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It’s a terrible picture, but through the wooden window you an see the t-shelter inside which has the sound system and VIP area

Because three bars within a block radius were not enough options for us, Christa recommended we check out a small little bar she had walked by before and was curious to check out. Getting to the Bamboo Bar was much more of an investment than the local bars by the AHV base. This struck me as unfortunate for this particular bar owner, since we all know: location, location, location.

Christa, Abby, Kisa and I headed out anyway. We walked passed Joe’s, Jackson’s, and Meritas’. We passed Christa’s popcorn lady. Turned the corner and passed the church were I saw more funerals take place in two weeks than some people might see in a year. Turned another corner and passed the Mayor’s office that is still in shambles, and the huge water “bladder” that services the local IDP residents. Walked straight past the pale green model home that doesn’t look like any house in Haiti. Passed street vendors and avoided countless mishaps with tap-taps and moto-taxis.

The Bamboo Bar is owned by a woman named Nadia. She gave us the warmest and most sincere welcome I’ve ever received from a complete stranger. She rushed to set up a table for us in the “VIP” area, which was in the t-shelter section of the bar. Nadia had put her temporary shelter to use by converting it into a bar, and enclosed the area surrounding the shelter, probably doubling the size of her bar.

We enjoyed a few moments of normal conversation before the typical level of music in Haiti started: beyond loud. Oh well…screaming is a good way to exercise your vocal chords anyway. Christa mentions some of this in her blog.

It took me a while to place what I saw reflected in this woman’s face. She was so HAPPY. She was happy to have patrons. But I think it went beyond that, she was happy to just be doing what she was doing: running her own business. It’s something most of us in the developed world take for granted: the ability to finance and start your own business. I complain that I don’t have the means or ability to start my own firm, but the reality is that I’m just scared shitless of doing it. If I wanted to make it happen, I could. Sure, my credit might be crap, but that’s my own fault, and I’m sure I could still figure something out to get a small business loan. But for the rest of the world, that hasn’t always been an option.

I want to stop here before going forward and give a disclaimer: I have no idea how Nadia financed her business or how she got started. But the Bamboo Bar got my mind thinking about microfinance (“MF”) again, and I wondered if I had just witnessed micro-lending in action.

So what is microfinancing? In the words of the Consultative Group to Assist the Poor (“CGAP”): “[m]icrofinance offers poor people access to basic financial services such as loan, savings, money transfer services and microinsurance.”

How is this different than your bank or my bank? Your bank or my bank most likely wouldn’t lend money to the poorest people in the world. They tend to have no credit history, no collateral, and most likely no steady source of income. This makes it difficult for them to get started with a business, since they don’t have the capital to invest in starting a business, and they usually can’t obtain a loan to get that capital. MF gives small loans to people so they can overcome these obstacles, and get their business off the ground. These loans can be as little as $20 or $100, but in developing countries, this might be all that people need to buy into their initial investment.

The idea of MF was popularized by Dr. Mohammed Yunus, the founder of Grameen Bank (“GB”), one of the first MF lending institutions (if not the first). GB has some pretty impressive statistics:

  • GB’s equity is owned by 95% of the borrowers and the remainder by the Bangladeshi government
  • It has more than 8.36 million borrowers (97% of which are women)
  • Since it’s inception, it has lent $10.38 billion, of which $9.2 billion has been repaid
  • It doesn’t take donations: it functions solely off of loans made and paid (which is pretty impressive given the demographic of who they’re lending to, IMHO).

Malhotra, Heide B. “Microfinance at a Crossroads.” The Epoch Times [Southern California] 21-27 April, 2011, Issue 201100016: A1, A6.

Jacqueline Novogratz wrote extensively about micofinancing in her book, The Blue Sweater . She wrote about the difficulties in starting a MF institution: how do you hold borrowers accountable? How can you ensure that they pay back? It’s certainly no easy feat.

Like all things, there are pro’s and con’s. It seems that MF was mostly a positive solution to the poverty trap dilemma until it started expanding beyond its grassroots beginnings. It started as a movement to help the poorest of the poor, but as the years have passed and momentum has grown, so have the populations it benefits. The problem with expansion? People always get greedy when they start seeing a profit in something.

The 2011 Banana Skins Report states the risks facing MF as the following: “growing commercialism, as evidenced by an increasing focus on size and profitability, a decline in standards, particularly in the area of lending, and a sense that the industry may be drifting away from its original ‘double bottom line‘ purpose,” page 5.

One criticism I’ve read about is the high interest rate some MFI’s (microfinancing institutions) charge. According to Kiva, a nonprofit that works in MF, these high interest rates are attributed to the following: MFI’s have to cover three kinds of costs. 1 & 2: “cost of money that it lends and the cost of loan defaults,” and 3) the transaction cost. CGAP also provides a more in depth explanation for higher interest rates (parts of it are actually identical to each other, not sure which one came first). Basically transactions costs are higher for these smaller institutions, and the cost of loan defaults is most likely higher than your typical loan.

Other criticisms refer to the lack of regulations in the MF world: no one regulates, so institutions can take advantage of people who need these institutions to survive. The obvious solution would be to create a regulatory body, or have government regulation of the institutions. A blog I came across had an interesting point about this: people who benefit from these loans are predominantly in countries where the government isn’t the most trusted, efficient, or transparent regulatory body. So who do you turn to?

A BBC article published just last December (2010) reported that “[m]ore than 80 people [had] taken their lives in the last few months after defaulting on micro-loans.”. Why? “Multiple lending, over-indebtedness, coercive recovery practices and unseemly enrichment by promoters and senior executives.” I think this is bound to happen when you start getting larger institutions involved that want to make sure they get a return on their investment, like Citigroup who is apparently now in the MF industry as well (by “this” I mean “coercive recovery practices,” etc., not suicides–I wonder if that’s cultural or just human desperation?).

For all the criticisms, and I’m sure improvements can always be made, I don’t think it takes away from the fact that MF has actually helped hundreds of thousands of individuals get on their feet and make a living. Organizations like Fonkoze seem to be doing the right thing, and their achievements should not be overshadowed by the shortcomings of other organizations that have profit in mind over the well being of those they are meant to serve.

MF alone won’t eradicate world poverty, but if implemented widely, correctly, and efficiently, it’s a step in the right direction. Like all other problems though, we just have to figure out how to do that…will it be through government, international or self regulation? Or something completely different?

One thing I do know: Nadia was happy.