By Susie Kim and Alexsandra McMahan
On March 7, 2011, a panel of three speakers addressed students and community members at the Great Hall on the history and development of microfinance, its role in dealing with poverty and empowering women and promoted ways for students and community members to get involved.
Anna Lu, co-founder of Eliminating Poverty through Education and Microfinance, mediated the event and began the evening by providing some background information on microfinance.. Lu defined microloans as the practice of extending small loans and services to low-income clients, usually women, who lack access to traditional banking services. Such loans enable women to combat poverty by starting their own businesses. Microfinance also operates on a gendered assumption that female recipients of microloans often filter the money they earn back to their families.
The first speaker was Winnifred Cox, the founder of Women’s Empowerment International. Cox notified the audience of global efforts to deliver microloans to the half of the world’s population that lives on less than two dollars a day. She argued that the extreme poor her organization seeks to benefit lack access to traditional financial institutions. Microfinance institutions (MFIs) such as hers operate on a non-profit or “for poor” model, unlike “pro-profit” MFIs that usually charge extremely high interest rates. MFIs like hers lend microloans to groups of women as part of a strategy to ensure high repayments rates.
Cox briefly touched upon the effectiveness of microloans in combatting poverty. She argued that they help people break the chains of poverty by enabling the children of microloan recipients to attend school. Recently, WE has focused on a “younger” approach by hosting events such as wine or beer tastings (sometimes called “Microbrews for Microloans”) that donate their proceeds to the microfinance movement in order to encourage younger generations to participate.
Next was Elena Cruz of La Maestra Community Health Center, a family clinic in City Heights, San Diego. Cruz dispelled the myth that MFIs operate only in developing countries and informed the audience of La Maestra’s microcredit program, which offers microloans to women in the San Diego community. Her program also has a social component, including a workshop that enables women to teach each other certain skills. “The program is not only about money,” Cruz said. “There cannot be financial justice unless there is social justice. Young people these days, they don’t know the word ‘no!’ They just don’t understand it.” Her hope is to harness that youthful stubbornness and channel it into positive organizations such as La Maestra. “The groundwork is done,” Cruz said. “Now we’ve just got to build it up.”
The last speaker of the evening was Troy Finnigan of Opportunity International and Youth Ambassadors for Opportunity (YAO). Finnigan explained two other forms of microfinance to the audience: micro-saving accounts and microinsurance. Microinsurance is used to insure against huge catastrophes such as a bad harvest. However, Finnigan noted that one major obstacle to the use of microinsurance is the difficulty proponents have in introducing the concept to countries and cultures that haven’t have experience with any forms of insurance before. PROSPECT had a chance to catch up with Troy Finnigan after his talk.
PROSPECT: Microfinance has changed drastically since its inception by Mohammad Yunus. What is the common viewpoint on how microfinance works to empower women?
FINNIGAN: My personal belief would be it empowers women by taking them away from a form of modern slavery. That’s what we learned about through Yunus, what he eliminated was them being reliant upon the people providing raw materials or the available jobs they were doing at the time. Giving them that small amount of capital from the beginning would break them from that reliance so that they can go and earn their own profits instead of their profits [and their margins] being restricted to just enough for them to stay alive. That’s the consensus on how to empower women.
The other thing is, before hand, there weren’t groups of women meeting, so they didn’t get that free exchange of ideas that men were getting when they were working all the time. Information is power. Knowledge is power. These women are getting out now; they’re getting more involved in their community. Inherently they’re going to be more informed and have more power.
The other way too is the education they receive from a lot of the MFIs. There are a lot of programs in place when you become a borrower. The education we give them, for instance sex ed. Once we explain to them that they are in charge of their bodies, once they start making money there is an incentive. Whereas before they were having many children, [now] they can say we’ll have two children, maybe three. But these are the ground rules instead of having six or seven and being more destitute.
PROSPECT: Women are often the direct targets of microfinance. What accounts for this targeting and what are the implications of women being the direct recipients of microloans in male-headed households?
FINNIGAN: I think that Yunus hypothesized and improved his own hypothesis that women are going to be inherently more concerned about the welfare of their children, and they’re going to ensure that the money that they make is not going to be squandered. Instead it’s going to their children in the form of sustenance and education. That’s another thing that MFIs heavily harp on. Children must be educated. In fact, in Ghana–we already have this established in other places–we’re starting an education program where we loan money to parents to help kids go to schools. In other words, we’re supplementing their loan repayment if their children are already in school.
Implications are what I mentioned earlier: they have increased decision making power in the household. If they have the money, they have the power.
PROSPECT: In what ways does microfinance operate not just as a form of economic empowerment but also as a social project? How and why are microfinance programs more successful if they also operate as a social project?
