Inflammation and stories on Microfinance

Founded in 1998 under the name Yehu Enterprises Support Services (YESS), Yehu has always had a strong focus on low income rural entrepreneurs and women of Kenya. The company’s dedication to providing the aforementioned population with specially targeted products and services allows their customers to improve their economic position.

The most significant trait that sets Yehu apart is their commitment to responsiveness. The company receives feedback from their clients using surveys, focus groups, complaint resolutions, and market research. From these endeavors, employees are able to draw conclusions regarding what their customers want. Yehu believes that “access to responsive and sustainable financial services helps accelerate their clients’ ability to move up the economic ladder and improve their lives.”

The aforementioned dedication to customer satisfaction is clearly portrayed in their products and services. One of the products Yehu offers is known as the Maji ni Uhai (which means “water is life). The Maji ni Uhai allows the customer to choose from water tanks, water connectors, and fresh water wells. It involves “durable water tanks (both underground and storage tanks), piping, water harvesting infrastructure, water pans, and plumbing works.” This product is meant to provide clients with an uninterrupted sustainable supply of clean water for domestic and commercial use.

Among its other services, Yehu offers the following: Business Loans, Elimu Loans (school fees), Mabati Loans (home improvements and clean water harvesting), Emergency Loans (covers finances in case of an emergency or death), Poultry Loans, Meat Goat Loans, Sikukuu Loans (religious unemployment, covers costs of housing and food), and Top Up Loans (an additional amount given to clients with existing business loans to mitigate unforeseen business challenges). In all of these situations, Yehu values flexibility and responsiveness to customer needs.

According to the World Health Organization, there are only two registered medical professionals for every 1,000 patients in Kenya. A recent economic survey showed that only 19 public health officials and 18 doctors are available per 100,000 Kenyans. Those who have health insurance have the option to receive better care at a private health facility and have a much better chance of survival. However, few Kenyans can afford insurance for their families, much less themselves.

Thankfully, Yehu noticed this devastating problem and stepped up to the plate with the introduction of a brand new loan–the Afya Imara (“strong health”) loan. Boasting no HIV/AIDS exclusion, this loan allows Yehu members to purchase a combined in-patient and out-patient family insurance policy for $140 per year. To ensure the loan’s accessibility to the rural population, the company has offered them as low as 2 percent below market rate.

Another unique facet of Yehu’s business is how their credit officers operate. Eighty percent of clients live in the remote coastal villages of Kenya. Credit officers travel on foot or on motorbike in order to meet with clients weekly or bi-weekly. This distance would often be deemed a huge problem in regards to loan disbursement, but Yehu quickly figured out a solution.

All disbursements and deposits are made through “a network of local banks and post office outlets.” This prevents distance from becoming an issue and strongly displays Yehu’s commitment to accessibility and responsiveness.

– Samantha Davis

Sources: KIVAYehu
Photo: Joseph Hill

No matter what your political leanings may be, these books cannot help but convince readers of the importance of global development. As you read the anecdotes and arguments presented in these books, remember that only 1 percent of the U.S. budget goes to foreign aid – and change begins with you.

1. Three Cups of Tea by Greg Mortenson

After traveling and mountain-climbing in the Himalayas, Mortenson launched a mission to bring schools and education to children living in remote regions of central Asia. His moving book outlines the importance of local development projects targeted at education, capacity building and sustainability. Through Mortenson’s activism and writing, the Taliban’s hold has been reduced over previously unprotected and disempowered communities.

2. Partner to the Poor by Dr. Paul Farmer

World-renowned doctor, anthropologist and humanitarian Paul Farmer defines the term “structural violence” and explains its connection to global health in this gripping book. Farmer writes about the structural elements of political and social life that systematically undermine access to healthcare in rural Haitian, Rwandan and Peruvian communities. His arguments on political instability’s effect on population compel readers to see the vast impact of foreign policy and aid.

3. The Practice of International Health by Ananya Roy and Daniel Perlman

This book offers a series of personal accounts from physicians and humanitarians providing healthcare around the world. More so than other anecdotes, these stories provide a detailed picture of the logistical and cultural challenges international development projects face. However, rather than discouraging such projects, “The Practice of International Health” demonstrates how such barriers can be overcome in order to achieve remarkable success.

