Puget Sound Millennium Goals Project

U.N. Millennium Development Goals and Microcredit: How Small Loans Support Sustainable Development

Thursday, May 29, 2008, 6:30 – 9:00 p.m., Kane Hall 220, Campus of the University of Washington

How citizens can help eliminate global poverty through micro loans was the focus of a public event organized by the Puget Sound Millennium Goals Project. Co-sponsors included: The Center for Global Studies, Jackson School, University of Washington; Oikocredit Support NW, RESULTS, ONE, and Jeff Keenan, co-author of "Our Day to End Poverty".

The program, featured exhibits from a range of local microcredit organizations and a panel of experts representing leading Microfinance practitioners and organizations devoted to alleviating poverty in regions around the world. Panelists were: Rick Beckett, CEO of Global Partnerships, a Seattle-based Microcredit lender; Peter Bladin, VP of Grameen Foundation and Director of Grameen Technology, also based in Seattle; Terry Provance, Executive Director of Oikocredit USA, an ecumenical cooperative lender to be initiated soon in Seattle; and Carol Welch, former US Coordinator of the UN Millennium Campaign. The discussion was moderated by KIRO TV news anchor and reporter, Penny LeGate. Due to time limitations, the panel was unable to answer all of the excellent questions posed by audience members. Several of these, answered by Rick Beckett, are addressed in reading more.

Questions from audience:

1) There has been a recent push to mobilize private capital in order to make more funding available to MFIs. Or perhaps it’s because nonprofit microlending organizations have been so successful they have attracted the attention of for-profit companies. However, Muhammad Yunus warns against making MFIs “for profit” instead of purely socially motivated. Do you believe there is a place for private, profit-motivated capital in microfinance?

Yes, we believe there is a place for private capital in microfinance. As more capital flows to MFIs more people will be reached to provide opportunity to those living in poverty. However, for-profit funds and agencies tend to focus on larger, urban microfinance institutions, leaving many poor countries and smaller microfinance institutions in need of support. So, while it is encouraging to see the markets opening up, commercialization alone will not provide opportunity to everyone who could benefit from access to microfinance.

2) What is the percentage breakdown of interest rates related to microcredit loans? Please describe.

3) At what point does altruism in microcredit cross the line and become more similar to loan sharking re interest rates?

It is nearly impossible to set a universal interest rate for the microfinance industry because the cost of doing business in Mexico is very different than doing business in India. However, by examining peer averages, you can gain valuable insight into what market conditions exist and how MFI organizations within the same market achieve sustainability. These comparisons should not form the basis for an absolute judgment, as each MFI may offer different types of services and finance products to their clients. At Global Partnerships, we use peer averages and similar data points as the basis questions when an MFI is charging interest rates which are significantly different from its peers.

4) As students, we desire to get involved but are not financially able to donate. Are there other ways we can support micro lending?

There are many ways to get involved in microfinance. The easiest way is to look for volunteer opportunities. Global Partnerships offers volunteer opportunities in association with our annual Business of Hope Luncheon in October and occasionally for special projects in our Seattle office. If you have specific expertise that is relevant to the work of a microfinance organization, you can always contact the organization directly and volunteer to contribute your skills.

Finally, you can help spread the word about microfinance and its benefits to those living in poverty. By including links to your favorite organizations in your blog or on your Facebook or MySpace pages, you can help inform your friends and relatives and connect them to organizations like Global Partnerships.

5) Since microcredit focuses on loans to women, what problems or barriers do males in some societies raise? How do we strengthen the roles fathers play through microcredit?

6) How do you reduce the fear of failure for individuals that receive loans? What kind of education do you provide loan recipients that helps change self concept from "poor" to "business owner"?

At Global Partnerships, many of the MFIs with whom we partner offer more than just loans. Our partners offer education and health services that boost loan recipients’ self-esteem, help them understand financial management, and teach them how to talk to doctors and thus feel more comfortable about seeing doctors for necessary healthcare. Some of our MFI partners offer couples training for wives and their husbands, which also has helped female borrowers gain more confidence about their value as women. In addition, many clients are part of a “solidarity group” with other loan recipients, providing a support network that helps individual loan recipients gain confidence and also gives them shared responsibility to pay back their loans as a group. This type of structure has proven to be very effective in helping clients, especially women, gain the confidence and self-respect they need to successfully manage their businesses and their households.

