Microfinace & microbrews meeting report

SeaMo, an organization which seeks to connect the Seattle microfinance community, hosted Evelyn Stark, the new program officer at the Gates Foundation’s “Financial Services for the Poor” office, as the speaker for their bimonthly “microfinance & microbrews” get-together this evening. Here are my takeaways from the meeting:

1) Microfinance = financial services for the poor, not just the microcredit programs that we traditionally associate with microfinance.

2) She asked for a show of hands of how many people thought the poor wanted access to credit. Most people raised their hands. Then she asked how many people thought the poor wanted to go into debt. Not so many raised their hands, even those these two positions are necessarily linked (aside: This reminds me of the saying “Everybody wants to go to heaven, but nobody wants to die”) The point was that credit IS debt and that while we in the U.S. are quite used to the idea of taking on debt, it may not be such an appealing idea to a person in poverty, especially in the context of some cultures where debt can lead to indentured servant/slave status. Just because we get excited about the microfinance concept doesn’t mean its benefits or likelihood of adoption and success are guaranteed in the target community.

3) This leads to Stark’s “Ready, Willing, & Able” framework for planning successful microfinance projects.
Ready- target population needs to be connected to the cash economy, access to markets
Willing- trust issues, must be convinced that you will benefit from taking out a loan
Able- address the cultural factors and context specific barriers to success

4) Savings rates among the poor (abroad) are around 20%. (average U.S. household has a negative savings rate). Possibility of village level savings & loan associations.

5) Question was asked about collateral and/or motivation for loan repayment. Many microfinance programs use a shared risk model where small loans are given to a group of 5 or 6 women who mutually guarantee one another’s loans. This mechanism works through 2 or 3 rounds of progressively larger loans and selects for group members with a track record of loan repayment. After round 3 or so, group solidarity is a less important motivator than an individual’s desire to be approved for future loans. This becomes analogous to our credit history/credit report mechanisms for incentivizing payment of unsecured debt.

6) One of the factors which made microcredit so successful in Bangladesh was population density. It is difficult to maintain cohesion and provide services when clients are distributed over a wide area as is the case in some parts of rural Africa.

Microfinance information and resources:
http://www.seattlemicrofinance.org/
http://www.seepnetwork.org/
http://www.microsave.org/
http://www.themix.org/

Also, if you haven’t checked it out yet, go fund a loan at Kiva, it’s fun!