Published by Jerry Ostradicky, | 11 Jan 2009 at 11:59 pm
This is a great video put together by Kieran Ball, a Kiva fellow. For all of you out there who are always trying explain what Kiva does, you’ll love this video:
A Fistful Of Dollars: The Story of a Kiva.org Loan from Kieran Ball on Vimeo.
Author's Website: http://www.mykro.org
2 Comments Kiva Tags: A Fistful Of DollarsKieran BallKivamicrofinance
I’ve researched microcredit in Nicaragua on and off for the last two years. I’ve interviewed nearly three hundred clients from across the country. I’d say there are two main issues at play in looking at the limits to microfinance here. First, the vast majority of borrowers in the informal market. Investment in their business only lets them sell more bottles of pepsi, more gallo pinto or more cosmetics. The problem is one of adding value to the goods and services to people in this sector. I have interviewed so many people who have a group bank composed of people who all own pulperias and (presumably) just sell each other snacks. The ‘more’ successful clients I’ve talked with tend to be those involved in things like artesania where they can command a higher price, often by shipping their handicraft to another country (like guatemala or mexico).
Second, microfinance providers are prohibited from offering other kinds of banking services – they can only dispense loans. For agricultural clients who do no need more debt at the time of the year when the market is replete with corn and beans and the prices are very low, there is no place (other than under the matress) to put any savings. Both of these point to the immense problem of the dearth of small and medium enterprises here. Very few businesses served by MFIs have more than 1 to 3 people working for them including the borrower.
Finally, echoing the post I am a bit skeptical of the MNP motives. The MNP functions as a protection racket.However, the MNP works by members taking out as many loans as they can without any plans to pay them back. Members actually pay for the protection the group provides them from their creditors. If a loan officer comes to collect, they call up their MNP jefe and they chase them out of town or chop up their motorcycle.
I’d agree that financial literacy programs are important and underutilized. These loan products are quite straightforward – interest is a simple compound and borrowers know how much they owe every period and how much they will pay at the end of the term. If they dont think they can pay, they don’t have to borrow. You don’t get into $600,000 of debt in places like Jalapa by accident or financial illiteracy.
Alba Coruna not only gives out loans with low, subsidized interest rates but their clients do not appear on the country wide database of risky clients. For example, I can take out a whole bunch of AC loans, not pay all of them back, and then go in and try to borrow from a host of other MFIs linked in with ASOMIF (the industry association) and none of them will know how many loans I have outstanding. So I can then turn around and not pay them back either. Much more likely here is that these are soft programs to garner favor with the government backing them up.
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“These incidents are only a few examples of the bad feeling that microfinance institutions (MFIs) have inspired among a section of the rural population in north and central Nicaragua. So, why have the borrowers been protesting? Here are some reasons I’ve uncovered. High Interest Rates. Microfinance institutions in Nicaragua charge interest rates of as much as 21%. The protestors contend that this rate should be no more than 8%. Yes, 21% sounds like a large percentage of a small loan. However, microfinance institutions have high transaction costs, based on the labor-intensive process of managing repayments.”
Jct: Har har har. Mr. “High Interest” Microlending loanshark is given a Nobel Prize. I guess my boast of getting a Nobel Prize too as Mr. “No Interest” for my UNILETS Macrolending Millennium Declaration C6 for a time-based currency to restructure the global financial architecture.
[...] the last month, Grameen has been making a big marketing push by putting out all sorts of videos. Drew recently posted a video where Grameen interns put together a rap video telling people to vote for the Grameen Bank in the Members Project. The [...]
In this submission I will play the role of the ignorant outsider as I am a fairly recent discoverer of Kiva. I was previously aware of the Grameen bank initiative but I had no knowledge of the practical issues in play. I have found myself somewhat frustrated in attempting to identify loan requests on Kiva that I feel represent a real opportunity for advancement for the individuals borrowing and communties they are serving.
Now that I understand better the types of interest that are charged on these loans I have even greater concerns. The off-setting factor which I would also have to investigate is the local inflation rate, but I find it hard to believe that loans at 20% for home improvement can be helpful to clients in the longer term unless their homes are unlivable.
I always try to identify people who are borrowing to improve their productive capacity and/or their ability to serve their local market with goods or services that are otherwise unavailable or imported. It seems to me that the MFIs may be missing an important responsibility in not providing guidance on what constitutes a wisely sought loan. While most poor people are probably quite intelligent about small amounts of money, they may not have experience with borrowing. I also have a problem with reading that an MFI had 6 people jailed for failing to repay a loan. No Western organization should be sanctioning debtor’s imprisonment in the 21st century.
At the same time it seems very likely that Mssrs. Ortega and Chavez have ulterior motives in their sponsorship ( control? ) of the Alba Caruna. Perhaps MFI involvement in Nicaragua has reached the saturation point and a refocusing is required. It seems to me that this would also be a good time to support an independent member owned credit union. This could be more community based which would reduce the travel requirements of the MFIs. After all, isn’t the intent of these programs to assist people to get out of the poverty trap?
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A Fistful Of Dollars: The Story of a Kiva.org Loan | My Thoughts on Microfinance, Life, Web 2.0, Blogging, and Business on 18 Jan 2009 at 10:33 am #
[...] already posted this on myKRO.org, but I wanted to post it here to catch those of you who don’t read myKRO (feel free to [...]
Suzanne on 23 Jan 2009 at 10:19 am #
Thank you for explaining the breakdown of loan ideologies. You gave a name to what I’ve found in my research on microfinance. This semester I am writing my thesis on Microlending in Bosnia–a place long forgotten by the West. What I’ve read across the board in all types of literature is that to lift oneself out of poverty it is necessary to accumulate hard assets (home, education, savings etc), but rarely if ever do any programs offer this. It has racked my brain to figure out why this common sense approach is being lost along with a bit of altruism in microfinance. Microlending is moving toward a corporate model and missing out on serving many people on the bottom. Case in point: in Bosnia human trafficking is growing LEAPS AND BOUNDS ($5-7 BILLION industry in Bosnia ALONE), but Bosnia also has at least ten of the top ranked MFI’s in the world. I added up all of the active loans in Bosnia and it came to more than 400,000 loans; about ten percent of the Bosnian population. I dug a little deeper to find that of those MFI’s the smallest tiniest NGO with the smallest number of outstanding loans (approx 3,000) offers services financial and non financial to the very poor and lends out the smallest dollar amounts. Many victims of human trafficking in Central Europe have stated the lack of financial opportunities is what caused them to naively get involved with trafficking. (Victims are promised factory jobs across a state border to only have their papers stolen and in turn sold into sex slavery). SOooooo…this would then explain why the poorest of the poor are still not getting the services they desperately need. I guess after all of my babbling I’d have to say that offering borrowers many services will help them lift themselves out of poverty. Poor people know what they need but simply lack access to resources and capital.