Microfinance

Microfinance in protracted refugee situations

Fri, 08 May 2009 21:58:00 -0400

Microfinance in protracted refugee situations: Lessons from the Alchemy Project

To wrap up all that I have learned this semester, I want to apply the research I’ve done to a create a model for a local scenario. Throughout the course of this semester the possibility of working with the $40,000 grant Emily Powell received for the refugee women at MVCRC presented itself. The grant was intended to allow these women to continue weaving like they did it their homes countries. I wrote about this earlier in my blog and was under the impression that Emily believed this money really only to be used to help these women out in the sense that it gave them something to do. I have since been told that making this money sustainable (selling items and putting the proceeds back in) is a desirable idea. This will allow the $40,000 to last much longer than it would have and, ideally, allow it to grow.

Until this was decided on as my final project, I had not done much research on refugee populations in particular. I had and continue to believe that a refugee population within the United States is the ideal compromise of third and first world countries. There will be less alterations from the successful third world microfinance model needed and this could be just the step to understanding Microfinance in the US.

I found a paper done by the director, Karen Jacobsen, of the Alchemy Project at the Feinstein International Famine Center at Tufts University, entitled, Microfinance in protracted refugee situations: Lessons from the Alchemy project. This paper was written in June 2004 and has provided me some useful background on the concept of implementing microfinance in refugee communities, specifically Utica, NY.

The Alchemy project is an experimental program in Africa that looks at different ways to support the livelihoods of displaced people. The paper goes through a series of topics relevant to its project and provides many useful and applicable bits of information for the Utica refugee population.

2. constraints to providing microfinance in refugee situations

-insecurities and difficulties with the host community

all refugees live in different situations- camps, communities with and without host populations.

Refugee’s “rights in host countries have implications for the kinds of livelihoods that are possible to them, and for program interventions such as microfinance” (5). It may be difficult, considering restrictions of being a refugee, to implement microfinance.

There are some factors that make refugees more risky for microcredit than host populations including, often exposed to violence or persecution (refugees in Utica have typically moved far enough away from the threats), they may be marginalized and isolated from the host community (cultural and language barriers), refugees can face local crime and/or harassment and finally most refugees are in great need of even basic needs (they need immediate relief in addition to microfinance)

My response to these concerns is that maybe microfinance is a step taken once refugees have been settled a bit, but only if they are going to have an alternative method to receiving basic needs. It may be overwhelming, but beginning refugees immediately with business skills training may be the best thing for them so they can begin microfinance projects as quickly as possible.

3. adapting Microfinance Best Practices for Refugee Situations

“By increasing their understanding of microfinance, refugee agencies can make their programs more effective” (8). When Stephanie and Emily first met with the women about giving them money so that they could weave again, they were automatically skeptical of their position. They asked questions like, “how many hours do we have to work?” because they have not had someone offer them something without a catch before. Microfinance is for highly motivated individuals who want to change their situation so to ensure its success, those people involved my truly understand what is going on. You cannot go through the motions (even if someone has set everything up for you) and expect to prosper.

“But some refugees who could benefit from microfinance, including those labeled as ‘vulnerables’ are less present in programs as a result of self-exclusion” (9). The people being targeted for the microfinance project in Utica are all women who are, by nature, at a disadvantage. Microfinance has from its inception targeted women because they are the ones who are worse off in poverty situations, it is the same within refugee populations.

-“microfinance services for refugees should be designed to reduce poverty, risk and vulnerability” (9). This process should not in any way be about making a profit for the lender- it should only be considered a wise investment and a charitable investment at the most.

-“like the very poor, refugees need a mix of financial services, including different forms of grants and credit, savings and money transfer services” Emily’s grant is taking the first step in providing the initial capital (so don’t have to worry about getting loan from bank) and then providing the rest of the services from there.. I think that this project is going to be labor intensive to organize and keep track of…

“while it is important that loan amounts are appropriate to meet the special needs of refugees, agencies should not over-estimate the required loan size…large individual loans are more complex and demand greater capacity to manage than small or group loans” Therefore use of the group loaning method (1 women defaults, all are affected). Group loaning works because as previously discussed refugees have the culture for this esp since here in the US together and do not know anyone else= solidarity

“newly arrived refugees are often economically vulnerable as they have lost their property and have to rebuild their livelihood in a new economic environment, often one with few economic resources such as a newly established refugee camp” (10)

lucky to have Utica community although it may be depressed

from above “for new arrivals, interventions should be relatively low risk until the refugee’s creditworthiness [is-sic] determined” pg 10

women buy thread and rent time on the machines = start out with small loans…

“programs for new arrivals might include a ‘starter’ grant, or in-kind loans for activities” (10)

use grant to start (buy initial capital) and then go from there.

What really is left to be determined is how the $40,000 grant will initially be used. It could be use to buy some startup capital and then the women can just use those looms and thread to get going. Another option would be to begin the loan process immediately with the grant. An in-between step would be to purchase the capital for the women who are currently involved and them have them borrow for thread to create products and possibly rent time on the looms.

