Tag Archives: Microfinance

The "Entrepreneur Myth" Myth

Muhammad Yunus, the godfather of microfinance, contends that everyone is an entrepreneur.  And microfinance is about individual economic empowerment, built on the premise that credit is both a human right and a path to economic freedom.  This reading has been distorted by those who talk about the “entrepreneur myth,” which says that microfinance romanticizes the poor by pushing a false by-your-bootstraps narrative.  This narrative, in turn, undermines development by giving the poor something they don’t want – credit for a business – instead of something they need, which is steady employment.  This argument isn’t necessarily untrue, but it is irresponsibly oversimplified and demonstrates a lack of grounding in reality.   I want to discuss two articles that address this issue and use them to explain why this reading of microfinance is not only flawed, but is counterproductive in serving the poor.

Rational actors in the U.S.

The first one, titled “Romanticizing the Poor” from the Stanford Social Innovation Review, is a bit more difficult to refute, in part because I agree with the premise but not the logic, and also because I am intimidated by the fact that the author, Aneel Karnani, is an economics professor of South Asian descent and, I would have to assume, intellectually superior to me.  But I’ll try.  The article is less a refutation of microfinance as a poverty alleviation strategy as it is a caution against the merits of market-based solutions in general.  According to Mr. Karnani, the poor are not rational actors when it comes to economic decision-making.  Therefore, the argument goes, it is misguided and potentially harmful to try to apply free-market strategies – like microfinance – when the spending behavior of the poor is irrational.  He highlights the fact that the poor spend a disproportionate amount of money on booze and cigarettes at the expense of healthcare and education (Nicholas Kristof’s most recent article discusses the same issue).  The poor are more prone to impulse buying, so introducing more money and more material product choices will just drive them deeper into debt:

Many advocates of market-based solutions to poverty view poor people as rational consumers who, if given more options, would make better choices—that is, choices that would increase their economic welfare. They see no problem with encouraging the poor to spend their already meager incomes on low-priority products and services. They further argue that the poor have the right to determine how to spend their limited income and are in fact the best judges of what is in their best interests.

I don’t dispute the truth of these statements, mostly because I haven’t read the research.  I would say it’s not unreasonable to say that adults should be treated like adults when it comes to making decisions about how they spend their money.  Either way, they are irrelevant to an argument against microfinance.  Continue reading

China and Poverty Alleviation: The Case for a Strongman

On Monday, the Philippines will hold a national election.  It is the first time the country will be using an automatic voting system, and nobody knows what is going to happen.  It seems appropriate to include this post before the election is over.  For more on the candidates, check out this BBC News primer.

Over the last four decades, the economic landscape in Southeast and East Asia has shifted.  After World War II, the Philippines had the second largest economy in Asia (behind Japan).  Years of mismanagement, corruption, and poor government policies dragged the economy down during the 70’s and 80’s.  The policies of Ferdinand Marcos, a strongman who imposed martial law on the country until 1981, depressed economic growth during his years in power.  Isolated incidents, including a severe recession in 1984 and the Asian financial crisis in 1997, put further downward pressure on the economy, hampering progress after reforms in the 1990’s.  Even now, the period of optimistic economic growth which President Gloria Arroyo has attributed to herself is, in reality, a result of remittances from abroad, which account for 11% of GDP.  All of this has led to a national poverty incidence of 40%.

Compare this with China.  In the 1981 the poverty incidence in East Asia was 85%.  Over the last 30 years, China has enacted economic reforms designed to drive the poverty level of the country down.  As of 2005, the poverty incidence in East Asia had fallen to 16%.  This decline of 600 million people is attributable almost exclusively to China.   The chart to the right shows something amazing: when you remove China from the picture, the percentage of people living on $1 and $2 per day has remained essentially flat over the last 20 years.  Since 1990, China has accounted for almost all of all of the poverty alleviation in the world.  Why has China done such a good job of pulling its people out of poverty, while the number of poor seems to stay relatively consistent in the Philippines?  The system of governance espoused by the two countries over the last 30 years is at least part of the answer. Continue reading

Solar Energy in the Developing World

This is a journal about the practice and theory of microfinance, and, more broadly, international economic development and poverty alleviation globally.  If you’d like to get new posts sent to your inbox, please sign up, or subscribe to to my RSS feed.  Thanks.


