What Have We Been Up To?

Man . . . it's been a busy last few weeks. Since early October we've been working as Fellows with a microfinance institutution (MFI) here in Phnom Penh. Micro-finance has been around in various forms for over a hundred years but most people date its crossover into wider familiarity with the Grameen Bank in Bangladesh in the 1970's. The founder, a man named Muhammad Yunus, was awarded the Nobel Peace Prize for his efforts. (It's a fascinating story if you click on those links.)

As I understand it, the idea of microfinance is to loan money to people who otherwise have no access to credit either:

1) ... in sums large enough to do anything more than pay for day-to-day living expenses or...

2) ... at interest rates low enough to allow them to pay it back without incurring further debt.

Perhaps the most common question asked and certainly the first one I asked was, "If the lendees can pay back the loans with interest, why don't they just save the money themselves and save the interest cost?" I've been told by several loan recipients that the schedule of making loan payments enforces a discipline that they would otherwise find elusive. These people do not put money in the bank. They are too poor (most earn around US $2.00 a day, give or take) , bank branches are few and far between and Cambodia has a recent history of bank failure and total loss of funds due to civil war and corrupt mismanagement. So, the money of the people our MFI works with stays in their homes. And when the money is there, they tell is there is always some need that causes them to spend it - whether it's a child that needs clothes or an extended family member that has an emergency. The fact that a loan officer visits them once a month gives them the excuse to say, "No, I can't spend it."

Loan officer disburses a loan (US Dollars are the default currency in Cambodia)

When they do get the loan, they suddenly have open to them choices they never had before. For example, we interview many people who make their livings by weaving cloth on hand and foot operated looms. For generations many of these people had only one avenue of managing their cost and income. They would get thread from local middlemen who also serve as the sole buyers of finished cloth. The typical arrangement our clients describe is a middleman extending 0a weaver credit of enough thread to make three finished pieces of cloth with the middleman taking two and the weaver taking the profit (with a price set by the middleman!) for the third. Apparently they got by but there was little or no movement up any economic ladder. Now, a weaver can get a loan for a few hundred dollars, travel the ten to thirty kilometers into Phnom Penh to one of the large markets and buy the supplies themselves for a lower cost. When they have completed enough finished pieces, they can take them into the city and sell them for a higher cost. The power of capital!

Weaver on the Mekong island of Koh Dach

Other business fare better, as well. Many farmers formerly could only afford a limited amount of seed, fertilizer, pesticide, etc. because they had a long period of waiting before they harvested and sold the produce. Now, they can take out a loan at a reasonable interest rate, buy larger amounts of materials and harvest and sell more at the end of a growing cycle. Many MFI's even offer a special loan product for farmers that allow them to make small payments early in the cycle when they have no cash flow saving the larger payments for the end of the growing/harvesting cycle. Whatever the situation, my experience in five weeks of interviewing clients is that they are very happy to have access to the funds.

So what's the role of Tami and I in all this? We applied to work with this organization from San Francisco called KIVA. They worked out a system set up on the Web to connect individual lenders (NOT donors) with people in need in the developing world. If you go to their website they explain it in detail. The essence of it goes like this, someone in Seattle goes to the Kiva site. There they see profiles of businesses/people in need of funding. Seattle (after they set up an account) clicks on a business they want to loan to and the funds go to an MFI who works with Kiva in the target country. At some point in the payback period, someone from KIVA or the MFI interviews the loan recipient to assess the impact of the loan. That's where Tami and I come in.
Tami on one of our morning commutes - a ferry across the Mekong River

We work as Fellows for Kiva. We get the distinct pleasure of riding with our MFI's (MAXIMA) loan officers to interview then blog about the clients - and you might not believe what a great time this is. We're doing many of the things we left home to do but, because we're working with a local organization and with a Cambodian who can interpret, we are allowed much deeper into the local culture than we've been ANY time on this trip. We're seeing a whole spectrum of the entrepreneurial economy. Because, at this economic level business and family are essentially inseparable, we get to see lots of family life we'd never see as well. Working with MAXIMA, we also experience working with a professional organization and MAXIMA is first-rate. Even though we're only scruffy volunteers, their staff has welcomed us in and supported us as if we were managing partners.

So, we have about another month of our term with KIVA/MAXIMA as Fellows. We'll see what comes after that but for now we're enjoying this very much.