Jeremy's Journeys

Who does microfinace help? Well, the requirements to get a loan are that you need to already have your own business, and it should be a profitable business. Why is that a requirement? If we gave loans to people who couldn’t afford to pay them back, we’d be doing them, and their community a disservice. They would just get into greater debt. Now a business can be very loosely defined, as nothing more than a place in the market where you sell beans that you buy from farmers, but it has to be a profitable business. For example, my institution will no longer give loans to people who are raising pigs to sell, because that market is not very strong these days. Instead, they encouraging these people to raise chickens, which is a good market in Guatemala.

So that person who I see every day on the street, begging for change in the morning, is not getting helped my microfinace. Neither is the alcoholic without a home. Nor the child who is taken to places called “Auto Hotels” where they put a curtain over your car and you pay by the hour. They are not getting loans anytime soon.Okay, so microfinance is not reaching the poorest of the poor. But what happens with them? Well maybe that’s wait aid is for.

But it is helping to alleviate poverty, right? Well, the person selling tamales on the street who gets a loan to buy her supplies more in bulk is not suddenly going to be able to move out of her current house with a curtains being the only things separating the rooms to a house with walls. She might be able to increase in income a little. Enough to keep her kids in school so that they don’t have to help her work in order to survive. And that’s something.

Okay, so now I’m somewhat deflated, care to add more? Sure. Even though Kiva lends at zero interest rate, my institution, and every other microfinace institution (MFI) charge interest rates. High interest rates. As high as 50% in Africa, and around 30% is the average in Latin America. Why are these institutions so evil? Well, they are not. Driving 2 hours away to give someone a loan, and collect repayments costs lots of time and money. What’s more, they need to cover the risk that clients do not pay back, which is naturally higher in loans to these types of people. So really, interest rates, for most MFIs, are just necessity to survive.

So microfinace is far from perfect. In my next post, I’ll address the larger picture aspects of microfinance, which maybe is a little more uplifting. Maybe.  In the mean time, here are some links to keep your thinking going:

Hans rosling gives a cool Ted talk on poverty.

The new york times talks about Vittana. Somewhat like Kiva, but they give education loans, instead of business loans. It’s pretty neat.

The Econmist evaluates two studies on microfinance. A little more in depth than I presented here.

So I guess having committed three months to something that I’m not convinced works might seem, on the surface, a little stupid; however, I’m am convinced that it’s unlikely that I’ll find something that I’m 100% sure is the best (for me, for helping others…for everything, for life). Uncertainty is no excuse for inaction. I’ll always be uncertain, but the process of discovering what works well about an organization, or an idea, is in itself a useful. And the only way to do this is through actively trying things out. It’s really all just an experiment.