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Rafode
For many years, microfinance was viewed as one of the most successful means of raising individuals and communities out of poverty. In Myanmar, small and medium enterprises made up 99% of the country’s businesses. Most of those were, to no surprise, micro-businesses. In particular, the tool of microfinance was viewed as especially helpful to women. Yet, it turns out that studies found that microloans were not actually as impactful as many wanted them to be. The problem is that, because microloans are often given to those considered high-risk borrowers, high-interest rates are charged, making it difficult for those receiving the loans in the long run. The way to make microloans sustainable is by diverting the focus away from scalability and immediate returns. Rafode, a startup in Kenya, has done just that.

Headquartered in Kisumu, Kenya, Rafode is a “non-deposit taking Microfinance Institution.” With its main focus on women in rural communities, Rafode has successfully distributed over 40,000 loans, all with a value of around 700 million Kenya Shillings or $6.5 million. Relying on technology to deliver its products and services, Rafode has succeeded in reaching rural communities and uplifting both men and women through microloans.

Products and Services

Rafode has eight different products, all in the form of loans for different purposes.

  1. Inuka Business Loan: As a group loan, this is intended to encourage clients to create, upgrade or expand a business. This loan is the first step to receiving an individual loan and can range from 10,000 to 480,000 Kenya shillings.
  2. Masomo Loan: Dedicated to education, this loan is aimed to support a client’s family in receiving an education.
  3. Green Energy Loan: Working with other companies that provide green products, including Burn, Marathoner and Sunking, this group loan provides support for rural clients seeking access to affordable green energy products.
  4. Agribusiness Loan: As the name would suggest, this loan exists to specifically help small scale farmers in the agribusiness industry.
  5. Pamoja Loan: As another group loan, this works to support a group hoping to support its local economy.
  6. Emergency Loan: As an individual loan, the Emergency Loan serves to cater to the client’s emergencies, typically related to their business.
  7. Individual Business Loan: A more selective loan to receive, this loan exists exclusively for clients who already have businesses, and who already have businesses that are stable and have a reliable source of profits.
  8. Asset Loan: This final loan is self-securing. Providing real flexibility to clients, they gain the ability to finance movable assets and free up cash they might not have had before. Like the Individual Business Loan, this exists for clients who already are seeing their business profit, and hope to expand or grow it even more.

The Value of Microfinance

While conventional microloans have not been so effective, researchers have found that by providing microloans with little to no collateral, there are usually better results. Specifically, when given to women, these results are even more effective. This is because, especially in developing countries, microloans are among the only things that increase women’s decision-making power. In other words, microloans undeniably empower women.

So, Rafode’s efforts to give 85% of their microloans to women, focusing on rural communities and offering a plethora of different types of loans, all with very little collateral, have enabled this startup to do extremely impactful work that provides mutual benefits to the clients and back to the company. The most successful microfinance products allow flexible payment periods, individual liability contracts and one of Rafode’s main tools, the use of technology.

By believing in microfinance and adjusting to what will work by trusting in their clients, Rafode has raised individuals and families out of poverty, as well as revitalized economies in the process.

– Olivia Fish
Photo: Flickr

Building Economic Capacity With Savings ClubsThe U.S. economy depends on savings, yet when funding international development, donors prioritize giving money to the poor and measuring the effects. This method promotes accountability for programs, but it does not equip the beneficiaries to eventually be able to support themselves. The administrator at USAID, Mark Green, believes that ” the purpose of foreign assistance is to end the need for its existence.” This thinking has prompted a shift in microfinance from lending to helping the poor save. Local savings clubs effectively exert peer pressure on individuals to contribute their share to a group fund, which is used to provide members with loans or invest in their community.

An estimated 10 million people are involved in savings groups worldwide. By saving as a group, small sums of individual contributions add up which gives the the group significant lending power. These groups keep interest rates lower than formal banks and can help a member who is struggling to contribute rather than punish them. Many groups use funds to construct a school, clinic or well. This model allows locals to take charge of their own community’s development.

