The World BankThe World Bank Group has announced a $12 billion initiative that would allow COVID-19 vaccines, testing and treatments to be readily available for low-income countries. This plan will positively affect up to a billion people and signals the World Bank’s initiative to ensure that developing countries are equipped to distribute vaccines and testing to citizens. The plan is a part of the overall $160 billion package by the World Bank Group, which aims to support developing countries in the fight against the pandemic.

A Multitude of Goals

Since early March and April, the World Bank Group has provided grants to low-income countries to help with the distribution of health care equipment. Recognizing that the pandemic has disproportionately impacted the poor and has the potential to push up to 115 million into poverty, the World Bank Group has been active in financing an early, timely response to the COVID-19 pandemic in low-income areas. As of November 2020, the World Bank Group has consequently assisted over 100 developing countries in the allocation of medical supplies and technologies.

With the spread worsening all across the globe, the next step is to administer vaccinations. This new initiative hopes to strengthen health care operatives while also providing economic opportunities within those communities. Other expectations are increasing awareness of public health, training health care workers and focusing on community engagement. As a result, the four primary goals of the World Bank Group’s Crisis Response are to save lives that are endangered by the COVID-19 virus, protect the poor and vulnerable, retain economic stability and facilitate a resilient recovery to the pandemic.

Moreover, the World Bank Group has extensive experience with dispersing vaccines, specifically with combating infectious diseases like HIV, tuberculosis and malaria. Through these experiences, the World Bank Group understands the importance of quick, tailored distribution based on individual country needs. As a result, countries will have flexibility in how they want to receive and administer vaccines — for example, through the improvement of health care infrastructure, procurement with the support from varying, multilateral mechanisms or reshaping policy and regulatory frameworks.

Partnerships and Funding

Funding for this project will consist of “$2.7 billion new financing from IBRD; $1.3 billion from IDA, complemented by reprioritization of $2 billion of the Bank’s existing portfolio; and $6 billion from IFC, including $2 billion from existing trade facilities.”

The IDA will provide grants to low-income countries while the IBRD will be supplying them to middle-income countries. The World Bank’s private sector arm, the IFC, will be the main donor for continued economic stability within its clientele. The IFC’s support will specifically aid in the continuation of operating and sustaining jobs. The total funding will cover a broad scope to strengthen the health care sector. These solutions hope to reduce the harmful economic and social impacts of COVID-19.

World Bank Group president, David Malpass, has been working extensively with these institutions on this project. Malpass pointed out that the need for economic backing is drastically important when it comes to receiving this vaccine. Manufacturers might not deem these low-income communities as important as those in more advanced economies. Hence, it’s extremely important to provide this funding to ensure global equity and distribution.

Moving Forward

Many countries have been able to discover viable vaccine treatments. It’s important that future doses be distributed globally and equitably, as more and more people are being pushed into extreme poverty. Malpass wrote, “The pandemic is hitting developing countries hard, and the inequality of that impact is clear … The negative impact on health and education may last decades — 80 million children are missing out on essential vaccinations and over a billion are out of school.”

As the number of global cases increases each day, it is becoming even more important to provide relief to all countries. Low-income countries and communities are at the most vulnerable. This is why the World Bank Group has made it transparent that their main mission is to provide extended relief to these countries during the pandemic.

Natalie Whitmeyer
Photo: Flickr

Microfinancing Partners in Africa
Microfinancing Partners in Africa is a nonprofit that provides microfinance opportunities to people in Sub-Saharan Africa. Its current programs vary in nature. Some examples include giving loans to subsistence farmers to purchase a cow, providing water filtration systems and educating students on microfinance.

Microfinance is an innovative approach to growing the economies of impoverished nations by giving its citizens access to small loans, usually under $200. It is a way for those in poverty to develop a stable income because they do not have access to traditional loans.

Historically, companies have used high-interest rates to take advantage of impoverished people seeking loans. However, agencies like Microfinancing Partners in Africa counter that practice. It offers options that often require recipients to take financial literacy courses and give them loans without requiring collateral. In this way, Microfinancing Partners in Africa works to actively combat poverty within Sub-Saharan Africa. Here are some of its success stories:

Jane Nalwadda

Jane Nalwadda is a woman from Uganda born with an obstetric fistula. Her condition left her unable to have a child with her husband who consequently left her after three years of marriage. The abandonment left Nalwadda without a reliable source of income. She fell into utter despair until a friend recommended the Kitovu hospital to her. There she would be eligible for a free fistula repair surgery program. Here is where Microfinancing Partners in Africa stepped in.

The nonprofit established the microfinance program The Piglet Project. The program helps women make money post-fistula repair by helping them raise and breed pigs, eventually creating a sustainable business. Jane was able to raise $29 with her first litter of pigs, which enabled her to build a better pen. She now has a steady means of making a living and can build a promising future.