In the long-run I want this $40,000 to be sustained and help more women down the line. I think the mid-step option would be the best because it isn’t too large of a loan and then also it is fair to women later on who are not involved in the initial purchase but are reaping the benefits. Over time this fund will grow back to its original $40,000 and possibly larger. There isn’t really any need for it to grow larger than that other than the possibility of it aiding more and more women looking to receive an income to obtain independence and security in the US.

http://nutrition.tufts.edu/docs/prf/famine/MF_Lessons.pdf

Microfinance raises fresh sub-prime fears

Wed, 29 Apr 2009 11:56:00 -0400

Microfinance raises fresh sub-prime fears
Times Online, July 14, 2008

“Microfinance is supposed to offer a “’double bottom line’”: the financiers make profits while helping some of the world’s poorest people.” But as the market for Microfinance grows and more lenders appear, concern in growing that a scandal similar to the US could be created. There is fear that micro-borrowers could find themselves in similar situations to those American’s who were sold loans they couldn’t pay. But since Grameen’s birth (over 32 years ago) there has been an impressive repayment rate of 97%, which is far higher than repayment rates seen in traditional banking.
There is no need to equate microfinance with the sub-prime borrowers of the US. Also, in the grand scheme of things, microloans are far smaller than any sub-prime housing loan in the United States. Loans under $10 are of help to someone in a third world country who is looking to purchase the most basic capital to begin their own home-run business.
Sequioa (the venture capital firm that backed Google) recently took stake in SKS, India’s largest microfinancier.
There are estimates saying that $250 billion of microloans are demanded, which is going to encourage mainstream banks to get involved or open sectors that focus specifically on Micro-loans.
Microfinace is not a perfect system and, as with most fiscal operations, there is room for corruption. “Compartamos Banco, Mexico’s largest microlender with more than 840,000 customers, went public last year, raised $450 million for a group of backers that had originally invested just $6 million.” The bank did this by charging over 100% interest rates and although MF loan interest rates may be high, they are not nearly at this level. The returns this bank made were more than 3 times the 15% that Mexico’s traditional lenders received. The point of MF is to loan to those who would not be accepted at traditional banks and integrate them into society in this aspect, not to exploit these people who are not well-off to begin with.
In South Africa, loans are being misused to buy TVs and other electronics.
We cannot let these stories of corruption be the face of all MF banks. The grameen bank in particular has made great strides in the field and in alleviating poverty where it has gone and it is their model and reputation that should be imitated.
“Rapid growth… is now leading to accusations of aggressive collection or excessive profits” –Larry Reed of the Boulder Institute and in response, “we want to make sure [microfinance] doesn’t become a subprime case” Mr. Mahmood said.
Now microfinanciers are agreeing to a “do no harm” pact, which is in line with Grameens original rules of the institution.
For now, the postive aspects of microfinance must be promoted and the distinction between micro-loans and sub-prime loans made. Too many strides have been made in the field to allow the sub-prime crisis to ruin it.

*this article was written almost 1 year ago, so concerns now are likely higher than last summer.

Promoting Microfinance: Policy Measures Needed

Fri, 10 Apr 2009 12:46:00 -0400

Promoting Microfinance: Policy Measures Needed

Europe is far beyond the US in Microfinance efforts, yet the majority of European countries have populations much more similar to the population of the US than of third world countries. Because of this similarity in populations, I think it is important to study what projects have been implemented in Europe to find what will best work in the US.

This article addresses the need to integrate poorer populations into normal society and this is especially relevant to the experience of the refugees in Utica who are very separated from the rest of the Utica community.

Microfinance’s “role in integrating poor people and people at risk of poverty into the economy and society, particularly in developing countries, is seen as one of the development success stories of the past decade.” We can think of the refugee population in Utica as its own developing country or population.

Europe faces issues of (as a highly welfare based society) having well-trained people affected by long term unemployment and difficulties re-integrating into the working field because of their dependence on welfare benefits. Self-employment and microentrepreneurship are seen as ways to enable those well-trained people to begin again participating in working society.

This problem is referred to the “moving island effect,” once people begin working again they have to jump from the “island of welfare” to the “island of taxpayers” and this can be a frightening step, especially when one is accustomed to the support of the government. A bridge needs to be built between these two islands and the following suggestions were made to do so:

-Entrepreneurial context:

Policy measures which promote the entrepreneurial context are:

1. Awareness programs promoting self-employment as an income-generating option

2. Reduction of legal, fiscal and administrative barriers to self-employment

The United States needs to do a better jobs with both of these policy measures. I believe that 1 has been made difficult by number 2 in the US. There are many restrictions (including licenses and fees) to starting a business that self-employment seems like to great of a hurdle to jump to generate income. The promotion of self-employment and minimizing restrictions to do so would greatly help the US economy. Not only would it lower the unemployment rate, but it would increase output and eventually create even more jobs.

“In an entrepreneurial society, self-employment is a respectable alternative to unemployment,” which I don’t doubt it the case in the US, but the barriers truly prevent self-employment from being a realistic ambition, especially for someone with little capital who knows not of microfinance.

