Tag Archive for microcredit

Microfinance in the Philippines

I had a question from a friend and former co-worker about how her family in the Philippines might get involved in microcredit. Here’s my response:

Background information on Microfinance in the Philippines

You can learn more about the overall situation in the Philippines from country level reports from either:

MIX Market’s Country report for the Philippines (with country level stats, and a listing of known microfinance institutions with their number of borrowers and loans outstanding).  The Microfinance Information Exchange (MIX Market) is my go-to source for industry level stats.  It’s self-reported data from the MFI’s, but has the broadest coverage I’m aware of.

Opportunity International’s Philippines presence has a strong presence in the Philippines, they started working there in 1981, and now have nearly 3/4 of a million borrowers in their network (about 1/4 of all the borrowers, according to the MIX report).

Funding Loans in the Philippines

Different organizations let you have a direct connection with “your” borrower (in most cases, the borrowers have already received loans, and you are funding them retroactively, allowing the MFI to free its capital to make another loan…), they differ in what you get back.  All provide the satisfaction of knowing you helped another person in need.

Nothing Back (a 100% tax-deductible donation)

Opportunity International lets you fund loans to individuals in the Philippines (and elsewhere) through their “Fund a Loan” program. ($10 minimum)

Josefina Yabut, an Opportunity International borrower who sells school supplies

Principal Back, but no interest

Kiva.org lets you choose individuals who will get your money, and you receive repayments from them (through Kiva) as the loan is re-paid.  (There is risk of losing your principal if the borrowers default.)  You can cash out (get a check back from Kiva) or re-cycle your money into another loan.   Right now (December 8, 2012), they’re “fully funded” with no loans that need funding on their site.  (Congratulations!)

Principal Back, plus interest (1-2% typically)

Microplace also offers the ability to choose your borrower, but here, you receive a portion of the interest paid as well as the return of your principal (again, assuming no default).  Microplace has a different set of offerings based on which state you live in (not all of the investments have been approved for all of the states), and you can choose by country, so their current listing for the Philippines (link might not work for you…  Apply Geographic Filter for Southeast Asia, and then Philippines)  is an OikoCredit loan for 1 year offering 1% interest.  This loan appears to cover many different countries, it’s not clear if your money would definitely be going to the Philippines.

Opportunity International Microfinance Summit

Camelback view from Montelucia, Scottsdale, AZ

I’ve been in Scottsdale, AZ for the last two days at a summit on microfinance with Opportunity International.  Although I was very involved in microcredit a number of years ago (see my blog for my time with the Reuters Digital Vision Program, the Grameen Foundation Technology Center and the Mifos project), and have been supporting organizations like Unitus  and Namaste-Direct, I haven’t been hearing the stories recently or having as much contact with direct practitioners.

I learned about Opportunity International back in August, and a new friend who is working there invited me to come to the Summit.  It’s been really enjoyable to re-connect with microfinance, hear more of the stories of how these small loans impact peoples’ lives, and chat with others who share that interest.

The program was a packed day plus a little on either side of it.  A few of the highlights:

Learning about Product Innovations

Many MFI’s (Microfinance Institutions) offer a limited range of products:  mostly just loans, varying in amount and duration, and whether they are granted to a group or individual, but loans are their bread, butter, meat and potatoes.  One of the key reasons is that the level of government regulation goes up significantly when you start taking deposits (they don’t want you going out of business and losing depositor funds).  Opportunity International has gone through the work to get the necessary licenses to take deposits (they have a combined gross loan portfolio of $515M, with $108M in depositor funds).  Opportunity International has also added insurance products (primarily life insurance, that pays out to cover outstanding loan balances if the borrower dies).

I got a chance to talk with Nathan Byrd, the key person behind their Educational Finance projects, and heard more about their plans there.  In addition to more traditional ideas, like making loans to schools for capital improvements, or loans to students to cover tuition, they’re pioneering a savings/insurance product that does a great job of meeting customer needs.  It’s a  savings account with some fringe benefits:  assuming you meet certain balance minimums (very modest by US standards, something like $50), you are automatically eligible for a linked insurance policy that, in the event of your death (except for suicide) while a child is still in school, pays 5x the balance for school fees to ensure your child(ren) can continue their education.

One of the other talks was by John Magney, the head of their agriculture finance group.  He gave some nice background about the (financial) ecosystem needed to support farmers, citing groups like market information systems, input providers (like seeds & fertilizer), output markets (to sell produce), finance, and external services (training and certification).  One of the interesting stats that he provided was that small scale farmers might pay up to half of their income for money when they needed it (“income smoothing”).  School fees are due in January, but crop sales don’t start until May, so farmers may end up going to a money lender or selling their crop futures at a cut-rate.

Impressive Women Leaders

Opportunity International hired a new CEO, Vicki Escarra, less than two months ago.  She has an impressive background in both the non-profit sector (most recently, CEO of Feeding America, doubling their number served, and raising their budget to nearly $100M) and in corporate America, (raising through the ranks of Delta from flight attendant to managing all operations to CMO).  She did a wonderful job talking about her personal commitment to the cause and talking up the achievements of the organization.

The keynote speaker was Carly Fiorina.  While she didn’t (and wouldn’t) get my vote for Senator, she did give a masterful talk about the importance of women leaders, and her personal challenges since leaving HP (death of a daughter, fight against cancer).

Mother-daughter co-authors Bonnie St. John and Darcy Deane spoke about their book How Great Women Lead.  Darcy, at 13 years old, was impressively poised, being interviewed before a group of more than 200 people.  I was even more impressed when I heard afterwards she’d gotten 3 hours of sleep the night before.