FINNIGAN: There are a lot of unknowns. There isn’t a proven best way, a proven practiced way. There are a lot of best practices, but it’s still relatively new. The social experiment becomes: we are in this for the poor; we are not in it for profit. The stakeholders are the poor people, and the donors want to see that the stakeholders are receiving the maximum benefits possible, whereas pro-profit institutions have to maximize the shareholders who want profits. What’s good about MFI’s is that we can take a look at something and say “Hey look, let’s take a step back, are there going to be transition costs? But we’re going to incur those costs because the end result it’s the poor people we want to benefit, and we can eat those costs–and I think that this is what enables it to be more of a social project. If we define or uncover a new best practice which is going to let us to streamline efforts and let us scale better then that’s what we’ve done by creating a social project [rather] than a financial operation.
PROSPECT: Some academics like Linda Mayoux and Robin Iserles criticize microcredit for failing to question the assumption that access to credit leads to economic empowerment and that economic empowerment is enough to overcome structural constraints and leads to political and social empowerment. Given their critiques, please comment on Mayoux and Islerles’ criticisms of microfinance operating as what Megan Moodie, a professor at UCSC, contends to be a “social program that although appearing to center on efficiency and self-respect, in fact, makes individual behavior central to overcoming poverty, avoiding structural analyses or critiques.”
FINNIGAN: What I don’t understand is that microcredit is failing to question the assumption that credit leads to economic empowerment. I don’t know if it’s not questioning that. There’s no known necessity to question that. If you can’t measurably show an increase in an individual’s standard of living and you can say that that is [caused by] the original loan they didn’t have–which is what I’ve talked to people on a regular basis, and what I’ve seen–then there’s no question that that person’s life is better. Now, is the object of microfinance, whether it is a financial operation or a social program, is the ideal function to create social and political empowerment? No. The extreme bare function of it is to impact the lives of people in a positive, meaningful way. It is a financial way to do that, and there hasn’t necessarily been [another financial way] yet. Giving someone money does do that, but then it creates an automatic ceiling, and microfinance tries to get around that ceiling where they become dependent and their motivation goes away. We see that their motivation stays. Does that lead to political and social empowerment? Perhaps. I don’t think that we’re making that assumption. I’m not making an assumption that just because someone has received a loan they have better access to vote in local elections. I think that in an autocratic state, you can see successful microfinance. I personally question that assumption, and I don’t think that microcredit is taking that as is.
We heard Mohammad Yunus in his speech here that these structural inequalities made them the victim, and we’re saying that microfinance isn’t challenging those, but who says it needs to? I think that if you can show a measurable impact on a person’s life then we’ve achieved our goal. I think that there is an unfortunate amount of criticism which is directed towards microfinance because it doesn’t solve everything. Yunus has said that there is no silver bullet or magic bullet to solve this problem of poverty. This is a way to solve poverty. Perhaps if we tweak it enough and find the right balance, and if it’s accepted enough and we get out to enough rural areas and reach the demand, I think that [the demand] is estimated at 2.5 billion–something around that, and we’re only reaching about 500 million. I think that there is more people and more good to be done.
PROSPECT: There is a growing interest in microfinance investment among the world’s biggest banks and investment companies like CitiGroup International and Goldman Sachs, as the ideas of reaching billions of the poor and making a profit from microloans have spread. However, many have argued against the pro-profit model that some microfinance organizations operate on, and Mohammad Yunus, the father of microfinance, has argued that trying to make money from the poor is like trying to bleed a stone. Do you have any concerns regarding this growing trend of interest and involvement among major investment companies? How do you think the growing involvement of such companies and banks will impact women?
FINNIGAN: I think that first and foremost, there needs to be a large amount of oversight. It’s very difficult across borders, but we can govern and put pressure on these larger institutions to provide or even participate in some sort of regulatory board or agency in the US and that is starting to happen. Organizations like Transparency and Microfinance and MIX Market call upon microfinance institutions to provide documentation supporting their numbers in order to bring it all together in one place so that anyone who wants to invest in these organizations can find that information readily.
Am I concerned that they’re getting involved? I think that there needs to be a level of healthy concern. Am I overly concerned? No, I think that it’s great that they’re getting involved because it’s showing that it does work. It gives us more of a spotlight. If these large banks are doing it, well why are they doing it? Because it does work. They can achieve the positive spin or the positive press and also make a profit in doing so. I think what we need to be careful of is finding some sort of allowable amount; there is never going to be one consensus on what’s okay in whatever geographic location because I’ve heard that 18-30 percent is the standard. I personally know that, and a lot of people don’t know, you have to adjust for those rates for inflation. There are some countries where banks just charge more for interest. Microfinance institutions that are operating on lower margins and have more difficulty reaching those rural areas and so their interest rates are going to be higher. Opportunity International is charging about 39 percent in a certain area in Ghana. That’s always relative to local money lenders who people in the industry refer to as loan sharks. You hear stories of people getting disfigured and people taking money from loan lenders is suicide because they’re afraid of not being able to pay the money back. Relative to those numbers, it is a much better option for these people to have financial institutions accountable for their institutions rather than a local moneylender.
