Hello everyone,
As I mentioned a few days ago, Katie and I
have been working on developing a document around how GIVE’s involvement with
the bank will adjust over time. This question has been getting asked of us by
some clients and by Maurice, so we felt it was important to be prepared.
Financially, GIVE currently pays for all
the fees related to the bank: the rent, Maurice’s salary, the trips to town to
deposit the savings, all the photocopying, and has also footed the capital
required for the microfinance project and to pay for the financial curriculum. The
hope is that through time the bank will transition towards being completely self-sufficient
and sustainable. It has been interesting at the focus groups to see how optimistic
the clients are about the bank, although most of it will probably not be
possible. For example every focus group wants the bank to become much bigger,
offer loans, have no fees, offer interest on savings and have many branches
that employ people (and have computers). We are pleased that they are ambitious
but some goals may conflict as they all will require money, and a lot of effort.
The hope is that we can get the board this
year to start thinking around how the bank can realistically move forward
towards those goals. We are still in the planning stages but the idea is that
GIVE will continue to support the bank financially as before for another year,
with the board having to find sources of revenue or capital to start up the
financial curriculum or microfinance again. When asked about paying a fee for
the financial curriculum in the past, members have indicated that they would be
willing to pay one. We have also had a few members ask about using the
community savings to fund the microfinance. Therefore we do not see this as a
big leap of faith in either case.
In future years we hope that the board will
first be able to find ways to pay for the fees associated with opening an
account (ie. Paying for the passbook and photocopying), in addition to the
costs associated with depositing or withdrawing savings (ie. The trip to town).
Eventually the hope is that the bank will get to the point of being able to pay
for the building, any other bank supplies and bank officer salaries, but that
will probably come at some point in the future.
There are many options for raising the
required money such as account opening fees, periodic membership fees,
withdrawal charges, any interest earned from the external bank account where
member savings are currently stored, fundraising for specific investments, and
using the interest earned from microcredit. All of these options have their
benefits and shortcomings so the bank will likely eventually use a combination
of them. It is our hope that it will largely be the board’s discretion around
which to use and how to use them. For example we are hoping to steer the bank
away from over leveraging the member savings in order to make enough money to
pay for everything off lending alone since this is risky and shifts the focus
away from savings (which have been shown to be more effective at reducing
poverty).
In terms of responsibility, the idea is
that the board will be meeting monthly to discuss any issues that come up
around the bank and provide recommendations to GIVE around those issues or
other potential changes. Once the report from that meeting is delivered to GIVE,
we will then take time to meet and discuss their recommendations, after which
GIVE will make a decision and provide the reasoning behind the decision to the
board. The hope is that this will build knowledge on the board about what goes
into our decision making, such that they will be prepared in the future to make
similar decisions without GIVE’s input.
We will hopefully also be getting the board
to draft a monthly budget, to learn about financial planning for the bank, and
to perform audits of the bank activity at various points throughout the year
which can be checked by future years’ travellers.
My dad recently sent me a couple very
interesting articles about microfinance. The first one I will talk about in
another post, but the second one is more pertinent to this post. The article: “Latest Findings from Randomized Evaluations of Microfinance” re-examined how different
financial services can impact the poor.
It was interesting as the article was
critical around much of the praise that microfinance (usually referring in fact
to microcredit) receives for increasing income and employment. It referenced a
number of studies showing that the impact of microcredit is much more nuanced
as it helps create more businesses, but has only minimal impacts on employment
levels. The bigger impact on people’s lives come from the changes it can create
in consumption patterns towards more durable goods rather than ‘temptation
goods’ such as cigarettes and alcohol. Microcredit has also struggled to push
businesses past a small-medium size as they cannot quite qualify for loans from
larger institutions yet are too big for traditional MFI (Microfinance
Institutions).
It also looked into how the specific
details or services of microcredit can be important. Traditional microcredit
uses group lending because of the peer pressure it can create to not default,
yet there have been a number of studies recently that show the default rates to
only be marginally lower with group lending, yet uptake levels are also much
lower. The authors argue that this is because more risk-averse potential
clients do not want to be liable for other people’s risk. The next service of
note was the concept of delayed repayment. The authors referenced a number of
studies which had found that people take out larger loans than required and
hold back some of the loan money simply to make sure that they can pay the
early dues before they receive the return on investment (since traditional
microcredit has very strict repayment dates that are usually either bi-weekly
or monthly). One study had found that the ultimate profitability of the
businesses supported was on average much higher where the first payment was
delayed for 2 months, but that more defaults also occurred from the investments
not working out. The recommendation was to try offering higher interest rates
for the delayed service packages to discourage their use unless it is
worthwhile for the client.
Getting back to our project and the
microfinance we have done in the past (27 total borrowers with no defaults),
one of the keys to success mentioned in the article is being selective, which
we have managed to be so far. It will be interesting to see how that can be
maintained over time. The other part of the article I found most closely
related to our project was around different saving systems and their effectiveness.
The article referenced a number of studies showing how goal based saving,
potentially even with separate accounts for different uses, can be very
effective at increasing savings rates. While doing our audit this year we
discovered that a number of parents had opened accounts basically ‘in trust’
for their children. So that will hopefully be something we can institutionalise
going forward. It also mentioned how important saving can be for protecting a client’s
money from the daily demands of needy relatives or friends, which was something
we have been hearing a lot during the focus groups (that it is hard to save
within the house).
Anyways that is all my rambling for now, we
finished up another (couple) days of focus groups, with two more tomorrow and
then we are done! Almost there...they are getting a little repetitive now.
Other than we got to experience some pretty crazy rain during the second focus group of the day:
 |
| Just another rainy day in Kanyawegi...no big deal |
Also Katie and I are looking forward to some more GIVE members
arriving this weekend (except that we will have to stop acting like slobs
around the house *sigh*)
Cheers,
Graham
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