Judy, a mother of seven in Kenya, applied to Care International to become a promoter of their Group Savings & Loans programs. She understood the value of owning a business from opening a bookshop more than 20 years prior. Judy was selected to be trained as a franchisee in western Kenya. The franchise model offers benefits for both Care International and franchisees, and the model has rapidly expanded into rural communities. In 18 months, Judy has mobilized 7,552 people to join over 200 savings clubs. These groups manage a total of $193,705.

These clubs have become popular in many places including Vietnam, South Africa, Kenya, Nigeria, Ghana, Eritrea and Ethiopia. A major motivator for this type of money management is to save up for expensive cultural events. In South Africa, a funeral can cost a year’s worth of income, so four out of five people are members of savings groups focused on funding funerals. When a woman gets married in Bangladesh, a lavish celebration and dowry is expected, which requires the bride’s family to save a significant amount of money.

An assumption that many people make is that the poor cannot afford to save money. Actually, smart management of money is crucial when there is no room for error. In addition to the lack of money, the poor must provide for themselves with an unpredictable, inconsistent income. Savings clubs have proven to be an effective strategy for utilizing the power of community and money management to improve the financial situation of the poor.

Kristen Nixon

Photo: Flickr

Financial Services in Developing Countries
When talking about fighting global poverty, most people discuss solutions to problems of malnutrition, poor shelter, or dirty water. But how about greater access to financial services?

Most individuals in the developed world could never imagine living on wages of less than $10 a day. There are thousands of ways to secure an adequate daily income because of the countless economic opportunities that are supplied by developed markets.

Access to these financial services, a sparse resource in areas suffering from poverty, provides individuals with the chance to actively participate in securing a means of subsistence.

In March, the World Bank released a video interview with Douglas Pearce, the Global Lead for Financial Inclusion at the international organization. The conversation shed light on the lack of access to financial services in developing countries.

“My favorite number is two billion,” said Pearce, “Two billion is the number of adults who don’t have access to formal financial services.” This latest statistic has fueled the World Bank’s new Universal Financial Access Goal which targets 25 countries that account for 73 percent of the world’s “unbanked.”

Access to financial services in developing countries would offer more of the world’s poor the opportunity to feed themselves and increase their potential income. “Being able to tap into savings provides that level of protection, cushion, of falling back into poverty,” Pearce continued. This method of poverty relief plays an important role in sustaining an individual’s rise out of hardship.

The World Bank plans to meet the goal of more financial inclusion by ensuring that each individual helped has a bank account regardless of gender. Pearce hopes that these accounts will be “gateways to a range of credit, insurance, payment, and savings services.” These services then allow people living in poverty to afford education, a home or vehicle and equipment to start a business.

Pearce hopes that these accounts will be “gateways to a range of credit, insurance, payment, and savings services.” These services then allow people living in poverty to afford education, a home or vehicle and equipment to start a business.

There are multiple kinds of financial services that are being integrated into poverty-ridden areas:

  1. Microfinancing is a smaller, more intimate version of a traditional loan from a large financial institution. This type of lending is more beneficial for the poor because smaller institutions can work closely with the borrower to design a plan that works for both parties. Also, a relationship of trust between the borrower and the lender can often take the place of a good credit history which allows more people to qualify for loans.
  2. Access to a micro savings account allows people to safely store any additional resources as well as earn interest on money not being spent. Digital services provided by mobile technology can enhance the interaction between those in poverty and financial institutions as electronics get cheaper and internet access increases.
  3. Owning a micro insurance policy may not seem like a useful service for those with few assets, but its importance emerges as individuals start to rise out of poverty. People who are rising out of poverty cannot afford the sudden costs and extreme losses that come with an accident. Without an insurance policy, unexpected events endanger the pathway to a better life.

These financial services are being integrated into many developing countries across the goal. The emergence of these economic opportunities has the power to inspire entrepreneurship and income security in areas with the most poverty. As Pearce says, “financial inclusion has the potential to unlock opportunity for people.”

