goal.

I also learned a lot about myself. I learned that I am capable of completely immersing myself in a new culture. Besides spending some time with Kiva Fellow Nick Malouin, I did not make any expat friends until two and a half months into my fellowship. Until then, I had spent the majority of my time with my colleagues and my Togolese host family. I learned that my identity is fluid. By the end of my fellowship, I had ceased to be Taylor Akin, the biracial girl from Toronto, and had adopted my MFI-awarded identity as Adjovi Kiva, “la blanche Canadienne.” I learned that I suffer from crippling homesickness and am in constant need of at least one comforting reminder of home: be it a pirated French-dubbed season of 24, a familiar song, or an overpriced pizza at the local expat hangout. I learned that I am more than willing to try new foods, yet my inner vegetarian still can’t stand the thought of seeing an animal killed for my own personal consumption. I learned that I am perfectly capable of navigating West Africa on my own, and  I have an excellent knack for finding a happy place when crammed with 12 other people in an 8 person vehicle. I learned that I am not completely fluent in French (despite what my high school diploma might say), but I try my best anyway.  Finally, I learned that I am happiest when I am eating mangoes, playing with monkeys, or can see the stars. All of these self-discoveries are raw, unglamourous, and very very real. No, they can’t be advertised on the “Apply to be a Kiva Fellow” website, but they are personal truths that we all take with us when we return home.

Deep in thought as I upload yet another entrepreneur profile

Finally, I learned a lot about others. In my first blog post, I wrote about prejudice and stereotypes I had experienced in Toronto towards the African continent. I cited Chimamanda Ndichie’s lecture discussing the single story Westerners hold about Africa: one of poverty, suffering, corruption, ethnic genocide, bad governance, child soldiers, barbaric practices, illiteracy, and AIDS. It is this single story that fuels our erroneous beliefs about the African continent. And in between the lines of this story lies the assumption that the Western world is categorically none of these things.

Throughout my time in Togo, and my subsequent travels to Ghana and Burkina Faso, I learned that this same representation has been embodied by many West Africans. I had countless acquaintances begin a conversation with the words, “Life is hard here in Africa” or “Do you see how we suffer, here in Africa?” These discussions inevitably involved a broad categorization of North America and Western Europe as being wonderful places to live where unhappiness is unheard-of. It occurred to me that the people I encountered in West Africa had a similar single story about the developed world. Westerners are assumed to be white, wealthy, privileged, hard-working, happy, and successful. There is no unemployment, homelessness does not exist, and every house comes equipped with a backyard pool.

Monkey attack out in the field!

Prior to writing this blog, I had been reading an article from a book given to me by my mother. Notes from Canada’s Young Activists: A Generation Stands Up for Change is a compilation of articles written by Canadian activists from all walks of life. My mother thought it might be comforting to have some like-minded companionship during my travels. Devi Musina is an inspiring young man discussed in the book who spent the majority of his childhood in Zimbabwe. It was not until he moved to England for a year that he learned the fallacy behind his single story of the West. He realized that, “even in Europe people suffered” and that it “wasn’t a dreamy, perfect place” (177). This discovery contradicted his previous conceptualizations of Western life.

As a Canadian, and as someone who is regarded as white in West Africa, I have experience this theory translated into practice. I had incorrectly assumed that my recent graduation from university, and my subsequent volunteer employment would peg me as educated but broke. On the contrary, my light skin seemed to create a new reality. An acquaintance I met in Ghana seemed surprised that my father hadn’t simply paid for my volunteer experience, that I had, in fact, worked for my money. I remember being horrified when a loan officer referred to Kiva lenders as “whites giving money” to the poor. I did my best to show that not all lenders are white and almost all lenders are willing to lend a small amount for the sake of the greater good despite their personal needs and hardships.  I also know that I am not the only Kiva Fellow who has been charged double the standard amount for a cab, has had money stolen, or has instantly made “friends” on the basis of skin colour and citizenship. This is not to say that I am not privileged, it would be foolish to say that I am not. In fact, we have all had the privilege of being Kiva Fellows. Yet, regardless of the particularities and details of our personal lives, the Western single story dictates that we all have money to burn. So it seems that this single story is double sided.

The sun sets over Togo's capital city

Taylor Akin is now a proud Kiva Fellow alumna. She has been out of the field since May, 2010 and has yet to tire of telling the stories from her Fellowship. She is currently working temporary employment and plans on applying to various Canadian law schools over the next year. She hopes to focus on immigrant and refugee law – a specialization that was, in part, inspired by her encounters in Togo. She is thankful to Kiva, WAGES, her host-family and her friends for making her trip a complete adventure. She is also thankful to you, loyal lenders, for staying up to date on the blog and tirelessly lending to Kiva entrepreneurs all over the world.

Alex is the first Kiva Fellow (KF9) working with TYM Fund in Hanoi, Vietnam.
Interested in becoming a Kiva fellow?  Click here.
Join the Vietnam lending team here.

The above scene has been painted many times before.  And those looking to help often become discouraged when data starts pouring in.  However, each small action collectively creates that dent a half-century later.  And that dent is the worst case scenario implying plenty of upside potential to accomplish more.

As one contributor to the dent, microfinance assists those living on the margin of society.  Another group focusing on similar efforts is White Cloud Restaurant in Hanoi, Vietnam.  A quaint restaurant with consistently delicious set menus, one is always greeted with a smile.  What few realize, however, is that the workers (all female) have all suffered from severe family issues and/or domestic violence.  After coming together for strength, cooking became a way to lighten the burden and start anew.  With a little help, the women opened White Cloud as a way for reaching self-sufficiency.

Your friendly hostesses, waitresses, and cooks at White Cloud Restaurant

So why bring this up on the Kiva blog?  The amazing achievement of this small group deserves mentioning.  In addition, I introduced the women to microfinance and am hopeful that they will qualify for a loan.  You never know who you may meet next if you don’t try.  So go ahead and take that first step to do what feels right.  Someone around the corner is bound to need a hand.

If you find yourself in Hanoi, stop by White Cloud to try my favorite egg rolls in town (they’re vegan too)!  Otherwise click here to lend to a Kiva entrepreneur!

Alex Duong is the first Kiva Fellow (KF9) working with TYM Fund in Hanoi, Vietnam.
Interested in becoming a Kiva fellow?  Click here.
Join the Vietnam lending team here.

“That’s my philosophy.  The key is to get up in that batter’s box and take a swing.  And all you have to do is hit one single, a couple of doubles, and an occasional home run out of every 10 at-bats, and you’re going to be the best hitter or the best business leader around.  You can’t play in the major leagues without having a lot of failures.
- John Donahoe, eBay CEO

Substitute “hitter” and “business leader” for microfinance institution and the quote is absolutely relevant.  Microfinance is still in its infancy and far from perfect.  So long as more players enter the batter’s box, exciting innovations will appear on the horizon.  And interest rates are likely to come down assuming healthy competition takes place.  Until that time, however, the following is one rationale for current interest rates from the perspective of interest rate spread (click “more” below).

Imagine being offered 10% to open a savings account.  Though too good to be true in the US, it is a reality in Vietnam.  The table below was obtained from Vietnam News, a local Vietnam newspaper (Feb 27, 2010 edition).  Savings rates offered at some of the largest banks in Vietnam hover just under 10.5%.  From a US perspective the rates are hard to believe.  Consequently it can be important to step into the shoes of others; only then might we make sense of the situation.

Savings rates offered by banks in Vietnam

Consider that MFIs are essentially banks serving the poor.  When it comes to lending, banks make money by borrowing at a low rate (e.g. taking in money via savings accounts) and lending at a high rate.  In the US, a one-year CD is offering around 1%.  Currently, someone with good credit might get 5.5% on a fixed mortgage or 6.5% on an auto loan.  Lets assume a US person with good credit could get 6% on a personal loan overall.  That means a US bank has an interest rate spread of 5% (obtains funds at 1% and lends out at 6%).

MFIs receive grants, offer savings accounts, and borrow from major banks (think Citigroup or Oxfam) to obtain financing.  Sometimes MFIs obtain a large amount of financing from major banks; as much as 70% of an MFI’s portfolio could have been financed by major banks.  Informal surveys and discussions with MFIs and Kiva fellows show the major banks charge between 8-14% interest.  Assume the average is approximately 11%.

Now we have some numbers to apply.  If MFIs borrow at 11%, it implies they must lend at 16% interest to have a 5% interest rate spread like US banks.  However, lending to the poor who have no collateral or credit history is often seen as more risky.  So lets tack on another 2% to address the extra risk.  In addition, US banks have other means of generating revenue to cover fixed and operational costs (ATM fees, credit card balances, etc.).  MFIs on the other hand generate nearly all revenues through lending.  Lets add another conservative 5% to cover these costs given Kiva fellows’ stories on the topic here and here.  The minimum interest rate MFIs must charge on average has suddenly become 16% + 2% + 5% = 23%.

In specifically looking at Vietnam, it has been shown that savings accounts offer nearly 10.5%.  A Vietnam bank wanting a 5% spread would therefore charge a Vietnam MFI 15.5%.  Again, the Vietnam MFI would in turn have to charge borrowers 15.5% + 2% + 5% = 22.5%.  This comes close to the portfolio yield for Vietnam MFIs listed on Kiva’s website.

Of course country-specific complexities have not yet been considered.  Local regulations described by Kiva fellows here and here can increase operational and regulatory compliance costs beyond that of a US bank.  Countries suffering constant currency devaluation must still repay Kiva loans (and ultimately you Kiva lenders) in US dollars.  A linear regression of quarterly Vietnam exchange rate data for the past 10 years shows an annual currency devaluation of 3.25%.  Not counting interest, a five-year loan would require an extra 16.25% just to repay the principal amount!  If borrowing in non-local currency is the only option, devaluation becomes a heavy burden in helping the poor.  And of course people, process, and technology inefficiencies necessitate higher interest rates to cover additional time and money.

Kiva fellows present observations from ground zero.  Whether we personally support the interest rates or not is irrelevant.  We merely attempt to rationalize what our own eyes see for the Kiva community.  Although an approximation, the above calculations provide another perspective on what are seemingly high interest rates.  Perhaps the bigger question, however, is why the major banks charge MFIs so much more.  One single US individual qualifies for 6% on a personal loan.  He could at any moment lose his job or run into tragic events.  However, tens of thousands of borrowers (e.g. an MFI’s customers) collectively don’t qualify for the same rate.  Statistics around the web show that the MFI industry successfully pays back nearly 98% of all loans.  So perhaps there is more misunderstanding as a whole to sort out before interest rates truly reflect the amount of risk involved in serving the poor.

Hopefully this has shown current interest rates are at least plausible and sometimes necessary just for an MFI to survive.  So keep doing what you do best Kiva community and click here to lend!

For the quant jockeys out there, consider the additional following:
- Ideally, one should begin with the lending rate charged to businesses.  However, it would have meant considering market capitalization and financial statements.  The intent was to keep the above analysis rather straightforward.  Most everyone is familiar with mortgage and auto loan interest rates.
- The interest rate is based on how risky the bank perceives the customer to be.  It is a rate that covers default risk and provides reasonable profit for the amount of risk taken.  I assume MFIs act in a similar manner.  However, because an MFI’s customers are generally more risky, I believe MFIs charge a spread equal to or greater than what a major bank would charge.  Kiva fellow Dennis Espinoza presents an interesting and slightly different view here.
- Notice the near absence of change between 3-month and one year rates for Vietnam savings accounts.  This alone could be an interesting area to explore and recount as a blog post.
- Kiva fellow Josh Weinstein presents another layer to the equation here.  Josh states there are subgroups amongst microfinance borrowers that have different needs.  This could possibly sustain different interest rate charges.

Alex Duong is the first Kiva Fellow (KF9) working with TYM Fund in Hanoi, Vietnam.
Interested in becoming a Kiva fellow?  Click here.
Join the Vietnam lending team here.

College students must pick a major.  They distress over the decision:  economics or accounting? Political science or general studies? Should I double-major? Add a concentration?  And throughout the process, there are many that pick one out of obligation (with no path in mind), they hope for the best, and of course, hope this decision will lead to future professional success.

Microfinance borrowers must pick a career—they risk taking out a loan to invest in their business. They distress over the decision: Despensa(general store) or clothing sales? Should I double-up my business by selling empanadas? And throughout the process, there are many that pick an activity out of obligation (often with no path in mind), they hope for the best, and of course, hope this decision will lead to future professional success.

At my college, I was given two years to try my hand at economics, calculus, psychology, biology and more, before settling in on one area of focus and continuing with advanced courses and trainings.  Most microfinance borrowers lack the luxury of “trying out” businesses and/or receiving any training before choosing their “major” business activity.  Borrowers often follow previous pathfinders, mimicking the only businesses they know–convenience stores, clothing shops and restaurants.  What if all college students chose the same 3 majors??  In my humble opinion, the market for certain business concepts and majors are often saturated.  Every other person cannot sell rice, oil and pasta in a Despensa or market clothing from the city.

Saturnina at her despensa

One borrower I met, Saturnina used to have a despensa(convenience store) based out of her home in Ita, Paraguay. A few months ago, her family moved and her home business quickly dissolved.  Saturnina has no plans to resurrect her despensa, she would rather move towards a more lucrative activity such as distributing coca cola products. I admire Saturnina’s initiative; while all borrowers are grateful for the access to credit, many lack Saturnina’s awareness of the market, which inhibits their ability to efficiently use their loan.

Fundación Paraguay, Kiva’s local field partner, has decided to take charge of this issue by creating a “micro-franchises” division

HOW IT WORKS:  Fundación Paraguaya orders pre-packaged products and delivers them to one of their 20 branches.  From there, borrowers may use their loan to buy these products and sell them as their own “franchise”.  For example, in February Fundación Paraguaya created school kits with backpacks, notepads, pens, pencils and erasers.  Fundación Paraguaya distributed these school kits to their branches, allowing Paraguayan borrowers to manage their own backpack franchise. Fundación Paraguaya promotes micro-franchises that should improve poverty indicators: first-aid kits, eye-glasses, school supplies, etc.

