Jeremy's Kiva Journey

I’d like to be able to have a conclusion to my wonderful Kiva journey.  I’d like to tell you that microfinance unequivocally helps to alleviate poverty.  I’d like to tell you that in 20 years, there will no longer be people who starve to death in Guatemala.  But I have no certain thoughts.

I have for three months seen a country silently fighting to get over its bloody civil war and move forward as a people.  I don’t know how they are going to move away from penury and towards solidarity. Nor do I know what role foreigner aid/loans/help should play in this process.  I’m  left with little practical or tangible to tell anyone about my time here as it relates to solving poverty.

In this time, however, I have seen mothers who sacrifice their health to work three jobs so their kids can go to school.  I have heard stories of entrepreneurs who used to sell their goods on the street, only to now have a store to sell them in.  I have touched the glimmer of hope that is present in a person’s eyes when they know you believe in them.

Two of my favorite Spanish words are homonyms:
Esperar - to hope; to wait
Compromiso- a commitment; a compromise

To raise yourself out of a bad situation requires all of these things: hope for the future, waiting for better times, a commitment to work hard, and a compromise of  your immediate well-being for hope of a better future.  I don’t know how Guatemala, or the world, will move forward, but I believe that do so in a positive way will require these things from people.  And so I will return home committing to hope for future.

Thanks for all of your wonderful support.  It would not have been possible to make this journey with all those who helped me along the way.  You know who you are.  I’ll be home at the end of February, and I will be sure to have a presentation for those of you who are in the Ann Arbor area.

As I finish up my time as Kiva Fellow, one of my tasks is to write a mass journal to all of the people have lent to FAPE’s entrepreneurs in the past few months.  It’s aimed at people who do not know too much about Kiva other than giving a loan.  For those who have been frequent followers of my blog, you might find some of the explanations things you already new.  For those who are not frequent readers, it’s a great start to get to know Kiva, FAPE, and the world of microfinance.  I still want to edit it a bit more, but the final draft will end up looking something like this:

For the past three months, I have been happily serving as a Kiva Fellow with FAPE, Kiva’s field partner in Guatemala City. As you may already be aware, all of Kiva’s loans are disbursed by its field partners to make the process as efficient as possible. It is the purpose of a Kiva Fellow to work with Kiva’s field partners to propagate Kiva’s core beliefs. FAPE and Kiva have been working together for over two years, helping to lend more the $215 thousand dollars to Guatemalan entrepreneurs; In my time here, I have been able to witness many of the successes and hardships faced by both Kiva borrowers and FAPE.

What has most surprised and excited me has been FAPE’s dedication to the Guatemalan community here in the areas surrounding the capital. All of their loan officers—the people who actually hand the checks over to the entrepreneurs—live within the communities that they serve. This means that not only do they get to know Kiva entrepreneurs, but they also go through some of the same living experiences that Kiva entrepreneurs go through.

One of Kiva’s main goals is to extend access to credit to those who have been left out of the economic system. Because of the large Mayan heritage in Guatemala (about 40% of the population according to Wikipedia), many Kiva entrepreneurs do not speak Spanish but rather one of 22 Mayan dialects. This could be a reason why some of them have had difficulty accessing credit in the past. But with FAPE’s integration in the community, this is not a problem, as the loan officers also speak the languages that the Kiva entrepreneurs speak.

Bertha and her daughters at the Christmas Party

Bertha Carmelina Tohon provides a poignant example of this communal feeling. She lives in the small town of San Martin, just outside of Guatemala City, where she has a local eatery. She first started receiving small loans to invest in her restaurant as part of a group of women. When she proved that she could pay back her loans on time, she was able to get a larger individual from through Kiva. Whenever I visited her town, she always made sure that I ate lunch at her place, which usually was a thick, corn-based stew typical of rural Guatemala.

In addition to her restaurant, she also has two other businesses: a typing school and making clothing. If you ask Bertha why she works so hard, she’ll tell you it’s for her kids’ futures. And right now, with the help of Kiva and FAPE she is able to move ahead supporting her kids. One of kids, as I write this, is finishing studies to become a doctor. And here I stumble upon one of the beautiful things about microfinance—with a loan, not only are you helping the entrepreneur, but you are also providing a brighter future for her children.

In December, FAPE invited Bertha to cook at the annual Christmas party. She obliged and whipped up one of her delicious stews for the occasion. FAPE was supporting Bertha. Bertha had been funded by Kiva. It was a joyous representation of Kiva’s mission: connecting through lending to help alleviate poverty.

Thanks for continuing to support FAPE and Kiva. Click here see FAPE’s loans currently fundrasing on Kiva. Click here to join FAPE’s lending team.