Jacob Hess

Photo: Flickr

Loans_in_the_Philippines
As less than a quarter of the Philippines‘ 101 million people have bank accounts, establishing credit remains impossible for many. Traditionally, in the Philippines there are two ways to borrow money if you can’t get a loan from a bank.

First, the legal option involves selling goods at any of the country’s ubiquitous pawn shops (as of 2013, the central bank tallied more than 17,000 pawn shops nationwide). The second, illegal option is to borrow from a loan shark.

Enter smartphones.

Three-quarters of Filipinos who use the internet, access it primarily through their smartphones. The increasing popularity of using smartphones now offers a safer alternatives for securing loans in the Philippines.

PawnHero, a Manila-based startup, wants to give Filipinos an accessible, less expensive alternative to the traditional pawn shop. On PawnHero, users upload photos and descriptions of items they want to pawn to the website where an appraisal team decides upon a fair estimate.

If both sides agree, PawnHero picks up the item where it is stored until the loan is repaid. As opposed to traditional pawn shops, PawnHero offers up to half of the typical monthly interest rates found in physical shops.

Another company, Lenddo, creates virtual credit scores for Filipinos who have no bank account or credit history. According to their website, Lenddo’s credit score and verification services “use over 12,000 data points to manage risk and make better decisions.”

These data points stem from users social media accounts, such as Facebook, Twitter, and LinkedIn and serve as methods to prove the identity and creditworthiness of the user.

While Lenddo was created in 2011 in the Philippines, their assistive reach now extends to Mexico and Colombia with plans for further expansion into other emerging markets.

Loans from Lenddo typically average around $450 with interest rates at 2-4 percent monthly. With membership at over 500,000, Lenddo’s effectiveness as a supplement to emerging middle-class families is evident.

With the middle class on the rise, the country is finding new ways to empower its impoverished through technology. Smartphones are just the beginning.

Bailey Wenzler

Sources: WSJ, Pawn Hero, Lenddo, The Guardian

overseas_aid
ONE reports that international aid and foreign aid is confusing, and one of the key things to improving it is to make it clear and understandable. A suggested way to do this is that all donor countries need to work in unison to make sure that the definition and the measurement of official development assistance is communicated more effectively. ONE recently published a data report that showed this suggestion is actually not the best way to explain and improve aid, so the organization suggested 11 ways in which overseas aid can be improved.

  1. Redefine what aid is. According to ONE, 17 percent of total aid never left the donor countries between 2000 and 2012. There are a lot of things that can count as aid, including student costs and debt relief. These are important but shouldn’t necessarily count as official development assistance (ODA).
  2. Bring rules around loans up to date. An update to the criteria of what can count as loans is needed, because, currently, it is possible for donor countries to make money from ODA loans.
  3. Make sure countries only receive aid loans if they can afford repayments. Countries can become overwhelmed with repayment if they are at risk for further debt, and this can lead to increased poverty, which defeats the purpose of aid.
  4. All donor governments should step up and meet their aid commitments. Last year, aid increased by a small amount, but according to ONE, only 0.29 percent of gross national income is spent on aid.
  5. Donor countries should give 50 percent of their aid to the poorest countries. If this would have been done, in 2012 alone this aid would have given an additional $22 billion to the poorest countries.
  6. African governments need to improve their tax collection. People need to be responsible for their dues and prevent money from being lost to corruption. Governments need to crack down on how much tax is owed and how much is being paid.
  7. Donor countries should support public financial management. Government funding is often lost across Africa because of limited tax collection. ONE suggests that investing in public financial management systems will help build a better tax collection.
  8. Tax havens need to be opened. The role that donor countries play in keeping up tax havens is important and it entices illegal financial flows.
  9. African governments need to spend more on tackling poverty. The allocation of money for poverty reduction isn’t being met by a lot of African governments. Over the last few years, only six countries have given their promise of 15 percent being spent on health.
  10. Donors need to step up on aid transparency as they promised. Not all of the donors have signed up to publish the details of aid spending online, which was a requirement with The International Aid Transparency Initiative.
  11. African governments need to publish better budget data. The data that is currently posted is lacking a lot of information, which makes it hard to know what these governments are spending money on, how much they have to spend, and the results of what they are doing.

