I’ve been back in Chicago for about 2 weeks now and have had time to sit and digest my Kiva Fellow experience. Going into this I tried to keep a completely unbiased and open-mind about microfinance. I’m a huge supporter of microfinance, but I have heard critics argue that it does little to actually lift people out of poverty. So I tried to take my opportunity to see first hand how it affects borrowers.
During my 2-month stay in Cape Coast, Ghana I had the privilege to meet over a hundred borrowers successfully running their own businesses. I heard stories of individuals being able to pay their kids’ school fees because of their loan, a life-long farmer opening up a general store when she became to old to work the fields simply because of her loan, and businesses expanding and profits increasing because of a couple hundred dollars. During all my interviews and meetings I never once heard a borrower say they were unhappy they took the loan. Not one person thought the loan had hurt their business, but many had ideas and suggestions on how to improve the microfinance process. One on-going theme I saw was that the large group loans aren’t that popular with individuals because they often find it hard to find 10 reliable entrepreneurs to join their group. They often suggested to make the groups smaller and to have individual loans available. The reason MFIs have group loans is for security. Since no collateral is ever collected, social pressure is used as a way to ensure collections, but having cookie-cutter plans and principles that hinder borrowers will only hurt a MFI in the long run. Another common theme was interest rates.
During my stay in Cape Coast, I often had local individuals start conversations with me and want to know what I was doing in Ghana. When I told them I was working with a microfinance organization, almost everyone immediately said, “Oh, but the interest rates are so high!!”. I always took the time to explain why the interest rates were high, but no one seemed interested in my economics of microfinance speech, they were only concerned with how interest rates would affect them, and rightly so.
MFIs provide extremely valuable services in countries all around the world and have helped millions of people improve their lives. However, much more can be done to lower interest rates and further help the very people microfinance is aimed at helping. This is exactly why Kiva is so beneficial. Providing MFIs with 0% interest loans, these institutions can finally think about making steps to further help their clients that otherwise would not have been possible. I believe Kiva needs to be aware of this and make every active effort to encourage partner MFIs to lower their interest rates once they have become comfortable with raising money on Kiva. Right now Kiva is doing their part to help MFIs overcome certain barriers in raising low-cost funds, but these MFIs need to be held responsible with providing clients reasonable interest rates.
My stay in Ghana has been a priceless experience and I am only further convinced microfinance is the way to end poverty, but much more needs to be done to ensure the borrowers are the ones receiving the real help.
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