In an earlier post, I talked about green products and the concept of the triple bottom line.  Environmental cookstoves save money, save lives, and produce less carbon emissions.  Believe it or not, black carbon, or soot from cookstoves in developing countries, is the number-two contributor to global warming.  These more efficient stoves pay dividends.  But this is not the only green product serving the developing world.  Solar products – lanterns, cell-phone charging stations, DVD players, and even micro-utilities – offer a cheap, alternative means of energy delivery in the third world.

Much of the Philippines - the areas in red - is less than 75% electrified.

Continue reading

Talisay to Bago: A Day’s Work

On Wednesday morning, I woke up at 7:00 to get ready for call I had with some head honchos at Kiva about how we can put solar energy loans up on the Kiva website.  After that, I had to talk to the Kiva microfinance partnerships manager for Asian MFIs about an Excel model he built that automatically generates profiles to be uploaded onto the Kiva website.  I am modifying it to fit the specific needs of NWTF, but the process of following his logic is complicated and tedious.  I needed to go straight to the source.  By 9:30, I was ready to officially start the day.

Awaiting the drill.

The military dentists helped with the mission.

Last Saturday, a group of 26 Canadians came to Bacolod as part of a dental mission organized by the Rotary Club of Vancouver.  There are five dentists, a handful of hygienists, and others that are distributing eyeglasses or acting as gophers.  The mission is being held in a gymnasium in the city of Talisay, about 20 minutes north of Bacolod.  The group sees between 200 and 300 clients per day, performing mostly extractions with some fillings.  Clients hail from mostly the surrounding branches, which also happen to be first branches to post Kiva clients.  I had heard that the clients from Hinigaran branch would be at the mission on Wednesday.  I’d been meaning to get down to Hinigaran for a round of client interviews, but hadn’t had the chance.  Also, collecting information for Kiva journals usually means a loan officer or branch manager has to take you around to each client – a nuisance, to be sure.  So, armed with a list of Kiva clients in Hinigaran, I caught a ride in one of the vans heading that way. Continue reading

The Problem of Rural Education in the Philippines

In this journal, I have discussed the relationship between education, poverty alleviation, and economic development. The link is critical and the three are self-reinforcing.  Education creates greater opportunities for the youth, who go on to work decent jobs in cities like Bacolod, Manila, and Cebu.  The children remit money back to the parents, who spend on home improvements and the tuition fees for the younger siblings.  College-educated individuals are much less likely to end up impoverished (about 1 in 44).  Trade schools also create opportunities, with only one in 10 people with post-secondary degrees living below the poverty line.  Unfortunately, the ratios drop precipitously after that.  One in three high school graduates and half of elementary school grads are impoverished.  Here are the sobering education statistics: Continue reading

Another Trip

Capping off a marathon month of travel, I am spending the weekend in Cebu.  NWTF is rolling out Kiva in several of the Cebu branches and I am coming along to give a short presentation to the loan officers and branch manager on the history of Kiva, the mission, and how it works.  There will be five of us, including myself.  The Kiva coordinator, Presy, will discuss the process for getting the information for the borrower profile.  The MIS manager, Jubert, will talk about using the technology (FTP, or file transfer protocol) to send the data to headquarters.  Raymond, the assistant manager of the research department, will explain why NWTF chose to partner with Kiva – what value the Kiva brings and how NWTF benefits.  Lastly, Massah, a freelance consultant and graduate of UCLA film school, will give the loan officers a training on how to take photos and video.  It should be an interesting experience.

