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WWU / Fairhaven College of Interdiscipinary Studies

Image of Anna Van der Grift at school in Peru

THE CONNECTION | WINTER 2010

Settling the (Micro) Credit Score

 

On the tarmac in Peru, Anna Van der Grift (2012) frantically runs to catch a plane as the woman in front of her loses her shoe and spins around; her luggage whirls behind. As Anna stops to offers assistance, the breathless woman responds with a quick thank you and asks if Anna is on her way to the microfinance conference as well. She hands Anna her business card: ‘Lynne Patterson, Co-Founder and Director, Pro Mujer.’

 

Wait, Anna thinks. Is this…? THE Lynne Patterson?

 

As an international women’s development and microfinance organization based in Bolivia, Pro Mujer has a reputation for integrity in their services. Anna has researched microfinance extensively, and during her studies she’s learned about their goal to fight poverty through, what Anna refers to as, “an integrated package of social services” for women to build and sustain their own businesses.

 

When their plane touches down in Columbia, Anna seizes the opportunity to ask Lynne questions about her career, her perspective, and her life in microfinance. Questions like, “Do you believe there are a lot of NGOs out there profiteering off of the poor through microfinance?”

 

The answer, unfortunately, was a firm “yes.”

 

With an interdisciplinary concentration in Political Economy, Microfinance, and Latin America, Anna Van der Grift was awarded Fairhaven College’s Adventure Learning Grant for 2008-09 for her proposal to discover the world of microfinance - it’s effectiveness at alleviating poverty, empowering women, and serving poor communities in Peru, Bolivia and Ecuador. In her grant proposal titled Microfinancing in Latin America: Ethics, practices and perspectives, Anna said “I feel that it is essential to learn communities’ perspectives on MFIs [Microfinance Institutions] without being directly associated with an MFI myself…In my experience, casual interaction can yield forthright opinions.”

 

Image of a church and a community mural in Peru
A Peruvian church and mural by the first
community where Anna lived.

She set out to live with Central American families in rural communities with active microfinance institutions (MFIs). All the while she would teach art to children, volunteer with local non-governmental organizations (NGOs), and interview banks, policy-makers, and community organizers to find out how MFIs operating on the ground adhere (or don’t) to the original philosophy set forth by Dr. Muhammad Yunus, Nobel Peace Prize winner and founder of Grameen Bank in India.

 

Yunus built the concept of microfinance, or providing small loans to the poor, upon the idea that poverty can be solved only by individuals helping themselves, not by the top-down approaches of international lending institutions. He and Grameen Bank were jointly awarded the Nobel Peace Prize in 2006 “for their efforts to create economic and social development from below.”

 

The ensuing surge in the popularity of microfinance created massive growth in micro-lending institutions. According to the article Microlending in India continues sharp growth in The Wall Street Journal Asia, from March 2008 to March 2009, microlenders in India recorded a 60% increase in clients while total bank funding for microlenders nearly doubled. But as the number of MFIs has increased, many of them have deviated from their original purpose, instead becoming a way to exploit the poor and make a profit—especially in Latin America.

 

In their research paper, “Great Expectations: Microfinance and Poverty Reduction in Asia and Latin America,” authors Montgomery and Weiss of the Asian Development Bank Institute summarize their findings on the characteristics of microfinance in Latin America: “In general, for Latin America the available studies suggest that MFIs, whilst they may be flourishing in commercial terms, and providing a valuable service to microenterprises often run by poor entrepreneurs, have relatively weak impact on those at the very bottom of the income distribution.”

 

As microfinance becomes a more mainstream practice with commercial banks, how does that affect lending to the poor? With few resources, inconsistent income, and many who do not meet traditional—even microfinancing—lending application standards, the poor are a perfect target for MFIs seeking a profit. Their desperation can lead to a willingness to pay exorbitant interest rates, for example.

 

In Fortune at the Bottom of the Pyramid, author CK Prahalad notes, “Poor people are turning into one of the world’s least likely sources of untapped profit, primarily because they will pay interest rates most Americans would consider outrageous.” In fact, Prahalad cites that 5% of MFIs in Latin America charge interest rates above 70%, with the median interest rate of sustainable MFIs at 28% per year.

 

Criticism of MFIs in Latin America has mounted in recent years, especially in response to the arrests of six debtors in 2008 by a large microfinance corporation in Nicaragua. The No Pago movement, a group of rural poor estimated at 10,000 members, has organized mass protests, hunger strikes, and street barricades as well as lobbying for debt relief through fixed interest rates and grace periods.