Bujugo Village

Bujugo is a tiny village in Tunisia that has clean water accessibility problems. The village received seven water filters from Microfinancing Partners in Africa in 2019. Villagers then received training to use the filters and developed a time table to maximize the amount of village usage. Now, 49 families receive clean drinking water because of this microfinancing program.

Florence Mbaziira and Joseph Mbaziira

Florence and Joseph Mbaziira are an older couple from Uganda who works on a farm with mostly unproductive land. They tirelessly worked on their farm to support themselves and their four grandchildren. By 2014, the family was still living off a small income that came from selling the produce that they grew. Afterward, they turned to the Cow Project.

Microfinancing Partners in Africa created the Cow Project to support farmers through a “living loan.” The Mbaziiras took full advantage of the program and bought a cow for their land. Microfinancing Partners in Africa trained them to use the cow’s manure to increase crop yields. The couple now grows coffee, bananas and seasonal foods. Thanks to microfinancing, the Mbaziiras are able to support their family through their own farming business.

Saida Juma

Saida Juma is a divorced woman with two children living in Tanzania. Previously, she worked as a maid for $5 a month. However, her passions were elsewhere. She had the desire to start selling fish. Juma worked with Microfinancing Partners in Africa to obtain a microloan of $50. With the money, she was able to go into business for a local fisherman by selling fish. Her earnings are enough to support her children as well as send them to school. Her goal is for her children to be well-educated and take over her business when she retires. She also plans to take out another $100 loan soon to buy a fridge to store unsold fish.

All of these people were struggling to survive. Microfinancing Partners in Africa’s varied programs were able to help inspire and empower them to gain a livable income. Microfinancing Partners in Africa helped increase the quality of life for these people and many others, proving that microfinancing is an effective way of fighting poverty.

Olivia Welsh
Photo: Flickr

Microlending Model
The international development community has both praised and vilified microlending as a means of poverty alleviation. Although the microlending model is not the apodictic poverty solution that some once believed, research on its impacts has shown that one should not easily dismiss or affirm it.

The History of Microlending

The modern-day microlending model comes from the Grameen Bank model that Muhammad Yunus created. Yunus won the Nobel Prize in economics in 2006 for his microcredit operations.

While teaching at Chittagong University in Bangladesh, Yunus would visit the impoverished households in Jobra, a neighboring village. Yunus found that those suffering in poverty often could not gain access to even $1 in credit except under unfair terms.

Jonathan Wight, a professor of international economics at the University of Richmond, explained in an interview with The Borgen Project that this barrier to traditional credit markets often pushed the poor into borrowing on the black market or from payday lenders with astronomical interest rates.

Financial markets work through financial intermediaries that loan savings out to investors, such as banks. Investors is a loose term here – it could refer to someone taking out a loan to buy a car. To get access to credit, one must have collateral – assets to forfeit if the debtor becomes unable to pay off the loan.

The poor have little in the way of financial collateral making them unfit as borrowers in the eyes of traditional banks, so Yunus decided to create the Grameen Bank. This bank would require those in poverty to join the bank in self-formed groups. The bank would then give the group a loan with no collateral requirement.

By lending to a group, Yunus capitalized on social capital relying on the groups’ links and relationships as a form of collateral: if one member of the group did not pay the loan back, they risked the loans of the entire group.

This microlending model became fad-like in its popularity in the economic development field. By the 1990s, it became the most highly lauded and generously funded poverty alleviation policy in the international development community.

Critiques of Microlending

In theory, microcredit should boost income-generating activities, but the industry has seen a move toward the support of consumption spending. Rodrigo Peláez, who worked at the BBVA Microfinance Foundation in Spain for six years, explained to The Borgen Project that a lot of harm can occur when MFIs support consumption rather than productivity. Instead of generating income, MFIs can end up making people poorer.

The intention of loans is for people to invest them so that their investment can fund the repayment. For example, when a person takes out a car loan, they are investing in that car with the expectation that they will gain a return. Buying that car may mean that they now have the ability to get a higher paying job in a city where they need to commute.

If a person were to instead spend that loan on a television, they would not get any returns on that expenditure. They would then have to pay back a loan principal that they could not pay before purchase, in addition to interest. This would make the person poorer than when they started out.

This phenomenon has deteriorated the efficacy of the microlending model as a development tool and has caused some to go as far as labeling it an “”anti-developmental” intervention.” Another critique is that even when microcredits create productive investment, the business activities those investments support are not sustainable development drivers nor are they geared toward poverty reduction.