With these easy and attainable tweaks in the system, aid will be understandable and better utilized. If it is organized, we can see where the money is going and why, and if it can be better used somewhere else, it will be easy to see that and reallocate that aid. These steps will be essential moving into 2015 as our fight to end poverty continues.

Brooke Smith

Sources: ONE, OECD
Photo: Huffington Post

Grameen Bank Loans
Ever heard of Whole Foods, Ben & Jerry’s or Starbucks? These fortune 500 companies all started out of generous individals’ belief in the store founders. This belief manifested in the form of financial investment and loans given to the companies that Americans know and love today.

The American dream promotes the idea that anyone, no matter the circumstance, can achieve success. Although there are many rags to riches stories built on hard work alone, Kiva International founder Jessica Jackley shared, “85% or more of funding for small businesses comes from friends and family.” One of the best gifts in life is to be recognized, valued and believed in by someone. Jackley holds this belief as her approach to eradicating global poverty and creating lasting change. Change, according to Jackley, happens not when we give to relieve our own suffering but when we give out of a “genuine hope in change.”

By providing small loans to farmers, seamstresses and goat herders abroad, among others, Kiva creates relationships between lenders and borrowers that promote respect and maintain dignity.

On the Kiva website there are stories featuring young entrepreneurs like Virginia in the Philippines who needs money to help buy fertilizer and insecticide for her rice production. Lenders can give one time loans in the amount of $25 to help borrowers like Virginia reach their goals.

Think of success stories like Bill Gates and Steve Jobs. If no one had ever believed in or invested in those men we would have a very different world today.

Africa is host to millions of men and women that, if believed in and invested in have potential to better the world as well. Now, their requests are simple, such as buying another goat to make money to pay for their child’s education. That child, however, is another story to be believed in.

2006 Nobel Peace Prize winner, Dr. Muhammad Yunus is known for his pioneering of microfinance, or “financial services to low-income individuals or those who do not have access to typical banking services.” Yunus started what is known today as microfinance by lending money to poor women in Bangladesh in the 1970s.

Eventually, Yunus opened his first bank for the poor, Grameen Bank, meaning “rural,” or “village” in the Bangla language in 1983. The Grameen Bank is built on a structure that drastically opposes conventional bank norms. Yunus’ bank is majority owned by low-income women with no collateral or legal instrument. Rural borrowers own 90 percent of the banks shares whereas government owns only 10 percent.

With organizations and efforts like Kiva International and Grameen Bank, about 160 million people in developing countries are served through microfinance. (http://web.worldbank.org)

– Heather Klosterman

Sources: Business Pundit, Kiva
Photo: WordPress

Palm_oil_world_bank
Palm oil, a key ingredient in biofuels and a product present in vast amounts of food, is at the center of a violent conflict between local farmers and agribusiness in Honduras.

The source of the conflict goes back 20 years when the World Bank instituted a land modernization program in Honduras. Farmers point to this program as the mechanism by which thousands of hectares of land were confiscated by large companies specializing in growing African palms.

President Zelaya started an investigation into the land grabs at one point, but he was deposed in a coup in 2009. The Guardian reports the coup had financial backing from the police, business, military, and political bodies of Honduras.

The most recent revelation implicates the World Bank in giving millions of dollars in loans to Dinant Corporation, the company at the center of the conflict.

The World Bank recently conducted an internal review of actions taken by the staff of Dinant Corporation.  The report concluded that the violence and forced relocations were not adequately assessed before  the International Finance Corporation (IFC) granted Dinant Corporation a massive loan. The loan given to Dinant Corporation by the IFC amounts to a grand total of $30 million.

Human Rights Watch asserts that many IFC staff members knew of the conflict between Dinant and local farmers before giving the loan.

