Microfinance

My Last Peruvian Post

This is a hybrid post. Half consists of pieces taken out of my last Kiva Fellows blog. And the other half from my final musings and future plans (I won´t be blogging for at least a month). Feel free to cry now.

Click above to read the full post “Last July, I sat in Kiva headquarters listening to speaker after speaker desperately trying to get a grasp on what life as a Kiva fellow would be like. Despite all my “international” experience, I don´t think anything could have prepared me for the adventure that was to come.  Personally, I set out to discover how microfinance worked, IF it worked, and how it impacted the lives of the people it touched, but I really had no idea what lay ahead of me.

My two Kiva fellowships have allowed me to work with four separate institutions: FAPE and ASDIR in Guatemala and Arariwa and Manuela Ramos in Peru.  I have been able to meet and talk with hundreds of borrowers posting new loans and doing loan updates…

On the flip side, I have had a chance to surf in four new countries, to climb four volcanoes (including Concepción in Nicaragua with some other Kiva Fellows!), and hike the Inca Trail.  On the down side, I have been robbed once and assaulted another time, but I wouldn´t trade my two Kiva fellowships in Guatemala City and Cusco for the world.

And as I see my second (and final) Kiva fellowship come to a close, I have been asking myself what I have learned from the last eight months in the field… My second reflection on microfinance is that the most effective microcredit programs that I have witnessed combine education and training programs with the loans that they offer.  I personally perceive education programs highlighting business management, budgeting, family, nutrition, or health allow the borrowers to develop not only economically, but in all aspects of their life.  Which is the positive impact that all of us wish to see.”

As far as the future, I have a road trip through Patagonia planned with Devin Dvorak (starting on Feb 14th!). Coming back to the states, I’m heading up to Portland for a week, and after trying to find a job in Los Angeles.

My experiences with Kiva in Central and South America have truly been an adventure, one that I wouldn’t trade for the world. Thanks for all your prayers, support, and for reading my blog! I promise to blog when I’m back in the states about my exploits!

Rethinking… Charity

January last year, I sat down in Tom Shadyac´s class at Pepperdine after my friends couldn´t stop raving about the film producer / philosopher who showed up year after year to impart some wisdom to us college kids.  The first class he told us a story (excuse my paraphasing) about a pair of glasses.  This was a special pair of glasses, because you could read 10x as fast.

Imagine! How much knowledge you would gain, how much smarter and better off the world would be because of it.  As the product got more popular, more and more people started using the glasses, and a few people ended up dying, but think about it! You could read 10x faster and there was only a .001% chance of getting injured by the glases.  The wider the glasses spread, more people were killed, but the sacrifice seemed worth the knowledge gained through the glasses. At the end of the story, he said… seems a little ridiculous right? But, I just told  you the story of the car. The trade off millions of lives for an increase in speed.

He went on to say that the class would be about rethinking things (this particular class was by far my favorite of college) … about putting a new perspective on things that seem “good” and “normal”.

So, right now I´m rethinking charity. I imagining the parable of the Good Samaritan and remembering the 10 people in destitute poverty begging for coins on my route to work.  And how I am of those that merely pass by.  And I find most Christians saying the same, “They will just spend it on booze and drugs” as an excuse not to give or help?

I wonder, are we called to give discriminately? And should I be giving to those in need because they need it? That´s is why I was in love with microfinance at first, it seemed like the solution to this. I KNEW that the money was enabling the poor to have a better life and I knew that the money wasn´t creating a downward cycle of expectations.  (Based on the assumption that the more people in poverty receive without doing anything, the more they rely on “aid” instead of their own efforts).

But I´m no longer sure that microfinance, alone, is the solution (I still fully believe in how Kiva connects individuals to individuals through lending). I think escaping poverty takes time. I think microfinance can play a role. BUT I know that it is microfinance coupled with EDUCATION and PERSONAL ATTENTION that will make the difference. (The negatives of pushing loan products without either of these is apparent in India as a wave of suicides broke out from microloan overindebtedness).

This doesn´t mean that all microfinance and charity is bad.  Yes, it needs to be regulated and monitored. Yes, it needs to be administered with care for the individual and coupled with education. I perpetually encourage and support people who are “doing their part” however small because of my own belief that changing at least one person´s life is better than changing none at all.  Rethinking microfinance means rethinking how we give.  So maybe we should help those that we encounter every day… knowing full well who our money is helping.