Studies by Abhijit Banerjee and Esther Duflo, the 2019 Nobel Prize winners in economics, have found that microlending is not, in fact, a tool for creating transformative social or economic change in impoverished communities. Furthermore, in some cases, borrowers from MFIs end up saddled with too much debt having taken a loan without the income to sustain repayment or with the expectation of using the loan to create income. These borrowers then have to sell personal property or go further into debt to pay their loans.

Ben Blevins, the director of a developmental organization based in Latin America called the Highland Support Project, described first-hand accounts of exploitative microfinance to The Borgen Project. The microlending model, Blevins said, is a perpetuation of white settler colonialism policies. “The purpose of microlending is about a move to innocence for people in the Global North,” Blevins said. “It is also about extending and conditioning the entire world to the neoliberal model of debt servitude to the capital class.”

The Impact of Microlending

Some have believed that microcredit has numerous positive social, educational and economic outcomes, but empirical studies have shown mixed results. In a study by Banerjee with facilitation from Duflo, researchers found results suggesting that although microcredit does not necessarily lift communities from poverty, it can foster more freedom of choice and the capability for self-reliance. The study did not find sufficient evidence to support either the proponents of microcredit or the adversaries, although, this study and more targeted studies have shown the marginally positive impacts of microcredit in niche scenarios.

A 2019 working paper for the National Bureau of Economic Research, with authors Banerjee and Duflo, found that “For talented but low-wealth entrepreneurs, short-term access to credit can indeed facilitate escape from a poverty trap.” Meanwhile, a study published in 2019 found that Haitian women who received health education training as part of the microfinance loan program, “were over 50% more likely to use condoms, over 50% more likely to have a recent HIV test, and over 60% less likely to report recent STI symptoms.” The degree of positive impacts from the model seems to depend largely upon the MFI itself and its priorities.

Some MFIs will remain in a village for years nurturing human development through financial management or other training programs, Alejandro Cañadas, associate professor of economics at Mount St. Mary’s University, explained in an interview with The Borgen Project. These institutions aim to create financially savvy citizens, foster economic growth and break poverty traps.

“These microfinance organizations, they have a different way: they go, they train, they show. They bring the training and education, and then they give the money to see it in practice,” Cañadas said. “And then people use what they learn, and they make mistakes and they fix those mistakes.” However, Peláez noted that not all MFIs have a social impact in mind. A lot hinges on the management of the institution and whether that institution cares about its social responsibility and staying true to its mission of poverty alleviation.

There is a thin line to walk between productive and nonproductive loans in the finance sector in general, Peláez said, “But microfinance is much more dangerous because it’s vulnerable people we’re talking about.”

Concluding Thoughts

The microcredit industry has proven over time, with large scandals erupting across the industry, that it holds great potential for exploitative practices.

“We wouldn’t expect that any solution as big as this one ­– microlending – as momentous as this is going to be all beautiful, all perfect,” Wight said. “There are bad apples who get in there and say ‘Hey, this is a chance to make some money. I’m going to prey on the ignorance, lack of education of a poor person. I’m going to get them to sign some contract.’”

The microcredit poverty solution is not all bad or all good. It has proven to have some positive impacts, but there are large failings in this microlending model that people need to address if they are to continue to use it in any form of development work.

– Olivia du Bois
Photo: Flickr

Microfinance in Bolivia
With microlending and financial services that empower business owners and promote development becoming more readily available, Bolivia is considered to be a microfinance success story. Microfinance allows vulnerable populations to access capital and financial services that would ordinarily be out of reach. Most commercial banks, unwilling to work with very low-income markets, alienate those living in extreme poverty. As a result, the World Bank reports that 73% of people living below the global poverty line are unbanked. However, in many developing countries, microlending systems allow entrepreneurs to take out small business loans in safer manner. Because the economy relies on a great deal of informal labor, access to microfinance in Bolivia has been crucial for its economic improvement. Today, almost 20 government-regulated microfinance providers service the country’s small business owners and entrepreneurs, serving 12.2% of the population and 16.4% of the labor force.

How do Microloans Work?

Since the 1980s, microloans have been used to empower borrowers in developing companies and give them the needed infrastructure to earn a sustainable income. They range from about $100 to $25,000, accrue interest like conventional loans and are capped at fair interest rates that do not put borrowers at risk of sinking deeper into debt, unlike the same services of many commercial lenders and private ‘loan sharks’. According to the World Bank, more than 500 million people currently benefit from microfinance initiatives.

Banco Sol and Microfinance in Bolivia

With the lowest GDP per capita and the second-lowest Human Development Index in South America, Bolivia faces clear economic challenges. However, pioneering infrastructure has allowed many economically disadvantaged Bolivians to borrow the capital necessary to advance their own businesses. In fact, Bolivia boasts one of the world’s lowest microfinance interest rates, at 13.5%.