She Drives a Dodge Stratus: The Role of the Husband

A husband and wife team working a store in Nepal

One of microfinance’s major achievements has been to empower women in societies that relegate women to a second-class status.  At Negros Women for Tomorrow, 98% of clients are women.  The rationale behind lending to women is that they are more reliable, family-oriented, and stationary.  Women are more likely to spend the money on things like education and health care.  One of the major themes of this blog is to highlight the interconnectedness of the impacts of microfinance.  Giving women a livelihood pays dividends.

Empowering women to start a business not only gives them the respect that comes with being the breadwinner, but also makes them more influential in decisions made in the home and reduces their dependence on a partner.  A widow that has relied on her husband will be reduced to poverty without grown children to support her.  If having a large family was once a retirement plan, giving women a source of income could have positive ramifications for family planning.  These are only a few of the examples of the benefits of empowering women.  The effectiveness of microfinance at achieving this end is often disputed.  In my experience, it is something very real and apparent.  The degree to which microfinance has contributed is certainly open to debate.  However, this post is not about women’s empowerment.  It is about the role of the husband in making microfinance effective. Continue reading

The Journalist

This week Negros Women for Tomorrow published it’s first newsletter in several years.  I know the girl putting it together, so she gave me 250 words (shortened first to 150, then 100).  Here it is:

Over the past year, Kiva has partnered with MFIs like NWTF across the Philippines to bring microfinance to the masses and offer people before the chance to participate. NWTF and Kiva joined forces six short months ago, funding a total of $150,000 in Project Dungganon loans to date.  In the next few months, we hope to be lending that amount each and every month.  Let me tell you how it works.

Kiva’s mission is to connect people through lending for the sake of alleviating poverty.  Stated another way, we harness the outreach capabilities of the Internet to tap into people’s desire to help.  You post profiles of entrepreneurs to the Kiva site, and our lenders invest $25 or more until the loan is filled.  On average it takes just three days to fund an NWTF loan.  Since we started in 2005, we have over 600,000 lenders that have made nearly $120 million in loans to 300,000 entrepreneurs.

As of today, Kiva lenders have financed 350 loans for Project Dungganon members.  Together, we have been able to share the experiences of your clients with lenders all over the world.  We at Kiva are excited about the partnership and looking forward to watching it develop in the coming years.

Short and sweet.  I think I have the blood of a journalist flowing through my veins.

Working Toward a Common Goal

A microfinance institution is a business.  Like any business, MFIs are competitive with one another.  While MFIs currently serve only a portion of the poverty pie, they compete for existing clients.  It is important to create a product that appeals to the client and offer high levels of service in order to keep your clients.  This is particularly true in the Philippines, where things are relationship-driven and the people are emotional.  For example, NWTF has an issue with client attrition because it sometimes has difficulty distributing new loans immediately after the old one has termed out.  The women feel hurt and slighted when this happens, and drop out of the program as a result.  In turn, they will join another MFI.  That was a tangential anecdote to emphasize the competitive nature of this business.  Yet this past week I attended a conference in Manila on “Operationalizing Social Performance Monitoring,” which highlighted the cooperative nature of microfinance institutions.  It was hosted by the Microfinance Council of the Philippines and attended by MFIs from all across the country. Continue reading

SMEs in the Philippines

This is the second post in a three-part series on SMEs.

In an earlier post, I discussed another area of development – SMEs – that is both important for creating sustained growth, and has recently attracted interest from investors.  The Philippines is also placing a lot of emphasis on this area of development.

The Philippines is actually in good shape regarding SMEs, as it has an abundant labor pool.  The country has 800,000 registered businesses, of which ~7% are classified as either small (10-99 employees, $60K to $300K in assets) or medium (100-199 employees, $300K to $2M in assets).  Only 0.4% of the business earn above the $2M mark.  The remaining 92% are microenterprises, which have between 1 and 9 employees and earn less than $60K in assets.  These MSMEs (including microenterprises) account for 70% of the labor force and 30% of the output of the country.

Continue reading