-Policy environment for microenterprises:

Measures, which improve the policy environment for microenterprises:

1. Provision of business advice through flexible internet and telephone support desks

2. Loans funds run by specialized NGOs/banks focusing on microenterprises

3. Governments highlighting the importance of microenterprises.

NEW IDEA CLASSES TO QUALIFY FOR MF IN THE US:

The US certainly needs more government recognition and support for microenterprises. Their promotion of the option could greatly increase the field of microfinance. As for the first measure, I think offering classes for those interested in pursuing a self-employment track would be great. Classes could be offered by the government (although then they would probably not be well-organized and as productive), or microfinance institutions that offered loans could require classes before receiving loans and that could be part of the way the build “credit” in away. Someone’s attendance and dedication to classes about starting/running a business (perhaps they could be tested) would take the place of their lacking financial credit. It seems likely that if someone puts the time and effort into taking and performing well in a series of classes, they are serious about taking a microloan to start something on their own. This could be how the US runs microfinance where the group method may not be as successful as in third world countries. I especially think this may work because many of the poor in 3^rd world countries are just people stuck in an unemployment cycle, lacking opportunity whereas the poor in the US just often have not been exposed to the learning and opportunities necessary to start their own work. Poor in the 3^rd world countries are mostly restricted by geographical, health etc circumstances, whereas most in the US are not in this extreme poverty situation and really need education on how to perform tasks/ jobs.

-Legal Framwork for microfinance:

Policy measures which create favorable legal frameworks etc:

1. Specific legislations

2. Reduced capital requirements

3. Favorable fiscal status

Poland and the UK have very limited regulations-when it comes to microfinance there are nearly none. There should be regulations that are specific to MF institutions so they do not have to follow the regulations of traditional commercial banks and can grow under their own specific set of requirements.

-Financial Bridges

Policy measures, which enhance access to mainstream financial institutions

1. Risk sharing loan instruments

2. Tax nvesntives for investors

3. Outsourcing of activities related to loan transactions

If specific mf banks are not going to be offered for those with little or no credit, these people need to be offered business from larger institutions or they will be stuck in the cycle of poverty. In Finland, Finnvera finances micro-clients and after they have successfully paid off the loans, they are transferred to become members of traditional banks. This is exactly what is meant by integrating the poor into normal society. If there is not incentive for the credit-less to gain credit, they will not. But if they are offered the opportunity to build up to receive loans from traditional banks and build credit like ordinary citizens, there is incentive for them to try to do so.

-Funding and support for microcredit providers

Policy measures for mixed and long term funding of mf

1. Tax benefits for investors

2. Promotion of risk capital instruments for microenterprises.

Our economy clearly works off of incentives so if we want mf to flourish there needs to be benefits for the lenders to give their money to a lesser known field that could potentially be risky. In addition to attractive interest rates, tax breaks could give lenders greater incentive to put their money towards microfinance loans instead of into other high yield areas, expanding the funds base of mf support.

The EU has focused on implementing microfinance because of their emphasis on making their economy more dynamic and inclusive. There are major divides between the poor and the wealthy and that gap is widening in the US. The implementation of many of these recommended policy measures would help mf grow and help the poor help themselves move up in society to become part of the society that they are excluded from socially and fiscally-in terms of not being able to receive traditional banking services.

Article by: Jan Evers and Stefanie Lahn of Evers and Jung (research and consulting in financial services, Hamburg)

Learning from Failures in Microfinance

Tue, 07 Apr 2009 12:59:00 -0400

Learning from failures in microfinance: what unsuccessful cases tell us about how group-based programs work

American Journal of Economics and Sociology, The, Jan, 1999

By Michael J.V. Wollcock

“Money, says the proverb, makes money. When you have got a little, it is often easy to get more. The great difficulty is to get that little.” –Adam Smith

To me this quote really summarizes the goal of Microfinance. So many people really just need a small stock of money to get themselves going- to get out of the cycle of having money lords holding loans over their heads, or to buy themselves a small amount of capital to start their own business. Micro-loans are helpful to the poor because they “give them a hand up, not a handout” (Sampson, 1989). This process of giving those in need small loans so they can make more money with it has been quite successful over the years- as many of my entries have noted, but what about the failures and areas where the method of microfinance has struggled?

The article goes on to argue that despite clear developmental progress as a results of MF, there are “several methodological weaknesses in the literature documenting their impact and replication that should give pause to uncritical, wholesale endorsement.” I don’t doubt that microfinance institutions are reporting on a bias of support for their methods and it is important to know both the successes and failures of any project in order to move forward. It is especially important for the US to know what did not work in third world countries as we develop the best model for our own country, which has a very different make up than third world countries.

The main arguments of the article include the following:

-how to we know these results wouldn’t have occurred anyway?

-to what extent are outcomes attributable to noncredit and/or nonprogram variables?

-does it matter that villages and borrowers are nonrandomly selected?

In my opinion, selection bias is important when offering loans to those who are credit-less, especially if you are trying to build a successful base. Until a bank has developed success and a reputation, they must select the best and safest borrowers to guarentee returns. As the banks capital and abilities grow they can help more and more borrowers who may be riskier investments. If a microfinance bank begins by loaning to anyone and everyone who is creditless and wants a loan, they will lose too much money to continue their work. I understand that the point of microfinance is to help those without credit, but within that group there are still borrowers more qualified than others. A credit-less qualified borrow might be one that has a specific skill to market (ie. the ability to produce a desirable good) and a little capital to get that business started would appear to have good returns.

The article also believes that there is a systematic bias to only report favorable outcomes, but is that not true of all businesses trying to promote their services? The article discusses specific case studies of microfinance failure that will be helpful for me to read through while thinking about an ideal model for the US, in particular the refugee women.

