Kiva Stories from the Field

Does microlending work?  That’s one of the questions that I wanted to answer as a Kiva Fellow and that’s the question I’ve been asked on numerous occasions since I returned to Seattle.  After a couple of weeks of readjusting to the American pace of life, I’m prepared to provide an answer.

Yes, it works.  But, it works differently than I thought.

When I left for Ghana, I had my preconceptions about microfinance.  I was intrigued by how these loans could enable wealth creation for the working poor.   Through my market-oriented frame of reference, I was hoping to see how a loan was helping an entrepreneur expand their business from a small market space and beyond.  Perhaps, it is my American-bred fascination with innovation and aggressive growth, but I viewed the loans as an opportunity to invest in the next big idea in a small corner of the world.  What I found out after three months in the field is that wealth is being created, but it’s a different kind of wealth.

While there are stories of how microfinance borrowers have used their loans to significantly expand their business, the majority of the stories are much more human, more real and, in the end, more meaningful.  After interviewing more than one hundred borrowers and asking them how the loans have changed their lives, the most common answer was not about their business.  Instead, it was about how the loan allowed them to help pay for their children’s school fees, put more food on their table, and pay for health insurance.   Sure, the loans helped them increase their inventories, sales, and profits.  But, more than creating wealth these loans are providing a type of social insurance to these borrowers.  As a Kiva lender I am not simply financing a business, but financing a safety net.      

And, in the process of answering one question, I realized I had answered another question.  What does a profit-oriented social business look like?  It looks like the single Ghanaian mother whose thriving roadside cocoa yam stand enables her to keep her business running and keep her daughter in school.  A true double-bottom line.   And its all powered by loans from Kiva lenders. 

As my fellowship nears its end, I’ve purposely taken time to step back and revisit my original reasons for deciding to quit my job, stuff my apartment into a dusty storage unit, leave family and friends and fly to Ghana.  One of my goals was to see the impact of commercialization on an MFI’s social mission. 

Recently, Sinapi has confronted this issue head-on when it started the process of converting from an NGO to a formal financial institution.   Like many MFIs before it, Sinapi wanted to change its business structure in order to receive more commercial financing as well as to take client deposits.   Many of the expected benefits were cited for this decision including new financial discipline in the organization and the potential to open new markets and reach more borrowers.  Likewise, I heard many of the expected negatives including the burden of debt-servicing and the pressure by commercial lenders to alter or downscale the social mission of the organization.  But, it was the impact this organizational change had on the lender / borrower relationship that I never really considered.    Or as I like to call it – the impact on the organization’s mission to be social.  In Sinapi’s case, the mission to be social was a key driver in its decision to slow its transformation process. 

During the weeks I’ve spent out in the field, the one thing that continually strikes me is how the loan officers and the clients are more family than business partners.  There are, of course, the smiles that will last a lifetime for me.  But, there are also warm hugs between loan officers and clients – when’s the last time you’ve hugged your banker?  There are the handshakes that last minutes not seconds.   There are clients who attribute their recent success to joining the Sinapi family.  There are the times after group meetings when we would pack into Sinapi’s Toyota van and take the clients back to their home – inevitably I’d find myself in the center of a group of giggling middle-aged women laughing at my attempts to communicate in Twi.  And back at the branch there is the open arrangement of the office.  There are no tellers.  No walls between the officers and clients.  Instead, clients walk into the office  – some with their business on their heads – and are welcomed to the officer’s desk.      

But, as Sinapi’s formalization plan was initiated and branches were converted into a more traditional banking layout, the relationship with clients evolved.    Clients became more hesitant to approach the officers.   They felt that they couldn’t come to the branch in their work clothes.  They were intimidated by teller windows.   The Sinapi family was gone.   Warm hugs were replaced by the cold creditor-debtor relationship we are all know too well.   So, the aggressive formalization plans were halted and the family atmosphere I’ve witnessed here returned to the benefit of everyone involved.   

Yet, I know the pressure to become more formal will not disappear anytime soon.   The supply of microfinance services needs to scale to meet the demand.  It will be up to successful organizations like Sinapi to find ways to meet this challenge but keep the Sinapi family intact.  

I’ve visited over 100 clients in the past two months and one of the most common responses to “how are you going to use this loan” is “I’m going to buy in bulk.”   At first, it appeared to me that perhaps this is a common impulse to overstock inventory so a customer never walks away empty-handed.  But, I was quick to learn that this bulk purchasing phenomenon is not driven by concern about product supply but rather inventory cost.   Here, in Ghana, there is an omnipresent concern over creeping inflation.  And with Zimbabwe in the news this week and the accounts of inflation rates exceeding 100,000%, it seems inflation is becoming a center of conversations here as well.

Officially, the government recently raised its benchmark interest rate for commercial banks to 14.25% as a result of inflation that had risen to around 13.2%.   But, what has been more interesting is how it creeps into my daily life.  Like every gas-dependent American, I at first noticed it in the rising gas prices at the petrol stations.  Soon, the taxi drivers were trying to raise their fares (taxi fares are not metered, but highly negotiable).   At work, the company’s cook insisted on a pay raise as the cost of her food was increasing.  On the corner outside our office, the lady who sells me lovely bananas with small bags of peanuts started selling me three bananas for 20 pesewas instead of four bananas.     And, now the President of Ghana is at the Africa-Indian summit telling the world that rising food prices threaten to stall Ghana’s development achievements of the past several years.  