Franchises with successful business models

Avon's direct sales model is similar to the "micro-franchise" idea

This sort of direct-sales, “micro-franchise” model has worked for Avon (beauty products) and Yanbal (fragrances).  Borrowers are eager to be entrepreneurs and to use their micro-credits wisely; they simple need exposure to more products.  To me, the potential for giving a list of “micro-franchise” ideas to borrowers is like giving lost college freshmen a catalog of majors to choose from. The “micro-franchise” division of Fundación Paraguaya may expose borrowers to business opportunities beyond the standard convenience stores and clothing shops. This model would slowly diversify the marketplace throughout the country.  Eventually, Fundación Paraguaya should aim to connect more pre-packaged products to these borrowers.

Overall microfinance is about an opportunity—and making the most of an opportunity.  Whether a loan is micro or otherwise- a successful outcome depends on how the borrowers invest. After meeting borrowers in Ecuador and Paraguay, I know we have the same uncertainties when choosing a career path, and we all risk time and money for the hope of professional success.   My courses in college exposed me to a world of possibilities, so why shouldn’t MFIs provide borrowers with a catalog of “major” franchise possibilities?

Kimia Raafat is a Kiva Fellow (KF9/KF10) working with Fundación Paraguaya in Asunción,  Paraguay.  Click here, if you would like to know more about Fundación Paraguaya or feel free to send questions, comments, or requests for future blog topics to kimia.raafat@fellows.kiva.org.

Sleep-deprived and over-heated, I sat in front of the fan in the loan officers’ room. I had been waiting for a loan officer at the WAGES branch office in Hédzranawoé for over an hour and sat unmoving as the room buzzed with activity all around me. Loan officers ran in and out, clients sat down and stood up, phones rang and calls were made, passbooks opened and closed, pencils scratched paper, sweat stained foreheads. I looked at the loan officer sitting across the desk opposite me. Adam is one of the kindest people I have met since my time here at WAGES, and I have had the opportunity to visit clients with him on several occasions. He is gentle, quiet, smiles easily and works extremely hard. I watched him flip through papers and carefully write the names of clients on a yellow post-it. With every name, he would “tsk tsk,” exclaim a high-pitched “ah” sound of frustration, and shake his head.

My eyes narrowed as I became increasingly curious about what he was up to. “What are you doing?” I asked. Adam explained that he was making a list of WAGES clients who were late on repayment. “Some people just don’t understand,” he said. “You have to repay! It’s not a gift, it’s a loan!” He “tsk tsk”ed, “ah”ed,  and shook his head as he scanned the list in his hand. He explained that he was going to visit the clients that morning and “encourage” them to repay. Well, the word he used was “chauffer” meaning to put on the pressure or heat. I had trouble imagining this friendly man taking a firm stand in the name of microcredit, but after listening to him tell me about how some clients simply refuse to repay, I wanted to know how this encouragement took form.

Often, WAGES clients repay their loan in installments on the same day every month. Adam explained that when he meets with a defaulting client, he has two complimentary approaches. He will first clarify the process of a loan, how it is meant to be repaid and that it is not, in fact, a donation. He will then suggest an alteration to the repayment schedule. A client can opt for repaying in daily, minimal installments. In the end, the amount repaid is the same, but it is less of a burden on the client than having to pay a monthly lump sum.

“And what if that doesn’t work?” I asked. “Well, then their names go in there,” he replied as he slid a red notebook in my direction. “Oh no! Le cahier rouge!” I laughed. “Yes, the red notebook,” he responded, his face solemn. There before me was an alphabetized list of all the branch’s clients who had defaulted on their loan. Adam explained that each loan officer must refer to the book before allowing a client to apply for a loan. If their name is found, their application will be refused.

I watched in awe for another hour as Adam would forcefully call clients and hang up before they could explain why they hadn’t repaid. He then dashed out of the room exclaiming “She’s going to leave!” and ran to catch a client before she left the branch office.

To be sure, this scene unfolding before me can seem rather unsettling to the outsider. Certainly, some clients have extremely legitimate reasons for being unable to repay. Sometimes a family member has fallen ill, or they have fallen ill themselves. At other times, their own customers have refused to pay for the products purchased on credit or supply costs have increased. By the same token, others do not. According to Adam, some clients just simply refuse to repay. While our sympathies tend to lean towards the client in these tough economic times, it is important to remember the middle man.

By way of contrast, the camaraderie between entrepreneur and loan officer is an undeniable constant. In my many visits to WAGES clients, I noticed how the officers are greeted in such a friendly manner; you would think they had been lifelong friends. Smiles dance across faces, hands are shaken, and friendly conversation is exchanged. Over the last 4 months, it has become quite clear that the relationship between entrepreneurs and their representing loan officers goes well beyond a “strictly business” relationship.

As a result, default not only reflects on the borrowers, but their loan officers as well. These MFI employees are single-handedly responsible for maintaining a smooth and regular repayment process for hundreds of clients. This is quite the burden to bear. They listen to countless excuses for not repaying: some understandable, others not. At the end of the day, their job is to ensure that that process of money flow from Kiva lenders to the MFI to the client and back again remains as flawless as possible.

I looked at the faded white posters lining the walls of the office “le crédit c’est la confiance.” Credit is confidence, credit is trust. It’s amazing how much the system depends on trust: Between Kiva and their partner MFIs, between lenders and borrowers, between loan officers and clients. And it is the loan officers who work everyday to ensure that this trust remains credible, intact, and maintained. Without them, the Kiva story would cease to exist. They are the glue that holds the whole book together.

Taylor Akin is finishing up her 16^th and final week working with WAGES in Lomé, Togo. She is grateful to both WAGES and Kiva for making this experience one to remember, and looks forward to the perspective she will gain in the processing she is bound to do post-fellowship. She plans on writing one final blog post before returning home to her much missed family and friends in Toronto.

Four months ago, my starry-eyed impression of microfinance was shaken during my first interview with a borrower (on my third day as a Kiva Fellow with CREDIT MFI), who told me that she had pulled her children from school so that they could help with her business. Though this reveals a possible negative impact of microlending, I have come to discover that what is attractive and important about this development tool is precisely that it is not glamorous or sexy.

There are countless times when I have met clients who tell me that their funds went towards buying additional inventory to stock their grocery store or food stand–with items like small packets of shampoo, fish-flavored crackers, gasoline, mangoes, or maybe some rice cakes or fried bananas. Almost as common are the borrowers that used their loan to buy a motorcycle to get to work more quickly than they do on a bicycle and to save on moto-taxi fees. During my first interviews, I was nearly (and selfishly) disappointed that I was not speaking to a brave new entrepreneur that is becoming not only economically but more socially independent by having access to financing. Yet now I take great comfort in the fact that the majority of these clients’ situations or circumstances, their businesses, are quite common in Cambodia. They are people with children or elderly parents who sometimes need money to smooth over their household consumption, to pay for school fees, to cover medical costs, to buy seeds or fertilizer, to buy a moto… They use their skills– be it farming, making food or palm sugar, being a good salesman or laborer–as a means to generate some funds for their families.

When my grandfather talks about life growing up on a small farm in the 1920s, he explains that the concept of a job, a business, or workweek was foreign. His family and their neighbors just did what was necessary–at whatever time it was needed and often with friends and family–to keep everyone fed, clothed and have some money to buy the items they couldn’t make. For most of the CREDIT clients I have talked to that is exactly the case: their work, their businesses are part of their everyday life and evolved out of what they already knew how to do. This is manifested daily when I walk through Phnom Penh and marvel at the vibrancy of the streets, the sheer number of businesses on the sidewalks, started by people who are just trying to earn an income. A man is sitting on a stool sharpening knives against a stone block, an older woman at the market carries a scale and charges a small fee for people to weigh themselves, a mother has set out a tray of homemade coconut cakes and some sliced fruit outside her doorway to sell, a family is raising chickens on the sidewalk outside their house in a makeshift cage of wire and tin cans… Then there are the myriad of food carts, barber shops, tailors, internet cafes, eateries, manicure stands, bike repair shops—all of which require an investment in equipment but are still just operating out of people’s homes, being run by various members of a family. These endeavors, these small businesses, this creativity and resourcefulness, this way of life–these are the individuals who should and are receiving loans and support from MFIs and lenders such as yourself (because they usually are not bankable but are doing what they must to support themselves and their families).

So in the end I have come to love these everyday stories, such as meeting another client who holds a food stand on the corner, as it demonstrates the accessibility, the no-frills simplicity of microfinance that make this development tool effective and wide-reaching.

Support and entrepreneur in Cambodia today, check out CREDIT MFI’s current fundraising loans!

Vichet and Riphin, CREDIT MFI's Kiva staff, seeing me off at the airport.

Gemma North has finished her Kiva Fellowship at CREDIT MFI and can’t thank the staff enough for being such wonderful friends and teachers.

I don’t call them babies to disparage them, but actually to highlight the new crop of SMEP employees that is fresh-faced and wide-eyed, ready to take on challenges and work for the first MFI in Kenya.

The 17 new marketers take a while to warm up during the training – they seem scared to speak, and I think back to employee trainings I have been in the United States, where each one of us struggles to prove ourselves by opening our mouths and commenting on every nugget of information offered by the trainer.  These new recruits are the latest line of offense on SMEP’s push to capture more market share in a country where microfinance is overwhelmingly popular.

Whenever I’ve visited a SMEP market, I’ve been astounded at the amount and sheer number of financial service providers that line the streets of even the smallest town. Banks, microfinance institutions, brokers and other financial service providers glut the market and to use a popular Kenyan phrase – consumers of loans here are “spoilt of choice.”  The Association of Microfinance Institutions of Kenya has a membership of 41 institutions, with 6 pending membership inclusion in 2010.  The membership handles a combined portfolio of $303 million and serves 4 million clients.  SMEP is the first institution to begin microfinancing in Kenya, but it has only 65,000 clients, preferring to grow slowly and organically until today, where it is not focusing on doubling clientele and rapidly increasing the loan portfolio in 2010.

Although numbers on Kenya differ, statistics say that Africa as a whole has 230 million unbanked households. And with the advent of technologically forward services such as Safaricom’s (local mobile phone provider) M-PESA (M stands for mobile, Pesa means money) mobile phone customers can send and receive money and make payments via mobile phone, including loan payments and savings for SMEP clients. In fact, since the advent of M-PESA the service has garnered 8.5 million individual unique clients and 15% of the Kenyan GDP has passed though M-PESA since its inception. SMEP is the first microfinance in Kenya to begin using M-PESA for loan payments by customers.

According the Kenyan Business Daily in an article from June, 2009, 7 out of 10 people in Kenya are unbanked. Maybe this untapped potential explains the overpopulation (seemingly) of financial institutions clamoring to serve those that have not become a part of the formal financial sector here in Kenya.

Now SMEP plans on fighting back and re-launching itself into those same markets by training the new crop of marketers – whole sole job it is to find and bring on new clients to SMEP and help them form groups (which are required for most of the people that get a loan through SMEP). The groups are formed because SMEP lends to people based on characters, when a group member gets a loan, the other group members guarantee the loan and vouch for the character of the client by signing on the loan form that they agree that that person should get a loan.

Back to the babies – they were trained at SMEP HQ by the marketing manager Anthony Mwamburi, guest starring myself, Brian Meme the Credit Manager, and Fridah Njeru, the Kiva Coordinator.  Anthony, the first Marketing Manager SMEP has ever had,  takes them through the basics of the finance and marketing curriculum, for most of them a refresher of what they did in university courses. They finally begin to open up, I get a glimpse of promise and gratitude in their eyes at this first opportunity to prove themselves and make some money. They present various aspects of marketing in front of the room, and I can barely hear most of them, their voices are so faint.

After the training I work with the marketing team with the local marketers – we go to a national –level church event of the founder of SMEP, to the branch where we train them on presence, diction, and elevator speeches when they are meeting prospective clients. The batch that we spend extra time with goes from timid, to more self assured. They learn about the organization and we soon learn that they are excelling in the field.  I meet two of the new trainees in Mombasa while in the field training, and they tell me about their time at the branch and the challenges they are facing. The babies are growing up. They are becoming more confident.

This is the army that SMEP has chosen to work its front lines – these young faces will reach out in their respective markets to those untapped, unbanked people and business owners to spread the word about the oldest microfinance in Kenya. They have a formidable job ahead of them in a market where each financial institution is beginning to spend more and more money on marketing. Let’s hope the babies are up for the challenge.

Avani Parekh-Bhatt is a Kiva Fellow with SMEP in Nairobi, Kenya. She is working to get the institution from pilot to active stage as a full-fledged Kiva partner.

However, growth is being achieved through volume via mass recruitment and market penetration.  But like all great strategies, it must one day adapt to a new environment and reality.  In places such as India and Cambodia, there are rumors of oversaturation, causing infighting amongst MFIs and NGOs to help the same clients (check this out).  Although likely over-hyped, how could such a rumor even surface?

A focus on quantity over quality may also lead to tunnel vision focus, silo efforts, and in the worse case deviation from social mission/impact.  Not to say that focusing on quality doesn’t come without its own criticisms.  Instead, a balance between the two is necessary.  Luckily, some are beginning to recognize that volume alone isn’t going to cut it seven years from now.  Though at times difficult to find info, I am happy to communicate that reflection, research, and refinement are all occurring in the field.  Previously, I had concerns that microfinance would hit a wall once the current strategy dried up.  The items below are on the fringe of potentially great endeavors and worth sharing:

Kiva green loans – Kiva is now offering the world a chance not only to lend but change consumer consumption behavior for the better.  Click here.