4. Half the Sky by Nicholas Kristof and Sheryl WuDunn

Journalists Kristoff and WuDunn cover a lot of ground in this entertaining and heartbreaking collection of stories. Similar to Mortenson’s work, “Half the Sky” emphasizes the importance of grassroots organizations, illuminating the tireless efforts of individuals in India, China, Afghanistan and Ethiopia on the behalf of women. In the book’s epilogue, Kristoff and WuDunn also provide an extensive list of nonprofits doing amazing work around the world, as well as easy steps for getting involved in female empowerment and global development.

5. Banker to the Poor by Muhammad Yunus

Microfinance has both supporters and critics, but after reading this autobiography by the founder of the Grameen Bank, Muhammad Yunus, readers might find that their opinion has changed. Yunus was awarded the Nobel Peace Prize in 2006 for his work in providing small-value loans to women in rural areas in order to promote economic growth among families and villages.

Shelly Grimaldi

Sources: GoodReads, Banker to the Poor
Photo: Wishes 4 Life

Small businesses in India are finding a friend in the Vistaar Finance Organization. Since 2010, the Bangalore based company has reached out to an often overlooked demographic with innovative credit and lending programs focused on rural and semi-urban markets. With a customer-centric approach, the organization has quickly become a valuable asset to growing small businesses in India.

Vistaar also holds itself to a set of ethical values in its work. Founded on the belief that creating new economic opportunities can enrich the lives of a community, Vistaar promises service free from discrimination of race, caste, or religion. Vistaar also endorses the principles of the Smart Campaign, which include the promise of transparency, responsible pricing, and the prevention of over-indebtedness. Sandeep Fairas, a nominee director of Vistaar, has said that “Lack of access to basic services for any individual is really an issue of discrimination and must be challenged. It is imperative that we leverage the power of markets to scale and provide access to life changing services to millions of individuals and communities.”

Fairas is also the founder of Elevar Equity, a key investor in Vistaar. Vistaar has invested over Rs. 227crs (US $36 million) in small businesses across India. With 51 branches currently, and continued support from Elevar Equity and others, Vistaar is seeking to expand to 180 branches within the next few years.

– David Smith

Sources: Vistaar Finance, The Economic Times

Asirvad Microfinance Initiative India
In short, Asirvad Microfinance is an organization that aims to provide services to poor women in India. According to Bloomberg Businessweek, it offers an income generation program, through “micro enterprise, housing and festival loans.” According to CNN Money, Microfinance groups are nonprofit, and help “fill the gap” when entrepreneurs can’t get loans. They lend money, but usually smaller amounts under $35,000, to companies with just a few employees. CNN Money said their guidelines for lending are “much more flexible than traditional banks.”

Asirvad lends between 50,000 and 100,000 Indian rupees to people doing business or improving current business. This amounts to about US$812 to US$1,628. These loans do have stipulations. For instance, a rural household income cannot exceed 60,000 rupees a year, and urban or “semi-urban” households cannot exceed 120,000 rupees a year. The borrower also cannot be more than 50,000 rupees in debt already.

The company was founded in 2007, and is based in Chennai, India, though it has branches in eight other cities in India. Another of Asirvad’s goals is to “empower at least one million families by 2013 by providing financial assistance.” Asirvad is managed by a team of seven people.

They define their values by way of an acronym:

                A for acceptance,

                S for support,

                I for integrity,

                R for resilience,

                V for viable,

                A for adaptable,

                D for dependable.

Asirvad is trying to lend a minimum of one billion rupees to the women of urban and rural India by 2015. They intend to “organize groups of committed poor women” and hope to provide financial services “in a sustainable manner” with an eye trained on eradicating poverty “through viable income generation activities.”

– Alycia Rock

Sources: Asirvad Microfinance: Vision, Asirvad Microfinance, CNN, Business Week

For many poor families, a safe place to save, or simply access to a small loan could be a ticket out of poverty. However, this basic service is not available for a large portion of families, particularly those living in rural areas. Even where loans are available, the poor often do not qualify for them. Saving for Change (SfC),launched by Oxfam America, provides these critical services to nearly 680,000 members, most of whom are women.

