I just recently finished reading “Banking to the poor” by Yunus and in some later chapter he describes how he talked to hispanic women in Chicago about Microfinance. The one women, Maria, didn’t enjoy the right to do anything by herself, completely being dependent on her husband. Secretly, with the help of a microcredit, she started her own small business. On this way, she was able to generate some income, but also highly important is the fact that she found contact to other women and therefore was able to have a social environment other than her husband.

So, it makes clear that microcredit can be a really important and powerful tool in developed countries as well. It is not about supporting the high status of a wealthy country, it is about helping the poor of every country to become independent and self-reliable.
So, microfinance has the power to liberate women like Maria and give power to the poor through providing access to capital, why not doing it in countries like the US or France.

(this is a correcting entry to the post: Macy’s vs. Microfinance)

What’s the outcome so far? And, did we learn something?

One of the greatest things I realized is that Microfinance is just universal. Today, I found an article about it in my Spanish book. If you keep your eyes open there are so many sources about Microfinance.

If the world is a global village…

… then I’m sure that organizations such as kiva or the Grameen Bank have  the ability to be the good guys, to make this village work with all its people  being involved and everybody contributing and benefiting from it.

And we can help to build this village!

The program is called kiva fellows. If you are a motivated person with certain core competencies such as speaking other languages, being really open and active and having the ability to take an effort and to take the initiative, then it might suit you. By the way, for those with a finance or business background: You have an advantage.

But what are you doing?

You’re literally send to a place where you work together with the MFIs (Micro Finance Institutions) and where you connect to borrowers. Also, you do the journey in the name of kiva.

Now, you think this just sounds too good. YES, it does… one part of being a kiva fellow means you’ll need to fundraise for the trip yourself. Whether it is kiva not having the funds themselves to pay for these expenses or not, you can imagine that it also shows a high degree of commitment.

This is essential as a kiva fellow is supposed to stay at least 4 month in a country where kiva engages in Microfinance.

When I spent a year in California, I was actually able to listen to a former kiva fellow who was holding a lecture at a community college in Los Altos Hills (kiva is an organization founded in San Francisco which is really close). I was really impressed by the stories she could tell, but she also mentioned problems kiva is working on and I thought this was a really good work.

If you want to look at some stories here is a blog where fellows from all over the world talk about their experiences!

So, at the end I think doing something and seeing how it works with your own eyes is great. So far I just didn’t decide whether I like the fundraising thing. I mean to conduct part of it is great and I know kiva is an organization living and paying its employees off the donations, but it is clearly not easy then to become a kiva fellow. Maybe you’ll need to take a microcredit too in order to do so… no just kidding, what do you think?

From our perspective it doesn’t make sense, but in a great portion of the world women still live under conditions worse than in our Middle Age. As Isabel Allende puts it in her TED-talk there is always, even for the most poor and powerless men, still a women to look down at and to treat according to aggression from failure.

In order to stop this inequality, Microfinance is a great thing. It gives women that don’t earn anything, that don’t account for their own money or financial needs, these women is given the chance to start something on their own. They don’t need to depend on their husbands, sons or fathers anymore. For many women in developing countries it is the first time that they realize they have rights.

Another important aspect of the relation of Microfinance and women is that female entrepreneurs are way more likely to repay the funds. Moreover women are said to “reinvest 90% of their income in their families and communities“. Thus, they are having a way better impact on the whole environment.

So, in order to prevent things like the story of Edith Kagino from Uganda that you can find here, it is essential to support women in becoming entrepreneurs. The cycle of positive effects would be endless. From herself being independent to spending her money in the community and from children being less malnutritioned due to their mother’s income to them going to school instead of helping on the fields. All of that is possible.

You can find an interesting article concerning this topic here.

Yesterday, I got an e-mail from kiva telling me that I have now $2.50 as available kiva credit due to the fact that the entrepreneur I supported paid back $50 out of $500!

Of course, I know, don’t count your chickens before they are hatched, but in fact this definitely shows that Microfinance can work and that kiva is a trust-worth way to be involved in Microfinance!

Of course, I don’t want to have back $25 that I made available. I’m more than happy if the fisherman pays back his loan, so that he doesn’t have any financial trouble. Also, I can then pick another entrepreneur that I want to support.

Now, one question: Would you lend yourself through kiva or do you think there is something else you would do rather?

Why that? Well, his vision is to fight poverty, to make it a thing of the past and only to have poverty in a museum.

What is poverty actually?

The World Bank defines poverty as pronounced deprivation in well-being. In monetary terms being poor means not having enough consumption or income. Good indicators are statistics regarding something like literacy or malnutrition.

But now, let’s leave economic definition behind us and let us look at it from a different perspective.

Every three and a half seconds somebody dies because of hunger or hunger-related illnesses. This does not happen because there isn’t enough food in the world. In fact, there’s plenty of food. The problem is that people facing hunger are poor as well, they can’t afford to buy themselves a living.

Now, this is a very tragic truth humanity faces. People have to die because of hunger but not because there isn’t enough food, no, they just don’t have those paper or medal pieces that make our life so comfortable.

What good does the theory [of economics] do if it is not working for people? – Yunus

Before changing the world’s economic system, it is easier to start working on social businesses. Those are non-loss and non-dividend companies which address social and environmental problems. The idea is that entrepreneurs need not be motivated only by the profits they personally receive, but can also be motivated by social goals and may enjoy success there with equal satisfaction.

This all might sound like Utopia to you and whether you believe it or not is left to yourself. One thing is true though: Humanity had faced many challenges, so why not challenge poverty, too?

Are people credit-worthy?

Certainly, everybody is. Credits are human-made, so everybody is worth it to receive a credit.

Are banks people-worthy?