Sincerely,

Jeremy Lapedis

A while back I had some posts on whether or not I thought microfinance worked (Part 1, Part 2)

Part of my job here at FAPE, is to try and measure how they are doing.  The tool which Kiva wants me to use is a 80-question survey that has been designed and refined to measure the social performance of a particular microfinance institution (MFI).  This is an example of a question

Does the MFI provide small loans (≤ 30% GDP p.c.) that can facilitate access for the poor?

Definition: Small loans = The amount, on an annual basis, is below 30% of annual GDP per capita. Example: In a country where GDP per capita is USD 1000, small loan = amounts below USD 300 disbursed for12 months. If the duration is 6 months, the amount disbursed must be inferior to USD 150.

0 = small loans < 30% of the total number of outstanding loans

1 = small loans < 50% of the total number of outstanding loans

2= small loans ≥ 50% of the total number of outstanding loans

The survey is called CERISE.  CERISE’s goal is to measure an MFI’s performance in distinct categories as a method of comparing one MFI to another, and as a method of letting the MFI know what areas the MFI is potentially weak in.  This chart–derived from FAPE’s data–an example of how to visually represent what we are trying to say. As you can see, FAPE does a pretty good job with economic benefits to clients, empowerment, and pro-poor methodology; however, it is clear that FAPE is weak in several areas, most glaring of which is client participation.
But the results must be take with a grain (or two) of salt. Not every MFI has the same goals. FAPE, for example, has empowerment of women in it’s core beliefs, but client participation is not a part of their principal values.  Also, as I said in earlier posts, it’s not easy to measure empowerment, but you can sure try.

Every training, the old class of Kiva Fellows welcomes the entering class. We decide to make a welcome rap video. I’m scattered throughout the video, and it’s great, so you should watch the whole thing. But if you want to skip to 2:44, that’s where my most prominent role is.

Hand made goods from women in the correctional facility

Yesterday I went to visit an incarcerated Kiva client in order to do a journal update.

FAPE has a program where they give women in jail trainings and a loan for their businesses while incarcerated.  Except where I went yesterday wasn’t a jail.  It was a correctional facility.  And that was the problem.  Let me back up a bit.

About one year ago, FAPE initiated this program in the jail in Guatemala City, four of the women were Kiva clients.  Training programs were given.   Loans were being repaid, and the women were even putting money away in savings.  The program was a success.  In late Summer of 2009, two things happened: the women were moved from the jail to the correctional facility and FAPE changed directors.

The new facility, from the looks of it, appears very nice.  There is a courtyard, two chapels and it appears to not be too stringent.  For most, it would be better than the old jail these women were in, but for these women who had established businesses, it was not.  They did not have the connections, the resources, nor the knowhow to operate in their new location.  They started to become delinquent on their loans.  And with the change of directors here at FAPE, the training programs were left by the wayside.  In there nice, new correctional facility, they had been forgotten.

Our visit to the facility yesterday was the first time anyone from FAPE had come to see them in six months.  Unlike most people who are delinquent on loans, they chastised us for not coming to visit them sooner.  Of course they did not have the money to pay us now; they had not received support from us in some time.  They wanted to pay back their loans, but they just couldn’t.  Imagine if you had to pick up your business and move to a completely different town, and you could not use any of your former suppliers or connections to get started again.  Of course they were late on their repayments.

But while complaining to us, you could also tell that our visit lifted their spirits.  It animated them to get back to work on their businesses.  They were happy that someone had remembered them.  That they hadn’t lost all of their savings they accumulated from the previous jail.  That they could share their feelings with someone who would listen.

And that’s the beauty of Kiva.  If I hadn’t needed to do a journal update, who know’s when these women would have gotten a visit?  Kiva is about giving people a chance to share their stories.  To allow people to believe that the world cares about them when all other signs say that the world is staunchly apathetic to their lives.

On Friday, we had another celebration for FAPE’s 25^th anniversary. This time, it was only the people who worked in the office. Needless to say, I was much more comfortable and happy with this crowd. We went to a park of Mayan ruins called Tecpan, which isn’t as spectacular as Tikal, but we had the park to ourselves.

First up, the religious devotion that takes place every Friday. Next up, sharing stories about different entrepreneur’s successes. About how they have to run three businesses to make ends meet. About how they can send their kids to school. About how happy they are to receive their loans. And what anniversary would be complete without the opportunity for me to stand up and be awkward? This time, the award was for me personally. In the video below (the audio is not very good), I am in front of all of FAPE thanking them for the time that I’ve been able to spend with them.

Then the festivities really began.  This group of 40 Guatemalan financial workers and one american volunteer, played team building games.  It reminded me of being at camp.  We passed a lemon down a line using only our necks.  We built 3-person skis out of planks of wood and string.  We played pin the tail on the donkey.  After all those organized activities, I taught them how to play frisbee.  After the rompus, we ate what I would describe as a Guatemalan barbecue.