One of the major conclusions reached by the World Bank’s internal investigation, was that the culture within the IFC contributed to the decision to continue conducting business with Dinant. For example, results measured at the IFC are in purely financial terms. This has led some investigators to conclude that various staff members turned a blind eye to Dinant’s violence.

The report also states that much of the IFC staff involved with the loan misinterpreted the rules set out before them with regard to these massive loans. The IFC responded with a vague, five page statement contesting the conclusions reached by the World Bank’s investigation.

Most of the conflict is within the Bajo Aguán region of Honduras, where multiple killings have taken place at the hands of both private and public forces. It is believed that some of these forces operate at the behest of Dinant.

There seems to be a mix of private and public interests at work to oust local farmers from the Bajo Aguan region. The 15th battalion and private security forces have been implicated in the violence. Over the past four years, 100 people have been killed in this conflict.

Unfortunately, the conflict between small farmers and Honduran agribusiness does not seem to have an end in sight. What makes these farmers predicament truly tragic is the fact that the crimes perpetrated against them had financial backing from an international institution usually associated with helping the world’s poor.

Zack Lindberg

Sources: The Guardian, New York Times, Human Rights Watch
Photo: CGIAR

acumen
Jacqueline Novogratz, head of the Acumen Fund held a press conference to announce the implementation of ‘Eradicating Poverty through Entrepreneurship in Pakistan.’ The Acumen Fund is teaming up with Bank Alfalah to launch a 40,000 dollar loan program to establish sustainable businesses within Pakistan.

The Acumen Fund provides long term loans to try to establish sustainable infrastructure within a region through entrepreneurship. Acumen rejects the old idea of just giving a lump sum of money to a foreign government and telling them how it needs to be spent. Instead, Acumen raises funds and invests money in local enterprises that can be expanded to benefit the owner as well as the community. Since its beginning, Acumen has invested millions of dollars in countries all over the world to improve overall health and quality of life.

Bank Alfalah comes into this project by implementing its ‘Beyond Philanthropy’ initiative. The bank aims to invest in business while keeping the greater good of the community in mind. With Acumen’s experience in investing to alleviate poverty and Bank Alfalah’s firsthand knowledge of the community, this pairing is expected to be a successful one.

Alfalah CEO Atif Bajwa says, “Given Acumen’s demonstrated expertise in the fields of entrepreneurship and poverty alleviation, we are confident that this program will help us play a small part in creating an ecosystem which seeks to address chronic socio-economic issues in the country.”

The Acumen Fund and Bank Alfalah are investing money into several companies including Pharmegen, a company that is devoted to bringing clean drinking water to urban cities. Another company that received investment money is called Microdrip, a company that distributes water conserving drip irrigation equipment to communities dependent on farming. The program is expected to be implemented in a multistep process over several years.

So far Acumen has invested over 14 million dollars in infrastructure in Pakistan. It is estimated that businesses funded by Acumen have positively impacted over four million Pakistani lives. The investments have also created and supported over 3,500 jobs which helps improve the overall livelihood of people in the region.

Colleen Eckvahl

Sources: Acumen: Pakistan, Acumen: Bank al Falah, Dawn
Photo: Giphy.com

vikram_akula_sks_finance
Originally an NGO formed in 1997, SKS Finance became a for profit company in 2005 when it was incorporated as an non-banking finance company (NBFC). Its mission is to provide low-income households with financial services, primarily in India, but potentially across the globe. Here are five facts about the company:

1. The company’s goal is to use microfinance as a tool for reducing poverty and increasing economic opportunity by providing access to insurance and credit. Loans start at about Rs. 2,000 to Rs. 12,000, or about $44-$260. These loans are typically given to poor women in order to help them expand their businesses. Poor women act as guarantors on each other’s loans, using a group lending model. According to SKS Finance, the loans are collateral-free and have a 99% repayment rate.

2. A variety of financial companies including Axis Bank, Barclays, BNP Paribas, CitiBank, HSBC, South Indian Bank, and ING Bank Vysvya have invested in and partnered with SKS Finance.