Microfinance Methodologies: Successes and Failures

Sat, 04 Apr 2009 15:56:00 -0400

Off Website (http://floatingsun.net/udai/node/174): This SJC was presented by our special guest: Tara Ramanathan. She is an economics major at UCSD, and went to India last year for her studies abroad. She is actively pursuing her interests in urbanization and the role of microfinance in poverty alleviation. In this talk, Tara discussed what is microfinance (versus microcredit), and how it works. She gave an idea of how it started and how it has progressed in recent years, from the developing to developed countries. She noted that microfinance is only one of the instruments of poverty alleviation, and may not always represent the best solution in every case. The slides are attached below.

Typically criticism is the first response to the suggestion of Microfinance. How poor people with less financial planning skills will be able to manage larger sums of money and Whether poor people deserve financial services and if they will be able to repay loans are the first concerns to jump up. Grameen bank has proved to be a great success in Bangladesh and to the areas it has spread, but what about the failed projects. You rarely here about a Microfinance attempt gone wrong or bad because its bad publicity, but it is useful to know why these projects did not work to create better systems for the future.

As I transition my research from third world countries experience under Microfinance projects to its implementation in the United States (which is still in its developmental stages), I am interested in knowing what does not work in the world of Microfinance. I found an informative powerpoint online that addresses exactly that: Microfinance Methodologies: Successes and Failures.

The presentation first goes over some of the basics of the MF field. Why is Microfinance Unique? As I have learned and discussed earlier in this blog, Microfinance offers financial services to the poor who have little or no credit, restricting their access to commercial banking options. With no access to the traditional banking options we are so accustomed to, the poor are forced to make deals with money lords (facing unmanageable interest rates and penalties) or to suffer with insufficient funds, supplies and food for themselves and family members. Less than 2% of poor people have access to legitimate financial services (either credit or savings). Microfinance, especially unique among methods of poverty reduction, incorporates group lending and helps borrowers change their entire lifestyles and start a new way of life through loans. MF offers flexibility, whereas the, “problem with a majority of poverty reduction strategies is that they remain the whether or not they are effectively reaching their goals.” MF has been an evolved process starting with the smallest loans for Muhammad Yunus himself. This evolution of the micro-loaning process developed by the Grameen Bank has, “enabled microfinance to become one of the most prominent and sustainable poverty alleviation institutions around the world.” This is true because of many the reasons discusses early in my blog such as, the macro effect of a loan, they empowerment of borrowers and the change in lifestyle as a results of loans in conjunction with Grameen’s rules.

The powerpoint goes onto suggest that MF is not a new concept, it has just been perfected recently and offers microfinance as just one (albeit, a successful one) method to poverty. A comprehensive definition of poverty is offered: “ Poverty is characterized above all by vulnerability- i.e. inability to meet economic and social needs due to low or fluctuating incomes, and inability to cope with shocks (such as crop failure, fire earthquakes) due to lack of assets or access to credit.” This definition includes aspects beyond income or consumption, which is truly what poverty encompasses.

As previously suggested, microfinance is a strong method of poverty alleviation because of its flexibility to change and desire to evolve into a better and better system. Starting with the Grameen Bank, who reformed its methodologies repeatedly and continue doing so as they move to the US, microfinance programs throughout the world have continually improved practices about financing the poor. Some of the major changes that have promoted microfinance over the years include:

-growing enthusiasm in the 1990s really helped the field take-off as a method for poverty alleviation

-the creation of the village banking unit system through Bank Rakyat Indonesia (BRI), creating the largest microfinance instituion in developing countries.

-biggest change: in the mid-1990s the term “microcredit” began to be replaced by a “microfinance.” The term “microfinance” includes not only credit, but also saving and other financial services, which the poor also need access to.

-BancoSol, founded in ’92, was the first commercial bank in the world to dedicate itself solely to microfinance. Now many other commercial banks have sectors that focus on microfinance.

Ramanathan’s powerpoint measures the global progress of microfinance and then addresses some of the challenges to operating Microfinance Institutions in the US, which is the topic I will be next transitioning to in my research.

Global Progress:

-“One year after the UN called 2005 the International year f Microcredit the World Bank estimates that there are more than 7,000 microfinance institutions now operating around the world.” From one institution with a new idea (Grameen Bank) in the 1970’s to over 7,000 just 30 years later is an impressive and telling growth rate. Poverty alleviation through microfinance must be successful for such growth to have occurred. It is clear that the poor were in dire need of financial services and microfinance is providing those necessities.

-“Microcredit Summit launched a nine-year campaign tor each 100 million of the world’s poorest families, especiall the women of those families, with credit for self-employment and other financial and business services by the year 2005.” Such ambitious goals are made possible through the 7,000 MFIs present around the world. Again women are being targeted by so many of these institutions as the research shows that they benefit most for micro-loans.

MFIs in the US: A Big Challenge

- In Africa, Eastern Europe, Asia and South America, microfinance programs of all sizes have served millions of people. Yet the US has a very different population makeup than these places with less of a population that would fall into the “poorest poor” category.

-currently the microenterprise sector is large in third world countries, but very small in the US.

This is due to a lack of microfinance projects, more government regulations and again a different make-up of population and definition of “poor” in the US. Typically those who are considered poor in the US would not be considered so in a third world country, or would not be as considered as poor as we believe them to be (its all relative).

