Thursday, April 8, 2010

Cash Rules Everything Around Me

Jambo marafiki wa Ploceidae! Our apologies for having fallen silent for a while. Life here has been pretty full since we returned from Bukoba. Besides our normal class-related duties, Graham has been busy assessing Mavuno’s Microfinance Program, and Kerry has been hard at work trying to raise funds for a massive girls secondary school that Mavuno is in the first phases of building. Here’s a little bit about the microfinance program; we’ll write later about the school project.

Those are some real-live Tanzanian Shillings. As you can see, we’re rich: we roll with stacks of Gs. Of course, a G here, which features the face of Tanzania’s founder Julius Nyerere, is only worth about $0.80. And when a currency with a lot of zeros in it isn’t worth one US Dollar, you know what that’s likely to mean: lots of folks around here are very poor.

To help the poor work their way out of poverty, Mavuno offers a number of services, one of which is the Mavuno Microfinance Program. If you aren’t familiar with the idea of microfinancing, Muhammad Yunus’s Banker to the Poor is worth a read. (Aside: we were able to buy the book here on, and then Graham downloaded and read it on the Kindle. Thanks Graham’s Mom for the Kindle, and thanks Kerry’s Mom for the Amazon funds!) Yunus is the guy who invented microfinancing in Bangladesh in the 70s, and Banker to the Poor is an extremely readable autobiographically based account of his bank’s successes. The idea behind microfinancing is painfully simple: poor folks need credit with non-usurious interest rates. The solution is equally simple: give them small loans that they can repay. With the help of just a little outside funding for seed money, Mavuno has been doing just this for over a decade with, from what we’ve seen, fabulous results.

The vast majority of the loans are for around 350,000 Tsh, which is around $300, and their primary use is to pay school fees. Education isn’t free here, and twice a year students are required to pay several hundred thousand Shillings as fees for the term. Lots of families have lots of difficulty coming up with that much money at once, so Mavuno loans them the money and then lets them repay it in monthly installments. The interest rate is 10%, which makes the math easy. All money gained through interest goes back into the pool available for loans—the pot grows with every loan repaid, but the point is not profit.

Other folks use their loans for agricultural investment. Some of these people have done very, very well through the program. We met many such entrepreneurs a few weeks ago in the village of Mabira. Here’s one, with a (massive) pig she’s invested in:

She was getting ready to sell some (similarly massive) piglets. She has also used loan funds for a cow, whose milk she is able to sell. We met another woman who had invested in solar panels and was making money charging her neighbors a small fee to charge their cell phones (no one’s house in Mabira is connected to the electricity grid). These people are movin’ on up.

While lots of folks are doing well, many of the poorest in Karagwe still have trouble getting access to microcredit. Many cannot take advantage of Mavuno’s program because they have difficulties forming or joining a borrowing group. Mavuno only loans money to individuals who belong to borrowing groups, whose job it is to make sure that the individuals in the group repay their loans on time. If a member is more than three months late with repayments, then the whole group’s access to funds is frozen. The success of this structure is astonishing—there hasn’t been a single default since the group structure was implemented in 2006 (prior to this, Mavuno lent directly to individuals). Existing groups don’t want to include the very poor, however, because the groups fear, reasonably enough, that the very poor will have a very hard time paying back even the smallest loans.

To solve this problem, we’re inviting Mavuno to institute what we’re calling the Mavuno Microfinance Mentor’s Program. To be a Mentor, a person would have already to be a successful participant in the microfinance program, and s/he would help the very poor by forming them into borrowing groups and then advising them for a year or two on sound financial practices. In return, the a Mentor would have the maximum amount that s/he is allowed to borrow, which is currently 500,000 Tsh, raised. The ceiling would be raised once for being a Mentor and then again if the mentored group meets certain benchmarks its first year of operation. Many people want their loan ceiling raised, so there shouldn’t be a problem getting people involved as Mentors, and there is also no shortage of very poor folks who want and need a loan. We’ll be meeting with Mavuno’s microfinance committee next week to discuss implementation of the plan.

In other news, we’re off to Uganda this weekend! We’re picking up Corinne, who is flying into Entebbe. Corinne is a good friend of ours and an Amizade board member, and she will be with us for the remainder of our time in Africa. We’ll write soon about our Ugandan adventure.

No comments:

Post a Comment