Banco Sol is the largest microfinance company in Bolivia, and the world’s first commercial bank entirely dedicated to providing microfinance services; it also has one of the lowest delinquency rates in the world, marking the success of both the company and borrowers. Kurt Koenigsfest, Banco Sol’s CEO, markets the bank’s services as tools of social mobility and poverty management, saying “this is one way that has been proven to provide jobs and investment in the hands of those who, before its creation, had no access to financial services.”

Human Benefits

Bolivia is home to the world’s largest informal economy, with roughly two-thirds of Bolivians employed by the informal sector.  Many of these business owners sell goods like clothing, food and cosmetics in simple market stalls or shops. With an economy structured in this way, Bolivia has unsurprisingly benefited from financial infrastructure that services self-employed entrepreneurs who need capital to initiate growth in their business. The country’s physical remoteness and low population density, however, make it especially difficult for the rural poor to access both the national market and necessary financial resources. Banco Sol utilizes mobile branches, or trucks with banking facilities, to overcome this obstacle, so that even the most rural villages can gain access to banking.

A Path Forward

Exclusion from financial services can be a hurdle for those experiencing extreme poverty. Lenders like Banco Sol have given many small business owners the means to grow their capital while still maintaining ethical lending practices. Following the introduction of microfinance in Bolivia, the country has welcomed a new class of empowered, rising entrepreneurs that have secured higher positions in the nation’s marketplace.

Stefanie Grodman
Photo: Unsplash

Kenyan mobile money system M-Pesa Reduces Poverty in Kenya
Experts argue that expanding access to financial systems and services are an indispensable component of reducing poverty. However, Kenya offers only limited access to banking services outside of central cities. Fixed-line telephones are largely unavailable, and minimum fees for banking services pose an impediment to the rural poor and can deter use. Due to these facts, many rural and poor Kenyan households traditionally lacked access to proper finance-management resources. However, mobile money transfer service, M-Pesa, now provides Kenyans with an alternative to traditional banking. Mobile money reduces poverty in Kenya by creating a simple and accessible resource for individuals and families to manage their finances. In under a decade, the expansion of M-Pesa’s simple SMS-based system changed household finance so drastically that nearly 200,000 Kenyans—around 2% of the population—were able to break out of poverty.

Establishing Financial Resilience

M-Pesa allows individuals to send and receive payments via text, as well as deposit and withdraw cash from M-Pesa agents stationed in villages. With 110,000 agents located throughout the country, M-Pesa helps Keynan households overcome the country’s lack of accessible financial services. Now, there are 40 times more M-Pesa agents stationed throughout Kenya than ATMs. Users can easily and inexpensively store savings by depositing cash into their mobile phones via M-Pesa agents. Increased access to savings helps Kenyan households weather unexpected economic hurdles. One study found that following a financial shock, the per-capita spending of households using M-Pesa was 12% higher than households that didn’t use M-Pesa. The discrepancy is likely due to the increased saving capabilities of M-Pesa users.

Long-Term Implications for Poverty in Kenya

An MIT study in 2016 examined the long-term effects of using M-Pesa’s service. They found that between the years 2008-2016, per capita consumption of goods increased by approximately 18.5%. The mean of the households in the study spent $2.50 per day, which is well above the $1.25 or even the $2.00 per day that constitutes extreme and general poverty. According to the study, M-Pesa directly helped as many as 194,000 Kenyan households escape poverty between 2008 and 2016.

Financial Independence for Women

Additionally, the MIT study found that M-Pesa helps Kenyan households run by women in particular. Between 2008 and 2016, the savings of women-headed households using M-Pesa grew by 22% compared to those who did not. Furthermore, nearly 185,000 Kenyan women using M-Pesa could switch from subsistence farming to more economically productive activities, such as sales or business. This economic freedom came regardless of whether their home had a female or male head. For households with two incomes, M-Pesa gives women the ability to store savings, allowing Kenyan women to gain newfound financial independence and opportunity for their own economic pursuits.

More Resources from M-Pesa

Since MIT’s 2016 study, M-Pesa has increased the number of Kenyans with access to formal financial services from 75% to 83% in 2019. Along with personal banking, M-Pesa helps Kenyan households with a wide array of financial services. These include taking out loans, actively managing savings and collaborating with local banks. With the introduction of M-Pesa, the number of bank accounts held by Kenyans grew from 14% in 2007 to 41% by 2019. Largely due to this mobile money service, Kenya is now ranked third in the continent in citizen access to financial service, behind only South Africa and Seychelles. Researchers hope that M-Pesa’s success in Kenya will encourage further study of how mobile money reduces poverty in other countries.