It is in this environment that a loan provides an important hedging tool for the working poor.  By giving an entrepreneur the cash to stockpile their inventory they guard against these price hikes.  I, of course, thought to myself – “what happens if the price goes down though.”   Joshua, the Kiva Coordinator, only smiled at me, “prices never go down.” 

During the last month, I’ve visited quite a few courtyards, backyards, sideyards, and frontyards. In each one, I can usually count on two things. One is that someone in the group rises to find chairs for the loan officers and myself and places these chairs in a cool, shady spot. The other is the Sinapi cheer. A loan officer walks into the meeting area and shouts, “Sinapi” and claps twice. In response, the group members yell, “Abapa” (Good Seed). This cheer goes through several more iterations with different responses and the group sits down.

But, recently, in one group, the loan officer’s “Sinapi” was met with silence. The officer tried again and only met silence again. She then smiled, sat down, and walked through the cheer with the group. Another Sinapi employee sitting next to me explained that this was a new group and had only completed the first week of the four week orientation. I thought to myself that if my past experiences could shed any light on the future, the officer’s cheer would be met with a rousing response by the end of the orientation.

Sinapi’s orientation process is a fine example of how microfinance is not simply loans, but much, much more. Not unexpectedly, the orientation process includes concepts such as basic bookkeeping and loan financing. What is telling, however, is that before any of these business concepts are even introduced Sinapi spends considerable time talking to the group about their individual family life and about Sinapi’s core values (Integrity, Respect, Stewardship, and Commitment to the Poor). They explain how these core values not only guide Sinapi’s operations but should also guide their own businesses. They talk to the group about the importance of schooling, health, and instilling responsibility in their children. They ask them if they are having any family troubles or troubles with neighbors. And while much of this is motivated by the social mission of Sinapi, it is also in Sinapi’s financial interest to have healthy, happy clients who can repay on time.

A fine example of the blended relationship between social mission and financial mission is the wonderful work of the Kiva Coordinator, Joshua Opoku-Mainoo. Before he was asked to coordinate Sinapi’s Kiva efforts, he worked as a loan officer in their Takoradi branch. As part of his work, he decided to integrate health insurance registration into the orientation process.

As a backdrop, three years ago, the Ghanaian government instituted a national health insurance scheme with the goal of registering the entire nation. At this point, the registration process is being implemented on a voluntary basis. For those who are at the lowest income bracket, the annual premium is about 7 cedis (7 dollars) a year. However, many of these individuals were not registering with the scheme and many of them were Sinapi clients.

As a loan officer, Joshua understood that poor health was a significant cause of repayment problems. After all, sick clients don’t pay. And sick clients with big medical bills definitely don’t pay. By implementing registration into the orientation process, Josh was not only hoping to minimize health bills and sickness, but also expecting a reduction in repayment issues. The results are in. After instituting the process, the Takoradi branch has now seen a marked drop in repayment issues related to sickness and medical bills. Due to the success of this pilot, Sinapi is taking steps to integrate the insurance registration process into all of its orientations nationwide. It is in efforts like this that I’m seeing how it’s possible to use a microloan to support a broader social mission.

Sometimes the end is the best beginning. And, by the end of my first repayment day, a group of four women marched past me, through the hallway and onto the red dirt path outside the house where they had just completed their repayments. As they passed, some were shaking their heads, others were raising their voices in frustration, but they were all unified by their goal - to make a visit on a member of their group who was absent from the repayment meeting and failed to make another repayment again. The rest of the group covered her payment for her. Now it was time to collect.

When I first learned about microfinance, I like so many before me had read about the Grameen Bank and group loans. For me, the concept of converting something as instinctive as peer pressure into social collateral was brilliant in its simplicity. But, I wanted to see it first hand. Well, thanks to Kiva and Sinapi Aba Trust I got my first chance this past week.

As I entered the courtyard with the loan officer, there were several groups huddled in different corners. Within each group, a leader was busy collecting payments from members. The loan officer was seated in a corner in front of a simple desk. On the desk was a stapler, a notebook , an office calculator and some space to collect large wads of cash and piles of coins. As the payment officer called the groups up, they assembled around him and he started his counting.

For most of the groups, this process went smooth. But, there were exceptions. There was a woman who was claiming she didn’t have enough to make this week’s repayment. She opened her purse and paid all she could. The loan officer looked at her with disappointment. The other members in her group – particularly an elderly member – said to her, “you should pay to avoid disgrace.” After some silence and some pleading, she reached into various pockets and like a magician pulling a rabbit out of a hat, soon found enough bills and change.

In another case, a member said she couldn’t pay this week as she was waiting for some customers to pay her. She pled her case, but as the members paid for her, she slowly moved to the outside of the group. She sat in a chair - her arms crossed, her eyes staring at the floor. I didn’t get a complete translation, but I sensed and felt her dejection.

But, nothing compared to those women who rallied their group and marched passed me with such determination. I could not stay around to find out if they convinced the defaulting member to pay. I can only say I wouldn’t have wanted to be in her shoes as the battalion marched towards me.