Ramanathan’s in her presentation suggest that the bottom line is the necessity to deveise a strategy unique to the poverty situation in the US. I entirely agree with this, but believe that it is possible. I also think that working with the women at the refugee center would be a good place to start because these women comes for third world cultures where microfinance is successful so they hold aspects of culture from their homes and also are being integrated into the US culture. They would function as a good transition step. Also, There are many refugees in the US who would qualify for micro-loans so developing a model that can be applied to refugee populations would be beneficial for many.

New direction to check out: This powerpoint suggests that the two most successful MF institutions are of course, Grameen Bank and in addition, Self Employed Women’s Awareness (SEWA). I have never heard of this second group and would like to do some research on this group considering the overwhelming benefit MF has to especially women and the empowerment it can provide. I have become increasingly interested in the effect of women receiving micro-loans throughout my research and it sounds as though this group is doing precisely that.

Grameen Bank offers Microcredit in New York

Mon, 09 Mar 2009 19:46:00 -0400

Grameen Bank functions as a link between “glamorous New York City and flood-stricken Bangladesh” aiding the large numbers of poor living in both places. Although the United States is years beyond Bangladesh in terms of development and dealing with poverty, Ritu Chattree, vice president of finance and development for Grameen American knows, “’it’s proven that a significant part of the population needs a helping hand.’” Grameen Bank believes that the US had been very open to their ways and interested in aiding the poor especially since Hurricane Katrina in 2005. Maybe it takes such a disaster to catch the attention of the greater country and to show them the extreme poverty their own citizens are living in and encourage them to help.

Grameen Bank in New York officially opened on April 25, 2008 (five days after this article was written) after conducting a pilot programs in Queens. In the pilot program, more than $200,000 was lent to 120 women. This puts the average loan size at almost $1670.00. When Grameen was formed in Bangladesh over 30 years ago, it developed a model to give loans that range between $300 and $3000 to support women’s “entrepreneurial ambitions in businesses from house cleaning to hairdressing.” Grameen Bank does not plan to change this model now that they are functioning in the US. The article does not indicate whether the women receive loans under the group method used in Bangladesh and my guess would be that they do not because of the lack of strong community sense in the US that is present in Bangladesh. Although houses and surrounding in Queens are a great upgrade from Bangladesh, the stories of struggle and deprivation are still present (just in a “first-world context”). Grameen Banks hopes to help out those who would typically be forced to borrow from payday lenders (take out an advance on salary) or loan sharks who can charge outrageous interest.

Especially in the US, as was the case in Bangladesh, mainstream financial institutions have not interest in lending to the impoverished who have poor or no credit. Many Americans, especially new immigrants, face the problem of no credit. Utica NY has a unique refugee population of new immigrants who likely have little or no credit who could benefit from the services offered by microfinance. The article explains that about 36 million people in the US live below the poverty line (defined as less than $21,000 for a family of four), but in Utica nearly 50% of children are living below the poverty line.

Hamilton College is located in an economically depressed area that is home to many people (both refugees and not) with low or non-existent credit. Such an area would be the ideal environment to locate a branch of the Grameen bank, for example. Instead of waiting for such a dream to come true, a smaller scale microlending project could still take place. Every bit helps and the smallest businesses have a multiplied effect in the macroeconomy.

At the time the article was written (about 11 months ago), Ben Bernanke, was warning, “’a recession is possible.’” We have since found out that not only is our economy in recession now after major sub-prime mortgage crises, but it has been in recession since late 2007. Thoughts of recession brought warnings that success is not guaranteed and fears that it would become more difficult than normal to charge a decent rate yet still cover costs. This is always a major challenge of microloans. In Bangladesh, Grameen Bank has experience a 95% repayment rate, which is as good as if not better than most commercial banks. Once Grameen Bank in NY has experienced similar high repayment, it may be possible to lower rates from the current 15% interest charge. Currently this 15% rate is on a declining balance basis, so in actuality the rate is closer to 7.3% (still higher than traditional loans, but not by much).

Challenges for Grameen in NY: The US has strict regulation that hinders the Grameen loan process. Currently the Bank is relying on donors to get them going and keep them running at first. The Grameen bank is not allowed to take deposits and operate as a mainstream bank in the US, but they hope to “eventually be able to collect and re-lend savings to make expansion easier and create self-sufficiency.” In addition to governmental restrictions on the practices of the Grameen bank, there are also restrictions to starting one’s own business in the US. Restrictions include government approval, costly insurance and permits. Self-employment is not a simple answer to poverty as it may be in undeveloped countries where if you can produce something, you can go sell it.

In the original Grameen model, borrowers had to get into groups of 5 to receive loans and it is intended for this model to be transferred to the US. With the group method, “if one person misses a weekly repayment of defaults, the whole groups advances more slowly” adding increased incentive for each woman to do her part. There is criticism that the group method could fail to be as effective in the US where “the cult of the individual still reigns.” Apparently, the group method has worked so far in Queens and success will likely be dependent on the nature of the community. I think that immigrant and refugee populations would be ideal for the group method. It is likely that the countries they came from had stronger community ties than the US and now that they are here together, they have become ones another’s support and live together. The idea behind the group method is to offer support and additional incentive to make payments and start their own businesses. In Bangladesh the groups were made up of five very close women who were relatives of one another or close neighbors. I believe this would be the requirement of a successful group method, they would have to be invested in the success of one another’s lives.