 – Alexandra Black
Photo: Flickr

Income Inequality in South Korea
As South Korean film “Parasite” celebrates an Oscar win, the conversation about income inequality in the nation is appearing in public discourse again. The film’s portrayal of the income gap between South Korea’s poor and rich portrayed a bleak picture. Income inequality in South Korea is most apparent in the nation’s education system and affordable housing. South Korea recently elected President Moon Jae-in in 2017, whose platform promised to reduce the income gap in South Korea. As a result, citizens are more conscious about income inequality than they have ever been. What is the reality of income inequality in South Korea? What are some of the solutions experts suggest will alleviate this issue?

The Economy

The society and economy in South Korea function on a winner-takes-all mentality. Some studies indicate that South Korea has one of the fastest-growing income gaps. The nation’s P90/P10 ratio, which compares the income of those in the top 10 percent to the income of the remaining 90 percent, indicates an interesting trend. While the overall P90/P10 ratio shows that income inequality in South Korea has improved since 2011, the curve rose between 2015 and 2017. Further, in 2017 the Organisation for Economic Co-operation and Development (OECD) ranked South Korea 32nd based on the P90/P10 ratio.

The Education System

One can see an aspect of income inequality in South Korea in its education system. According to the OECD, nearly 70 percent of South Koreans, aged 25 to 34, completed some form of tertiary education. Comparatively, the United States’ tertiary education attainment rate of 49.4 percent makes it clear that South Korean culture puts a tremendous emphasis on college education. Ironically, this demand for higher education has significantly lessened the value of the degree. This decline of value in college degrees has resulted in students competing aggressively to gain acceptance to the three most prestigious universities in Seoul.

Subsequently, to assure children’s competence in the ever more competitive academic scene, many parents send students to “Hagwon,” or private after-school education institutions. In 2017, for example, reports suggested that 83 percent of 5-year-olds in South Korea were studying in these private institutions.

In addition, estimates determine that South Korean parents spend over $15 billion on private education annually. In only a single year, from 2016 to 2017, South Korean spending on private education rose 5.9 percent. Education in South Korea is becoming more burdensome for Korean parents who are not as financially well-off because, in the case of illegal private tutoring, one institution charged up to $8,000.

The Housing Market

Individuals who live in semi-basement homes also reflect income inequality in South Korea. As of 2015, over 360,000 households have a semi-basement floor-plan. The conditions in these semi-basement homes include lack of sunlight, the prevalence of critters and moldy smell due to homes’ high humidity. As a result, these residences became the stock image of housing for the poor. In Seoul, the country’s capital, the rising housing costs in South Korea are impacting these semi-basement homes.

According to the Korea Appraisal Board, the average apartment price in Seoul surpassed 500 million won (about $413,541), meaning that buyers need at least 300 million won (about $248,125) in order to even consider a purchase. This seemingly continuing rise in housing prices is making it harder for the average person to maintain responsibility for an apartment.

The Government’s Reaction

The government’s response to income inequality in South Korea takes the form of restructured tax policies. Since the 2017 election of President Moon Jae-in, the Korean government is working to expand the country’s elderly welfare and unemployment benefits. In this pursuit, the current administration imposed stiff tax hikes in 2017 which targeted leading corporate conglomerates, investors and high-income individuals. Estimates determine that this newly imposed tax plan will raise approximately $3.14 billion to support welfare programs. Many Koreans hope that this newly gained revenue will improve the circumstances for the ever-aging population of South Korea. In addition to increasing taxes for high-income South Koreans, the current administration has also increased the minimum wage.

However, there are concerns over how effective these new policies might be. For example, some reports suggest that the administration’s increase in minimum wage throughout the country might backfire. In response to the rising minimum wage, many small and medium-sized businesses simply cut back the hours that workers can to work.

Income inequality in South Korea is a complicated issue. The portrayal of families living in semi-basement homes paints a dismal picture of the middle to lower class. The ever-rising housing and education costs limit the accessibility of these resources for many South Koreans. The government’s effort to close the income gap in South Korea does not seem to be entirely effective either. However, it is significant that the South Korean government is taking active measures against income inequality. While there are plenty of issues to tackle, many South Korean citizens hope that the current administration’s efforts will result in a future with more equal opportunities and financial success.

YongJin Yi
Photo: Flickr

Tala is Changing the WorldShivani Siroya’s startup, Tala, is changing the world by making a better, more equitable financial system one loan at a time. Billions of people around the world do not have a financial identity, making it impossible for them to advance due to a lack of credit history, but Tala is changing this.

The Financially Anonymous

Only 30 percent of the world’s adult population has a financial identity. The other 70 percent lack a credit history or any way of applying for loans. This severely limits opportunities to financially advance because loans are often necessary for larger investments, like starting a business, purchasing farm equipment or investing in better irrigation systems.

Credit and loans are only accessible with some type of paper trail or financial history if customers are borrowing from traditional banking institutions. It would be too risky to lend money to anyone lacking credit and financial history. Siroya, Tala’s founder and CEO, realized “that there are billions of people around the world who are not ever seen and don’t even have an identity. That felt really wrong.”