And finally, we went to visit the ruins where a, Mayan ceremony had just taken place.

Now that’s my type of anniversary celebration.

Moriré con las botas puestas. That’s what FAPE’s vice president of the board of directors said while giving an award to the president of the board.  Everyone attended FAPE’s 25th anniversary celebration:  the board of directors,  the general assembly,  representatives from FAPE’s international partners (I was Kiva’s representative), and FAPE’s director, accountant, and lawyer.  Live music accompanied this slide show of pictures.

While the vice president continued, I sat in my suit waiting to receive Kiva’s award.  I couldn’t help but thinking how lavish this celebration was.  How none of the loan officers had been invited to the ceremony.  How we were patting ourselves on the back, almost forgetting the people on the ground, the reason we were in microfinance in the first place. Though you can’t deny that individual recognition is important, it’s also necessary not to get to wrapped up it.  It’s always about the people on the ground.

The vice president called Kiva’s name for the award.  I stood up and walked toward the podium.  But I saw that he was going to talk for some time before giving me the award.  So, I sat down in my seat again.  My other friend on the board of directors seemed to think that I did not understand what was happening, so she ushered me up to the front.  Little did she know, I understand Spanish perfectly.  I’m just awkward.  You know when you are exiting an elevator, and you tell the other person to get off first?  Then they tell you to go ahead.  And then you both run into each other.  It was kinda like that, except I was the only person making a fool of myself.

I guess I don’t want to say that celebrating 25 years is a bad thing to do.  Especially if you invite the people who are actually doing the work on the ground.  But I am wary of the type of hierarchy that recognizes itself, and only itself.  I guess I’d like to die walking in my boots, and not celebrating that I figured out how to put them on.

As promised, pictures from the journey. . . I mean gourney.

I have returned from a two-week vacation around Guatemala with my friends. I hope to get some pictures up of the escapade sometime later this week. I am still getting back into the swing of things around these parts, but I thought I’d leave you with some thoughts of Eirk, an Econ major at Michigan who knows much more about economics than me.  He has some thoughts about microfinance and Kiva in response to the discussion on the blog.

I have a few ideas about how you may be able to assuage your reservations about whether microfinance is truly helping to alleviate poverty.  Firstly, there are indeed many measurable ways to assess the impact of micro loans.  In my favorite econ course at michigan (development economics) we talked at length about the positive impact on health, education, and community well-being which can be seen in studies of microfinance.

To help your readers better understand why micro finance is so important (and indeed why interest rates of 30 or 50% are not as bad as they sound in the developed world), it may be helpful to give a brief overview of this basic econ principal.  The lack of available loans to poor entrepreneurs is something that flies in the face of conventional economic wisdom.  Those with little access to capital have much much more to gain by receiving a small loan.  (The return to an investment is likely very high)  Econ theory says that capital should naturally flow to those individuals who have the most use for it.  Unfortunately, the risk is often too great for a bank or Microfinance institution to make the loan.  By aggregating loans from many lenders (which kivas website does) or lending to groups of entrepreneurs instead of individuals, the risk is mitigated.  You, along with the loan officers of FAPE, are the crucial link that makes the transaction possible.   Microfinance is a relatively new concept.  Kiva has developed a loan process that produces unheard of repayment rates in areas which were previously thought of as impossible to make loans.   As the process gains credibility, the interest rates payed by entrepreneurs will go down.

As you struggle to see the positive impact you are making, remember that you are experiencing things on an incredibly small scale.  The true value of your work is yet to be seen as the slow mechanisms of a globalizing economy adapt to incorporate the process you are helping to develop.

Erik adeptly points out the niche that microfinance and Kiva fill.  They pick up where banks fail,  providing a useful service to those who do not have many options.  It’s always important to remember the scope and breadth of microfinance.  Kiva is not meant to do everything, just to fulfill a role for which there is a need.  Erik is, as am I, hopeful about the long slow processes that will manifest themselves as a result of microfinace. In theory, health and well-being of those receiving loans should improve.  Yet I have not seen evidence in the field, nor in any study to completely justify this theory.  If someone does find it, I’d love to give my hopes some statistical backing.

Putlzer Prize winner Nikolas Kristof offers his thoughts on the matter, also stating the lack of evidence of long-term, positive outcomes.

A bit of a programming note.  Over the next two weeks I will have some visitors, and will be traveling much, so it’s unlikely I will be able to post.  I would like to do another one of these question and answer type blogs, so I’d encourage you to, over the next two weeks, send me any questions you have about microfinance, Kiva, Guatemalan culture, how to make a tortilla, and the theory of relativity.  I’ll do my best to answer them upon my return.  On to your questions.