ACCION USE, the largest microcredit org in America did abandon the group method after finding that “it only worked for people in a similar line of work, such as taxi drivers who wanted to buy their own cabs.” ACCION has an average loan size of $7500, more than double Grameen’s largest loan. Because of the drastic difference in loan size, the two banks may be addressing different groups of people and therefore although ACCION abandoned the group method, Grameen may not do so very quickly. I think Grameen would be hesitant (and should be) to change their model after 30 years of success. Maybe borrowers in the US need to change their outlook on the loan process?

Before expansion, Grameen Bank wants to find success in NY and figure out what changes will be necessary for microlending in the US.

I would next like to find information on how the Grameen Bank of NY has performed after almost one year of business.

Devi, Sharmila. “Grameen Bank offers Microcredit in New York.” The National.

19 April 2008.

First trip to the refugee center

Mon, 09 Mar 2009 14:07:00 -0400

Today I went to the Mohawk Valley refugee center to meet with Stephanie Wolter (works for the Hamilton Levitt center) and Emily, a Hamilton College Senior currently working on a project with some of the refugee women. Emily has received one $1000 grant and is waiting to hear about another $40-60000 (for three years) grant to support her project to help some Thai and Burmese women begin weaving again now that they are here in the United States. In their home countries these women worked on the looms for pleasure, but did not sell their items. Emily sees a market for their goods in the area. They make bags, shirts, dresses and scarves.

Unfortunately, the women did not make it to the meeting because of some miscommunication. A thought I had might be meeting earlier in the week because on a Friday afternoon most people are excited to get home. There are about five women involved in this project and the goal is to rent them a space, buy capital including thread and looms, and allow these women to make and sell their goods at will. Although Emily’s vision for the project is mostly to give these women the opportunity to pick a hobby from home back up, I see it as a Microfinance project at the same time. This would be different than the traditional Microfinance project in that it is starting with grants (that do not need to be paid back) instead of loans. The Grameen bank applied for a received many grants (such as from the world bank) to build the capital to take it to the next step. The grant will act in place of the loan to buy the initial capital for the women to create products for sale. Depending on how the income from these products is used, will determine whether this project turns into more or a Microfinance project of a charitable project,

Should be a microfinance project: using the grant to buy initial capital and rent a space for the women avoids the problem of women with no credit and no income getting money to start their project. The money earned from sold products should then be used to buy more capital and perpetuate the small weaving business. I think it would be impressive and most beneficial to use the grant money as start up and then set the business up so that it is self-sustainable. That way, in three years when the grant money is no longer coming in, the women can continue their work and a. don’t have to wait to receive a new grant or b. move onto something else/ give up what they had been building for years.

If this could be achieved it would be a great example of Microfinance applied in the US. It is difficult to apply many of the principles used initially with the Grameen bank in Bangladesh because their communities are so different. ACCION int’l is a microfinance bank in the United States who after trials decided to abandon the group method of loaning used by the Grameen Bank because they believed the lack of community in the US would not facilitate group loaning. I think the group of refugee women would be ideal candidates for group loaning or group business of any sort because they have a very strong community and are really all one another has. There would be great support, encouragement and incentive not to let one another down in this group setting.

Concerns: Stephanie and Emily have expressed concern that the women are losing interest because little progress has been made in the past few months, despite many meetings. Emily explained that the women do not understand that Emily is interested in helping them soley for their benefit. They have asked her questions like “how much will we have to produce?” and “what if we get tired?” Emily explained that this was just an opportunity for them to do a enjoyable activity.

Solutions: Bringing something tangible to the meeting next time may bring back some of the motivation the women previously had. Showing them that thread has been bought, or progress has been made on constructing the looms will show them that the project is real.

Next Step: apparently the thread the women need is only available in their home countries (specifically Thailand) so it needs to be ordered. Maybe this could be found over the internet?

Also, they are going to have their own looms built. One of the refugee men (Paul) knows how to build them. Materials (wood or bamboo and PCV pipe) need to be purchased. I would like to note that purchasing these materials or taking the women to pick them out may re-motivate their involvement in the project. Paul does not have materials to build these looms, but Hamilton may have available supplies in list or the rented space that the women are going to work in apparently has a wood shop in it.

Finally, and for me most importantly, I would like to develop a plan to turn this pastime that will be aided through grants into a sustainable business to last after money from grants has been used up. Even if the women just want to keep their weaving an enjoyable pastime and not a profit driven business, they can still benefit by recycling their profits back into new capital.

I would like to research more into the refugee population of Utica. The women of this weaving group are students at the refugee center, but what money do they live off of? Do they need a source of income? Maybe this weaving business would be a great way to give them some financial independence or just some money to supplement whatever they are currently living off of to improve their living standards. Working with the refugee population could be the ideal population because many of the principles that worked in the undeveloped third world countries that the Grameen bank was founded in. The strong community aspect that supported the group loaning method for the Grameen bank is unlikely to work in the US because our ties to our neighbors and communities are not the strong enough. However, the refugee population in Utica is different than the rest of the US. When asked if they wanted to work alone or together, it was unanimous that they all be together. These refugees have a strong sense of community and ties to one another causing them to be the ideal participants for Microfinance. I would like to further look into the population and their working habits to learn whether Microloans to help begin small business would be beneficial.

Grameen Promises

Mon, 09 Mar 2009 13:50:00 -0400

Members of the Grameen community (those working and those receiving loans) must adhere to 16 promises that Grameen created when it originated that they believe promote a poverty-free life and help prevent people from falling back into poverty.

