microfinance

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Surprising growth of savings and loans groups in Uganda | 

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Map of CRS and CARE programs.

A savings-and-loan initiative in Uganda sought to create groups where people could increase their personal finances. The hope was that agents would then help form new groups to reach more people. It succeeded, but not in a way that was expected.

A survey of savings-and-loan groups across Uganda in 2013 found that many of the new groups were self-formed.

A group of researchers went back to the villages that once participated in savings-and-loan programs. The Datu Research team found that villagers learned from the other groups and went on to start their own. The new groups are performing just as well as the ones assisted by CARE and Catholic Relief Services (CRS).

“At first people were overlooking our group. They would keep on moving. But at the time of sharing out, these people would see members of our group improving their standard of living. Many people were encouraged by our growth and wanted to join,” explained a group member from Bundibugyo, to the researchers.

The findings, published in the report Post-Project Replication of Savings Groups in Uganda, give evidence to the argument that programs can succeed when control is in the hands of the people, rather than the aid organization. The majority of members of the self-created groups say they were motivated to pay off recurring costs, mainly their children’s education. Fewer cited the desire to meet future financial needs and gain access to savings and loans.

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Microfinance works! Loans better than fad of just giving poor money | 

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International AIDS Vaccine Initiative

The idea is simple, test what is the best way to grow microenterprise in Uganda: straight cash, loans, skills training or a combination of the three.

What happened? The results were, please forgive the overused Upworthy adjective, unexpected.

Just giving people money was not as good as giving them loans. Training combined with the loans did even better, but training alone and loans alone did not help. However the improvements were only in men-run businesses, not women-run ones. Finally, the people who got training and just cash actually witnessed a fall in profits.

Nathan Fiala, of the German Institute for Economic Research, published his paper earlier this month based on his research in Uganda. The just give people cash advocates scored a big win with the stellar results from the recent GiveDirectly study, but microfinance is making a comeback.

“The results suggest that highly motivated and skilled male-owned microenterprises can grow through fi nance, but the current fi nance model does not work for female-owned enterprises,” writes Fiala in the abstract.
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Microfinance: Empowering or exploiting the poor? | 

We’ve all heard about microfinance, the practice of giving small loans to the poor to boost their small businesses. Muhammed Yunus, widely considered the godfather of microfinance, won the Nobel Peace Prize a few years ago. But since then, microfinance has attracted ever-louder critics who see the institution as more exploitive, trapping the impoverished in cycles of debt, than empowering. Humanosphere has tracked the controversy closely.

Rick Beckett, CEO Global Partnerships

On this week’s podcast, Tom Paulson speaks with Rick Beckett, who tries to set the record straight. Beckett is the head of Global Partnerships, which has been involved in microfinance across Latin America for more than a decade. Can microfinance lift millions out of poverty, as some of its boosters claimed? Is it a scheme to extract wealth from poor people? How can the private sector be accountable, and how should it work in tandem with governments and charities? From his nuanced responses, it’s clear that Beckett has thought long and hard about these issues, and has even learned from a few mistakes

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Where is the best place for women entrepreneurs in Latin America and the Caribbean? | 

-21603Chile is the best Latin American country for female entrepreneurs, says a new study. An index from the Economist Intelligence Unit and the Inter-American Development Bank’s (IDB) Multilateral Investment Fund (MIF) measures the climate for women-owned businesses in Latin America and the Caribbean. The Women’s Entrepreneurial VentureScope evaluated 20 countries on five categories: business risk, entrepreneurial environment, access to finance, access to education/skills trainings and social services.

Peru, Colombia, Mexico and Uruguay round out the top five with a relatively small margin separating each other. At the bottom sits Jamaica with Paraguay and Venezuela just ahead. The lack of property rights played a key role in the index and it is why Jamaica ranked so poorly.

The study reveals a connection between competitive economies and opportunity for women entrepreneurs.

“The findings of the WEVentureScope suggest that countries which provide women with the economic, regulatory, financial, educational and familial support they need to start and grow businesses also tend to be better at building competitive economies,” write the authors.

Central American women, with the exception of Guatemala, have more unequal property rights than their counterparts in South America. Lack of ownership can prevent women from accessing finance that can support their businesses.
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Thousand in Seattle support ‘controversial’ anti-poverty scheme | 

Nearly 1,000 gather for Global Partnerships annual luncheon

It didn’t used to be controversial.