 

“Many of these banks lending to the poor don’t provide the support for people to learn how to manage, invest, and save money,” Anna said. “So there are all these poor families out there taking on huge amounts of debt with ability to pay it back.” She decided to interview banks and bank workers, many of whom she said seemed to have no interest in the long-term well-being of their borrowers.

 

Additionally, small NGOs run by families struggling to make ends meet had similar problems. Anna found an NGO in the brickmaking community of Huancayo - a highly indigenous, impoverished area of Peru’s Central Highlands - which needed volunteers for their day care. While there, she taught art to the children, at one time painting a mural to teach them about story-telling and imagery. Anna paid $400 per month for room and board - money she was told went to the community.

 

Image of woman at Peruvian market
Senaida, a local woman and friend at the market Anna
frequented.

As her relationships grew with the community, she learned more about the local economy. Her Peruvian friends, including Senaida, a local woman who ran her own juice stand at the market, told Anna the average family in their community earns $100-200 per month working full time. This raised an important question: Where was her $400 going? It was unclear to Anna how $400 per volunteer could possibly be supporting only a small daycare with minimal resources. She soon found out the family running the NGO was profiteering from unassuming volunteers, while barely giving to the community.

 

Although disappointed, Anna would have never noticed this disparity had she not formed a close bond with the community. Through developing relationships over time with Peruvians, making friends, interacting with her students, fellow teachers and the orphanages, Anna was able to get real, on the ground, honest information.

 

Anna found that many of the women she met while on her Adventure Learning Grant, including Senaida, shaped much of her experience. One such experience began with meeting, Angelica Betalilluz Chirinos while in Huancalevica, Peru. When Angelica founded her own NGO, ATIYPAQ (Quechua language for “Para Poder”), she stressed the responsibility of microfinciers to teach clients about how to manage money so they don’t fall into debt. ATIYPAQ lends primarily to single mothers - secondarily to men and women interested in agriculture and dairy production and sales - and only in small sums no larger than 100 soles (about 30 dollars). With good repayment behavior, clients can take on subsequent loans. ATIYPAQ has grown and remained sustainable since 2000. Angelica said that as a native of Huancalevica, she knew her clients challenges intimately and also felt that her being part of the community helped her clients trust she was invested in them.

 

If microfinancing is based on cooperative economics as in the case of Anglica’s ATIYPAQ, Anna believes microfinancing can have a place in the financial sector. At the 2-day long conference in Cali, Colombia, learning from people like Lynne Patterson of Pro Mujer, Anna discovered more about the importance of the “package of services” that comes along with the microfinancing philosophy.

 

Pro Mujer, for example, offers an integrated services approach where they reinvest profits from the financial services to expand coverage and partially subsidize social development services such as healthcare, business training, and empowerment programs. Their clients are required to save 20% of their loans for emergencies, write a business plan, and they receive training on issues of domestic violence, communication skills, women’s rights, and leadership.

 

Education on women’s empowerment issues struck home with Anna when she found an orphanage in the central highlands of Peru, where she taught art to 26 girls of all different ages. Many of the girls leave the orphanage at 18 years old with no family unit, hardly any job skills, and few resources for their future and consequently, many of them end up in prostitution. Anna found she formed close relationships that were “not forced or touristy” as she painted a 30ft mural with these women. “It felt natural,” Anna said.

 

A mural painted by girls at a Peruvian orphanage
Mural painting with the girls at the last
orphanage where Anna worked as an
art teacher in Peru.

Throughout her time painting with the girls, she noticed a strong need for a psychologist at the orphange – some funding for a permanent staff member or some empowerment training could greatly increase their chances for survival out in the world, and possibly support these young women in seeking out careers and supporting their communities.

Although Anna wanted to stay longer, August came quickly, and an impending academic year required her to leave. As she hugged the girls, she felt their intense grip, possibly hoping if they just held her tight enough, then maybe she would stay. It was then, Anna said, that she had a strong feeling that she needed to go back. “What if there was a halfway house of some sort for these girls to go to, just for a while to transition between the orphanage and the working world?” She could start an NGO for the girls, build a safe house where they could live together, and include a staff psychologist.

 

“Investing in women has been shown to produce some really positive affects,” Anna said, echoing The Grameen foundation’s assertion on their website that women use their business profits to send their children to school, improve their families’ living conditions and nutrition, helping entire communities.

 

“It’s amazing,” she said, “that I had the opportunity to travel with the Adventure Learning Grant. Every day I’m thankful. I had the liberty to question ideas and the world around me, and how often do people really get a chance to do that?”

 

“I found out I didn’t actually like the world of finance. I loved teaching art to children, forming relationships, and getting involved in communities.” Anna admitted.

 

So how is she going to proceed? Will she focus more on non-profit management, or art education, or microfinancing?

 

“I think I might have to change my concentration.”