1. We shall follow and advance the four principles of the Grameen Bank- discipline, unity, courage and hard work- in all walks of out lives.

2. Prosperity we shall bring to our families.

3. We shall not live in a dilapidated house. We shall repair our houses and work toward constructing new house at the earliest opportunity.

4. We shall grow vegetables all the year round. We shall eat plenty of them and sell the surplus.

5. During the plantation seasons, we shall plant as many seedlings as possible.

6. We shall plan to keep our families small. We shall minimize our expenditures. We shall look after our health.

7. We shall educate our children and ensure that they can earn to pay for their education.

8. We shall always keep our children and the environment clean.

9. We shall build and use pit latrines.

10. We shall drink water from tube wells. If they are not available, we shall boil water or use alum to purify it.

11. We shall not take any dowry on our sons' weddings; neither shall we give any dowry at our daughter's wedding. We shall keep the center free from the curse of dowry. We shall not practice child marriage.

12. We shall not commit any injustice, and we will oppose anyone who tries to do so.

13. We shall collectively undertake larger investments for higher incomes.

14. We shall always be ready to help each other. If anyone is in difficult, we shall all help him or her.

15. If we come to know any breach of discipline in any center, we shall all go there and help restore discipline.

16. We shall introduce physical exercises in all our centers. We shall take part in social activities collectively.

Muhammad Yunus, Banker to the Poor pages 136-137

I think that these 16 promises are the reason that Grameen stands out from a traditional bank and also why it has had so much success in changing borrowers lives. It does not matter if the poorest poor receive loans if they do not adhere to these promises to make the effort to move out of poverty. Taking a Grameen loan is more than borrowing money, it is a promise to change the habits of ones life and to change the culture of accepting poverty. These promises list the efforts that the poorest poor can make to make the most of their situations. Many of these promises will help loans to perpetuate better lives for the future.

Sources

Mon, 09 Mar 2009 11:45:00 -0400

Armendariz, Beatriz, and Jonathan Morduch. "Micro-finance where do we stand?" World Bank. 23 Apr. 2004. 26 Apr. 2008 <http://info.worldbank.org/etools/docs/library/128754/Morduch%20Microfinance_Where_Do_We%20stand.pdf >.

"Bangladesh - 10 Years of World Bank Support for Microcredit in Bangladesh." World Bank. 5 Nov. 2007. 1 May 2008 <http://www.worldbank.org.bd/WBSITE/EXTERNAL/COUNTRIES/SOUTHASIAEXT/BANGLADESHEXTN/0,,contentMDK:21153910~menuPK:295765~pagePK:2865066~piPK:2865079~theSitePK:295760,00.html>.

Granitas, Alkman, and Deidre Sheehan.. "Grameen Dialogue -- a regular publication from Grameen Trust." Grameen - Banking for the poor. 25 Apr. 2008 <http://www.grameen-info.org/dialogue/dialogue48/specialfeature.html>.

Hawser, Anita. "Big Banks Eye Micro Market." Global Finance 1 June 2007, 21: 24-26.

Lee, Thomas. "IATP | Ag Observatory | Headlines." IATP | Ag Observatory. 17 Apr. 2007. 25 Apr. 2008 <http://www.agobservatory.org/headlines.cfm?refid=98142>.

Parker, Emily. "Muhammad Yunus Subprime Lender." Wall Street Journal 7 (2008). 3 Mar. 2008 <http://online.wsj.com/article/SB120432950873204335>.

"Peer Lending Background - Stepping Stone Program." Welcome to the Stepping Stone Program. 26 Apr. 2008 <http://www.geodesudbury.org/english/background.html>.

Pitt, Mark, Shahidur Khandker, and Jennifer Cartwright. "Does Micro-Credit Empower Women." World Bank. 29 Apr. 2008 <www-wds.worldbank.org/external/default/WDSContentServer/IW3P/IB/2003/04/11/000094946_03040104075225/Rendered/PDF/multi0page.pdf>.

Shah, Anup. "Poverty Facts and Stats - Global Issues." Global Issues : social, political, economic and environmental issues that affect us all. 25 Apr. 2008 <http://www.globalissues.org/traderelated/facts.asp>.

Yunus, Muhammad. Banker to the Poor: Micro-Lending and the Battle Against World
Poverty. New York: PublicAffairs, 2007.

Strong rate of Loan Repayment

Mon, 09 Mar 2009 11:44:00 -0400

Supplementing group loaning, investors find women (who control 90% of the world’s micro-loans) more dedicated to repayment schedules than men. In 1995, Shahidur Khandker et al. found that 15% of male borrowers missed payments before the final due date, whereas only 1% of women faced such trouble (Armendáriz and Morduch, 143). Armendáriz and Morduch found women more likely to pay because they see fewer options than their husbands and are; “more vulnerable to the shame of noncompliance” and thus banks, “simply knowing that women on average are better clients” have redirected loans towards female borrowers (143). Targeted not only for their productive investments, women have shown more disciplined repayments and given banks a reason to grant them credit.