How Tala Works

Tala is a smartphone application available to anyone with an Android phone. With permission from the user, the application uses data collected from smartphones to create a digital credit history that determines if the customer is eligible for a loan. It serves the same purpose as traditional credit history to create a unique financial profile for each user. It is currently serving customers in Kenya, Tanzania, the Philippines, Mexico and India with Kenya accounting for the majority of users.

Using nontraditional data, Tala analyzes each of its three billion users using 10,000 unique data points to determine a user’s risk profile and whether they would be a credible borrower. Data points come from information gathered from texts, calls, sales transactions, application usages and personal identifiers that help to create a unique profile for each user. About 85 percent of Tala users receive a loan within 10 minutes of this vetting process. The average Tala loan is $50. Users typically invest these loans in equipment or business licenses, which are important opportunities that are not available to those who cannot access credit.

Tala expects customers to repay the loan within 30 days, which 90 percent of customers do on time. Tala is a loaning service that deals in microloans, ranging from $10 to $500. Since the company’s inception in Santa Monica in 2014, it has granted a total of six million loans worth $300 million and amassed a customer base of 1.3 million. Investors like Revolution Growth, IVP, Data Collective, Lowercase Capital, Ribbit Capital and Female Founders Fund with around 215 employees around the world fund Tala.

How Microloans Change Lives

Tala is a microfinancing company, using small loans to make big changes. Siroya herself has seen how these small funds make disproportionate improvements in people’s lives. Jennifer in Nairobi, a 65-year old food-service entrepreneur, needed credit to invest in a food stall and start her business. However, she had no credit history and banks refused to invest in her business aspirations. Her son heard of Tala and introduced her to the smartphone app. After answering eight to 10 questions, Tala approved her for a loan.

Over the last two years, Jennifer has taken out 30 loans and subsequently opened three food stalls. Additionally, she now has a formal credit history and can borrow money from formal bank institutions. In fact, Jennifer has used this opportunity to take out a small business loan from a bank and begin opening her own restaurant.

There are more people like Jennifer who lack opportunity but with help from Tala, they are beginning to see changes. By developing a real relationship with their customers, Tala is changing the world by updating the face of microfinancing and the very notion of credit history. Now it is possible to identify those who banking institutions ignored and give them a fair chance at empowering themselves.

– Julian Mok
Photo: Pixabay

microfinancing in africaAt the turn of the 21st century, new ways of combatting poverty grew in popularity. Microfinancing, a system of banking created by Mohamed Yunus, offers small loans and financial services to those without access to traditional banking means, such as the extremely impoverished and those living in rural villages. Today, many organizations such as Grameen Bank offer microfinancing services across the world. According to The U.N. African Renewal project, most microfinancing clients are in Asia, but the African sector continues to grow. Microfinancing has the potential to transforms the lives of citizens without traditional banking services across the countries of Africa, but the overall effectiveness of this relatively new financial practice is still under hot debate.

The Bright Side of Microfinancing

To proponents of microfinancing practices, the new fiscal theory provides a fresh, grassroots fix to a deeply entrenched problem that requires new solutions. The Grameen Bank, founded by Yunus, still stands by the fiscal theories created by its founder. Microfinancing from Grameen bank is called “Grameencredit” and according to the bank itself, its aim is to help poor families overcome poverty by helping themselves. It is also targeted to help poor women. The premise of microfinancing operates on the idea that with more economic independence, at-risk individuals and communities can become more powerful and self-sufficient against problems such as corruption, poverty, and women’s rights issues. To proponents of microfinance, microfinancing in Africa will allow rural villages and impoverished people to gain economic independence, which will allow them to take advantage of education opportunities and health care services.

What Needs Work

Skepticism centers around a lack of concrete data and a distrust of anecdotal evidence. The U.N. finds that current data on microfinancing shows how it can be hard to measure how micro-finance affects poverty. Proponents of microfinance usually rely on case studies and anecdotal evidence. The same UN report also cited that some question the efficacy of microfinance because small businesses don’t contribute much to the economy’s productive capabilities or structural changes. Offering small loans to poor communities will do little to move the needle in terms of a countries gross domestic produce and it won’t address federal or state-level corruption. While offering microfinancing in Africa will help families on a case by case basis, the overall effects on regional or domestic economies have yet to show conclusive evidence of structural change beneficial to the poor.