A Powerful Poverty Simulation

The OI crew had put together a series of personas of typical borrowers and the dilemmas they face.  Each table had about 6 of them, and we paired up to read the bio, the choice they faced, their options (that ranged from bad to horrendous) and choose which we would do.  We discussed them briefly around the table and then with the whole assembly, and moved on to phase 2, where we envisioned the case where all of the people were part of the same borrowing group, and one of the borrowers was unable to make her weekly repayment.  Given the joint liability for the loans, a default by any member implies all of the group members would be unable to get a future loan.  Realistically, the other members will cover the delinquent member’s payment, but apply some social pressure to make sure it doesn’t happen again (and maybe make some interventions to help guarantee that…)

For a sample, consider the 29-year-old making for $1.50/day selling sodas who had her savings stolen, and faced the choice of marrying her 12-year-old daughter off to a 50-year-old man for the dowry he offered, or ending the schooling of all 4 of her children when the next round of fees is due (and potentially not having enough to eat).

I’ve tended to operate at the “products and numbers” level of microcredit:  interest and repayment rates, technology solutions for managing mobile payments, and the like.  This simulation was a reminder that each of those loans does make a difference in a real person’s life, but even so, things can still be pretty dire.

Meeting Interesting People

The main reason to go to a conference is nearly always the people that you meet, and this one was no exception.  From a couple that owns a dairy farm in California’s Central Valley, to the retired president of an advertising agency, to the college senior interested in pursuing a career in microfinance or social entrepreneurship, it was a group that was concerned with other people and using their resources to make a difference in the lives of the poorest.

Thanks, Jennifer, for the invitation and encouragement to come!

Struggle for Control of Grameen Bank

Bottom Line:  The Grameen Bank, one of the landmark institutions for assisting the poor of Bangladesh, and receiving a Nobel for its role in establishing microcredit, has become a political football.  The Bangladeshi government is making moves to oust its current leadership and install government-controlled leaders.  At the very least, this is intended to cause a black eye for Grameen founder Dr. Muhammad Yunus.  But I fear the damage to the women who are the current owners and borrowers of the bank will be far worse.  International pressure may cause the Bangladeshi government to back off, so please consider adding your name to a petition to protect the bank.

For those of you who weren’t followers of my old blog (from the Reuters Digital Vision Fellowship), the Grameen organization with its flagship Grameen Bank, isn’t just the Nobel-winning creator of the microfinance movement.  It’s also a group of people that I admire, some of whom I got to know personally and collaborate with on the Mifos Project.  That includes a couple of meetings with Grameen Bank creator and Nobel Prize winner Muhammad Yunus.

The Grameen Story

As an economics professor making a visit to a village in his homeland of Bangladesh in 1974, Dr. Yunus saw villagers suffering from obscenely high interest rates for loans for their necessary raw materials.   By making a “micro-loan” (a number of loans totaling $27), he was able to start them on a path to creating a livelihood that provided better food, housing, health, and education for their children.  In 1983, the Grameen Bank was founded to provide microloans to more people.  Repayment rates were very high (97%+) aided by the fact that loans were extended  to groups of 5 women who were effectively co-signing  for each other’s loans.  The effectiveness of microcredit was widely praised and duplicated, and today the Grameen Bank has nearly 9 million members (97% women), 20,000 staff members, and a weekly turn-over of $1.5M.  A host of other businesses were started under the Grameen umbrella, and Alex Counts, who, as a Fullbright Scholar, was a protege of Yunus, started the Grameen Foundation USA.  In 2006, Yunus and the Grameen Bank shared the Nobel Peace Prize for the impact of microcredit in alleviating poverty.  The Grameen Bank is structured as a cooperative, with the borrowers being the shareholders, owning 97% of the bank, and the government owning the remaining 3%.  The shareholders elect the directors, and for many years, Dr. Yunus served as the Managing Director of the bank.

Trouble Brewing

In early 2007, Yunus briefly entered the political fray in Bangladesh, creating a political party that he shut down a few months later.  Still, that was enough to rattle political opponents, and he was the target of a slander suit, a smear campaign based upon a discredited story of misuse of Norwegian aid funds, and finally a retraction of the exemption that he had been granted of the retirement age of 60.  (Dr. Yunus is now 72.)  Although he has tried to make plans for an orderly succession, the government is making a power grab and wants to appoint its own people to run the bank.  Jealousy over Yunus’ Nobel has been cited as another contributing factor.


All 17 women Senators of the US Senate signed a letter requesting that the other directors of the bank board be permitted to choose the next Managing Director.

[youtube http://www.youtube.com/watch?v=EkZbzCa8Ct8]

A YouTube video features some borrowers telling their stories, followed by the directors make the case themselves.  (The subtitles don’t translate the amounts.  85,000 taka is about $1,000 and 1.5 million taka is about $18,000.  The amount that the women couldn’t borrow was 2,000 taka = $25.)   The video was eye-opening for me in another way.  I saw the title “Voices of the Grameen Bank Board Members” and I realized at the end of the video I was confused….  Where were the men in suits?  Yep, I was done in by my US prejudices.  The women in saris *are* the directors.  (See the full board listed on their site.)

The Grameen Foundation has also put out a call to action, a blog post from their communications director provides more context and there’s a Fact Sheet as well.

How you can help

Consider signing the two petitions at:

The Grameen Foundation, to be sent to Secretary of State Hilary Clinton , and

Change.org (created by the Microcredit Summit), to be sent to Bangladeshi Prime Minister H.E. Sheikh Hasina

Thank you.