Author Archives: Josh Weinstein

Scouting New Territory II

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The other day I talked about how an MFI figures out the potential market for their services in an area.  A simple calculation using statistics provided by the government offers a high-level estimate of the number of women in the target profile.  But it is also important to understand the situation on the ground – who is there already and what are they doing?  On a recent market research trip with some NWTF staff, I learned how to get the answers to those questions.  The team included the director of the research department, a research officer, the regional manager of the NWTF branches in Cebu, and four prospective loan officers from Kalibo (henceforth referred to as “the girls”). To get the answers to these questions, we employed two strategies – individual interviews and focus groups – and split up.

The director and the girls look for women to interview.

The girls were responsible for walking around the villages we’d visit and interviewing women about their businesses.  Using a PPI form to screen for women below the poverty line and a questionnaire, the girls gathered statistics that later would be aggregated and analyzed back at the office.  The questionnaire asks their household income, whether it is regular or seasonal/contractual, whether or not they own a business.  The girls ask the interviewees to estimate the amount of capital needed for their business, and, if given a loan, what they would purchase (with a corresponding cost estimate).  Lastly, they ask what they would do with 5,000 pesos – the minimum loan for a first-time client – how much amortization they can afford, and what mode of payment would be suitable (daily, weekly, monthly, etc.). Continue reading →

Scouting New Territory I

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The van.

One misconception about microfinance institutions is that, because they are NGOs with a core social mission, they do not compete in the same way as traditional for-profit companies.  This is, of course, not the case.  Just like any other business, MFIs must strive to offer the best product, best service, and, ideally, serve communities with a sizable demand for microfinance.  This gives you a competitive edge over other MFIs in the area.  When considering expansion, an MFI needs to consider the conditions of the region and understand the economic profile of the people in the community. I just got back from spending four days on another island, tagging along on a market research trip to evaluate and assess the potential for expansion in the province.  First, how big is the market? Continue reading →

Mass Weddings for the Poor

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The following was written for the Kiva Fellows blog.  Read the original here.

This job is unique, in that it offers an endless supply of intellectual satisfaction.  Every day, I learn something new about something interesting.  For the time being, what interests me most is microfinance.  My knowledge of microfinance prior to Kiva could be described as purely academic.  Experiencing it firsthand has been rewarding.  In particular, I like understanding the details of execution, the challenges faced by the institution, and generally how a microfinance institution works.  The amount of information to digest is enormous, so I try to focus on understanding a few NWTF (Negros Women for Tomorrow) programs that I think are in my wheelhouse.  The downside is that I end up overlooking many fascinating and unambiguously positive programs.  The other day my coworkers were telling me about the upcoming Foundation day at one of the branches.  Every year, each branch that meets a certain threshold of repayment and performance can have a Foundation Day party with upwards of 2,000 attendees.  I was supposed to go to one in Cauyaun on Saturday, but I got food poisoning the day before and was bedridden.  At some of the Foundation Day celebrations, NWTF holds a mass wedding.  This is one of those programs that I find really interesting for different reasons.  Let me explain why. Continue reading →

Community Loans: Part II

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The following was written for the Kiva Fellows blog.  See the original here.

I spent all last week touring a province in the Philippines with a 7-person team in an effort to gather market intelligence about the region.  The purpose is to determine whether or not NWTF should open a branch here.  Much of our day is spent driving around a town (one in the morning and one in the afternoon) looking for the poorest neighborhoods.  The Dilapidated Housing Index is a means of making a snap judgment about whether a community is sufficiently poor for microfinance to be beneficial.  If most of the houses on the street are made of bamboo, corrugated aluminum, and bamboo leaves, we know we are looking in the right place.

