I’m really looking forward to my trip to Ghana coming up in late October – my friend Dan and I are planning to fly to Accra about October 23rd after a month in Kenya. It’s been a couple years since I last visited the Dominican Republic and got an in person look at the impact microfinance has on the ground, but I couldn’t be more excited to get back out in the field! I’ll be helping Lumana Credit, a microfinance organization based in Seattle but focused in Ghana, for a couple weeks doing whatever they need — – I’m not sure what I’ll be helping out with as of yet, but that’s the fun of it. I’ve known their founder Sammie Rayner as a result of both being involved in the Seattle microfinance scene for the past couple years, and she’ll be working from Ghana at the same time my friend and I are planning on visiting!

Also, it sounds like my friend Sloane Berrent, who is a former Kiva Fellow, is going to pop in for a visit at the beginning of November for 10-14 days.

It’s still a little ways off, but looking like it’s going to be an awesome trip — I’ll certainly try to share some photos and stories here on myKRO.org during my stay!

Fehmeen Khan works in her individual capacity as a microfinance blogger, at Microfinance Hub.

Ever heard of interest-free loans in microfinance? Probably not, because some microfinance institutions need to cover their expenses and others are in it for the money. But Seeds for Development, which is a UK-based microfinance charity specializing in micro crops, is different because interest rates play no role in their business model. I recently had the privilege of interviewing Alison Hall, the chairperson of the charity, and decided it was worth sharing.

Fehmeen: Please tell me a little about yourself and how you, along with your friends, setup this charity.

Alison Hall: Well, first of all, I have no background (or previous experience) in Africa, microfinance, microcredit, farming or charity work! I am a marketing manager at IBM. In September 2007, along with the 3 other founding trustees, I was sent to a conference in Oslo where Josephine Okot, the MD of Victoria Seeds, gave a very emotive talk about Uganda and the challenges farmers face, especially around

access to affordable credit. I had a light-bulb moment and decided to do something to help, and after some deliberation, we came up with the idea of lending farmers seeds (which is what they needed).

Seeds for Development was born!

Fehmeen: What exactly is it that Seeds for Development does a microfinance institution?

Alison Hall: Individual farmers looking for seeds to plant, approach Victoria Seeds, a seed retailer in Uganda, who combines the request of dozens of farmers and sends the details to us. We transfer the required money to the bank account of the consolidated group of farmers (Seed Farmers), who use the

money to purchase seeds, say, 20 kg of soybean seeds, from Victoria Seeds.

Once the crop is harvested, Victoria Seeds, bound by an earlier agreement, buys back the seed crop and deducts the monetary value of the seeds, which is recycled in the system to support other farmers. (In other words, the microloan is returned when the monetary value of seeds is deducted).

Fehmeen: What makes Seeds for Development stand out from the rest of the microfinance institutions (MFIs)?

Alison Hall: Microfinance institutions often charge interest rates that are outrageously high and hide under ‘onion skins’, so you have to peel away the layers to find out exactly how much they charge. Numerous people give their money to charities in good faith thinking all their donations go to the people they want to help, but when their money go via MFIs, very little of that donated amount actually lands in the hands of the people they want to help.

This is one of the reasons I set up Seeds for Development; all our donations go directly to the farmers we want to help – no interest, no risk and 100% repayment so far!

Fehmeen: Could you elaborate how you eliminate risk?

Alison Hall: The farmers carry no risk because we agree with them that if the crop fails due to flood, drought, disease, war or ultimately their death, then the ‘microloan’ is forgiven. Even though we do not expect to get the money back ourselves (because it was all raised from charitable donations) we make sure the farmers believe that this is not charity.

Fehmeen: How does Seeds for Development cover expenses if all donated funds are forward to farmers?