Vittana education loans – The notion of higher education loans doesn’t exist in most countries.  Vittana helps fund students through their last years of college which ultimately increases the chances of escaping poverty.  Click here.

Intra-Country Collaboration – MFIs in Vietnam have an informal forum to share their experience, collaborate on initiatives, and present a unified voice for the advancement of microfinance.  Click here.

Currency hedging – Currency rates can be highly variable in some countries.  With the ability to lend in any currency through hedging, the pool of funds available to MFIs should increase.  Click here.

Equity and technical aid duo – Insitor Fund looks for businesses having a social impact component.  In some cases it provides both seed capital and capacity building.  And in other instances, they work directly with locals to identify the needs and subsequently help start a business to address those needs.  Click here.

Diversified service offering – An mutually reinforcing institution (MRI) in the Philippines, CARD MRI, has built multiple business lines to provide a range of services.  CARD consists of an MFI, a bank that lends to small/medium enterprises (SMEs), an NGO, a microinsurance fund, and a center offering training and best practices to support other MFIs.  With so many offerings, it is fully scalable and should be self-sustainable across different economic environments.   Click here.

Direct retailing – A clothing label with factories in a developing country is looking to sell its clothing directly to the country’s citizens.  A feasibility study is currently being conducted with assistance from MFIs.  So how would it work?  Entrepreneurs with a clothing store would take a loan to buy inventory and be exclusive carriers of the label.  The clothing would be sold at local prices since they are locally produced.  Essentially these entrepreneurs would serve as retail stores for the label without the fixed, overhead, or startup costs of building a store.  No links as I can’t give away who this is at the moment.

And with that I sleep just a tad better each night.

By Alex Duong, KF9, Vietnam

Interested in becoming a Kiva fellow?  Click here.
Join the Vietnam lending team here.
Alex Duong is the first Kiva Fellow (KF9) working with TYM Fund in Hanoi, Vietnam. Click here for info on TYM Fund.

Nelly Barati, SMEP Client, and I show off the outfit that she made for me when I went to visit her at her shop. Nelly is one of my "mamas" in Nairobi.

Nothing prepared me for what I experienced today, as I attended devotion for the first time. As a community builder and activist, I know that sometimes we pull ourselves out of our own comfort zone to forge connections with others. I felt that by attending the morning devotional today, I’d show my co-workers that I cared about this institution and that I am interested in connecting with all of them on a deeper level.

SMEP is an organization that was born out of the highly influential organization, the National Council of Churches Kenya, an ecumenical Christian governing body that is an opinion leader in the country. This is a religious institution. Employees are asked if they are saved when they come on board. Meeting and trainings begin with prayer, and end with prayer. These people are serious about their god.

This morning however, when I sat in the devotional for the first time, I got some surprised, but happy looks. We open the devotion with song, and I falter, not used to the tunes, but pick them up quickly – my voice cracking from the diesel fumes I’ve inhaled on my daily walk to the office.

The songs set the tone for the rest of the meeting, we’ve cleared our throats, found our collective voices, and then we begin individual prayers. Most pray out loud and the room is filled with the voices of everyone at the head office. I hear snippets of others’ prayers;  “thank you oh God, oh Father, for keeping this institution alive and for all the blessings you have given us…” “ ….my children safe and for your continued healing, My God…” “ …for my family and my loved ones, watch over them, and continue providing…”

My prayer is silent, more meditative, and begins by putting everyone that I love in a “bubble” of love and protection. I come to realize that this time; my bubble includes all the people that I work with and the wonderful friends who have become family here in Nairobi- the other Kiva fellows and their teams, my neighbors, people who I have had the privilege to meet since being here. My bubble has expanded, and a new, larger family is a part of my life now and I am so thankful.

I begin to tear. How is it that I’ve come to Kenya to learn and tell the stories of others whose lives have been changed at SMEP, and I finally understand my OWN story? I fruitlessly try to wipe away the tears so that my mascara doesn’t run, but they keep coming.

Over the past year and a half I’ve lost family and friends to suicide.  I’ve lost the love of my life. I was told that my father might need a kidney transplant and that I would have to be tested as a donor.  A month before coming to Kenya I was in a horrible car accident and thought that I wouldn’t be able to come.  My life has transformed. I’ve come to realize that passion is the only thing in life worth pursuing and if you aren’t feeling a fire for something – let it go. So many deaths, so much lost, so many lessons to learn.

But I’ve come here, heart empty, only to have it filled with the love of a new family, and a new country that has made me feel at home. I would save this blog for my last but my heart is flowing with so much, that I feel the momentum will be lost if I don’t convey how fortunate I am to be here even telling this to you.

We come here to find and tell stories. But the Kiva Fellows also each have their own story to tell. Each of us leaves something behind to come and open our hearts to new people and experiences. My heart has been filled, each and every day that I have been here. I love my “family” here that lets me cook experimental Indian meals and feed them without any reservations about my ability as a chef. Or the co-worker that sings with me in the 14-seater shared vans called matatus that we take into the field to visit borrowers. The family that prays in the morning devotional that they are thankful for me and my commitment and that they implore god to help me stay in Kenya permanently.  The ones that take me out dancing after a hard week in the field. The people I have re-learned how to laugh with. Everyone here, who has helped me heal.

What does this have to do with microfinance? It’s all about framework. The CEO said in the devotional today “If you are here to make a living, you are in the wrong place. Making a living should be your second priority; your first priority should be to change a life.” She’s setting the tone for the week, and I find such peace in her message. Sometimes we take this message for granted, that with our hearts open to possibility, we can enter the world and connect with people, even during a first meeting. I go in to the field and smile at the possibility -that the person I see is touching my life, and maybe I am touching theirs. Clients at SMEP have become my “mamas,” maternal figures to me at a time when I am so far away from real family. The CEO urges the team to find the real reason for all of this. We connect one loan at a time, to a person, a family, a story. We tell those stories to you in the profiles and journals; we share stories of our own on the blog. My own story has taken on a life of its own here in Kenya. My heart is open. I am the spark and the flame, and I want to keep burning – never losing my passion for changing a life.

I am a very fortunate woman to be able to open my heart, and let tears of joy flow. To sing words of praise, and to be with family. In Kenya they say “Karibu”, which means welcome. And I have never felt more welcome, or more at home, than I do here.

Kiva Love!

Avani Parekh-Bhatt, KF9
SMEP, Nairobi

On Thursday March 4^th, the second Togolese presidential elections were held since the death of President Eyadéma Gnassingbé in 2005. After 38 years of uninterrupted rule, his son Faure assumed the presidency. Shortly thereafter, he held superfluous elections that resulted in a “democratic” confirmation of his leadership. The country erupted in civil unrest under the pretense of false electoral results, and hundreds were killed in the resulting violence.

Faure's campaign posters dominate the billboards throughout Lomé

That first election of the post-Eyadéma era certainly set a precedent for fear. I quickly lost count of all the WAGES clients who reported a lack of demand for their products as a result of the elections. Countless others articulated a desire to take out another loan, but were waiting for the outcome of the elections before seeking additional credit. They did not want to be held financially responsible for defaults as a result of political instability.

On the day of the elections, everyone was advised to stay home. Although the regular work day resumed on Friday, there was a definite sense of hesitation in the air. The nation seemed to be holding its breath. On Friday night, I was officially put under house arrest. I have been graciously taken under the wing of a colleague’s family, which means I had the luxury of feeling quite safe despite the widespread paranoia. Unfortunately, I was also becoming a bit stir-crazy come Saturday evening.

That night, in a reckless act performed by someone who is beginning to feel like a caged animal, I escaped my house arrest. Before leaving with my friend and colleague, he got a devilish look in his eye and asked, “Do you know how to run?” He may have been smiling, but he was not joking. He wanted to confirm that if anything were to happen, I would be capable of running for my life. Suddenly, this Saturday night outing had become quite a loaded experience.

The main street was eerily deserted. The usually vibrating city was quiet, and the regular hotspots were closed. I couldn’t help but wonder how I would manage to run for my life wearing flip flops. Thankfully, the night was uneventful. The preliminary electoral results later confirmed that the current president would occupy the office for the next four years. In the days that followed, the opposition protested and the government resisted with tear gas in hand. Thankfully, no one seems to have been seriously injured.

I got to thinking about the link between politics, microfinance, and running for your life. As Kiva lenders, we are in constant dialogue about risk. We discuss who should bare the risk of default, we examine the risk of currency loss, and we evaluate the risk of lending to a particular MFI. When it comes to microfinance, risk is inevitable. But it’s easy to forget that Kiva borrowers also bear the risk of political instability on a regular basis. A military coup, the death of a president, and civil unrest can mean that entrepreneurs cannot open their businesses, sell their products, or provide their services until order is re-established. At times, just travelling the distance between home and work can constitute a risk too heavy to bear.

At its best, microfinance is grassroots. As such, it must be community-based, development-focused, and firmly grounded. But how stable can these institutions be when the very people they seek to serve are expected to uproot and run for their lives at a moment’s notice?

These questions are important to keep in mind. Microfinance does not operate in a void, and the risks are not strictly financial. Thinking about all the factors that impact a loan can give us a new found appreciation for every email we receive from Kiva updating us on repayments. Despite political instability, natural disasters, and weak infrastructure, it is awe-inspiring that Kiva entrepreneurs are so dedicated to repaying their loans. By the same token, considering the economic recession, large scale unemployment, and future uncertainty in our home countries, it is equally remarkable that Kiva lenders are still willing to lend. While the risks may be different on either side of loan, we are in this together. When they run, we run with them.

Take some time to give yourself a pat on the back. Congratulate yourself on taking a personal risk for the greater good in our uncertain global climate. When you’re done, get back onto the Kiva website and show some WAGES entrepreneurs that you have faith in them and their business endeavours. Then, join the WAGES lending team and show WAGES your support.

So what you have here is just that: an attempt to bring everyone along with me on my amazing 3-month journey to understand, at the most basic-level, exactly how microfinance works and the social impact it has on both borrowers’ and lenders’ lives.  The toughest part was keeping it short, ultimately eliminating over 7 hours of footage, to share my thoughts in just 9 minutes.

Of course, the best way to really experience this is to go be a Kiva Fellow, so don’t hesitate to follow the link at the end of the movie in order to be the change you want to see in the world!

Anne, former Kiva fellow at SMEP and I shuffle loan forms to choose borrowers to randomly audit for Kiva

Everyday in Kenya, paper loan forms are traveling great distances in order to make microfinance work over a geographically diverse network of branch offices. With 19 branches, and 11 satellite branches all over Kenya, SMEP HQ in Nairobi bears the task of disseminating information back and forth to the branch offices all over the country.  Since I’ve worked in some community-based financial institutions before in the US, I was accustomed to seeing things done electronically.

The Kiva Fellows have explored the various costs of doing microfinance on the blog from different angles and in different countries.  What struck me as interesting about SMEP, is that the whole institution relies on paper to function. The cornerstone of the loan process is the loan form, the instrument through which critical information is disseminated – the loan amount, purpose, information about the borrower, the approval of the group members of the borrower, the acknowledgement of the receipt of the disbursement. The form is it, the beginning and end of the deal.

The life of a loan form at SMEP is long and arduous. They travel all over the country in the courier bags of the “Fargo Courier” that has the task of making sure that all that paper gets to the right place each morning and evening.

A loan form, the contract between SMEP the institution and the lender begins its life at one of the branch offices. An interested client (with the consent of the group that they are in) decides that they want a loan, and a loan officer from the branch comes with the form and the client pays a loan application fee.  At that point in time the loan form begin acquiring the many layers of information that it needs in order for an actual loan to be disbursed to the client.  The officer does a business appraisal, to decide if the client it credit-worthy, and that information goes on the form. Then the entire client’s group – the guarantors of the loan EACH sign the loan form.

Loan forms at the HQ waiting to be put in courier bags

At this point in time, the form is looking pretty full of different scrawls, and has already been to the branch office, group meeting, back to branch office, to the client’s business, back to the group meeting, and back to the branch office for approval by the branch manager.

It seems like a lot already, right? But the loan form has not even left the locality of the branch office, a general radius of up to 50 kilometers from a branch office or satellite office, meaning by this stage the form could have already travelled hundreds of kilometers.  If the branch manager approves the loan, then it’s entered locally into a database at the branch and then shipped off to the Nairobi HQ in one of the courier bags.

The following morning, the loan gets to HQ in Nairobi  and begins a dance around departments and exchanges many hands while being verified. (Driven the entire way, in some cases up to 11-12 hours overnight to reach in the morning).  The accounting department ensures that the group the client belongs to, and the group itself has no arrears. If there are any arrears, the form goes back to the branch office right away and waits for the arrears to be addressed.

If there are no arrears, the form goes from accounts, to check-writing. The check is attached to the form with a pin, and signed by the required two parties, then is sent back to the branch office to be disbursed – while still attached to the loan form!

Loan forms getting put into the courier bags by a small army of staff at HQ

At head office the process begins at about 4 in the afternoon, the cloth bags, with each of the branch locations names handwritten on each one, gets laid out on the grass. Members of the finance office then hand collate hundreds of loan forms, stationary and any other items needing to go to the branches into the courier bags and they go back out into the field.

Are you tired yet? We aren’t done!

The Branch Manager gets the checks, signs for them on the loan form, and then places the loan forms and checks in a safe. Then the required loan officer for the client signs the loan form for the check. Then it leaves the branch office again to get disbursed.

The loan form plus check given to client in group meeting, the check is first given to the group, the group witnesses the disbursement and records the disbursement in its minutes,  and finally the client signs the loan form and acknowledges receipt of the check and the first 1^st repayment date written on the loan form.