Microfinance Today

To combat the shortcomings of microfinance, many institutions that give out micro-finance loans also offer other forms of aid and assistance. The Foundation for International Community Assistance (FINCA) has operated micro-finance operations since the 1980s and continues to do so today. Along with offering traditional banking services to the poor, FINCA also provides other services as well such as mobile banking. According to FINCA financial services are not always available in developing countries, but cellphones are becoming more common. Mobile banking services provide people in rural areas the opportunity to access banking services through FINCA that were previously unavailable. Along with mobile financing options, FINCA also operates banks with “POS [point of sale] terminals equipped with biometric recognition, otherwise known as fingerprint scans. These provide better security for clients accessing their FINCA accounts. Thus, modern technologies improve access to banking institutions while also ensuring secure transactions.

Along with offering baking services that require payment such as loans, FINCA also invests money into local markets in need of attention. FINCA also invests in energy, education and agriculture through FINCA Ventures in Africa. FINCA Ventures operates a specific type of investing called impact investing, where those receiving investment need to meet certain requirements set out by the investing institution. FINCA Ventures invests in startups with clear goals and plans to make a deep social impact and create a customer base using FINCA’s network. Those that FINCA invests in must offer a service that betters a community while also giving them access to FINCA’s banking and investing services. One such company is Amped Innovation, which offers affordable solar energy powered home systems and appliances. By augmenting microfinancing in Africa with other services, FINCA can affect larger systemic issues that traditional microfinancing ignores.

Microfinance Going Forward

FINCA, as well as other microfinance firms such as Grameen Bank, try to combat the shortcomings of microfinance by offering services and investments that aim at fixing systemic problems in impoverished communities such as infrastructure and banking security. Microfinance is still in its infancy and needs to find solutions to shortcomings of the past. With additional services and time to prove its worth, microfinancing in Africa will be an effective tool in the fight against poverty.

– Spencer Julian
Photo: Flickr

Advance Consumerism in sub-Saharan Africa

As a way to build a more “digitally exclusive ecosystem,” Visa is partnering with Branch International to advance consumerism in sub-Saharan Africa. So the Branch-Visa partnership offers over 2 million consumers in sub-Saharan Africa virtual, prepaid Visa debit cards. With these virtual Visa accounts, consumers can then create accounts on Branch, the most downloaded finance app in Africa. Now, with access and finance, citizens are even able to invest in technology. As a result, this donation will advance consumerism in sub-Saharan Africa, even enabling consumers to start their own tech companies.

Here’s how and why Sub-Saharan Africa needs this.

Sub-Saharan Africa Can Participate in Global Consumerism

Giving citizens in sub-Saharan Africa access to online purchasing allows them to contribute to global markets. Many setbacks prevent citizens of impoverished African countries from entering this market. These setbacks include:

  • Lack of transportation
  • Limited stores selling modern, technological products
  • Having only cash to buy products
  • Having low or no credit score

Enabling these citizens to start their own tech companies will advance consumerism in sub-Saharan Africa, as products become accessible and affordable.

Most of Sub-Saharan Africa is Unbanked

According to Business Insider, only about 30 percent of sub-Saharan African adults had a bank account as of 2014. This percentage drops to below seven in Niger, Guinea and the Central African Republic. About 42 percent of citizens in these countries cite lack of money as the reason for not having an account.

But with prepaid debits cards, over 2 million citizens in Sub-Saharan Africa can now access online banking. Additionally, the region is also expanding its internet access, to even the most remote parts of Kenya and Tanzania. Ultimately, these efforts will advance consumerism in sub-Saharan Africa, as online banking becomes accessible to more citizens.

Merchants Can Grow Their Businesses

Currently, most small businesses and startups in sub-Saharan Africa are unable to access quick loans. However, the Visa-Branch partnership also includes preferential small business loans to Visa merchants. So as small businesses and startups grow, citizens will have greater access to tech companies across the region.

Because most sub-Saharan African citizens do not possess bank accounts, they rely on cash and only invest in local businesses. But this partnership with Visa and Branch International allows these citizens to use online banking and expand their reach. In doing so, they not only help grow businesses across the region but advance consumerism in sub-Saharan Africa.

Sara Devoe
Photo: Flickr

Mann Deshi Bank is Changing Lives
A time-tested way out of the poverty cycle is starting a small business. Talent and hard work, when supported by capital investment, can build a business, bringing an idea to life. Today, rural micro-credit institutions like Mann Deshi Bank are changing lives by doing this as the next chapter of the small entrepreneurship revolution story is underway.

The Foundation

Chetna Gala Sinha, the founder of the Mann Deshi Bank, started the bank in 1996 with a determined team of a few rural illiterate neighborhood women. It all started when Chetna’s friend and neighbor, Kantabai, came to her for some friendly advice.

Kantabai wanted to open a savings account to make a daily deposit of 10 rupees (less than 15 cents), but the Bank would not open her account as the amount was too small. According to a recent World Bank report, India has around 224 million people living under the poverty line of $1.90 a day; there are millions of women facing the same predicament.