Alison Hall: We pay for them ourselves because we all have day jobs. The costs we face are limited to travel, web-hosting, domain name registration, and the ‘Just Giving’ online donation tool fee (we get the bank to waive bank transfer charges), so you can see our expenses are pretty non-existent at the moment. However, as we grow this will have to change and I am looking to see if we can get support in the form of grants to cover these expenses. All of our ‘individual’ donations go directly to the farmers and we want to keep it that way!

Video: Olwal Farmers Group – Seeds for Development

Fehmeen: The activities of Seeds for Development are limited to helping farmers in a third world country; are there any specific reasons for your choice of helping farmers only?

Alison Hall: I believe the word ‘farmer’ is misleading as it can conjure up an image of affluence. In fact farmers are the poorest people of the land and they have the greatest difficulties in securing credit. Agriculture is widely accepted as key to poverty alleviation and we want to help the poorest, most challenged people farm their way out of poverty.

Plus, most of our clients are refugees who were displaced because of the twenty-year civil war that plagued Uganda from 1986 to 2006, and caused 2 million people to flee their homes and live in IDP camps. When Seeds for Development was setup, more than 500,000 people were still living in these camps.

We are trying to help people leave these camps and go home to rebuild their lives through microfinance. This is very challenging for them because many of them have known nothing but war, have no education and no older generation to pass on knowledge. Their land has not been touched for 20 years they often have no house to go home to, and have no food security.

Since most of them are starting from scratch, we also provide funds to help them purchase other basic agricultural inputs, such as forked hoes, hand hoes, wellingtons, weeding sprays, drying tarpaulin, fungicide, etc. to cultivate their micro crops.

Fehmeen: Your results are commendable – a 100% repayment rate, even in microfinance, is remarkable. What factors would you attribute to that: commitment of workers, good credit discipline, strict client selection criteria, or complementary training of clients?

Alison Hall: Thank you! Yes, the selection process is very strict. Victoria Seeds select the farmers groups for us to work with, educates and trains the farmers on seed production and closely monitors their progress throughout the growing season.

Most importantly, our farmers are totally committed to getting themselves out of poverty and know that they have to farm their way out. They have an astonishing attitude!

I meet the farmers as an equal partner – we shake hands and look each other in the eye. They give me their word that they will be honest, trustworthy and hardworking and the group committee signs an agreement. I then go and meet them again to see how they are getting on, etc.

A really motivating factor for the farmers is that when they pay back the loan, we transfer the money back to the group to use as ‘rolling credit’. This was a temporary arrangement because we didn’t have the infrastructure to take the money back and reallocate to other farmers. However, it is so successful that we will leave it this way and build on it.

Fehmeen: How many loans have you advanced so far? Could you share a few figures about your growth prospects and success?

Alison Hall: We have advanced 4 loans to 3 groups so far (here are their details):

Group 1 has received two micro crop loans, totaling £3,500, and thanks to the rolling-credit facility, these farmers have been borrowing seeds against it for 4 seasons now. The idea caught on fairly quickly because the repayment rate was perfect and the group size rose from 80 to 200 at one point, before settling at around 100.

Group 2 (70 farmers) and 3 (60 farmers) received much larger micro crop loans (over £4,500 each) because they belonged to the war-torn Northern Uganda. Despite this, they too have scored a 100% repayment rate, and we’ve recently forwarded funds to a third group in the North.

In addition to this, we also paid for 60 of the farmers to have a daylong training in organic farming because we felt it was vital to invest in furthering their education and building their knowledge.

Fehmeen: What is the way way forward for Seeds for Development?

Alison Hall: We currently have enough funds to support 2 more groups of around 40 to 50 farmers in each with significant (£4,000) micro crop loans this year. Our goal is to raise around £10,000 per year, which will allow us to support 2 new groups per year. However, we overachieved this by 50% last year, so we were able to take on an additional 2 groups this year.

We need to have some more formal structure in place to ensure that we can build on our success and grow in a sustainable way; for example, we will need to invest in management systems to track, monitor and develop the ‘rolling credit’ model efficiently.