And then … no, just kidding, the form STILL needs to come back to the HQ via the Fargo Courier. The loan form then goes to the ICT department (the computer guys) – who enter the loan into the financial management software program.

And finally, the form is given to the Kiva Coordinator, who takes the form and enters the information onto the Kiva website so that lenders like you can make a loan to that SMEP client.

Then, ideally, the loan form goes to its final resting place in a file. But usually different people at HQ have to ask for specific forms and the process of retrieval begins, but that’s another blog.

Thousands of kilometers, dozens of pairs of hands, several databases, financial management systems, and even a peer to peer lending website. The loan form is the entire basis upon which business is done at SMEP. The long journey it takes facilitates loans that change lives to thousands of entrepreneurs in Kenya. At some point in time, SMEP will go digital, and these forms will no longer have to travel so far and long for al on as little as $250. But for now this system works, and has never ceased to fascinate me in my two months as a Kiva Fellow at SMEP.

Avani Parekh-Bhatt
SMEP
Nairobi, Kenya

I met some Dutch Kiva lenders during a trip to Isla del Sol, Lake Titicaca in Bolivia who don’t like to loan to groups on Kiva because

1. They miss out on the personal connection with one particular entrepreneur
2. They feel like the loans amounts are too big so they feel they aren’t making as much of a dent in the group loan amount as they would have if they had lent to one entrepreneur
3. They don’t get to see the entrepreneur at work if the photo is of a group of people at a meeting

Kiva has actually responded to points 1 and 2 by

1. Improving the personal connection by enforcing a rule on its partner MFIs that group profiles must include a personal story about one of the members, preferably the president
2. Creating limits on the maximum value of a group loan.  Kiva imposes a $5000 limit on group loans for both Emprender and Arariwa, regardless of how many people are in the group.

Regarding the third point about photos, yes I would agree that the photo of a bunch of group members in one of Arariwa’s or Emprender’s white-walled classrooms isn’t as sexy as a photo of a farmer in his fields, or a pot-maker in his workshop, but group loans are a way for the microfinance institution to be more sustainable, especially considering the high costs an MFI faces.

Bare with me as I explain…

Both the MFIs I have worked with as a Kiva Fellow, Asociación Arariwa and Emprender offer both group and individual credit products, however, the majority of Arariwa’s clients and 40% of Emprender’s clients work within a banco communal (village bank).  A banco communal basically acts like a mini financial institution.  The MFI gives each member credit based on the amount they have requested and their ability to pay.  Each member saves part of their loan and in some cases, can relend this money within the group and collect interest on this internal loan.

Señor De Mayo Group on Kiva

Here are some reasons why group loans work well in microfinance -

• Allows MFIs to go deeper into poverty – Group borrowers are often poorer than individual borrowers.  Since the only collateral required of them is a mutual guarantee, group loans allow clients without assets – like appliances, vehicles, or property titles – to access credit. Group loans give MFIs the ability to offer credit to what would otherwise be considered much riskier, collateral-less borrowers.  Very poor clients need support in ways that group mechanisms provide, and live in areas where the cost of mitigating risks without group mechanisms would be nonviable. Group mechanisms include a lot of costs that in rural areas are not really considered (people don’t value their time because the opportunity cost is low), but where monetary costs such as significantly higher interest rates or physical collateral (rather than social collateral) would prevent people form accessing credit.
• MFI Efficiency – With group loans, one loan officer can serve multiple people at the same time, which helps keep MFI costs down.  Since loan values are small, the fixed costs of doing business are high compared to the interest earned from the loans.  Group loans help MFIs like Asociación Arariwa or Emprender who work with the village banking methodology to be sustainability, especially when they have to travel far distances to visit clients.
• Kiva Efficiency – Publishing group loan profile on the Kiva website, the Kiva coordinator can meet and photograph 10-20 people at one time and upload one loan on the site instead of 20 individual loans.  This brings down what we call the “cost of Kiva” for the MFI
• Mitigated Credit Risk – Asociación Arariwa, for example, insists that the borrowers guarantee each other’s loans in triangles.  For example, Carmen Ruth will guarantee Dominga.  Dominga will guarantee Sonia Patricia.  Sonia Patricia will guarantee Carmen Ruth .  And in many cases, the group is responsible for the loan payment from the group savings if the guarantor fails to pay.

Example of a Guarantee Triangle for Microfinance Group Loan

• Group Education – One loan officer can effectively teach a whole group on various topics such as Financial Literacy, Business Training, Family Well-Being, Health. Here’s a link to a blog entry I wrote about Financial Literacy Training and Microfinance.
• Support and Solidarity – Group members are mostly neighbors who know each other or become close as they work together in a communal bank.  Besides guaranteeing each other’s loans, group members can support each other with business advice and help with personal issues. How about a group of women supporting each other?  More than 70% of Arariwa’s clients are women and 60% of the members of communal banks at Emprender must be female.
• Adverse selection before disbursement - In other words, how to select the right clients. Since people know their neighbors (though see criticisms below), reliable clients are able to select other reliable clients much more cheaply than MFIs are. If they might end up paying for somebody’s irresponsibility, then they make sure they pick responsible people to borrow with. Groups are formed according to risk levels and the groups assume the risk rather than the MFI.
• Ex-ante moral hazard – in other words, the risk of people using the money for activities other than those reported to the MFI. Groups ideally monitor the businesses that are chosen so that they don’t end up paying for somebody else’s business failure.
• Ex-post moral hazard – in other words, the risk of people making profits and then claiming that they can’t pay because they did not make the profits. Group members know if their neighbors are making money and make sure they cough up the money if the alternative is paying themselves.

Of course there all also some criticisms of Group Loans -

• Adverse selection before disbursement - Do people know each other too well so that they are not willing to enforce social sanctions?  MFIs need to have rules to make sure that the right people are chosen.
• Adverse selection before disbursement - Often the MFI rather than the borrowers themselves who form the group and people don’t know each other well. It may be rash to assume they know the ins and outs of each others´ businesses.  Here MFIs need to have rules to make sure that the right people are chosen.
• More work for poor clients - The benefits mentioned above mean that the poor clients are expected to put in a lot more work. This is an implicit cost that is not associated with individual loans. In rural areas, the opportunity cost of putting time into getting a loan is low. In order to mitigate risks using individual loan mechanisms, interest rates and collateral requirements would have to be much higher. Poor people are not willing to front these monetary costs.
• Group Meetings - Group mechanisms have a lot of meetings, which is also a cost.  The low opportunity cost for attending group meetings for rural borrowers seems reasonable, but Emprender, Pro Mujer and some Arariwa clients are urban, and there definitely is a cost associated with leaving your market stall for half the day.
• Assuming Other’s Risk - Often it’s not effective for risk adverse people who are reluctant to assume other people’s risk. Educational programs help to reduce this problem. If people understand the system, they become less risk averse.
• Collusion - Groups can collude to cheat MFIs. MFI’s have to be strict in their monitoring so that this does not happen.

Weighing the pros and cons, I believe the village banking methodology works best for rural, poor clients who don’t qualify for individual loans, need group support and training and for MFIs to help alleviate costs of doing business with poorer clients where they have to travel far.

If you have thoughts about group loans, please feel free to leave a comment below and please consider supporting group loans on Kiva by loaning to Communal Banks!

Thanks to Cynthia McMurray, Kiva Field Support Specialist; Adam Kemmis Betty, Kiva Fellow, Bolivia; and David Bullon Patton and Martin Rotemberg from IPA for helping with me this entry.  To learn more, please check out the book Economics of Microfinance as well as Kiva Fellow Julia Kastner’s Kiva Fellows blog entry about the Village Banking methodology.

Sheethal Shobowale is currently in her Kiva Fellow placement with microfinance institution (MFI) Emprender in La Paz, Bolivia after working for the last several months with Kiva partner Asociación Arariwa in Cusco, Peru.

Imagine you’re a loan officer who’s working for one of Kiva’s partner MFIs. You’ve been traveling around the field, collecting repayments from quite a few clients over the course of the day. It’s getting late, and you’ve amassed a huge amount of cash – the equivalent of a few months’ worth of income for locals. As the sun begins to set, you realize you’re still at least an hour away from the office – an hour’s worth of travel on your motorcycle, over rough roads that are poorly (if at all) lit. What do you think could happen next?

When I ask HSPFI‘s loan or project officers what they find most challenging about their jobs, they always say repayments. Not just because all the hours spent traveling to get to clients is rough and arduous, but because project officers make tempting targets for robbers and thieves as they carry huge sums of cash repayments back to their MFIs. One of the HSPFI project officers who I met was actually robbed at gunpoint in broad daylight. At around 10AM in the morning, the project officer found himself confronted by a robber with a gun and was forced to hand over all the repayments he had collected. Shocked and confused, the project officer went home before heading to the police station to report the crime.

HSPFI project officers are generally fairly philosophical and accepting of the dangers that comes with this line of work (“It is a part of our job and duty… it is an experience.”) But still, it took me some time to digest the fact that many of the project officers who I’ve met and come to respect are quite literally putting themselves in danger every day. Not only are project officers potential targets while they’re on the road, but they can also come under fire from clients or clients’ families. One such encounter involved a project officer and a client’s drunken knife-wielding husband. Luckily no one was hurt, but I don’t think that project officer managed to collect the client’s repayment that day. (This also made me realize that there was another practical reason as to why MFIs tend to target women borrowers – most women are probably less prone to threatening MFI loan officers with weapons or other dangerous household objects.)

What do you do? I pressed. What do you do under these circumstances? After all, as one HSPFI project officer told me, it’s not like we can carry guns with us. Another project officer who’s worked for over thirteen years with HSPFI shared that she tries not to react in difficult situations where she is being provoked by angry clients. You do not react, just do your part. And smile. Smile on the outside even though it’s hard on the inside. She added that most people will usually cool down with time; some clients have felt so ashamed of their outbursts that they’d visit the office and apologize to her.

There are also other strategies that project officers can employ to help reduce their personal risk. Project officers at one of HSPFI’s branches would travel in a group to a particularly remote village, setting out early in the morning on their motorcycles to visiting several villages on the way, and returning to the office after night has fallen – trusting that there is safety in numbers. HSPFI has also taken steps to help ensure the employees’ safety – project officers do not carry cash and give out disbursed loans to clients at their centers or their homes. Instead, clients visit HSPFI branch offices to receive their loan checks. I had guessed the reason behind this policy (as I’m sure you have as well), but I asked why anyways. It was because the risk for project officers carrying all that money one-way was already so high, HSPFI couldn’t risk doubling the danger to project officers by asking them to carry funds to AND from the MFI.

Most of all, project officers tell me that they pray. HSPFI staff pray that God will protect the project officers and ensure their safety while they’re working in the field. Next time you receive your repayments from Kiva, I hope that you can send a thought (or a prayer) to the hardworking MFI loan officers, who are working in difficult and dangerous environments to make sure that your money gets repaid!

Eva Wu has already finished her placement in the Philippines, but she crammed so much field traveling in her last few weeks that she went home with a bunch of stories left to share. She plans to linger on for a bit longer until she’s caught up with her Kiva Fellow duties here and on her personal blog. In the meantime, support HSPFI by joining the HSPFI lending team!

“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.

First, a brief background on microfinance for the unitiated.  Without going into too many specifics, microfinance describes the provision of financial services to individuals below the poverty line with no material collateral.  Microcredit, specifically, refers to the disbursal of small loans – generally between $50 and $1,000, depending on the sophistication of the institution and the industry in general (average loan with Compartamos is $623) – to individuals that cannot access credit via the traditional banking system.  Given their small size, the cost of servicing these loans, as a percentage of the total, is high.  Remember: it costs the same amount to service a $10,000 loan as it does a $100 loan (salaries, office materials, etc.), and these microfinance institutions often have to track down the borrowers on a weekly basis to collect the interest and principle.  In other words, interest on microfinance loans are higher than one might think appropriate.  In the United States, 50% for a loan may seem exorbitant.  But, when you look at it relative to the alternatives (up to 800% from loan sharks) and the fact that these loans are expensive to service, high interest rates are a necessity.  But at what level are interest rates exorbitant, even for an MFI?  This is the question at the heart of the Compartamos debate.

At its core, microfinance embodies the idea of the double bottom line – a dual commitment to financial profit and social responsibility.  By nature, the management of a publicly-traded entity is responsible to its shareholders, above all else.  Unless there is an agreement among shareholders to sacrifice profit for social impact, the tenets of publicly-traded organization are at odds with the concept of the double bottom line.  An MFI like Compartamos will target clients higher on poverty chain in an effort to reduce default rates, ceasing to serve the poorest – those most in need of microcredit.  So is this an acceptable model?  Muhammad Yunus would argue that the answer is simple: a microfinance organization cannot be a publicly-traded entity, because its goals are inconsistent with the mission.  Here Mr. Yunus vents his frustrations:

Yunus, 67, says he fears that his innovation has been twisted to benefit investors, rather than the poor. But he has particularly unforgiving words for microlender Compartamos. At one point during a conversation, Yunus objected to the mention of Compartamos and microfinance in the same sentence. “When you discuss microcredit, don’t bring Compartamos into it,” he instructed. “Microcredit was created to fight the money lender, not to become the money lender.”

Oh snap!  Yunus’ opponents and Compartamos supporters would argue that, without generating profits for investors, MFIs will never attract the capital necessary to achieve poverty alleviation on a scale large enough to reach all those that need microfinance services.  After all, in the eyes of potential investors, money that could be making more money is actually losing money.  But a highly profitable MFI, like Compartamos, will attract a lot of money, which, in turn, can be put to work by potential entrepreneurs in the developing world.  In response to M. Yunus’ scathing review, Compartamos released an 11-page statement defending itself:

We generate social value by providing access to financial services for as many people as we can in the least amount of time. We create economic value by building a profitable and strong company where private capital can participate, making this industry attractive for others to compete in providing better financial services for low income people. We also generate human value by believing in people, by giving credit to their word and their willingness to succeed and realize their capacities, and by encouraging them to be better persons. Not only do we believe these are not contradictory goals, but we are convinced the three reinforce each other.