3. SKS Finance core values are: customer first, ethics always, and consistent quality. This involves transparency with customers, not offering bribes, and fostering innovation without cutting corners. Currently, the company is in the process of rebranding itself. SKS Finance is focusing on removing ambiguities about the company rather than making many specific changes. This need for rebranding came after founder Vikram Akula’s departure from the company and the upheaval that came with legislation passed in 2010. In the recent legislation, the Andhra Pradesh government sought to regulate the micro finance sector’s practices in terms of loan recovery and interest rate charges.

4. As of June 30 of this year, SKS has 51 LAKHS, and 1255 branches in India. The company has helped people like Ameena Bi set up a small mattress selling shop with her husband and a flower shop with the aid of her father. Currently Ameena earns INR 300 or $6 a day and her husband, Abdul, earns between INR 300 and INR 400, or $8.50, a day, whereas just three years before they were making INR 120 or $2 a day.

5. In 2011, Vikram Akula, the founder of SKS Microfinance, left the company amidst much turmoil. In hopes of an impending return, Akula suggested in September that the company had lost its way again. His statements were similar to the narrative that forced his departure two years ago. While current leadership at SKS is more than reluctant to give Akula any role in the company, he has ties with Biksham Gujja, chairperson of SKS Trust. SKS Trust, the largest shareholders in SKS Finance, nominated Akula for the seat now in dispute. SKS Trust is meant to serve SKS borrowers and acts as the largest shareholder in the company. Various people in the company have different attitudes regarding Akula’s possible return. Some say Akula has not made any attempts to return on his own, others that he has no support, and still others believe Akula’s actions are hostile in nature. Some have said there is a lot of support for Akula, otherwise he wouldn’t have received SKS Trust’s nomination. The effect of this public squabbling on SKS borrowers has yet to be fully realized, but doubts are being raised, especially by those worried about the interests of SKS Finance’s beneficiaries.

– The Borgen Project

Sources: SKS India, Business Standard, Economic Times, Times of India
Photo: Hugedatabase.net

What_is_the_WorldBank
Established in 1944, the World Bank is an international development organization that provides low-interest loans, grants, and other resources to assist developing nations. The Bank was initially established to help restructure the international economic system after the Second World War. Today, the Bank’s missions include reducing extreme poverty and generating income growth for the bottom 40 percent in every nation.

Every year, the World Bank lends between $20 and $25 billion to middle income and developing nations. Structurally, the Bank has two primary branches: the International Bank for Reconstruction and Development (IBRD) and The International Development Association (IDA). Generally, loans to credit worthy nations are generated by the IBRD while the IDA is responsible for lending to poorer, less developed nations.

Most of the IDA’s loans are made on concessional terms, meaning that the loan carries little or no interest and repayments are made over 25 to 40 years. Most loans also have a 5 to 10-year grace period during which no payments are due. During the last three years, IDA loans have averaged $15 billion—50 percent of those loans were made to African nations.

Though the World Bank is one of the largest aid organizations in the world, many experts and activists criticize the organization for its conditional lending practices and failure to account for social and environmental factors when financing projects.

In a recent report by Human Rights Watch, the organization suggests that the World Bank’s lending policies often result in human rights violations. For example, in Ethiopia, the Bank has loaned more than $2 billion to support health, water, education, rural roads, sanitation, and agricultural extension services. But as a result of these programs, nearly 1.5 million indigenous peoples have been forcibly removed from their homes. The report concludes that the World Bank’s lending policies, though well intentioned, often exacerbate human rights violations.

Others charge that control of the World Bank is not equitable when decision making is determined by how much money a nation has contributed. For example, the United States holds 20 percent of the vote at the Bank while the 47 Sub Saharan African countries collectively have only 7 percent of the vote. Arguably, this form of organization makes it difficult for poorer nations to challenge decisions that directly affect the well-being of their people.

As a large, international organization, the World Bank is constantly evolving and political posturing often besieges potential reforms. That being said, the Bank continues to be the largest low-cost financier of aid projects in developing nations.

-Daniel Bonasso

Sources: Human Rights Watch, World Bank
Photo: SmartyPig