7) I’m a recent graduate who studied international business and Chinese studies. Now I want to go to graduate school and my passion is microfinance. What is most needed in this field? What should I study?

There are many different work areas involved in the field of microfinance. In the United States, much of the work in microfinance is related to fundraising and investment. Therefore, individuals with experience in development and finance, as well as those with relevant language skills, are desirable candidates for positions in the microfinance field in the United States.

8) I have over 10 years of experience in business. How can I become involved as a volunteer to learn more and eventually work full-time with your organization, so I can use my experience and skills to improve social justice in the world?

(see #4)

9) For someone interested in making the transition from the business community (in Seattle) to serving on the frontline (in third world countries) providing microcredit, how would you suggest finding microcredit organizations that could use some help?

(see #4)

10) What is the limit to growth of your organization and how are you dealing with it?

In general terms, the limit to growth for microfinance is when “global poverty is history.” At Global Partnerships, we strive to reach more people and will continue to identify innovative solutions to help people living in poverty. We have experienced rapid growth over the past three years and we have ambitious goals - we expect to be serving more than 1.3 million people in 10 countries with $100 million in capital dedicated to mission by 2010.

As Global Partnerships continues to grow and expand our programs, we will need to secure more philanthropic and investment capital. We plan to do this by reaching out to a broader network of supporters and inviting participation at increased levels.

11) Do investors in your organization receive interest on their investments or is the investment a charitable gift?

Investors in the senior traunche of Global Partnerships’ Microfinance Funds do receive a modest rate of return on their investment, approximately 4 to 5 percent.

Donors at any level may participate in Global Partnerships’ Microfinance Funds with a gift to the Fund’s equity layer. These gifts help GP in two ways. First, it helps reduce the risk for investors in the senior layer, allowing us to attract more capital. Second, the equity will be retained by GP, allowing us to reinvest in future funds and expand our programs to ensure we are leaving no one behind, including women and the rural poor.

12) Is there a point when a borrower has moved past microloans and either doesn't need them anymore or needs larger loans? Is there an average timeframe? Is there a cap to how much someone can borrow?

The financial needs of borrowers often grow over time. Several of Global Partnerships’ MFI partners provide loans of $10,000 and some $100,000 or more (these are often housing or small business loans). In order to remain competitive, many MFIs offer loans that meet a variety of needs, in order to keep the business of their most successful customers. While there are no specific limits or “caps” to the amount an individual can borrow, a large loan amount may require approval from the CEO of an MFI .

13) What kind of social returns are your investors demanding and how are your partners measuring social returns?

While we have not yet had demands for social returns from our investors, we do consider the social return as well as the financial return when selecting our MFI partners. As this is an important part of our screening process, Global Partnerships has formed an Impact Committee to develop and implement protocols to assess the social impact of our investments. Our goal is to use what we learn to make future investments in organizations that will have the greatest impact possible on the lives of those living in poverty. All of our current and future partners share our goal of leaving no one behind – including women and the rural poor.

14) Does microcredit perpetuate the dual economy – a grey market – in countries where it operates?

The informal economy is a reality in most countries (including the United States), and in many developing countries it employs the majority of the working population. This is a result of poor infrastructure, financial and otherwise, as well as stringent government regulations that make starting and operating a business very difficult. The “dual economy” will be there whether microfinance is or not because people need to provide for their families and will do what is necessary to earn a living. Indeed, microfinance allows some people to rise into the formal economy as their businesses grow and enter the regulatory realm, and it is part of the process of “leveling the playing field” by promoting equality of opportunity.

15) There has been much written about the unmet global demand for microcredit. Yet MFIs (such as Global Partnerships) seem to have multiple NGOs willing to lend to them. Is there really a current unmet demand? Or is the problem today more of incipient unexpressed demand?

Global Partnerships is not an MFI, but we partner with Latin American MFIs, raising capital and providing training. Through our experience working with our MFI partners and our on-the-ground presence, we have been able to observe firsthand an unmet demand in the countries where we work. In Latin America, 200 million people live below the national poverty line; of this group, more than 50 million people could benefit from microfinance but do not currently have access to it. It is true that some markets are more saturated than others, and some MFIs and countries are more popular with investors than others. However, it is clear that there are millions of people in poverty who live in places where such MFIs do not exist. The need is to identify more high-performing MFIs that have the potential to meet these needs, and to unlock ways to invest in more challenging country environments.