Tuesday, August 18, 2009

Microfinance thoughts

Hello everyone –

I wanted to share some thoughts about microfinance in the Dominican which haven’t been apparent to me until recently through observation and conversations with other interns. I see two major issues which are preventing microfinance measures from being as effective as they otherwise would be. First of all, I see a distinct lack of specific, well-thought out goal setting by associates. Quite simply: many cannot tell me why they got a loan, beyond saying “I want to grow my business”. The answer to the follow-up question “And why do you want to grow your business?” draws empty stares more often than not. Secondly, I see an oversaturation of certain businesses. Many borrowers settle for selling new and used clothing, making a colmado (small corner store which has various small food items, drinks and other goods). Let me develop these thoughts a little bit more.

First of all, I am extremely troubled by the lack of goal setting that many associates demonstrate. All of us working and who read about microfinance hear about its ability to assault poverty by allowing people to work their way into a healthier income, better housing situation, more food and education for their children. I have my qualms with some of these claims, especially with how great the affect is, but we’ll leave that to the side for now for the sake of argument. It just worries me that these borrowers don’t have a clear idea of why they are taking out a loan. I have to give very leading questions, referring to their children or capital improvements to their homes, in order to get any sort of long-term picture. Even then, the answer is somewhat forced and it seems the women and men are asking in their heads “why is this question being asked to me? I don’t understand why this is so important.”

Given, some of this may be due to a language barrier, and I may perhaps be asking the questions incorrectly, but I don’t feel that’s the case. I think its more likely that people either a) haven’t thought about the question or (more likely) b) have future goals, they just haven’t fully articulated them. I see this as a problem. There is a need for people to have a well-articulated idea of how exactly they want to apply this loan to their life and family.

Why is this important? I am still attempting to articulate this fully, but I feel there is an inherent value in having a specific goal in mind when undertaking a project as serious as starting a business. A goal will allow the women and men here to seek encouragement when looking at their business. It gives them a concrete example of how a growing business is helping their family. They can point to the extra food on the table, their child taking university classes, or their brand new concrete floor and use this as motivation to continue seeking to grow their business. This is my only concrete idea to answer this question – in reality, I’m struggling to articulate why I find this so important. I may have more ideas about this in the future. For now, I wanted to at least put this thought out there, and let you know that more will be settling with time.

Feel free to comment something about this! I’d love to hear any of your thoughts. I’d love to know, also, if you think this isn’t something important. Thanks!

Secondly, I want to address the oversaturation of business choices of the associates here in the Dominican. I have a much more concrete idea of this issue, and this one is quite concerning. Microfinance allows the borrowers to choose their own business – and much of the theory is built upon the idea that borrowers inherently know their community, and know what sorts of businesses would be most successful. After all, nearly all have lived in one area their entire life, they know their neighbors, and therefore know what items are in demand, what sells well, etc.

Unfortunately, in the Dominican we aren’t seeing this put unto practice with any real regularity. Many women settle for just two types of businesses: colmados and new and used clothing. This has caused what seems to be an oversaturation of these businesses. In a single bank of 20 women living in a small neighborhood already full of such stores, quite easily 10 or more of them will start such a business. This simply cannot be good for sales.

Again, I may be totally off-base and ignorant in this observation. I allow for the thought that these women truly do know what they are doing, and that another 10 colmados in a neighborhood is one of the most profitable businesses they can get into. However, I am certainly not convinced of this. I would be surprised if someone were to show me that the colmados formed are equally or more profitable than rarer businesses.

The thought myself and some other interns have is that the women, instead of choosing the most profitable business for their family, are going the route of least resistance. It is far more comfortable to start up a business such as a colmado or clothes sales when those are stores they see everywhere, and they see their friends in that market. They might know less about other businesses, and therefore instead of looking into that other type, follow their friends.

Regardless of the reasons for starting colmados or clothing businesses, it seems fairly clear that there is an oversaturation of these businesses. I would love to someday see someone go and collect data regarding these businesses and their profitability. If it turns out these businesses are not receiving the type of profit that other businesses are, I’d argue that Esperanza should considering helping associates think of alternative businesses. I have met some women who recognized this oversaturation and chose less-common businesses, such as working as town veterinarians and selling cleaning supplies, and are currently very successful.

I am not arguing that Esperanza somehow force people to choose other businesses; I don’t agree with that at all. Instead, I think it would be valuable for the associates to see that their family may perhaps benefit more from a different type of business, and then choose between all the options. In some cases, surely a colmado is the best choice; and in some it may not be. I see no harm and potentially a lot of good (and profits!) if the associates begin to choose from a greater selection of businesses.