Well, I think everybody will agree with me if I say that at least one bank in this world is not worth to have the destiny of peoples’ life in their hand.

First of all, of course, there are the books written by Muhammad Yunus himself.

The first book he wrote in 2003 about

the foundation of the Grameen Bank and how Microfinance works.

It is more an autobiography. Banker to the Poor – Micro-Lending and

the Battle Against World Poverty

shows  how Muhammad Yunus developed the vision of microcredits.

On this website you can have a sneak view into the  book!

In his second book, Creating a World without poverty

-with the subtitle – Social Business and the Future of  Capitalism,

Yunus writes about the economic and social revolution

that can result from microcrediting underlining the role of poverty,

where it comes from and whether the world’s biggest problem can be

solved. You already think that is impossible?

Wait a little bit, I’ll write about the theory of poverty next time!

Last but not least, I want to introduce the book Indian Microfinance by

Prabhu Ghate.

The subtitle – Challenges of Rapid Growth – already reflects

what this book is about. It highlights whether Microfinance is so

successful in India and what problems the sector is facing. I think this

book is a great reference. It’s focus lies on economic and financial aspects and

therefore gives a great research opportunity.

If you are more kind of an online reader, No Problem, click HERE and find out interesting things about Microfinance. Did you know that June, 28, 2010 is the Social Business Day?

I also found this great wordpress blog! Have fun with the reading and don’t forget: It’s worth to read about Microfinance!

First of all it sounds weird regarding the fact that it was intended to help the poor. In general we wouldn’t consider a French or American as poor, if we take a second glimpse though, it might be reasonable, as there are people as well who won’t receive a loan from a regular bank. Is it really?

Even people living under the poverty line have in the US in contrast to Bangladesh probable a fixed address and at least some funds as they are not bargaining. And if they are somewhat supposed to pay back the money, they must have a certain credit-worthiness anyways. There is a talk about people not getting loans due to a bad credit score. But what’s the difference between a regular bank loan and a MF loan? Isn’t it in the end the same thing?

I mean, it makes sense to support small loans in the developing countries where there is help from NGOs to reach people that live in hardly-reachable territory, people that don’t have the ability to use a wholly developed system of finance.

But in the US it seems that nearly everybody is able to receive a loan or something similar somehow. I  mean even students that do not have any income receive student loans and look at how many people  were able to get a mortgage for new houses before the Real Estate Crisis hit them badly.

Is  Microfinance necessary in a country where you can even get a credit card at Macy’s?

In march 2006, the government of Andhra Pradesh,

the fourth biggest state of India, closed down over 50 branches of the Micro-Finance-Institutions

of the area. Now, you are probable wondering why a state government

should close down such institutions, thus they are doing good work.

But also the Microfinance sector faces problems.

• The MFIs were charging really high interest rates without any transparency.
• They followed unethical ways of getting their money back.
• There was multiple financing due to a strong competitive thought within the sector.

This shows that government needs to intervene if Microfinance should not become a competitive market. I mean, how can it happen that all the idea of “Banking with the Poor” becomes a market related to key words such as greed, unethical behavior, competition, exploitation and so on?

On one hand there is a dispute between state government and civil society organizations. On the other hand MIFs were becoming really powerful and used pressure to obtain their goals, meaning maximize profit.

Without diving too deep into the topic, one thing is clear: Their are major challenges due to a rapid growth of the sector especially in India, here Andhra Pradesh where even political strategies are linked to the system of Self-Help-Groups(SHG) and MIFs and where by 2005 already 98% of the households considered poor were covered by programs. But although there was a near saturation of the market, it cannot be that an instrument created to help the poor is used against them. There were even suicides of borrowers reported in relation to high interest rates and pressure.

The good news are: The government of Andhra Pradesh released a voluntary Mutual Code of Conduct for MIFs.

This can be a good example for other regions and shows that governmental interaction might become necessary as for the sake of the idea of Microfinance. We see: It’s worth to intervene because Microfinance has a vision.

Wanna know more?

So, why  are they taking such a high interest rate of 31%? And how come that the average interest rate of loans of that kind is even 36% and kiva’s average topping it with 38.43%?

It is agreed on the fact that Microfinance is a really cost-intensive business. There are costs of funds, costs of delivery of credit, cost of collection of repayment and cost of provisioning for bad debts. The MIF needs to cover its operational costs. Moreover it is very costly to deliver money to villages in LICs.

What is really astonishing thereby is the fact that, for example, Hattha Kaksekar Limited is making a Net Profit after Tax of $1,863,688. On the Kiva lender homepage they say that HKL contributes part of its profit to support social development in education and health care. Still, I’m asking myself what they are doing with the rest of the profit? Why do they need to make profit at all?

On this website it says that introducing rate ceilings can only harm the business. It would rather deny the ability to expand operations and secure the supply of loans.

However, even the “father” of Microfinance Muhammad Yunusargues for a flat interest rate of 12-15% (read more by clicking on this LINK).

The main problem with high interest rates is that it contributes to the effect of “slipping” into more and more debt, the so-called debt cycle. Many people don’t have any education or knowledge about how to use debt efficiently. Many borrowers use it at first-hand to pay for daily-life expenses or in some cases of emergency for health care. Sure, they increase their standard of living, but when it comes back to repay the debt, they find themselves in the debt trap.

To conclude this controversial topic a tiny bit, I have to admit that some arguments are really reasonable and there are things about Microfinance that don’t go conform with the basic idea of reducing poverty. Still, I’m sure if used correctly, it can make life a lot easier for many people that would not have the chance otherwise. When researching I find it difficult though to evaluate facts and profound research is missing.

Although some MIFs charge really high interest, it’s worth to believe in the idea of Microfinance, maybe we just need to work on the realization!!!