But beyond that, I have lots of dreams and ideas for Seeds for Development!

—

(Just in case you’re wondering, there are no minimum donation amounts for Seeds for Development; in fact, some people donate as little as £1 at a time).

Here is a cool internship opportunity in Africa:

Description
On this project you will be working with a local Non-Government Organisation (NGO) in Dakar dedicated to providing micro-credit services to the local community. You will be predominantly working with a local community bank, set up by women for women, allowing them to setup their own enterprises.

Highlights

• You will assist in the day to day activities of the community bank. These activities could include
• Helping arrange new loans
• Assisting in writing new business proposals
• Helping arrange logistical requirements
• Giving basic accounting / business lessons to groups of women
• Helping out in local nursery (which frees up the women’s time to allow them to work)
• Helping out in the local Bio-agricultural garden

To read more about this internship visit GoAbroad.com

Lumana Credit is conducting a holiday fundraiser – details below:

WHAT: Lumana Credit is working to raise funds to expand its microfinance program in Ghana. Give the gift of a micro loan on behalf of a friend, family member, or colleague, and they will receive a traditional, personalized Ghanaian Kente card expressing their gift of hope given to a woman in need.

WHEN: Tuesday, December 1st to Friday, January 1st 2010.

WHERE: Make your donation online at www.lumana.org

WHY: Lumana Credit provides loans and education to rural villages in Ghana with an impact that extends beyond the holiday season. Be a part of a movement to help lift people out of poverty through microcredit.

COST: Cards start at $20 and can be purchased for any denomination above that.

$20 may not go very far here in the US, but it’s quite a bit of money in Ghana. For example:

• $20—Provide a 10-day business training course to a class of 20 entrepreneurs.
• $50—Train and employ one local school teacher to teach business training courses in the community for two months.
• $100—Provide a 6-month loan for a woman to invest in her business. Each time the loan is repaid it will be passed on to another woman in need.

Hope you choose to give the gift that keeps on giving this holiday season!

[via Joel Carlman on Kiva Stories from the Field]

There is a great post over on the Kiva Fellows blog by Joel Carlman — it’s called On Buoyancy and it’s about Joel’s experience as a Kiva Fellow in Kenya. Here’s an excerpt:

Their lives have been built one step from the ledge of despair and crippling poverty, and forces beyond their control threaten always to push them over.  And yet, they sing and dance and are thankful.  The difficulties of life are found only in their eyes, never on their lips.  Unsolicited shouts of “I am fine!” from across the street are so common!  And the question follows: “How are you?”

Now, go on and read the whole thing.

DECSI (Dedebit Credit And Savings Institution S. C), located in the Tigray Region of Ethiopia, is an MFI that has over 423,000 active borrowers and has a gross portfolio of over 116 millions USD.

The mission of DECSI is to improve the well being of those individuals, who are not getting services from the formal sector banks, by increasing their income and wealth through the provision of quality and sustainable financial services.

Objectives
- To help small producers to become financially independent and start their economic activity
- To provide credit to enhance the productive capacity of small producer
- To provide savings facilities and thus foster thriftiness
- To increase employment and raise the standard of living of clients and their families.
- To increase institutional efficiency and effectiveness

Although DECSI doesn’t have an official website (at least that I can find), here is a great video that gives you a brief description of some of the things they are doing over in Ethiopia.

It seems just about every week, a journalist somewhere in the world will write a piece on microfinance and the effects the worldwide credit crisis will have on the sector. Most journalists and experts alike are optimistic that microfinance will weather the storm and could even be “the answer” to the international investment predicament we are slipping further and further into (find the article here: Raksin, Huffington Post). An article by Allianz’s James Tulloch, “Can Microfinance Beat the Credit Crunch?” presents one of the more realistic outlooks for microfinance in 2009. Though it strays from the common “nowhere but up!” optimism, it offers a silver lining to the crisis’ impact on microfinance worldwide;

The downturn could [force] MFIs to grow less aggressively and focus on consumer protection, transparency, and governance. “Are we building a ‘bubble’ of over-indebtedness? If so, then a slowdown in growth will provide the opportunity to reconsider the basics of underwriting,” said Cecelia Beirne of MicroVest at the CGAP event.