Touche, Compartamos.  So, the other side would argue, Compartamos and profit-generating MFIs not only remain true to the fundamental mission of poverty alleviation, they actually serve to expand it well beyond the scale it could achieve in a more socially-oriented framework.

A myriad of other factors are critical to an informed discussion of this debate.  For example, how can Compartamos serve the poorest individuals with a higher risk of default when it is responsible for generating returns for its shareholders?  (The answer is that it doesn’t, nor does it claim to.)  Without that function, how then is it any different from the traditional banking system it was designed to circumvent?   These are questions for another post.  I’ll try my best to posit a solution, or at least a compromise that might satisfy both camps.

Microfinance can operate across the pyramid

It seems to me that these two models of microfinance – non-profit or borrower-owned vs. public for-profit – can coexist, serving different populations within the spectrum of poverty.  Currently, the microfinance industry serves ~10% of the estimated $250 billion of global demand.  Microfinance institutions, in theory, offer a broad suite of services to individuals with no access to the traditional banking system, yet the unbanked population (~4 billion people) is dramatically stratified.  At the very bottom are the destitute, those living in extreme poverty (less than $1 per day).  Here, microfinance is ineffective, and aid, in the form of food and healthcare, are necessary.  For the ~3 billion people that could benefit from these services, both the non-profit Yunus model and the public Compartamos model could each serve a valuable role.  For the vulnerable non-poor and those just below the poverty line (just above the poverty line) that are more reliable, Compartamos could offer high interest rates and still generate a positive return on equity, attracting large investments from institutional investors, rather than donor capital.  Compartamos is serving businesses with high inventory turnover (i.e. buy a dozen eggs for 100 pesos in the morning, and sell them for 120 pesos in the afternoon, for a 20% daily return).  Therefore, 88% annual interest is actually not as burdensome as it seems.  Also, success breeds replication, which helps serve the poor even more.  Compartamos has perhaps been a victim of its own success, as new competition by others replicating its model has driven interest rates down from ~88% in 2005 to 71% in 2008.

The MFIs in the Grameen camp, on the other hand, can still focus on those below this level with reasonable interest rates, remaining sustainable, but still functioning as non-profits.  The interest rates will continue to make these organizations appealing to clients, as will the provision of other non-financial services, like micro-insurance, energy programs, entrepreneurship training, and others.  These institutions could mandate specific thresholds for potential clients in order guarantee the social mission (The Progress out of Poverty Index comes to mind).  These socially-focused MFIs will continue to receive grant funding from international development organizations, like the World Bank and the IFC, and philanthropy groups, like the Gates Foundation and the Clinton Global Initiative. Investors can make decisions based on their own motivations.  Online P2P lending organizations like Kiva have proven that people are willing to accept 0% rates of return, provided funds are directed to borrowers of a specific profile.  In addition, institutional investors are crawling over themselves to give money to successful organizations with a social mission.  For them, the 10-12% returns on investment are satisfactory.

At the end of the day, the success of microfinance and microcredit depends on scalability and adherence to mission.  The Compartamos IPO highlights the divide among the development community.  I reject the premise that the two models are mutually exclusive.  I’d go so far as to argue that they are complementary.  Pursuit of profit is a good thing – it is what drives the capitalist engine, and microfinance is fundamentally a capitalist approach to development.  And, though the idea is controversial, I believe that it is OK not to have an committed social mission if an institution is still serving the unbanked, as this is a social mission in itself.   Again, Compartamos explicitly defines their role in microfinance:

Everybody agrees that MFIs are going through a period of deep and important change. There is no question that the debate will continue. This letter is merely a contribution to better understand our point of view in the debate. In the end, the ability to expand  the market and include large numbers of excluded low income people into the financial sector, will give us all a better perspective on the benefits of the commercialization of microfinance.

Let Compartamos target a lower risk, less impoverished clientele, and focus the Grameen segment on the still-unbanked poorer individuals.  True, this is a drastic oversimplification of a complex and nuanced topic, but at the end of the day, a large percentage of this market remains untapped.  It is premature to be arguing about which of these two proven models are best going forward.  After all, there is more than enough business for everyone.

Note: This is a modified and updated version of an article I wrote for a public policy journal, found here

Looking at my feet reminds me to, "Be Here Now" (Ram DaSs 1971)

As a Kiva Fellow, working in the field, life is often very exciting. There’s a funny thing about excitement though, sometimes it’s fueled by sheer joy and sometimes by total fear (otherwise known as anxiety!) It doesn’t seem to matter though what direction the catalyst is coming from, when I get excited I get, “all sorts of crazy” in my brain, thoughts fly left and right from one thing to another quickly and randomly. From one minute to the next I’m thinking about “minimum wage laws in Cambodia, how wonderful the frangipanis are here, my taxes, where I’ll be this time next year, genocide, mosquitoes – I wonder if the doxycycline really works, I wonder where I put that camera cord?” It’s like a losing game of Tetris sometimes, the music starts to go faster and faster and the pieces are just barely sliding into place as I try to stay present on what I am actually doing.  Essentially my brain moves faster than my body and the result …well…here’s what happens…

– I fall down (Went running in Bohol, Philippines, tripped and fell into a mixture of rocks/glass (luckily the staff  at Bohol Bee Farm, a super cute livelihood accommodation/project on the island of Bohol, repaired my wounds).

– I forget important facts  (missed my first flight to the Philippines as a KF9 because flight was 6am not 6pm).

– I spill things (like an entire mug of coffee on my PowerMac)

– I break things  ($1325 dollars in electronic repairs and replacements to date – includes spilling coffee on Mac).

– I walk into men’s bathrooms (I did this twice at the Central Luzon Association of Microfinance Awards Ceremony and was spotted twice by the Executive Director of my MFI – we never talked about it. I also did this when I was an intern on an OTC (Over the Counter) trading floor full of men in NYC. – right, Uncle Mike?)

– I eat too fast (had to perform the Heimlich maneuver on myself during my first day in the field in Cambodia as a KF10 – while the credit officer at Maxima looked up from her bowl and asked, “What’s wrong with you?”)

In most of our posts to “Kiva Stories from the Field” we focus on “what it’s like” in the field learning about microfinance, poverty, culture, local economies, meeting with out borrowers etc. and how that impacts us.  So I wanted to take a moment to mention a slightly different angle on “what it’s like” as I become more aware of myself (thanks to a more intense environment – provided by the fellowship – my little quirks seem to have taken performance enhancing drugs ), accepting myself lovingly as I am now (coffee spills and all) and taking small actions to try and be a more present “me” (no texting and walking especially in developing countries) as I move through a world where I often want to escape into mental business to avoid certain truths….and in the meantime I’ll just keep making people laugh with my little moments.

I’m also writing this post for any of my fellows who have had expensive learning experiences while in the field, as you can see you’re not alone!! (I was just talking to another fellow who didn’t realize she had to renew her passport after one month in country -even though it is a 3 month visa– the 3 month part only means you had the option to renew, so she was racking up $5 bucks a day!) So if any of your negative character traits, not so attractive habits or counter productive reactions to life are flaring up as you sit thousands of miles of way from home, your friends, your hairdresser – I mean hair stylist –  and your language, I suggest trying to be kind with the self talk – you’re experiencing yourself amplified and that’s actually a part of the “program” in the Kiva Fellows Program.

Become a Kiva Fellow and learn more about microfinance, the effort to alleviate poverty, and yourself.

“15,000 [francs] is nothing. Nothing at all,” Mr. Thioune tells the unlucky client on the other end of the phone. Like Chili Palmer, Mr. Thioune collects debts for a living. However, this is pretty much where the resemblance ends. Unlike his Hollywood counterpart, he does not use violence or extra-legal methods to achieve results. Indeed, Mr. Thioune is quite a stickler for the rules.
The process, as Mr. Thioune methodically explained, can begin as soon as the client is even one month late. The first phase involves mostly negotiating with the client, often for several months, and putting on pressure with visits from IMCEC supervisors and Mr. Thioune, who works for a third party collection agency. If this “pre-contentious phase” does not bare fruit, the case moves eventually to the “contentious” phase with an official Sommation de Payé issued by the collection agency. The client then has eight days to present an acceptable payment schedule or face the courts. At this stage, Mr. Thioune presents a petition to the court to issue an injunction to pay. Clients tend to come around by this time and present settlements. However, for the minority who still refuse to pay, the process lumbers on. Mr. Thioune returns to the court to petition for a seizure injunction. With this injunction, comes the often humiliating scene of clients’ furniture, televisions, fridges, sheep, etc. being ferried onto IMCEC’s pick up.

Mr. Thioune explains he does not enjoy this part of the work, but rarely has pity for these clients: “After a seizure, I eat well and I sleep fine.” This may sound a bit heartless, but Mr. Thioune explains that the majority of clients have the ability to repay, but think they can simply get away with reneging on the loan. Asset seizures are a relatively new and still rare phenomenon for IMCEC Thies (one of the four regions of the larger Union of IMCECs). Since beginning in 2009, the bank has seized the assets of only a handful of clients: a baker had an oven seized, a tailor had one of his sewing machines. A few months back, a real estate broker had his living room furniture and a big screen television taken. I remember the couches sitting in the back of the IMCEC pick up in front of the regional office for all the world to see.

And this is the basic point. As one IMCEC supervisor put it, the word spreads fast in Senegal. Prior to 2009, clients knew that IMCEC would put pressure on them to pay, but they would not come to their house to impound their stuff. The goal is not to seize as many old sofas and TVs as possible, but to strengthen IMCEC’s stature and credibility. Once clients know that their possessions could be next, it’s a whole new ball game.

Financial institutions, from small MFIs to multinational banks, are underpinned by the confidence of their customers. When clients see their bank takes serious actions and does so methodically, they too take the bank more seriously. Collecting debt from clients in poor countries can seem like a cruel task, but if anything, perhaps it is even more important than in rich countries. Each franc in debt not collected is a franc not available for someone who could use it productively. Perhaps Mr. Thioune is more like a Senegalese Robin Hood than a Chili Palmer?

Mr. Thioune: Chili Palmer?

or Robin Hood? ... or perhaps somewhere in between

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Support U-IMCEC by joining our lending team!  We’ve only got three members –  Help us grow!

Ilmari is finishing up his Kiva Fellowship at the end of the week, but will stay on to volunteer with the micro-credit program of Tostan.  Like Kiva, Tostan does incredible work so find out more at www.tostan.org

Today is my last day here at CCT. I can’t believe how soon it’s ending.

I have been largely absent from the blogosphere for more than a month. I blame that on two work weeks I missed being bedridden with chicken pox. I found it ironic (?) that I spent 19 years of my life in Kathmandu without any sickness, and within 4 weeks in a relatively cleaner and more developed city of Manila, I got bedridden. I realized that the worst part about getting a child illness at the age of 25 is not the severity of symptoms, but the ridicule from friends and cousins.

“What!? Chicken pox!? Haha! I had that when I was in the 3^rd grade!”

“No way! But you are sooooo old!”

“Hey poxy!”

“Are you sure it’s not adult acne?”

Yeah, thanks everyone!

My first blog post as Kiva fellow was about how people here at CCT thought I looked like a young boy. Getting chicken pox probably did not help my street cred .

Minus the gradually diminishing reminders on my face, I am all right now, all thanks to chicken soup (not really).

I had a great time working as a Kiva fellow for CCT. Every partner I met was hardworking and sincere. Every staff I have come to know solemnly believes that this is their calling. CCT is built on a very sound model. It is a faith-based nonprofit organization focused on transforming lives and communities through development strategies based on spiritual enrichment. In addition to business microloans, CCT provides its partners with life insurance, health insurance, and housing loans. CCT also has a program to rehabilitate orphaned and abandoned children in urban poor communities. For those of you missed Prem’s great post from few months back, please find it here.

http://fellowsblog.kiva.org/2009/12/01/these-are-former-street-dwellers/

Please join our lending team if you wish to help CCT partners. http://www.kiva.org/community/viewTeam?team_id=9184

I could be one of the few remaining ones from the KF9 class. Just want to give a quick shout out to all KF9s on and off the field. I hope to run into (or stumble upon ) you in a karaoke bar somewhere some day.

Good luck KF10!

Having read Meg’s excellent blog post “Bad Roads, Interest Rates, and MFI Sustainability” and the ensuing comments from Kiva lenders, I admit that I was rather baffled. Particularly by comments that varied upon the theme of: “In the U.S. you can get loans for ~8%! You can get credit for 18% interest, which we find high and oppressive! So how can MFIs charge 36% interest rates on loans to their poor clients, it is usurious, it can’t be justified…” so on and so forth.

I believe that if you were to plunk a U.S. bank into a developing country with limited infrastructure, where most clients don’t have ready access to the internet that lets them transfer money from one bank account to another with the click of a mouse, where you have to ask employees to constantly risk their personal safety by carrying huge amounts of cash over uncertain roads and territories, those banks would not be charging 8% interest or even 18% interest, but a much, much higher rate.

Still not convinced? Let’s try a quick breakdown of some actual numbers -

HSPFI, my host MFI and Kiva field partner, charges 3% interest a month on loans. So for a first-time borrower with a loan of P5,000 to be repaid over 5 months, in one month the HSPFI borrower would be paying back P1,000 on the capital, and P150 in interest. (The current exchange rate is 46 Philippine pesos to 1 U.S. dollar, so the USD equivalent is $21.74 in capital, and $3.26 in interest.)