A fishing village in the Philippines

On Thursday morning, we were driving through a coastal town when the paved road turned to dirt.  According to the driver and director of the research department at NWTF, when the road turns to dirt, you know you are headed in the right direction.  Sure enough, within a few minutes we reached a squatter community bustling with people.  (In the Philippines, the government protects squatters, and large communities spring up on other peoples’ lands.)  The road was just wide enough to fit the van and lined with nipa huts and sari sari stores.  We passed by two makeshift basketball courts before coming to the end of the road.  We parked the van and split up to walk around and talk to the people.  Unfortunately, the interviews are all in Illonggo, so I chose to follow the director down to the shore.  He began talking to a group of women on the beach holding their infant children.  If they could have a loan to spend on anything in their community, what would it be?  Their response: diesel fuel or an icemaker.  I’ll explain why this is important, but first some background. Continue reading →

Community Loans: Part I

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Microfinance is a term to describe the broad umbrella of financial services to people without access to a traditional banking system.  Microfinance institutions (MFIs) provide these types of services, which include microcredit, insurance (health, life, crop), savings accounts, remittances, and others.  Most MFIs rely on social collateral for repayment, which, in turn, is dependent on the strength of the community.  The community is at the center of the mission of microfinance, and some of the most interesting services offered by MFIs are aimed at making the community better as a whole.

Villages served by NWTF frequently support a single industry.  A community on the water might derive its livelihood from fishing or oyster farming.  Similarly, a community in the middle of a rice field s likely to revolve around rice farming.  The NWTF members in the community either have businesses in the industry (i.e. operating a fishing boat or renting crab nets) or supporting the industry (sari-sari store, buy-and-sell, used clothing).  In these cases, the health of the community is directly tied to the strength of the industry.  This is where community-based loans are useful. Continue reading →

Primer on Mobile Banking

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The Philippines is called the “texting capitol of the world.”  Everyone has a phone, mostly because they are a) inexpensive (starting at $20 USD), b) offer flexible plans (everything is prepaid), and c) texting makes life easier.  SMS messaging is the predominant mode of communication not only here, but in other parts of Southeast Asia.  Even business inquiries and scheduling a meeting might be done via text.   The mobile infrastructure of the Philippines is far more robust and pervasive than landlines or Internet.  In the context of development, the mobile landscape offers great opportunities.  Like anything, it is better to improve and leverage the existing system than to try to create a new one altogether.  The question becomes, how do you harness this existing infrastructure to improve delivery of microfinance services?  The answer is mobile banking. Continue reading →

Another Approach: Investing in SMEs

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This is the first in a three-part series about small- and medium-sized enterprises

The wikipedia picture for the "Small and Medium Enterprise" entry.

In March of 2008, James Surowiecki wrote an article for the New Yorker, titled “What Microloans Miss,” that suggests that the disproportionate amount of attention given to microfinance has steered funding away from other avenues for development.  A year and a half later, the Boston Globe included a piece on two recent studies on microfinance questioning its efficacy,  titled “Small Change.” Both articles revolve around the same central premise: microfinance, while effective at relieving some of the burdens of day-to-day living, does not create jobs.  It is rare that a microbusiness receiving a loan has paid employees.  In other words, microloans allow women to start a business, but more independent businesses do not help to alleviate poverty on a macro (national) scale.  Small- and medium-sized enterprises (SMEs), according to Surowiecki, are the engines of development.  Here he discusses what considers to be the problem of the cult of microfinance:

Both socially and economically, microloans do a lot of good, working what Boudreaux and Cowen call “Micromagic.” But the overselling of their promise has made us neglect the enterprises that could be real engines of macromagic. The cult of the entrepreneur that the microfinance boom has helped foster is understandably appealing. But thinking that everyone is, and should be, an entrepreneur leads us to underrate the virtues of larger businesses and of the income that a steady job can provide. To be sure, for some people the best route out of poverty will be a bank loan. But for most it’s going to be something much simpler: a regular paycheck.

The benefits of increasing support for SMEs in a country are real and quantifiable.  Consolidation into the formal sector provides more people with steady jobs and offers workers better health and wage benefits, disability, pensions, etc.  These businesses help to reduce the size of black markets and generate taxable income.  What’s more, a majority of microentrepreneurs would prefer a steady paycheck with job security to their current situation.  I don’t disagree with the idea that vehicles of mass production – a factory, or a plant, or a farm – create strong upward momentum for poorer people without employment.  But every country has a different profile, and the success of the development approach depends on the different strategies of development.

Continue reading →