There is no doubt that microfinance is a pretty resilient investment alternative, and the growth of MFIs (microfinance institutions) through the Asian and Latin American economic crises of the 1990′s and early 2000′s is an encouraging sign that microfinance may reside just below the economic current that can affect the regions of operation.  Today, the sector has not been greatly affected by 2008′s volatility and economic decline. Though past performance is encouraging, it is a different sector today than it was three years ago, not to mention 10-15 years ago. In that period, microfinance investment, exposure, and commercialization has increased exponentially (with projections that at one time had predicted private investment in microfinance to increase from $2B USD to $20B USD by 2015; IAMFI).  Let it be known that I, like the many that are optimistic that microfinance may even benefit from the credit crunch, are cut from the same cloth… we all want to microfinance to succeed in its efforts to alleviate poverty worldwide. I also know there are many out there, like myself, that think microfinance is so close to the tipping point of becoming a mainstream issue and investment avenue. This feeling can lead to a concern that the progress microfinance has made (and deserved) in recent years may take a serious hit because of the current crisis. I personally do not find this concern to be a very valid one. The concerns over the impact of the financial crisis can essentially be split into two camps; the financial concerns and the ideological concerns.

Financially speaking, I do believe funding will become more expensive and harder to find in 2009 (even though investment funds have heralded microfinance and healthcare as the two sectors with the most opportunity… seeing an opportunity and access to the capital to pursue that opportunity are two very different things). Realistically speaking, I think individual microfinance institutions will have considerable woes in 2009.  However, ideologically speaking, I do not believe microfinance will be hurt by the crisis, and in that regard, the progress and attention gained over the past few years will hardly dissipate (just seeing investment funds spotlighting microfinance on par with a sector like healthcare is something quite incredible). Financially speaking, investment in microfinance will likely focus more on the larger, less speculative, and less aggressive MFIs. This will pose serious problems for the majority of MFIs that are still in their nascent stages of operation. Ideologically speaking, the crisis hasn’t hurt people’s interest and advocacy for microfinance. October 2008 was quite possibly the most volatile and economically disruptive month in the US over the past 50 years. However, it is interesting to note that October 2008 was also the month that Kiva raised the most in a single month in the history of its operation to that point (which was then surpassed by November and December of 2008).

The financial concerns, though significant, and the continued ideological progress could turn out to be a microfinance idealist’s dream. 2009 could be a year in which the commercialization and over-aggressive growth of microfinance wane, but attention and interest grow… which would certainly make 2009 an interesting year for microfinance– 2009 could be the year that 2008 catches up to microfinance, but the “gathering clouds” may certainly have a “silver-lining.”

Eduardo Jimenez has been a Senior Microfinance Consultant to the Central Bank of Philippines since 2000, and was the Team Leader in crafting the Philippines Microfinance Literacy Program (PMLP).  He presented his paper, “Building Financial Literacy in Microfinance Clients,” at the 3^rd Annual Microfinance Conference in Nigeria, and agreed to talk with myKRO.org about financial literacy and microfinance.

Kirsten Weiss: Why should the microfinance industry concern itself with financial literacy?

Eduardo Jimenez:  The industry should be concerned about empowering the three major stakeholders in the industry: clients, microfinance providers and regulators.  Microfinance clients need to be clearly informed so they can make intelligent decisions.  Next, in terms of the providers, informed clients make informed decisions which result in good portfolios.  Good portfolios mean good assets and more income, both for the suppliers and for the clients themselves.  Finally, the oversight or regulatory agencies – the external stakeholders – might have less heartache if those they regulate have good portfolios.  As an example, look at what’s happening within the banking and regulatory system in the US now.