The P150 interest collected on that loan covers salaries and benefits of not just the project or loan officers who collect the client repayments on a weekly basis, but also the salaries of admin staff members like the branch cashier, accountant and assistant accountant, as well as the branch manager. Let’s say our first time borrower lives in Camiguin. For HSPFI’s Camiguin Branch (which is HSPFI’s smallest but one of its most efficient branches), total salaries and benefits for their five staff members (three project officers, one admin staff, and one officer-in-charge/branch manager) in January 2010 came to roughly P27,500 (or $598 USD).

Apart from the salaries and wages of the branch staff, the P150 interest will also go towards salaries and benefits of the Head Office staff – HSPFI’s Executive Director, Director of Operations, HR staff, tech staff, community development staff, internal auditors, Kiva Coordinator(!), etc. – as well as Head Office’s administrative costs (for printing, office supplies, utilities, trainings and conferences…). Unlike the branches, HSPFI’s Head Office does not give out loans or collect interest from clients, so the  branch offices make monthly contributions to help cover Head Office’s costs. HSPFI Camiguin Branch contributed P53,400 (or $1,161 USD) in management fees to Head Office this past month.

Still with me? Remember that our first time borrower is paying P150, or $3.26 USD in monthly interest on his or her loan of P5,000. But salaries and wages are hardly the only things that a functioning MFI has to pay for. Camiguin project officers spent about P4,500 (or $98 USD) on travel this past month. And to round out the estimated operational costs, total administrative expenses for necessities like utilities, phone, office supplies, rent, taxes/licenses, etc. for the branch came to about P26,150 (or $568 USD).

Note that this is PARTIAL operating costs for HSPFI Camiguin. Kiva is not HSPFI’s only (or biggest) funder by any means, and other funders (e.g. Oikocredit, SEAD, PCFC, SBGFC) actually do charge interest on loans to HSPFI. I left that line item out of the above calculations for the sake of argument that Kiva’s funds are interest-free, but if I were to add that line item in Camiguin’s operational costs would increase by about P49,800 (or $1,082 USD).

By now you’re probably tired of me repeating that our first-time HSPFI borrower is paying P150, or $3.26 USD in interest this month on his or her loan of P5,000 – 0.13% of operational costs. Surely you have to account for repeat borrowers who have taken out higher loans and are correspondingly paying higher interest fees. So if we increase the loan amount to P30,000, our now long-time, repeat HSPFI borrower would be paying P3,000 on the loan capital and P900 (or $19.57) on interest this month – 0.8% of operational costs. This P900 definitely goes farther towards contributing towards operational costs, but note that borrowers with P30,000+ loans only make up about 10% of HSPFI’s total portfolio.

The above is very condensed and much abridged, to keep this post from being three times as long. But by listing out all these figures, I wanted to show that running an MFI is not cheap. It’s easy for us to condemn 3% monthly interest rates are high, but it’s just as easy for us to forget that staff, utilities, rent and a whole range of other operational expenses need to be paid in order for an organization – any organization – to run.

Also, working conditions for MFIs in developing countries are very different from banks in developed countries. This may seem like huge duh point, but it bears pointing out that MFIs’ operational costs are high in part because you need enough project officers to visit hundreds of clients every week and collect cash repayments, and you need enough admin/other staff to support the project officers. U.S. banks don’t need employees to visit every one of their clients on a weekly basis to collect repayments. Furthermore, banks in the U.S. have access the excellent technology/infrastructure in place that allows for automated payments (and greater automation in general) – which helps keep interest rates low. To say that MFIs in developing countries have “high” interest rates in comparison to banks in developed countries with “low” interest rates ignores the fact that banks in developed countries have certain operational advantages that MFIs in developing countries don’t have, and need to compensate for.

At this point maybe some of you are thinking, “I don’t really care about MFIs needing to cover operational costs, I only care about how this 3% monthly interest affects Kiva borrowers!” Leaving aside the fact that there would be no Kiva borrowers without field partner MFIs, I had previously met a Kiva borrower who decided to stop borrowing from HSPFI, and I know she’s not the only person to have ever done so. The interest rate might have been a factor behind her decision to stop borrowing, although there might’ve been other personal factors as well.

But on the other side of the spectrum there are Kiva borrowers like Ms. Mellianita Moron. Since this topic of “high” interest rates had been weighing on my mind, I brought it up during her interview. I explained that businesses in the U.S. can get loans at much lower interest rates, so there are Kiva lenders who are worried that MFIs like HSPFI are charging overly high interest rates to borrowers in the Philippines. I asked what she thought about HSPFI’s interest rate – was it indeed too high?

HSPFI’s 3% monthly interest rate is ok! Mellianita exclaimed. Especially in comparison to other MFIs who she had borrowed from that charged 10% interest a month! And to top it all off the other MFI collects repayments on a DAILY basis, in comparison to HSPFI which collects repayments on a weekly basis. When I then asked if there are any additional services that she would like to see from HSPFI, Mellianita laughed and said that she wished HSPFI could increase loan amounts and release more loans at a faster rate, so she won’t have to borrow from MFIs that charge truly exorbitant interest rates and can just borrow from HSPFI. I looked around at the various center members and extended family who had gathered outside Mellianita’s sari-sari store to watch (and occasionally interject), as they all nodded their heads in agreement.

Eva Wu would like to thank HSPFI for generously allowing her to use figures from their latest financial statement in this blog post. She has lots of thoughts on the (unsexy) topic of MFI interest rates, but hopes for now that people can understand that asking why MFIs in developing countries can’t offer interest rates as low as banks in developed countries is a bit like asking why apples can’t be oranges. Or to use a more Filipino analogy, why lanzones can’t be rambotan.

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 six women that currently have a loan with Kiva, and another four 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 and home to some of NWTF’s poorest clients.

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 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.  In Negros alone, there are 112,000 ARBs working 170,00 hectares.  There are no economies of scale on a one-hectare farm.  Fertilizer, farming equipment and labor are expensive, and they don’t have the capital.  The average land tract size for ARBs in Negros is 1.25 hectares, with input costs of 35,000 pesos (~$800 USD) per hectare.  The government gave them land but failed to provide adequate funding, agricultural training, or meaningful support.  In many ways, the cards are stacked against them.  So, unable to make ends meet, many just rent or sell their land back to the owner.  It is a vicious cycle, but microfinance can offer a solution.

Microfinance institutions offer agricultural loans.  For these loans, traditional microfinance with center meetings and a weekly repayment system does not work.  The ARBs require a big sum of cash upfront to buy inputs at the beginning of the growing season.  As with other types of clients, there is no collateral, because they have nothing to put up.  They can’t pay back the loan until harvest time, at the end of a 9-12 month cycle.  In addition, they require higher loans than typical clients (about ~60,000 pesos – 12x greater than the first loan cycle for Project Dungganon)  to cover input costs and pay themselves a salary during the interim between planting and harvest.  Because there is only one payment, the nominal and effective interest rates, making it is less profitable for the MFI.  The average income per hectare for ARB planters is only 18,000-20,000 pesos.  Translated monthly, this would only mean roughly 1,700 pesos per month – significantly less than what you would need to feed the average Filipino family of five persons.  These aren’t the only issues.  A report from CGAP describes some of the external factors influencing repayment:

Agricultural finance is notoriously risky.  Many farmers need credit to purchase seeds and other inputs, as well as to harvest, process, market and transport their crops. While borrowing on the basis of anticipated crop production might seem logical where collateral assets are few, such loans  expose the lender to production and price risk. Natural disaster, a decline in market prices, unexpectedly low yields, the lack of a buyer, or loss due to poor storage conditions are only some of the factors that can result in lower-than-expected revenues.  Such a fall in revenues can often lead to high default rates on agricultural loans.

For all these reasons, many of the ARBs default on their loans.  Agricultural programs often rely on grants and subsidies initially from NGOs and, later, the World Bank and IFC.  Traditional funders for MFIs would not lend for agricultural loans, because, understandably, they need to make money.  After all, microfinance is not charity.  If an MFI also operates a rural bank, like NWTF, it can draw funds from there, but it is still high-risk.  MFIs have something called a “loan loss provision” worked into their products, which accounts for defaults in advance and raises the interest rate for the loan product.  The maximum portfolio-at-risk (PAR) rate – an estimate of the potential defaulters – according to international standards is 5%. However, the PAR rate for agricultural loans might be as high as 30-50%.   It is just not possible to allow for 30% default in the loan product, because the interest would be too high and clients could not afford to pay.  Therefore, you have to accept high default rates, and mitigate the loss in other ways.  For example, encouraging farmers to diversify their businesses improves the chances of repayment.  A report from the Microfinance Council of the Philippines discusses this issue:

By diversifying their sources of income, farmers protect themselves from the seasonal risks inherent in agriculture.  On the part of the creditors, risks are minimized if their clients have other sources of income because they can pay on a  regular basis and have alternative sources of payment when their main livelihood activities fail.  Regular payments also instill discipline among borrowers.

Many MFIs in the Philippines have microcrop programs in place.  Other countries have successfully implemented agricultural loans as well.  It is a difficult challenge, and one that requires a coordinated effort by MFIs and other NGOs that consists of providing capital, training, technology, and support.  It also requires a degree of financial risk that causes many funders to turn their backs.  Perhaps there is a role for Kiva here, but there are some issues with that.  For one thing, lenders would have to accept losses in the order of 30%.  Regardless of how it is funded, agricultural microfinance makes a meaningful difference in the lives of the poorest people in the Philippines, so it is worth working toward a solution.

If you are interested in learning more, NWTF put together a documentary on the program.  Take a look:

Please help NWTF achieve its mission of serving the poorest communities in the Philippines by joining the NWTF Lending Team. Also, if you have any other questions about agri-loans or NWTF and their work in general, please send me an email.

One of my lasts tasks as a Kiva Fellow was to do a journal update an incarcerated Kiva entrepreneur.

Kiva’s field partner in Guatemala City, FAPE, has a program where they give women in jail trainings and a loan for their businesses while incarcerated.  About one year ago, FAPE initiated this program in the jail in Guatemala City, four of the women were Kiva clients. Training programs were given.  Hand-made goods like those on the left were being sold for profit. Loans were being repaid, and the women were even putting money away in savings. The program was a success. In late Summer of 2009, two things happened: the women were moved from the jail to the correctional facility and FAPE changed directors.

The new facility, from the looks of it, appeared very nice. There was a courtyard, two chapels and it looked to not be too stringent. For most, it would be better than the old jail these women were in, but for these women who had established businesses, it was not. They did not have the connections, the resources, nor the knowhow to operate in their new location. They started to become delinquent on their loans. And with the change of directors here at FAPE, the training programs were left by the wayside. In there nice, new correctional facility, they had been forgotten.

Our visit to the facility last week was the first time anyone from FAPE had come to see them in six months. Unlike most people who are delinquent on loans, the four Kiva entrepreneurs chastised us for not coming to visit them sooner. Of course they did not have the money to pay us now; they had not received support from us in some time. They wanted to pay back their loans, but they just couldn’t. Imagine if you had to pick up your business and move to a completely different town, and you could not use any of your former suppliers or connections to get started again. Of course they were late on their repayments.

But while complaining to us, you could also tell that our visit lifted their spirits. It animated them to get back to work on their businesses. They were happy that someone had remembered them. That they hadn’t lost all of their savings they accumulated from the previous jail. That they could share their feelings with someone who would listen. Their hope had returned.  FAPE was still committed to them.

This was a poignant culminating visit for my three months of working with Kiva.  If I hadn’t needed to do a journal update, who know’s when these women would have gotten a visit? Kiva is more than just empowering people through capital.  Kiva is about giving people a chance to share their stories. To allow people to believe that the world cares about them when all other signs say that the world is staunchly apathetic to their lives.

Two of my favorite Spanish words are homonyms:
Esperar - to hope; to wait
Compromiso – a commitment; a compromise

Often when you commit to something, you comprise yourself in some form or another: time, money, etc.  Often, when you hope, you have to wait for what’s to come.  With Kiva, you can  commit to providing hope for Kiva entrepreneurs, without compromising or waiting.

Jeremy has now finished his placement in Guatemala City.  He is thankful for all the support and comments from the Kiva community.  Knowing that lenders care helps to keep Kiva Fellows going.

With Super Bowl Sunday upon us, I have begun to think of life as a football game.  Closer analysis of the sport inevitably leads to two topics of deliberation: offense and defense. Sunday night, the Colts and the Saints will be rotating their players based on their specialized roles in the field.  We will see the offense attack, take control and engage the opposing team with the objective of scoring points.  Then there is the defense, guarding their possession and protecting it from attack.   As I thought about these two “ways of life”, I realized, I myself had rotated between offense and defense modes since living in South America.

For me, defense mode began in October (when I arrived in South America), and it has been like a pseudo-match of Survivor ever since.   My MFI co-workers give me daily reminders that I may be robbed at a moment’s notice ,“you can’t travel past 8 pm, people get robbed at night”, “no field visits after noon, that is when the thieves wake up”(granted two volunteers were robbed at gun point while I was in Guayaquil).  The stories come from all kinds of sources. “Martha’s cousin’s boyfriend’s boss was driving in her car and then someone broke the window and grabbed her purse”.   I hear some version of this story weekly, and while I appreciate the concern, my nerves can’t handle being on threat level “Orange alert” at all times.

Picking fruit from the Mango tree

Of course it was hard to hear that a laptop, a Blackberry or a watch was stolen from a friend or Martha’s cousin’s boyfriend’s boss, but when I heard such tales from the marginalized borrowers, who already had so little to begin with, the reality of living like the locals in this defensive/survival mindset came to fruition.  I met multiple borrowers like Carmen Flores Hernandez who had taken a loan to beef up her business’ security; Carmen was tired of constantly trying to guard her possessions and livelihood from attack.  Like many borrowers, Carmen works long hours and alone, so she needed the protection!  Other borrowers take loans to replace stolen items or to elevate their homes in hopes of discouraging thieves.