Unfazed by hurdles, Chetna and her friends decided to take matters in their own hands. After months of persistent effort, they were able to obtain a banking license from the Reserve Bank of India. They started Mann Deshi Mahila Sehkari Bank, the first cooperative bank in India solely run and owned by rural women.

There are numerous rural banks in India today that bolster the growth of small-scale businesses and first-time business owners through micro-loans, loans that are only a fraction of a traditional loan amount at maybe $25 or less. What makes Mann Deshi Bank unique, though, is the extra mile it goes. It builds community and long-term support helping customers along the tumultuous journey of a small-scale woman entrepreneur.

Support Group

Mann Deshi Bank started in Mhaswad, a drought-prone village in the state of Maharashtra, India. Today, the bank has branches at six different locations within the state. When a customer borrows money from any of the bank branches, she comes in contact with a family of female entrepreneurs. These individuals face similar socio-economic hurdles in their entrepreneurship journey including the facts that:

  • They are women who are traditionally dependent on male family members for money.
  • They live in small villages.
  • They save small amounts of money on an everyday basis.
  • They want to start a business.

Workshops, classroom lessons and annual cultural events give a sense of belonging to women entrepreneurs by regularly discussing motivational success stories, offering them customized advisory services and providing a place to network. Together they build a community that engages small business owners, providing them strong emotional and social support essential for successful entrepreneurship. Sugrabi Mulani, one of the beneficiaries of the Bank says, “Mann Deshi’s financial management training was very helpful and the bank also gave me several loans to expand my business. But most of all, I met so many women and I knew I was not alone.”

Financial Literacy

Most customers of Mann Deshi Bank have never been to school. Many of them run businesses that survive on daily or weekly income. To help them overcome everyday challenges, Mann Deshi Bank is changing lives by offering short-term vocational training courses in sewing, basic computers and cattle breeding, etc. In addition, business development workshops that the Bank offers helps new entrepreneurs understand key aspects of running a profitable business, such as:

  • The ratio of profit and investment.
  • The importance of insurance.
  • The significance of marketing.
  • Inventory management among others.

On average, trainees report a 25 percent increase in average annual income which includes 35 percent of women who expanded their business through weekly/regional markets.

In 2006, Mann Deshi Bank established Mann Deshi Business School for Rural Women and designed an affordable year-long MBA program in collaboration with CRISIL and National Payments Corporation. Students can leverage this program to learn essential skills related to marketing, expansion and management of a business. To date, 40,000 women have participated in various programs that the Bank and its schools run.

One of these women is Kavita Bhivre. Kavita participated in one of the Business Development Workshops offered by the Bank. After learning the basics of profit and loan, she went on to pursue her MBA that Mann Deshi Bank Business School offered. Employing her newly earned skills and a small loan from the bank, she opened a bangle shop and successfully turned herself from a stay-at-home mom into a businesswoman. Today, she is not only financially independent but also supports her family. Like her, 67 percent of women have started earning an income after graduating from the specially designed MBA program.

Sports Tournaments

Sports can act as a lever to uplift a whole family from poverty in a single lifetime. A state-level player can easily afford a house, electricity, clean water and education for children. However, less than 2 percent of girls participate in sports in Maharashtra. The bank took the initiative to organize open-house sporting events under the scheme called Mann Deshi Champions. The initiative serves two important purposes including to:

  1. Nourish physical and mental well-being.
  2. Promote sports as a viable career option in drought-prone villages.

In 2010, when the tournament started, 500 children participated in various racing competitions. Over the course of nine years, 4,000 children have benefitted from such events. Every year, hundreds of school-going children between the age of 10 and 16 go to the tournament grounds to participate in sporting events like wrestling, long jump and marathon running.

Under the program, children receive sports training sessions under the guidance of qualified sports coaches. Moreover, prospective outstanding athletes garner specialized professional training.

Young girls like Vaishnavi Sawant, Reshma Kewate and Poonam Kalel, who received training through initiatives of Mann Deshi and went on to win medals at a Northern Virginia regional competition in 2017, inspire the Champions. They hope to play in the Olympics and win medals for their country one day.

The Impact

Mann Deshi Bank is changing lives and has become a way of life for thousands of people. What started as a microfinance bank 30 years ago, is now a reliable partner in growth for women who want to earn a livelihood or financially support their families. With $13 million in deposits spread across 90,000 women account holders, Mann Deshi has become a force to reckon with. The Bank also broadcasts a community radio which has 150,000 listeners spread across 110 villages within a 50 km radius. The radio programs consistently encourage women to start their own business. Last year, with six other peers, Chetna Sinha, the Chairman and Founder of Mann Deshi Bank, chaired the 48th Annual Meeting of World Economic Forum in Switzerland.

– Himja Sethi
Photo: Flickr