Kirsten: Tell us about the Philippine experience with its financial literacy program, the PMLP?

Eduardo: The PMLP started over two years ago as a commitment by the Philippine government to see a strengthened microfinance sector.  The National Credit Council, which is comprised of several agencies, including regulators, felt that they need to work on financial literacy to reinforce the gains made so far in terms of policies and regulations.  The Asian Development Bank supported us in terms of technical assistance, and I became involved as team leader.

As I looked at the literature and documents on financial literacy programs from other countries, I could see what needed to be done.  But as I interacted with the sector, including regulators, providers, and community based institutions, I discovered they had their own needs and perspectives.  As a result, we integrated some of these issues into the PMLP.

There are five modules which look at how to increase savings and investment, the roles and responsibilities of clients, the right use of credit, consumer protection, and microinsurance.  Sector stakeholders requested we add two more modules: on microfinance in general – e.g. what it is, the legal regulatory framework, and the national strategy – and information on available business development services (BDS).  The latter focused on an overview of what BDS is, what’s happening in the context of BDS in the Philippines, and how business owners can link to existing BDS providers.

Kirsten: What are the challenges to delivering financial literacy programs?

Eduardo:  One is cost.  All the providers see the need for financial literacy, but at some point these programs are conducted separately from credit operations and that is a bit costly.  Financial literacy is an investment on the providers’ side.  To reduce these costs, they typically empower the account officer or field trainer within the particular institution to walk alongside the client and conduct the training over time, perhaps over a month or so.

Another challenge is popularizing financial literacy programs among other sectors.  For example, I think the habit of savings as a discipline is critical.  The Central Bank worked with the Department of Education, crafting modules to integrate a savings training program into the regular educational programs of its elementary schools.  It took more than six months to design a module that finally was integrated into three existing topics and pilot tested in schools.  After pilot testing, it became part of the national education.  You need to integrate financial literacy into the educational system at an early stage.

Kirsten: What are the lessons learned?

Eduardo:  You have to approach financial literacy training from where the clients are coming from – i.e. don’t use the typical lecture or the teaching methodology for adult microfinance clients.  When you’re dealing with adults, with an average age over 45, you have to be creative when introducing the concepts of savings, investments, and insurance in order to stimulate these concepts and the principles.  Because the target market is “mature,” trainers need to be adaptable, using adult training techniques.

Next is the challenge of getting other educational and training institutions, including academic agencies and other NGOs, to embrace the principle of financial literacy.  Again, financial literacy training is a cost to their programs, but I think when they understand the value they will embrace it.  We don’t want to see a repetition of what’s happening in the current global economic and financial meltdown.  What we’re seeing in the West is a grim reminder that people need to become financially literate.

Kirsten: What else would you like to add?

Eduardo:  The goal of microfinance is the double bottom line – sustainability of the institution, and empowerment of the clients and transformation of the communities.  Financial literacy is an effective tool to empower clients.

I just returned from Nigeria’s 3^rd Annual Microfinance Conference, where Mrs. Mariama Ashcroft of Women’s World Banking presented a paper on commercialization.  When I told her about Mykro.org, she was kind enough to give me an interview for the site. My questions and her responses below:

Kirsten Weiss: How do you define microfinance commercialization?

Mariama Ashcroft:  It’s a strategy to create a means of reaching large scale numbers of low income borrowers, with a focus on sustainability.  This means an approach that relies on strong systems, governance, professional staff, and high performance standards, and which is moving toward profitable and efficient operations and towards getting fully integrated into the financial system.  The latter in turn translates into financial intermediation – being able to mobilize deposits and access commercial funds.  Financial integration/intermediation is what draws the line between NGOs and commercial MFIs.

Kirsten: Why should MFIs commercialize?