Borrowers in “defense mode” were most visible when it came time for me to ask them, “what are your goals for your family and business in the next 5 years”; 95% of them laughed at this question, shrugged their shoulders and then told me “seguir adelante” (seguir adelante = to keep moving forward, to keep at it, to go on).  At this point, they usually look at me like a jester because I should know their goals: to stay covered, fed, and on the same track.  On multiple occasions, I have had to explain to loan officers and clients the importance of this question: to couple their goals with the opportunity (a small loan) so that they can work little by little, credit by credit, to realize it. I would tell them, the point is to think about why are you getting this loan?  Where will this take you in the future? What are you building towards? I wish they could see the potential I see!

While the burglary stories put me on edge, there have been plenty of other encounters by me (and my peers) that have flung us  into this so-called “defense mode”:  insecticide fumigations, street meat gone wrong, bad water, vaccinations, 113 degree Fahrenheit field visits, scabies infested housing and (probably the most common and disagreeable) areas without sewage systems.

Despite a few unpleasantries, I have welcomed the challenges.  Back home I have been blessed enough to have housing, food, paved roads, a proper sewage system, energy/power, clean water, security etc.   Therefore, back at home, I have never needed to experience the sensation of survival mode.  Quite the contrary in fact, back home mostly exist the offensive player-types; people who take control, act more aggressively and dedicate themselves to scoring as many points as possible (or whatever you want to call it)!

I didn’t understand why the clients awkwardly giggled at my question until I opened up an MBA application and faced the same fortune. First essay question: “Where do you see yourself in 5 years?” Oy! I really wished I could answer “seguir adelante” and be done. Unfortunately that does answer does not really fly with the admissions committees.  The community back home fosters a culture of  planning 5 years ahead of time,  driven by the intention to get some glorified points on the scoreboard.

Operating in these two modes of being has confused my allegiance to either way of life.   The Kiva’s borrowers I have met work hard in order to guarantee food, water, education, clothes and shelter for themselves and their families.  What about people who already have those things? Maybe there is a place for us on special teams…

Kimia Raafat is a Kiva Fellow (KF9/KF10) working with Fundación Paraguaya in Asunción,  Paraguay.  Click here, if you would like to know more about Fundación Paraguaya or feel free to send questions, comments, or requests for future blog topics to kimia.raafat@fellows.kiva.org.

Tourism is the main industry in Cusco, and the damage produced by the rain does substantial damage on the Cusco economy. From the February 3rd warden message from the U.S. Embassy in Peru, I read that Machu Picchu is closed and the rail line between Ollantaytambo and Aguas Calientes is closed due to landslides until possibly March. I also read that tourists were stranded in Aguas Calientes (the town closest to Incan archeological site Machu Picchu) and that the conditions were excruciating. Luckily, helicopters eventually evacuated all the tourists from the town.

Unfortunately, my Kiva clients in Cusco don’t have that luxury.

I met a Kiva communal bank called Virgen Estrella de Oropesa in Oropesa, a small town south of Cusco in November while working as a Kiva Fellow for Asociación Arariwa, a microfinance institution that has worked in the Cusco region of Peru for the past 25 years. This town is known as the capital of bread because of its delicious “pan chuta.” In fact, the town has so many bakeries that the smell of baking bread permeates the town’s air. In their Kiva profile video, Virgen Estrella de Oropesa are laughing and smiling as they get together for their Kiva profile photo. If you had the pleasure of meeting them in person like I had, they were even more animated, making fun of Jacob (their loan officer) for not having a girlfriend. Unfortunately, most jokes told outside of the city are told in Quechua, so I just got the translated version (definitely not the same!)

Now the town of Oropesa is under water, and many of the talented entrepreneurs I met in Oropesa have lost their homes and their businesses.

An affected house in Oropesa after the Cusco floods

My friend and colleague, the Kiva coordinator at Arariwa, Raquel Villafuerte, recently wrote me an email in which she said (translated into English):

“Hi there,

…Arariwa is collecting money from employees to help. We are also collecting food at the offices here. If you want you can send money to buy supplies. In reality all you have known – has been for the most part lost – the main avenue of Aguas Calientes and many houses in Anta and south from Saylla to Urcos are under water.”

Kiva have responded with updates about how the tragedy has affected Kiva/Arariwa entrepreneurs, including links on how to help victims.

Citizens have been collecting supplies in the Plaza de Armas, while virtual support, fundraisers, supply collections and updates have come through online and offline news sources and social networks like Facebook and Twitter.

Now in my second Kiva fellowship with Emprender in La Paz, I see homes located on the edge of cliffs where there has been and continues to be severe erosion. As I go by, I always think that one day when the rain is strong enough, these homes could fall. I recently heard of landslides in Chasquipampa, a neighborhood of La Paz (And there are Kiva clients in Chasquipampa). A friend of mine here works as a volunteer gathering and distributing supplies, which she did last Friday after the landslides. Another friend told me that a victim who lost his home in the landslide is staying in his church.

Although tragedies like this one are tough to experience and hear about, it’s great to know that ordinary citizens become dedicated volunteers and come through when people need it.

Here’s how to help the victims of the floods in Cusco.  Or consider joining the Asociación Arariwa lending team, make a loan to an Arariwa entrepreneur and help Kiva entrepreneurs in Cusco get back on their feet.

Sheethal Shobowale is working as a Kiva Fellow at microfinance institution Emprender in La Paz Bolivia.  This entry is also posted on La Vida Idealist, a blog about living and volunteering in Latin America.

Here are several Kiva Fellow animal stories in photos -

Below are stories of Kiva Fellow animal encounters from around the world.  If you enjoyed Kiva’s Animal Kingdom, please consider making a loan to a Kiva entrepreneur who works in agriculture and with animals.

Sheethal Shobowale, KF9, Peru, KF10, Bolivia
Here are some of my favorite animal encounters so far in Peru and Bolivia (see photos above) -

• Meet Mariano, a Kiva/Arariwa entrepreneur who raises 600 cuy (guinea pig)!

• Meet Martha, a Kiva/Emprender entrepreneur who sells lechon (suckling pig) and pollo a la espiada (roasted chicken).  She is all smiles!

• One of Asociacion Arariwa´s group quota (loan payment) meetings in Huayllabamba, a very small, rural town in Peru, took place in the courtyard of one group member´s homes. There were no less than a 75 pound pig, two enormous sheep, a lamb, a rooster and several chickens roaming around during the meeting. I was wondering if they had made their loan payments on time!
• A majestic llama and alpaca at Huchuy Cusco (Huchuy Qosqo), Incan archeological site in Peru
• Flocks of ovejas (sheep) blocking traffic at Tipón, Incan archeological site in Peru

• Gallinas (chicken) crossing the road (to get to the other side?) in Machacancha, a small town in the department of Cusco
• A whole slew of tropical animals, (including caymans and giant otters) in Manu, one of Peru’s spectacular national parks.  Our tour guide actually coaxed a tarantula out of its home and held it in his hand.  Not what I would call fun…
• Peruvian girls dressed in traditional dress holding ovejitas (lambs) for pictures with tourists in Cusco
• Herds of grazing horses, llamas and alpacas while motorcycling through the Lares Valley, Peru

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Julie Pachico, KF9, Mexico
Nuevo Laredo isn’t really a prime place for animal sightseeing, with the exception of this photo (not high quality, sorry!) I took of a donkey in the back of a truck. I was REALLY excited to see it because I LOVE donkeys. When I used to work in Tijuana, you always see them in the tourist districts painted as zebras and wearing big sombreros (like here: http://www.deseretnews.com/photos/midres/5763666.jpg). Tourists like to get their pictures taken with them. Anyway, so the “burro” definitely has a place in Mexican culture and imagery.When I took the photo of this guy it was really funny, the guy in the truck saw me with my camera and shouted out “Se vende!” (“It’s for sale!”) as the loan officer and I pulled away. So I guess the livestock-salesman entrepreneurial spirit is still alive and well, even here in ultra-urban Nuevo Laredo…

Donkey in Nuevo Laredo

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Julia Kastner, KF9, Mexico
My only animal pictures are of a loan officer with a borrego, a cross between a goat and a sheep, which clients raise as meat for tacos. I have a blog about them here: http://juliakastnerfellow.com/2009/10/29/baaa-and-other-culinary-adventures/

Loan Officer in Mexico with a Borrega - cross between a goat and a sheep

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Suzy Marinkovich, KF8, KF9, Chile
Here are 2 videos of the monkeys my husband Matt took care of in Bolivia.  Both are of the same capuchin monkey – Liarona. She likes cleaning so in one video she is scrubbing the floor. In the other one, she was in heat, and was hitting on Matt! It’s super funny and cute because she was smiling and “flirting ” with him… I was sooo jealous. Haha

Matt also volunteered at Parque Machia in Villa Tunari (Chapare, Cochabamba, Bolivia) which is pretty much jungle. The refuge houses animals rescued or confiscated from homes. One little monkey, Lolita, was rescued from a market in El Alto where they dressed her in dresses and makeup and beat her to perform. Needless to say she is living a much happier typical monkey life in Parque Machia =)

In Cochabamba, Matt also worked for 2 months with APLEVACC, which is a group of livestock veterinarians that work with CIDRE dairy cow farmer clients. They work with certain dairy cooperatives. Thus, Matt spent more time on our borrowers’ farms than I would have ever been able to. He helped deliver a baby calf on his first day. He also helped in the castration of pigs, and as the farmers are too poor to afford local anesthesia, they had to do it a very basic way (with a rope). While this was quite normal for the farmers and veterinarians, it was definitely a new area of vet medicine for Matt. It really showed us what it means to be financially dependent on your animals, and have to make a choice between their well-being and your child’s. Obviously, when it comes down to it, there is no choice to be made there – so the animal has to be taken care of the best it can be with the least amount of resources available to the veterinarian. Another time, a cow ate a metal nail, and Matt and the vet used magnets and a pvc pipe to coax it out!

In Ayacucho, Peru, Matt volunteered at a local cat/dog vet clinic with the occasional livestock. He did operate on the winning rooster of a cockfight. Obviously that is another ethical predicament for veterinarians in that area – as cockfighting is a deep seeded tradition, and even if you do treat the rooster – the couple may very well use it in another fight.

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Kelly McKinnon, KF9, Nicaragua

An Hípica is a party on horseback, less organized than a parade and more liquor than a trail ride. From what I could gather, a typical Hípica involves decking out horses and riders in the finest tack and Western wear, riding through the city while the horses “dance” with a beautiful footwork that clicks against the pavement, adding percussion to the music being blared through giant speakers or on the floats sponsored by liquor companies. Riders and horses crowd each other while the crowd of on lookers fill in the edges and vendors make their way through whatever space is left selling water and beer and rum and soda, other sell sunglasses and peanuts and candy and quesillo. I was lucky enough to witness one in Leon, Nicaragua. I am told that the hundreds of horses that filled the streets was a small version of the celebrations that more commonly take place in the more agrarian cities of Estelí or Matagalpa. This picture is one of the youngest riders decked out in a gorgeous pink dress, other riders celebrated by dancing on top of their horses, pulling Kiva Fellows up for a ride and having another drink.

Hipica_Leon Nicaragua

Adam Kemmis Betty, KF9, Bolivia
A “zebra” directing traffic on the streets of La Paz…

"Zebra" directing traffic on the streets of La Paz

In their work as Kiva Fellows, Alex Duong, Adam Kemmis Betty, Julie Pachico, Julia Kastner, Suzy Marinkovich, Kelly McKinnon and Sheethal Shobowale have encountered animals around the world .

If you enjoyed Kiva’s Animal Kingdom, please consider making a loan to a Kiva entrepreneur who works in agriculture and with animals.

- Sheethal Shobowale, KF9, Peru and KF10, Bolivia

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.

NWTF aims to serve the poorest of the poor.  It is a Grameen-model bank, where the social mission is paramount.  That mission is to provide a range of services – financial and non-financial – to women that cannot afford them.  A wedding is one of those services.  In the Philippines, it is expensive to have a wedding.  There are many couples that have been together for dozens of years and are still unmarried.  They have children together, a home, and a business, yet, legally, they are going steady.  This means that they do not receive spousal benefits and cannot necessarily legally claim their children as dependents for certain financial services, like life and health insurance.  NWTF offers insurance to their clients (at favorable rates, given that it is a pool of 80,000 new clients).  However, in order to extend maximum benefits to them and their families, the couples must be married.  In a review of NWTF’s social performance by the NGO M-Cril, the practice is discussed:

An interesting side-development of offering insurance is that legal marriage is a condition.  Accordingly, NWTF has been facilitating mass weddings, which women appreciate for their security.

This is a great example of how microfinance institutions offer more than just loans. In fact, microfinance refers to not just microcredit, but a suite of financial services directed to the unbanked.  But there are other services to offer as well.   Healthcare, insurance, clean water, electricity, cooking tools, home loans, and college scholarships for children are but a few.  I knew this about all of these before, but weddings are one I never could’ve guessed.  I never would’ve expected that a marriage ceremony would’ve been something that is beyond the reach of the poor.
A newsletter from another microfinance institution, KMBI, contains the best description of these events and their impact:

The mass weddings, to the married clients, answered their long-awaited desires to be legally bonded with their beloved with whom they have been staying for quite some time.  This project was not only a special gift to the clients, but it sought to store their relationships to what is accepted in the Bible and in society.  The program foresees that, in the long run, these clients and their families will enjoy the benefits of legally-accepted relationships.