That’s really all I have to write for now. Sorry if it seems somewhat scattered – I have a lot of thoughts bouncing in my head and I just wanted to get them on paper to help me process them.

Please do let me know if you have any thoughts about any of this – I’d love to hear from any of you.

Mil gracias!



Analin said...


This is something I've discussed with many people as probably one of the biggest problems that microfinance is facing. Substituting a cycle of poverty with a cycle of debt should always be a temporary measure, but some clients seem to be pretty okay with the notion of taking loans indefinitely. How OK is this? How far are we going as microfinance workers/volunteers/promotors, however you want to put it, to teach a different mentality to clients? The truth is, most of the clients completely lack a plan. There is no set of goals, just a mere sense of "making it through". And it certainly is disturbing. True that not all clients will become extraordinary business men/women, but sometimes you can't help but thinking that a bigger effort in educating them towards making a plan could be done.

Anne said...

More and more and more I'm coming to see the importance of a dream. It doesn't matter if you're a multimillionaire or woman living in poverty. People need specific goals. They need to have their big five and ten year plans as well as their daily and monthly goals. If you don't have the day-to-day plans, than the years will pass and you won't achieve the big ones. One of the things that I would like to see more of in the capacitaciones and repayment meetings is a flushing out of these goals. I think, in addition to having a weekly and monthly budget, the women need to talk about their bimonthly and monthly goals...and hold each other accountable. There are some groups in which the women totally rock and use the time to chat and brainstorm new business techniques...that's the ideal. However, during so many of the meetings, the women just sit silently, unaware that they're missing out on one of the best resources of microfinance...each other. That might sound a tad corny, but it's what I really believe. I honestly think we should have our clients draw up a timeline for their businesses and lives and work to get them to hold each other accountable. I know that when I spend time with people who are goal oriented, I become WAY more productive!

Now, you might be thinking, yeah right...I highly doubt we can get the women to do that. But, if we incorporated into the program and ran the meetings in a very structured way and made it an expectation, I think the women could rise to the occasion. I think this would also cut down on group problems and special meetings, which are ultimately not the best use of anybody's resources. There are some problems that are reasonable, but in my experience, the vast majority of problems stem from the fact that the women are not diligent enough with their money and budgeting. That's a simple discipline that is totally achievable.

Maira said...

Well I few thoughts on this. First I think Analin is right when she says that people are not thinking on goals and plans rather just trying to make it through. We have to remember that microfinance is not a tool to eradicate poverty rather to alleviate it. And if microfinance is allowing its clients to eat more, have medical insurance, and provide an education for the kids that type of transformation is alleviation. Another observation that we can explore is that not everyone is born a business person. There are people that are either naturally talented in building up companies (for example Bill Gates) and others that are naturally organizers (“type A” like Ann and I), that with the proper skills can learn to build up companies. So right now microfinance is targeting those that are low income, some might fall into the categories of potential exceptional profitable businessmen/women, moderately profitable, barely making it but profitable enough to send children to school, or not profitable and into a debt cycle.
Nate, I know that you got a little bit of a different field for working in Samana with all the internal problems and stuff but overall Esperanza works as an organization offering a microenterprise service. Meaning that they don’t just focus on giving out loans, they also try to develop the person with secular education, spiritual transformation, and push clients to save, they have medical and life insurance for themselves their immediate family and parents, all of this is providing a cushion so that in an emergency people don’t crack down to extreme poverty. So with all this rambling I just want you to not get discouraged with the lack of planning and over saturation of businesses, looking at the long run Esperanza is helping them, so feel good about your internship 
Much love,

Jon said...

I thought a lot this summer about what is a "success" in Esperanza's organization. There are of course, the obvious extraordinary success stories, such as Milan Tapia, the San Pedro woman who started a school for deprived children. But if we only count the glaring examples as successes, the "success" rate of Esperanza's associates would likely be pitiful. So, in line with what Maira was saying in some ways, I believe that we can count an associate as a successful participant in the program if they have taken out and fully repaid over six or seven loans, have kept their children in school, and report being happy that they are in the program. In many places, microfinance is not a surefire way out of "poverty" as it is broadly defined, but if it allows people to "get by" and helps them avoid falling into complete destitution, perhaps that is good enough.

On the subject of setting goals, another benefit of getting associates to set goals would be the ability to track how many associates end up meeting their goals in the long term, and the rates of success of goal-setters versus non-goal setters, and what factors (whether related to the kinds of goals they made or their circumstances) affect the rate of associates meeting their goals.