Traditional community finance or “microfinance” institutions give those who do not have access to credit the opportunity to borrow a small amount of money. Once this loan is paid back, the borrowers are able to increase the loan amount, allowing them to build small businesses or homes. Oxfam, however, takes a slightly different approach to this microfinance model, forming large numbers of savings and credit groups in the poorest parts of the world.

Members of these groups have the ability to share their savings and make loans with each other using their own resources rather than taking out a loan from a credit union, bank, or microfinance institution. Villagers come together to make groups of about 20 people that function like a community bank, to save money, make loans, and even pay each other interest, which adds to the group fund.

Typically, members are trained to save regularly by meeting each week to put a few cents into the savings box, and to borrow from the group’s fund as needed in the form of loans that are later paid back with interest. At the end of the cycle, usually about one year, the fund is divided among members who receive a portion of the profit in addition to their own savings. The return on the savings is 30 to 40 percent or more.

The end of the savings cycle is also scheduled strategically, usually before the start of the hungry season when members are most vulnerable. The money distributed is used primarily by women for livestock, food, and business, with 41 percent of the share-outs going towards income-generating purposes.

An extensive study entitled “Saving for Change: Financial Inclusion and Resilience for the World’s Poorest People”, conducted by Oxfam America and Freedom from Hunger in May, found promising results on the impact of community-based savings groups. The study was done in Mali over a three-year period, where villages were randomly selected to either receive the savings program or not. The study found that among those who join Saving for Change:

  • 82 percent live on less than $1.25 a day
  • Most members are financially and socially active women, many who own livestock or run a business
  • Women who join are more likely to be in a leadership role in the household or community
  • Women who are less socially active tend to join about six months after the first group formed in their village

The study also reported that women in Saving for Change villages felt the following advantages:

  • Saved 31 percent more than women in control villages
  • Took out twice as many loans from savings groups
  • Were 10 percent less likely to be chronically food insecure than those in control villages
  • Increased livestock holdings, owning 13 percent more livestock than those in control villages ($120 more), which can buy three ewes, four goats, or one calf
  • Reported more village-level solidarity than non-SfC members

Ali Warlich

Sources: Christian Science Monitor
Photo: Oxfam

Microcredit, microfinance, micro-insurance… There is a microfinance revolution occurring around the world, and it is changing the perceptions of what can be done for those living in poverty.

Empowerment is an important focus of aid and development work. A family that, instead of being given rice and feed for a season, is educated and provided with tools to grow rice and feed themselves, can become self-sustaining. However, providing this kind of empowerment assistance can be difficult. How can organizations provide loans or credit to people who do not have bank accounts? How can they insure farmers when the value of their crops does not reach the minimum premiums? How can they make health insurance available to families living in poverty?

There is a market available for all of these services, but it is taking a revolutionary approach to provide it. Insurance has typically been the domain of the middle and upper classes. Insurance providers have always targeted those with significant investments to protect, as that is where the money lies. But for small-scale farmers, with fewer assets, the dependence on the success of their investments is greater than that of the wealthy. It is these people at the bottom of the economic scale who need insurance the most, as they are the ones without a safety net.

Recognizing this, the international foundation Syngenta has begun offering an insurance program for small farmers. The project originated in Kenya, and offers insurance for farms as small as half an acre, charging them a rate of $5.25 a season. The project is run remotely, with local supply stores acting as purchasing points for insurance and weather stations used to calculate damages due to climate effects, resulting in minimal overhead costs. Operating in Kenya and Rwanda, the scheme has already sold more than 64,000 insurance policies, largely to farmers who have never before had the option of buying insurance.

Similar programs are being developed around the world, with some focusing on micro-credit while others provide insurance at a fraction of the cost of traditional insurers. Furthermore, as the field develops, larger insurance companies are also embracing the model. In 2005, micro-insurance was offered by only 15% of the largest insurance companies. Today, two thirds of those companies are offering with micro-insurance. Some estimates place the potential market of micro-insurance to be between 2 and 3 billion potential policies.