Mass weddings are one of the best examples I’ve encountered of the interconnectedness of issues in serving the poor.  In order to offer insurance – a financial service – you must first make sure the recipients are married in order to extend benefits to the entire family.  So how do you solve this problem?  Hire a priest and marry them all at once, in a ceremony they have been waiting for their entire lives.  It is the type service that is taken for granted in the West.  After all, there are no justices of the peace coming to the poor barangays (villages) of Negros, and Las Vegas is too far.  This interconnectedness holds true for other services as well.  Electrifying a village opens up new business opportunities for the community and has public health ramifications.  Providing access to clean water reduces the amount of time people have to travel to reach a well.   If a client’s child is sick,she doesn’t have to drain the savings account if she has health insurance.  And, to get health insurance for her family, she needs to be married.

And, at the end of the day, its a really nice thing to see happen.  It is a feel-good story, with practical benefits.  It may not fit in neatly with the narrative of entrepreneurship in the developing world, but, as I am learning, it never does.  There is always a much more complex network of causality beneath the surface.  I am learning new things every day.  As I do, I will try my best to share them here.

Please help NWTF achieve its mission of serving the poorest communities in the Philippines by joining the NWTF Lending Team. Also, if you have any other questions about mass weddings or NWTF and their work, send me an email.

There is a lot of hype surrounding microfinance.  For some, microfinance is an effective tool used to promote large-scale poverty alleviation. For others, it is simply considered a way for moderately poor individuals to better their own situations. If you’re reading this blog, you likely fit somewhere on this spectrum of belief that microfinance does at least some good. While the degree to which microfinance impacts the lives of the poor is often debated, the hype remains fairly constant. But can microfinance really live up to the publicity that precedes it?

A (rare) smiling Kiva entrepreneur, Teko Kongo. Coming soon to Kiva.org!

I must admit that I too was a victim of this hype. I naively thought that my work as a Kiva Fellow would include listening to many heart-wrenching, life-changing stories of success and failure as a result of, or despite the efforts of microfinance. My friends at home often joked that I was off to “save the world.”

Granted, we were well warned during our training at Kiva Headquarters that this would not be the case. On the first day of training, we were instructed to write down the following words, “Four weeks in, microfinance sucks.” We were told that, four weeks into our placement, we would likely find ourselves disappointed with the overall institution of microfinance. The hope is that, by the end of our placement, we will have formed a well-rounded opinion of microfinance – good or bad. We were also warned that the frequency of hearing earth shattering stories would be limited. If we were lucky, we might hear one over the course of our entire placement.

Despite the warnings, I put on my rose-coloured glasses and set out for the field. Now, as the 7^th week of my placement with WAGES comes to an end, I have over 50 interviews with entrepreneurs under my belt. With each interview, I felt a little more crestfallen when I was met with the standard responses to my questions: “I used the loan to buy stock,” “I used the profits to reinvest in my business,” “The main challenge I face is a lack of demand,” “This loan has had a positive impact,” and finally “I want to expand my business.” This interview was often followed by me desperately trying to catch a photo with the entrepreneur smiling, despite their persistent solemn glare into the camera lens.

Yet, all this disappointment made me realize something. Maybe the hype surrounding microfinance is justified after all. Perhaps, we just need to dig a little deeper.

How has this loan affected your life?

Overwhelmingly, the entrepreneurs I have interviewed reported that their loan had a positive impact on both their personal and professional lives. That is certainly something to be proud of. Even if most entrepreneurs choose not to elaborate on the details, we can certainly appreciate the immensity of this simple statement. In fact, only one interviewed borrower out of 50 reported that her life was worse off since taking out her loan (click here to find out why). In this case, the percentage says it all.

What are the challenges you’ve faced in your work?

As Kiva Fellows, we look to this portion of the interview to give our journals some meat. Yet, many WAGES entrepreneurs have few obstacles to report in their work. Quite often, an occasional lack of demand is the main challenge they face. In reality, it is a relief that they don’t encounter more impossible obstacles in their work. Specifically, a lack of demand can only be a problem when faced with an abundant supply. While some WAGES clients may deal with periods of low demand, their microloan has enabled them to adequately supply their customers when demand is high.

What are your plans for the future?

The majority of entrepreneurs hope to expand their business in the future. While this common response can be predictable, it is also really quite moving. Often singlehandedly, these individuals have created businesses, however big or small. On a daily basis they interact with customers, replenish their stock, and use the profits to support themselves. In some cases, it may have taken several loan cycles for these entrepreneurs to get to where they are now. Yet, this shared vision of expanding their business is the driving force that fuels them. They all dream of serving and satisfying more customers. These ambitions should not be erased simply by virtue of hearing the words “I want to expand my business” several times a day.

No, these stories do not recount experiences of emerging from destitute poverty to become a successful entrepreneur. In many cases, these entrepreneurs were already prospering, and this prosperity did not occur over night.  The differences between pre- and post- loan may not be earth shattering, but microfinance helped them to become even more successful over an extended period of time.

Is it possible my conceptualization of microfinance hype was informed by the poverty porn we are so often subjected to? Guilty as charged. I was looking for stories of transformation, emergence from the ashes, and overcoming impossible odds. Perhaps, I was just looking in all the wrong places. Why is it that tragedy and sadness are prerequisites to measuring success? The importance is in recognizing the positives objectively and not trying to evaluate them based on the negatives that precede them.  As Kiva lenders, we want to know that our loan has had an impact. In most cases, these loans have positively affected the entrepreneurs we support, but the effects may not be as tangible as we’d like. But, if we forget what we’re looking for and instead just see what is really there, we will find that microfinance truly does have an amazing story to tell. Sometimes, we’re better off without the rose-coloured glasses.

Please join the WAGES lending team and see all fundraising WAGES loans here.

One of the things that attracts people to the Kiva Fellowship is the chance to visit places they would never visit otherwise. Over the past three weeks with the Fundación Mario Santo Domingo (FMSD), I’ve been to barrios in Bogotá, Barranquilla and Cartagena that I would never have visited otherwise. The alegría and friendliness of Kiva borrowers normally means that this is an overwhelmingly positive experience. However, there are other kinds of visits, often to poorer areas, and it’s this kind of visit that haunts you and enrages your sense of justice in the world. Wednesday of this week was my hardest day in four months as a Kiva Fellow.

Cartagena is Colombia’s most visited city and is known for its colonial architecture, beaches and port. On my first trip to the city though, I sped past all of these to go to the city’s other barrios with loan officers from FMSD. The moment I first realized that my first visit of the afternoon would be different from the others was when Elberto, the loan officer for the area, stopped his motorbike and made sure I knew where my camera was: “Es una zona peligrosa” (“This is a dangerous area”). As he explained later, whenever he is working in the area, he only goes by car, taxi or motorbike as the area can be dangerous for strangers walking around. Incidentally, this is the only time in my three weeks in Colombia that I’ve ever felt even remotely at risk.

When we arrived at the seashore, the streets thinned out and were replaced by wooden buildings and dirt roads that characterize what Colombians refer to as barrios de invasión (squatter settlement). As we got off the motorbike, Elberto mentioned that that Teresa, the woman we were going to see, was una mujer desplazada (a displaced woman). When I asked him later, he told me that a lot of the inhabitants of this 20-year-old barrio had been displaced from the interior of the country or from the southern part of Bolívar, the department where Cartagena lies.  Colombia has one of the world’s highest populations of internally displaced people (IDPs or desplazados) with up to 4.3 million people (10% of the population) displaced by guerrilla, paramilitaries or drugs traffickers: a process that continues to this day with 2.4 million people displaced since 2002 (link, document and video in Spanish only).

Teresa is originally from San Rafael, Antioquia and was forced to leave 12 years ago. She told us that when she arrived in Cartagena, she had nothing: they’d had to leave everything behind. Teresa seemed strangely quiet and reserved compared with most Colombians I’ve met and there was something about the way she said this sentence that made me realize that she wasn’t exaggerating: her “nothing” meant literally nothing. Since arriving in Cartagena, she and her family moved from barrio to barrio before coming to Olaya four years ago and where she still lives. As she showed us her grocery shop taking up the front half of her home, she mentioned a foundation (Granitos de Paz) who constructed her house out of breeze blocks (cinder blocks), replacing the wooden structures of the area. Elberto interrupted to say that this foundation constructs basic homes at no cost and that Teresa’s is just one month old. However, he later added that some people living in the area are suspicious of their motives and don’t want their homes reconstructed because they’re afraid they’ll be taken away from them—the fear of authority runs deep.

When Teresa told me how thankful she is for what she has, it suddenly dawned on me that her new house, business, loan and hopes of sending her children to university made her one of the lucky ones. It doesn’t bear thinking about how many other desplazados don’t have these opportunities. As I put my motorcycle helmet on and we headed off, I couldn’t control the tears I’d been choking back since almost the beginning of our interview. I remember feeling overwhelmingly thankful that Teresa is able to get the help she deserves so much with FMSD and, now, Kiva.

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The next day, I went to two towns called San Jacinto and San Juan de Nepomuceno, two hours from Cartagena to visit borrowers there with César, the local loan officer originally from San Jacinto. Like a lot of rural Bolívar department, the towns were affected by Colombia’s most recent period of armed conflict in the late 90s when guerrilleros used to arrive at night. One borrower we visited told us that she planned on leaving and going to Cartagena but no longer feels scared. Another borrower happily showed me her business and told me about her three children all living in other cities of Colombia; it was only hours later that César explained to me that one of her sons was killed 13 years ago by guerrilleros and that she could only work out how long she’s been with FMSD in relation to her son’s death. César, who knew of him, could offer no explanation as to why.

A recent interview with John Hagel of my employer Deloitte sparked the idea for this blog entry (article here).  According to Hagel, the US market is maturing to the point where solely focusing on product and process innovation have decreasing marginal returns.  A good example is Microsoft Office or the iPod.  At first, new products came out every 4-5 years.  Now it seems the product line must be refreshed every 2-3 years.  So what could serving the poor have in common with profit oriented businesses?  It turns out there are plenty of parallels.

A few staff members of my MFI, TYM Fund

For developed markets, Hagel advocates creating work environments that allow for greater communication and interaction.  The innovation will take care of itself if everyone feels involved and can collaborate in the process.  Developing countries, on the other hand, are right on the heels of mature markets.  While mature markets work to achieve the next latest and greatest, developing countries are looking to gain economies of scale.  Both, however, are earmarking expansion.  It is my personal belief that there is no sense in charging ahead if others aren’t there beside you to enjoy the achievements.  This is why passing on lessons learned is critical.  Players like Kiva provide valuable assets including Kiva fellows and capital to assist developing countries.

Discussing expansion plans over lunch

Similar to US companies hoping for annual growth, Kiva partners look to become self-sustainable. Self-sustainability implies funding for everyday operations no longer come from grants or subsidies.  Here in Vietnam, Kiva’s partner TYM Fund is dedicated and bright.  Employee turnover is almost nonexistent and the size of their operations have doubled in the last two years.  However, it is unlikely to reach full self-sustainability without appropriate forecasting tools, analytical frameworks, continuous employee training, and planning for overall capacity building.  Many US companies have these foundational pieces in place.  Due to lack of exposure to the aforementioned concepts, developing country organizations have room to grow.  Yet this also implies those willing to assist can have immediate positive effects.  Kiva fellows, for example, range from a tech CEO to a new college graduate but everyone finds a way to contribute.  This is what I find most amazing about the fellowship.

Training TYM's newest batch of loan officers

Personally, it is rewarding to apply thought processes and methodologies I used in consulting to assisting poverty alleviation.  The smiles that appear and mental lightbulbs that turn on when making the organization’s job easier or more efficient is priceless.  And I have to admit providing this incremental amount of knowledge and value is addicting.  If anyone reading this has ever wanted to lend a helping hand, it is easier than you think and the gratitude is more rewarding than you can imagine.

As one can see, despite global coporations’ focus on income and microfinance institutions’ focus on self-sustainability, the means to achieving both are similar.  Planning ahead, market research, product development, recruitment, and client base are all things organizations focus on whether in a developing country or not.  What I have seen are unlimited possibilities for assisting Kiva’s microfinance partners.  Rest assured that the partners are taking measurable steps to improve and expand their reach.  Kiva lenders are the stakeholders and can continue contributing to the cause through interest free loans.  As a Kiva fellow, I just get the added bonus of sharing my thoughts and viewpoints from ground zero.

Interested in becoming a Kiva fellow?  Click here.

Join the Vietnam lending team here.

Alex Duong is the first Kiva Fellow (KF9) working with TYM Fund in Hanoi, Vietnam. Click the links for info on TYM Fund & his personal blog.

A  violinist and pianist set the ambiance along with a slide show of pictures. Everyone attended FAPE’s 25th anniversary celebration: the board of directors, the general assembly, representatives from FAPE’s international partners (I was Kiva’s representative), and FAPE’s director, accountant, and lawyer.   Moriré con las botas puestas. That’s what FAPE’s vice president of the board of directors said while giving an award to the president of the board.

While the vice president continued, I sat in my suit waiting to receive Kiva’s award. I couldn’t help but thinking how lavish this celebration was. How none of the loan officers had been invited to the ceremony. How there was hardly a mention of entrepreneurs aside from the pictures.  How we were patting ourselves on the back, almost forgetting the people on the ground–the reason we were in microfinance in the first place.

The vice president called Kiva’s name for the award. I stood up and walked toward the podium, enjoying the moment. Though we can’t deny that individual recognition is important, it’s also necessary not to get to wrapped up it. I often grapple with how to strike this perfect balance, and many times I come to this conclusion: It’s always about the people on the ground.

Celebrating a 25th year anniversary is not a bad thing.  In fact, it’s probably a celebration that helps FAPE’s relations with all its investors. But I would have liked to have seen the people who are actually doing the work on the ground in attendance.  In this way, the anniversary would have had more of a connection to the actual entrepreneurs which FAPE supports.  We would have remembered, that although we’ve done some things, there are still many challenges to meet.  I guess I’d like to die walking in my boots, and not celebrating that I figured out how to put them on.  To continue walking in your boots lend on Kiva.