But one way to say this is that nearly one thousand people turned out for a Seattle event Tuesday to celebrate and support an anti-poverty scheme that many experts in the aid and development community contend doesn’t work.

Microcredit loans.

Rick Beckett, CEO Global Partnerships

“We have something like $70 million in loans to 57 partners in 12 countries, serving about 2.2 million clients each of whom support on average a family of five people,” said Rick Beckett, president and CEO of Global Partnerships, a Seattle-based organization and one of the biggest practitioners of microfinance anywhere.

The organization, founded in 1994 by local philanthropists Bill and Paula Clapp and focused primarily on assisting the poor in Central America, held its annual fund-raising ‘Business of Hope’ luncheon yesterday. Nearly a thousand people were estimated to have attended. The organization raised $540,000 for microcredit last year and hoped to do better this year.

I asked Beckett how he has been able to dupe so many folks: Don’t all these people know that many experts in aid and development say microcredit loans don’t work to raise people out of poverty? That it’s a sham, and even an abuse?

“That’s sort of a leading question, isn’t it?” he laughed. 

The rise and fall of the public image of microfinance has been misleading at both ends of the spectrum, Beckett said. Continue reading

Microfinance visualized | 

It’s hard to actually follow the advice of the slogan to “Visualize World Peace.” But below is a pretty cool video that allows you visualize reducing poverty — or at least watch microloans flying all over the world.

Thanks to David Roodman at the Center for Global Development for pointing this out (and for noting that Kiva’s microfinance program is not quite as advertised. But this video at least gives you a good sense of how popular these micro-loans have become … and it’s fun to watch. I think they could’ve picked better music, however. The William Tell Overture?):

Intercontinental Ballistic Microfinance from Kiva on Vimeo.

Muhammad Yunus on the crisis in microfinance | 

World Economic Forum

Muhammad Yunus

The Guardian has published an excellent, in-depth interview with Muhammad Yunus that provides perspective on the current crisis in microfinance.

Yunus, the Nobel Prize-winning economist credited with developing this anti-poverty scheme, has been at the center of his own crisis, which overlaps with the general crisis but is largely due to a political power struggle in his home country Bangladesh.

It one of only a few interviews he’s given since the government forced him out of running his hugely successful Grameen Bank for the poor. A few excerpts:

As the saying goes, a prophet is never recognised in his own country. Neither the global acclaim – nor the protestations of both the French and the US government – is making much difference to a government intent on destroying Yunus’s hold on Grameen Bank and the network of social enterprise companies he has developed over the last four decades.

The most likely explanation for the attacks on him is that Yunus’s brief foray into politics in 2007 unnerved (Bangladeshi PM) Sheikh Hasina. He announced he was going to set up a political party but ended up abandoning his the idea after only two months. His huge global reputation and the economic weight of the Grameen brand has made enemies insecure.

That last bit may be the most likely explanation, but perhaps not the only one. There’s plenty of evidence to suggest the attacks on Yunus are not just due to Bangladeshi politics.

As I’ve noted before, there is a fight right now for the heart and soul of microfinance — between those like Yunus who focus on the social mission of microfinance first and those who focus on it as a profitable way to perhaps also help poor people. The criticism of Yunus’ approach to microfinance really only exploded after he condemned the “loan sharks” who seek profits while only claiming to help the poor.

 

Mysterious microfinance firm re-emerges | 

Flickr, TW Collins

Clay Holtzman, in his new blog Nonprofit Kingdom, notes that a year ago the Seattle microfinance firm Unitus closed its doors, laid off most of its staff and didn’t really tell anybody (including some major donors) why it did so.

Unitus, which had claimed its primary mission was to help poor people, also happened to have made a lot of money — having invested in an Indian company, SKS Microfinance, which had pursued this anti-poverty financing scheme as a for-profit venture.

Here’s a New York Times piece on the controversy about SKS making money while fighting poverty. Here’s what I wrote at the time Unitus closed its doors and a more recent post I did on the broader implications of all the weirdness. Here’s another post from last year that Clay cites as a good overview by Philanthropy Action.

Now, as Clay notes, Unitus has been resurrected as Unitus Labs. Here’s what Clay says:

Many wondered what the new mission would be, and why Unitus had to close so quickly. Unitus recently unveiled its reorganization plan, and while the charity will use a different approach to reduce poverty, its new business strategy appears very similar to the one that sparked an international controversy last year.

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