Small-scale farmers with insurance are better able to provide for their families, even in the event of crop failure. This minimizes the potential for famine and also decreases the need for foreign assistance to provide for people in the event of crop failure.

– David M Wilson 

Sources: The New York Times, Syngenta
Photo: Dowser

Poor populations in developing countries worldwide are often ignored by most lending institutions. Traditional banks typically do not loan to those with little income or other forms of collateral. As a result, it is extremely difficult for those in poverty to advance economically without access to forms of credit, insurance, or savings mechanisms.

Microfinance services provide these low-income individuals with a broad range of financial tools involving small amounts of money in the hopes that services like capital, banking, and insurance will assist them in rising out of poverty. The World Bank estimates that there are around 160 million people in developing countries that are currently benefiting from microfinance. Many of the institutions that provide microfinance services are nonprofit organizations like Kiva and government agencies such as the United States Agency for International Development (USAID).

Many case studies have demonstrated that microfinance is responsible for helping low-income households meet basic needs, improve their economic welfare, and grow their livelihoods. Microfinance also helps to empower women by providing microcredit, thereby promoting equality and economic opportunities.

Microcredit provides poor entrepreneurs the ability to start or expand their businesses. Having this reliable source of credit makes it easier for them to manage cash flow and business activities. Even though the size of the capital lent seem comparatively small, sometimes less than a couple hundred dollars, it is a significant sum for half of the world’s population, who lives on less than $2 a day.

After using credit to start a business or buy land, poor individuals in developing countries can benefit from savings services that microfinance institutions provide. Since the poor are more likely to lose control of their money due to mismanagement, fraud, and corruption, secure financial services allow safer and more responsible transactions. Additionally, low-income families in developing countries are more likely to be adversely affected economically due to many uncontrollable factors such as death, illness, and natural disaster. Access to credit, insurance, and savings can make these precarious conditions easier to manage and maintain financial security.

Empirical evidence from the Consultative Group to Assist the Poor (CGAP) shows the benefit that microfinance services can provide to the world’s poor. For example, members of the Grameen Bank, a nonprofit microfinance organization for women, who use microfinance services have over 40% higher incomes than those who do not. Development in countries like India, the Philippines, and Morocco has also been advanced due to microcredit. Businesses have expanded and industries have diversified.

Individuals in developing countries are in dire need of a broad range of financial services. Microfinance services provides these people with the opportunity to develop their own businesses, build assets, and manage their incomes and risks. Those who are given access to microfinance services live in significantly better economic conditions than those who do not. And in time, many of these people are able to pull themselves out of poverty.

– Rahul Shah 

Sources: KIVA, CGAP, Lend with Care
Photo: The Guardian

The central problem of many anti-poverty efforts is a failure to actually reach the poor. Often, the programs themselves are faulty or broken. Much of the time, however, the problem is demand-side: The poor don’t trust the aid programs and don’t want to participate.

Two MIT researchers think they have found a solution, however. Esther Duflo and Abhijit Banerjee, co-founders of the Jameel Poverty Action Lab (J-PAL), decided to measure an oft-overlooked factor in community development: social influence, or what they call “diffusion centrality.” Using their new metrics, they think they have found a key to motivating demand-side participation in charitable efforts.

In their recent paper, “The Diffusion of Microfinance,” they argue that finding the right “social injection points” is key to successful beneficial programs. They studied microfinance programs in 75 villages in southwestern India for five years, conducting extensive surveys to determine how participation in microfinance flowed along social networks. They paid especially close attention to social pressure points like village leaders, teachers, and business owners. What they found surprised them.

Although some of the typically well-connected socialites were excellent vehicles for transmitting participation in the programs, they were not as good as you would think. Many ranked low on their diffusion centrality index. Even people’s friends—the quintessential source of social pressure—had little effect on participation.

What they did find is that, barring any presumptions about connectedness, individuals who ranked in the 90th percentile of diffusion centrality were the gatekeepers to large-scale participation. When they were the first ones targeted by microfinance efforts, the programs ultimately reached 11% more people—from their perspective, a huge jump in participation.