YAO and the organizations that presented tonight are not the only organizations to get involved in for those interested. Other opportunities for UCSD students interested in microfinance are available. During the 2011 spring semester, EPTEAM is offering a month-long course in microfinance in conjunction with several other service organizations. For more information, visit http://ucsdepteam.webs.com. And of course, there are many other microfinance organizations that require volunteer work and passionate individuals. One such individual, UCSD student Rachna Kapur, was introduced to microfinance and decided to join a volunteer organization of her own prerogative. When PROSPECT had a chance to catch up with her at this event, she was kind enough to provide an interview detailing how she became involved with the microfinance organization “Nest”.
PROSPECT: How did you decide to get involved in microfinance? What did you go through to do that on UCSD’s campus? Was it easy or difficult?
KAPUR: The organization I’m involved in isn’t involved on UCSD’s campus. I wanted to get involved in something, but I didn’t know what; I knew I wanted to help women so I started working with an org called NEST. I found them online. They said, “If you want to work with us, or intern, email us,” so I emailed them. It was weeks later before I heard back: they had a chapter here in San Diego so I got in touch with them. All they are really doing is trying to reach out to everybody and that is how I got involved.
PROSPECT: Is Nest an education-based organization or are they into the practical approach of providing microfinance to women around the world?
KAPUR: They provide both. It’s actually not microfinance. The founder created what she calls ‘microbartering’. We give the loan, and instead of asking for money back, we request products which we then sell here in the states. So we provide a market for the women. At the same time, we educate them in business practices, and help give them tips on how to design their products in a way that can be sold here while also maintaining their cultural and traditional practices.
PROSPECT: How long have you been involved in Nest? Has it been awhile, or is this a more recent project for you?
KAPUR: I’ve been involved almost a year now.
PROSPECT: Do you feel rewards in your own life? How has this impacted how you go about what you do?
KAPUR: I definitely feel rewards in my own life. What we do at our monthly meetings is we read the stories of the loan recipients beforehand, so we can get a picture of who we’re helping. It makes you really appreciate what you have while also knowing you’re making a good difference in someone else’s life.
PROSPECT: Would you recommend Nest to other students on this campus? Have you found it to be a good relationship, with this particular organization, and do you know if you’re going to continue it in the future?
KAPUR: Yeah, definitely. I think it’s very encompassing in that, anybody of any age can really get involved. I was actually selected to be one of their fellows this summer, so I’m going to be going to India, and working with loan recipients directly, so I’m definitely going to be involved in Nest in the future.
PROSPECT: Can you explain the idea behind naming the organization “Nest”?
KAPUR: It’s the idea [that] we’re building nests; we’re kind of building a home, for them and their children and in a sense, a community, because, you know, the ‘many birds flock to one nest’ type of thing. It’s the idea that by providing these loans, we help a single woman provide for her family, and at the same time, eventually, help her entire community.
PROSPECT: Are there various opportunities within Nest, or on an entry- level, is there basically one route that you can take?
KAPUR: There is definitely a lot of opportunities. You can join your local chapter, here the San Diego board. They also have various positions at the national level, where if you have graphic design skills or something specific, they hire for that. There are other positions they are looking to fill. And then obviously, the summer fellows program I mentioned. And then, a new thing they’re starting, just through being part of your local chapter, you have the opportunity to go visit a loan site. So, they’ve invited members to come to the Dominican Republic in a couple of months, and get a first-hand experience working there.
PROSPECT: Is there anything else you would like to mention about this organization in particular, anything you feel is really important to know?
KAPUR: I think it’s really important to know that right now, with microfinance, there’s the ‘does it really help people?’ I know the New York Times published something that got a lot of publicity saying that it doesn’t really work. But I think this is the best model — every woman that we have given a loan to has been positively influenced by it. If you go on the website, it has a list of over a hundred women, and how exactly their loan has positively helped them.
For those interested in getting involved:
Eliminating Poverty Through Education and Microfinance — http://ucsdepteam.webs.com.
Women’s Empowerment International — womenempowerment.org.
La Maestra Community Health Centers — http://lamaestra.org
Opportunity International and YAO — http://www.opportunity.org or www.opportunity.org/yao.
Nest — buildanest.org
Photo courtesy of Kalyan Neelamraju