What do you guys think is the solution? What should charity be… and how should we give?

Borrower Visits Here

Maybe I have written too much in the past, but now that my camera is back, I can load my posts with amazing “I wish you were here” photos.

Yesterday, I went with one of Asociación Arariwa´s (pronounced Ararigwa. who would have known?) loan officers into the Sacred Valley of Cuzco, the provincia de Urubamba to the town of Chincero.  There, I was performing a “BV” or Borrower Verification.  It´s to make sure that the loan information, the loan use, and the borrower match what is posted on the Kiva website.  Anyway, I´ll let the pictures speak for me:

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Closing Thoughts

This is my last blog. At least in Guatemala. Today is my last day.  Tomorrow, I jump on one of those planes that I hear fly every night over the house to take me back to the good ´ole US of A. So, I offer you some closing thoughts.

The experience has been amazing.  Besides learning about microfinance, I have learned about myself: who I am, how I confront challenges, and how to live alone in a country that isn´t my own.  And, I have gotten really good at speaking Spanish.

The pictures are from FAPE, the microfinance institution where I have spent the last few months working as a Kiva Fellow.  From working on repayment reporting and strengthening the Kiva connection between borrowers, lenders, the MFI, and Kiva to implementing lengthy social performance evaluation managment surveys and doing a lot of training on the Kiva process in Spanish, I can say that I have been blessed to have been assigned to such an awesome field partner.

Unrelated, I have begun to discover a few things about microfinance.  It isn´t the “silver” bullet that will eliminate poverty by itself.  It will take people from around the world contributing their skills, talents and resources, and it will take big picture policy changes on the parts of governments throughout the world.  However, I (personally) agree with Muhummad Yunus when he said that “Access to credit is a fundamental human right”.  The access to financial services will allow the poor to smooth their income streams, preserve capital for future disasters, and obtain capital for their businesses (in that order).

Access and provision of financial services to the poor will introduce competition to the market and as the laws of supply and demand dictate, the relevant price of financial products to the poor will fall.  There has been a lot of negative press in microfinance lately, concerning the apparent suicides in India and a recent conference in New York.  But both beg the question if microfinance does more harm than good.  To which I (and most of the microfinance community) would respond no.

All of the clients that I have met have expressed their deep gratitude for the loans and services provided by FAPE, and the key to all of this as I mentioned earlier is access.  Microfinance provides something that was almost inaccessible for most people in poverty (or at the very least unaffortable): financial services. And through these financial services (as their progress and impact is closely monitored and controled) and policy changes, I believe that we may begin to see people escape from poverty.

Figured I´d end my last Guatemala post with the Guatemalan ruins of Iximché that I visited last week.  All the Best!

For all the Skeptics

This weekend, I went to El Tunco, El Salvador with a couple of Kiva Fellows for a few days of surf, sand, fish tacos, flat julie filming (the new Kiva Fellows class intro video), smoothies, more fish tacos, and apparently a barrage of questions from some of the most unconvinced, microfinance skeptics I have met traveling.

Now, obviously I will have a tendency to defend microfinance as an industry because it is what I´m doing right now. More than that, its something I believe does a lot of good for a lot of people (maybe not everyone, but a lot of people), and even more than that, I am doing it voluntarily–so yes, I believe in microfinance. But as we sat in hammocks talking to our fellow travelers, we got hit with  a ton of skepticism of the industry (a lot of which I would like to clarify and respond to).

I mentioned that the typical Guatemalan moneylender charges 10% a month, and their immediate response was what you charge 9%? (for the sake of simplicity, I will response from my microfinance institutions (mfi) point of view and not Kiva´s). There are two things that are implied by this question: one, that the majority of mfis are seeking to maximize profit, and two, that the marginal benefit that mfis provide is well, non-existent. Uninformed on both counts. My mfi charges 3% monthly interest which is significantly lower than the moneylenders and in line with microfinance competition in the area. Contrary to popular belief, most mfis are not for profit (if you would like to discuss SKS´s IPO we can talk one on one), my current mfi included.  The majority have a social mission of expanding their clients access to credit and other basic services and generally to alleviate poverty.  In this sense, a 3% monthly credit coupled with other services (see my last three Kiva fellow blogs) doesn´t just provide marginal value to their clients, but adds significant value. Let´s also not insult the client´s intelligence, they would know if they were being taken for a ride, and contract microfinance services because they want too and because the services provided have a higher value for them then their other options.