Yunus Was Right To Target Women

Mon, 09 Mar 2009 11:44:00 -0400

Women, with their dedication to repayment and practical investment decisions are the key to the success of the micro-finance field and the future alleviation of world poverty. The 2006 Nobel Peace Prize winner, Muhammad Yunus had the right idea when he decided to conduct business in the opposite manner of traditional banks, “if banks lent to the rich, I lent to the poor” initiating the practice of micro-finance (Hawser, 25). Muhammad Yunus determined the best way to help the poor was to empower them, and results have shown that targeting women provides the most significant outcomes. Not only do the loans best help women, but also women prove to work as the best vestibules for economic encouragement. Micro-finance’s positive effects, evident in Bangladesh, are beginning to show up in other countries around the world. With over $3.66 billion in loans by the Grameen Bank alone, the micro-finance field holds a respected position in the world and many countries have included the practice of micro-loans in their poverty reduction programs. Muhammad Yunus has set the world in the right direction by giving the female-dominated poor, the gift of opportunity through credit. The most realistic approach to tackling world poverty seen yet, helping women to improve their lives and their countries through micro-finance, will hopefully continue ease the pains of world poverty as it grows.

Women are Lower-Risk Borrowers and Allocate Money Better

Mon, 09 Mar 2009 11:43:00 -0400

Proven to be lower-risk borrowers, women also choose sensible and development-promoting investments for themselves, their children and their country. Recent data in both sociology and economic reports displays the, “greater probability that money in the hands of women is spent on children’s health and education relative to money in the hands of their husbands” (Armendáriz and Morduch, 143). Focusing on women to allocate borrowed money works as a more productive method to increase the living standards in a country. Addressing children’s health lengthens the life span of a child and decreases the likelihood of future problems if proper habits are developed early. Education, often a luxury for those in underdeveloped countries, can become a reality with micro-loans, improving not only the child’s future, but also the future of the country.
With a healthier, more educated population, the growth of aggregate supply continues.

Microfinance improves Female Empowerment and Self-Awareness

Mon, 09 Mar 2009 11:43:00 -0400

Credit does not only improve living standards through aggregate supply, but also increases women’s empowerment and her overall awareness in a given country. In a study based in Bangladesh examining the effect of micro-credit on women’s autonomy, it was observed that when offered credit, women experience a statistically significant increase in, “the latent empowerment factor associated with finance,” including independence from a husband and ability to freely make financial decisions (Pitt et al., 25). In contrast, “male credit significantly reduced the overall empowerment factor, had a significant negative effect on six of the other empowerment factors and did not have a positive effect on any of them” (Pitt et al., 24). Offering credit and loans to men causes primarily negative effects and makes no developmental progress of any kind, yet another motivation for banks to focus on women as their chief borrowers. Along with this empowerment, women’s autonomy with purchasing, control over economic resources and confidence in their own ability to raise money in case of emergency, all increased. Rarely considered equals of men, women face discrimination and restricted freedom in many developing countries. The study showed, “female credit affects the likelihood that a man will describe his wife as intelligent and the probability that a women will say that she does not view her husband as superior to herself” (Pitt et al., 26). With the opportunity of credit, women’s empowerment increases and slowly equality will spread. Additionally, “female credit positively affects the factor relating to women’s awareness and activism,” including women’s knowledge of divorce options and probability that she will vote (Pitt et al., 26). Such knowledge also increases the human capital of a country, providing better living conditions for the future. By giving women money and in turn, power in their household, not only is the issue of poverty being addressed, but the one of female equality and opportunity as well.

Targetting Women

Mon, 09 Mar 2009 11:42:00 -0400

Over the years micro-loans have targeted women, who dominate the poorest populations. Women make prudent investment decisions for themselves, but also ones that improve their children’s lives and contribute to the potential of their country. Offering credit produces a great effect on enhancing the lives of women, whereas it offers few advances to men. Proven to obey more consistent repayment rates, women are labeled as the lowest-risk borrowers. Through its provision of credit focusing on women, micro-finance empowers poor women and helps to alleviate the strongest symptoms of poverty and advance underdeveloped countries.

Women Make up The Majority of the poor

Mon, 09 Mar 2009 11:42:00 -0400

Today 1 billion people survive on less than $1 a day, the great majority of whom are women. To most effectively tackle the issue of world poverty, those who are most affected must be addressed, meaning women. Even at its inception, the Grameen Foundation sought out women borrowers, but not only does the Grameen foundation target women, 90% of loans in the micro-finance field worldwide are to female borrowers (“Bangladesh”). Women account for somewhere around half of the population in a given country. Without economic independence or power, women can make little or no impact on the economy. Given a loan, a woman can create her own small business and become a contributor not only to her family, but to her country as well. Alex Counts, the CEO of the Grameen Foundation rationalizes, “‘if 110 million people increased their per capita income by $3 a day, every day, that starts to become more meaningful on an aggregate level,’” explaining the great power that issuing just small loans can have (Hawser, 24-5). Loans affect more than just the people they are granted to, but continue to ripple throughout the economy as the money is utilized and spent. Women make up a significant proportion of any population, so having them go from no to even a small amount of income has a considerable impact on the macro economy. Aggregate supply, the only factor that allows a country to grow in the long run, is accounted for by, natural resources, labor, technology, capital and education. If any one of these factors is increased, overall output and therefore GDP can be increased, helping to lift a country out of poverty. Micro-loans help to utilize those previously unused resources in a country such as the unemployed poor and force them to effect the economy in a positive manner. Through micro-loans increase in potential GDP, both the economy and living standards are boosted for current and future generations. Granting women micro-loans amounts to finding an untapped natural resource within a country’s earth.