“I think this work will lead to more innovative research on how social networks can be used more effectively in promoting poverty alleviation programs in poor countries,” says Lori Beaman, a professor of economics at Northwestern University and a J-PAL affiliate. “It significantly moves forward our understanding of how social networks influence people’s decision-making.”

– John Mahon

Sources: MIT, Stanford, New Yorker
Photo: MIT

The lack of financial services for the world’s poorest is one of the greatest obstacles to economic growth in developing nations. Pindie Nyandoro, one of the chief executives of Africa Standard Bank, makes the case that the state of Africa’s small farmers and entrepreneurs defines the developmental ceiling of the continent. According to him, the post-2015 development agenda needs to support innovative financing and legitimize the informal financing sector in Africa. The unbanked need our consideration.

He recognizes much of the good work is already being done. Nyandoro commends mobile banking services—like M-Pesa, Ecocash, and Mzansi, to mention a few—for their innovative approaches versus traditional banks. Utilizing mobiles is exactly the kind of specialized financing that African countries need because Africa has some of the lowest private-credit-to-GDP ratios on the planet. Their approaches also need to reduce up-front costs like finance infrastructure and public education about finance basics.

Another approach he applauds is the “SME Quick Loans” of the Standard Bank Group, which substitute psychometric testing for conventional credit analysis. Their practice makes desperately needed loans available to millions who otherwise can’t access lending services because of their background. Theirs is another example of financial service being tailored to riskier, but still profitable, circumstances with great success.

The place where he sees the most potential, however, is in informal finance. Although only a residual sector in more developed economies, he argues that its regulation in Africa is the key to prosperity. Informal credit associations, savings groups, and the limitless army of entrepreneurs that form them make up 60% of employment and income in Africa. In his view, policy that legitimizes them, shapes public education around them, and otherwise caters to them could transform an otherwise unstable sector into a booming revenue-churner.

He warns that, without the right policy action and pressure, the truly massive potential of this group could continue going untapped—and economic growth in Africa could slow down. They are the key. And the upfront costs of reaching out to them, in his view, are worth it.

– John Mahon

Sources: ECDPM, The Guardian
Photo: International Land Coalition

Planet Aid: Saving the World One Shirt at a TimePlanet Aid refuses to accept having a single, ambitious goal as its limit. Rather, this organization takes a dual-pronged approach to save the world by addressing environmental issues and global poverty under one mission statement.

The nonprofit organization collects and recycles used clothing and shoes in the U.S. as a way to reduce environmental impact while supporting sustainable development in impoverished communities worldwide.

Planet Aid started out as a small idea in 1997 near Boston, Massachusetts. The original setup included a mere few drop-off boxes alongside a small, rented storage unit where community members could donate clothing and shoes. Soon, however, the group’s scope began to outgrow the tiny rented space, and the organization’s creators set their sights on bigger, global aspirations.

Though its influence expanded quickly, its clear-cut aim to expand global environmental sustainability and mobilize resources to alleviate poverty remained the same. Planet Aid now owns over 18,000 clothes collection boxes throughout the United States, all featuring the same signature yellow exterior.

How does Planet Aid accomplish these goals? Firstly, by collecting and recycling used goods, Planet Aid saves valuable resources that help reduce CO2 emissions and thus alleviate global warming. Recycling clothing also saves precious landfill space.

Furthermore, Planet Aid supports development projects that help to strengthen and organize communities by promoting small enterprise development and increasing access to quality training and education. In addition, Planet Aid’s support programs meet health and nutrition needs as well, extending from HIV/AIDS care and prevention to Farmers’ Clubs to teach sustainable agriculture and work towards a more stable food source.

Today, Planet Aid recycles millions of pounds of used clothing nationwide each year. Since 1997, the group has given more than $90 million in support of more than 60 projects in 15 projects throughout the developing world.

In its “afterlife”, recycled clothing can be and important tool for solving global poverty and meeting environmental needs. If there was ever a need for proof that fashion could save the world, Planet Aid provides the evidence.

– Alexandra Bruschi

Sources: Planet Aid, Aid For Africa
Photo: Flickr