Mariama:  The primary reason is the need to expand access.  Though the estimates vary, the numbers indicate that demand for financial services far outstrips supply.  One statistic suggests that there are two billion productive people without access to finance.  Other numbers refer to 500 million microentrepreneurs without access to credit.

Because NGOs can neither fully intermediate nor provide a broad range of financial services, it makes sense for NGOs to transform to commercial institutions.  The assumption is that when the institution can mobilize financial resources, it can expand more broadly and deeply, placing it in a better position to provide more products that low income people need.

The other part of the rationale is in terms of governance.  When MFIs commercialize, they’re held to higher performance and reporting standards.  For instance, they’re typically regulated with stricter oversight.  As one example, there are frequently minimum conditions at the board and senior management level such as the fit and proper test, which requires regulators to approve all board and senior management positions.

Kirsten:  What are the challenges to transformation?

Mariama:  The first challenge is the regulation – particularly the minimum capital requirements.  In many cases, NGOs have been able to accumulate retained earnings over time sufficient to meet the minimum capital requirements stipulated by law to become a microfinance bank.  But in many countries these MFIs aren’t allowed to be sole owners, so they must find other investors for equity participation.

Another important hurdle for transforming NGOs lies in product design and development.  Here I’m talking mainly about savings – most NGOs only take savings as a guarantee for loans.  As a microfinance bank (MFB), however, they must develop savings products that appeal to clients based on trust.  When providing credit, the MFI must trust the customers.  With savings the reverse is true and crossing that line has been a challenge for many MFIs.

The third hurdle is in terms of systems.  Under regulation, MFBs are held to higher reporting and compliance standards.  Many NGOs tend not to have these systems fully developed and in many cases must start from scratch to create them as they transform.  This can be both costly and stressful.

A fourth hurdle I’d like to mention in terms of meeting the rationale for commercialization is to be able to reach scale in terms of outlets.  An NGO can set up branches wherever it wants because it doesn’t need a sophisticated infrastructure to provide credit.  An NGO can set up a meeting under a tree if it likes.  But once you become regulated that changes, because the law says branches must look a certain way – they must have secure premises, a strong room, 24 hour security, etc.  In many cases, MFI branches can’t meet these specifications.  I know of one case of an NGO which transformed to a MFB and its operations shrank as much as 50%.  It took them over five years to return to their original size.  In another case, an NGO started with 21 branches but after transformation was only able to upgrade ten branches to reach the minimum requirements.  The remaining branches remained unlicensed and offered credit only.

In Nigeria, Central Bank policy allows MFBs to work around this hurdle by having “meeting points.”  Meeting points can be a small room somewhere with a table and a few desks – enough room for field agents to work and to meet with clients.  These are supplements to full-service MFB branches; for example, one branch might service seven meeting points.  Another good thing about Nigerian regulation is that MFB field agents can make collections in the field, then at the end of the day return to their meeting points, prepare reports, check cash, and take the cash to the branch.  This system reduces pressure on MFBs to have many branches, while increasing access to customers.

A final challenge is the risk of serving less poor clients because of the pressure for profitability.  Commercial investors want commercial returns.  This has led to a tendency to disburse larger sized loans to higher income clients.  The concept of mission drift comes into play here.

Kirsten:  What trends do you see in microfinance commercialization?

Mariama:  I see more commercial banks doing microfinance but there’s still a long way to go here.  There are also more private investors interested in microfinance, increasing the flow of funds into the sector.  Microfinance is attracting new players that aren’t even financial institutions, for example cell phone companies and other technology providers, grocery stores and gas stations serving the role of point of sales outlets.  Rating agencies are playing an increasingly important role in terms of increased demand for transparency.  Even mainstream companies are becoming interested in rating MFIs.

As a side note, I represented ShoreBank International at the same conference, and presented on Commercial Product Development.  You can view a copy of my presentation on my blog: http://mfimarketing.blogspot.com/2009/01/presentation-commercial-product-design.html.