Sorry that wasn’t clearer. When loaners fund a loan on Kiva, the money goes to the MFI, in my case, it’s FAPE. FAPE in turn is giving the money to the entrepreneur funded on the website. When the entrepreneur pays back that money to FAPE, then FAPE in turn, gives the money to Kiva. Kiva, when lending the money to FAPE, does not ask for interest on the money, only that, if the entrepreneur pays back the FAPE, that FAPE return the money; however, FAPE still charges interest to the entrepreneur to make up for all of the costs of operation. Many studies can be done as to what the fairest interest rate is, but it has to be high so that the MFI can subsist.

Well, Kiva is kind of like a database for all MFI’s, except they do a lot of dirty work for MFI’s. There are many reasons why Kiva, or some sort of other lending website, must exist for to be able to loan to individual entrepreneurs. I will outline the two biggest ones that I see.

1. Sending money costs money. Unless you are Kiva. And you have the first ever free payment-processing capability through Paypal. Notice, if you have ever sold something on Ebay, Paypal takes a cut. Transfering money via Western Union? They eat some of your moolah. Even those of you who have donated to me directly to my paypal account, I lose about 3%, because paypal takes a that money (this excludes Kiva gift certificates, those do not have a percentage taken away). Kiva enables 100% off lender’s money to get to entrepreneurs. That is not something easily acheived. That is something that other “Save a Child Organizations” cannot promise. No overhead costs (besides the optional donation). And that is something that MFIs could not do on their own.

2. Building a website is hard work. Maintaining a website is hard work. Responding to lenders is hard work. This, Kiva does for MFIs. Have you ever noticed how easy to use Kiva is? This is because about half of Kiva’s staff is engineers, and they are dedicated to making helping others, easier for the non-tech savvy people. Many MFIs do not have the resources nor the knowledge to be able to carry out website processes, let alone to be able to respond in English to many of the lender’s queries. More than that, Kiva brings many MFIs together so that lenders can choose which ones they want to lend to. They don’t have 100 different websites to go to just to find someone they want to lend to.

Dovetailing off of that, you say it’s all an experiment for you, could you talk a bit more about whether you think KIVA itself makes sense for these communities (I understand they sponsor your blog…)?

Kiva doesn’t really sponsor my blog. I just believe in Kiva, so I have the banners up. They have, however, enabled me to have wonderful experiences here that allow me to write the blog. So in that sense, they sponsor it.

But does Kiva make sense? Is it worth it for the MFIs to go through the hard work of uploading borrower profiles, doing journals, dealing with slow web connections? The answer to that is probably. MFIs have many sources of funding. Kiva is one source. Other sources can be other philanthropic organizations or banks looking to make money. For sustainability purposes and if something should happen to Kiva, an MFI can recieve no more than 30% of its funds from Kiva. My MFI, FAPE, gets, on a quaterly basis, 10-15% of its funding from Kiva. And like I said above, Kiva gives the money at no interest to FAPE. Other sources of funding can require an interest of around 6 or 7%. I think that if you quantified the money and time it took to do everything an MFI does for Kiva, it would be less than 6 or 7%. So it that way, Kiva does make sense.

Does Kiva make sense for the individual borrower? I can only speak to FAPE’s case on this matter. But before FAPE was using Kiva as a funding source, they would only do small group loans. Kiva has enable FAPE to take on a little more risks with higher loans to individuals. These risks, help the entrepreneurs grow more.

However, interest rate on Kiva loans, and interst rate on loans from other sources of funding remain the same. So in this sense the borrower does not benefit. But when doing the journal updates, time and time again, I have heard borrowers say to me that they are so happy that other people care what they are doing. So I do think they get some sort of motivational boost from Kiva.

This is a tricky dynamic. I haven’t really noticed that there is a tension, but I honestly don’t think I have been in a position to view this sort of family dynamic. Guatemalans will hide problems from even from their closest friends. It’s an interesting culture. So I can’t really say for sure on this matter.

It is true what you say, that you can’t just ignore the men, but studies have shown women use their extra income to invest in their children, and healthcare. Such studies have not shown the same thing for men. Also, generally speaking, men have more property and more collateral in developing places. This gives them a better chance at getting a loan from a bank. Microfinance targets those who have been excluded from the finance sector, e.g. women without resources. But you will see microfinance loans to men and on a case by case basis, a man may be just as responsible as a women. It is just that, as a general rule, women are better to invest in than men if your goal is to alleviate poverty.  Here’s some good reading to start on this topic.

That’s all the questions for now folks.  Send more when you got em.  Have a safe and happy New Year.