That´s still a high annualized interest rate. Yes, I agree. It is high, but in order to administer the loans, it is significantly more expensive than going to chase.com and signing up for a mortgage or a credit card. Loan officers met and vet each client individually and then have to collect repayments and follow-up on the loan.  The fact of the matter is that microfinance is correcting a market failure (to provide credit to the poor) and at first, correcting this market failure costs more money.  Like I mentioned before, most microfinance organizations are not profit seeking and because of their social missions, some have even lowered their interest rates over time. As the market failure is corrected, more competition will be introduced, and the markets will become more efficient.

Not everyone is an entrepreneur, so whats the point? Does it do anything for the person that gets a loan to provide the same service as another ten people in the town? First of all, Yunus would disagree with this: everyone is an entrepreneur he would say.  But I understand the criticism.  Through microfinance, are we just enabling the clients to provide services that already exist? I would say that most businesses started with a microfinance loan aren´t unique: you will see 12 Kiva loans for corner stores, another 20 for tailors, and 15 more for pig farmers, but the fact of the matter is that they have access to financial services (and hopefully other services through the mfi) that they didn´t have before.  So, although we can´t specifically say that microfinance has improved the lives of its participants (although it is irrefutable that it has improved the lives of some), we can say that providing access to financial services is a step in the right direction to alleviating poverty.

So, for all the skeptics, microfinance isn´t perfect, but until you find something more effective, I´m going to keep working with this system knowing that it is doing a lot more good than harm.

50 Hour Weeks and Climbing Peaks

Read this is you are really bored or if you care about me and about what is going on in my life. Contents: rainy days, movies, books, working Saturdays and climbing everything in sight. And a video of the valley I´m posted up in.

So, I only have two weeks here. Which means I have a lot to get done. On my workplan I have implement the “Cerise Questionaire” and do Borrower Verifications. All of last week I spent in the office trying to convince people to talk to me about social performance in the ASDIR office. Essentially, Cerise is a social performance metric that quantifies how microfinance institutions measure up against their own goals and mission.  This data can be used by funding institutions, can be used to benchmark their progress in the future in the field of social responsibility, and is a standardized measurement that can be used to benchmark microfinance institutions against others (a great tool considering the depth and breath of services that microfinance institutions can offer). Read here another fellow´s blog about the subject. So, I collect data and do interviews to fill out this 60 page questionaire.

My other job is doing borrower verifications. Basically, for a random group of ten borrowers, I check all the data surrounding their loan between Kiva´s system, the institutions MIS (read management information system), and the borrowers passbooks. It´s checks like these that allow Kiva to say with reasonable confidence that all the borrowers on the site are legitimate. So, there is my 50 hour week (even came in for a half-day Saturday!).

In my free time, I love Climbing Peaks around my house. If I don´t have access to sand, waves or the beach, I´d say that this is one of my favorite activities. Everyday after work, I change clothes, don my rain coat, pick an apple for the road and rise from 2500m to well over 3000m as I work my way out of the valley where Aldea Nimasac lies.  I drag myself up and slide down.  All for that great view at the end of the climb. Of sweeping fields, pine forests, and not one house in sight.

I come back as the sun is setting (although I never get to see it because of the cloud cover), and settle into the hammock with a good book or movie. And wait for Andreas to get back from work so we can chow down on his wife´s delicious cooking. Read: fresh tamales, tortillas, and platos típicos everyday. I know its a lot of work (helped chop wood for two hours for the word-fired stove and hot-water heater), but I could get used to this lifestyle.  If only I could stay for longer.


Tough Conversations: A New Fellows Blog!

The most avoided topic in microfinance: deliquent loans, I touch on in a new fellows blog. Read it if you are curious about the other 2%, and what steps are being taken to avoid these tough conversations.

Fellows Blog: Tough Conversations

All the best, Eric

And because this post is pretty much just a link… I attached a video of my ride on the back of a moto to go visit clients!