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ETHIOPIA: A little money gets big results
Birkay Gadenah is not any bank's idea of a good credit risk. The 36-year-old mother of five lives in the tin-roof shantytown of Burayu, 12km west of the Ethiopian capital, Addis Ababa. But eight months ago, she and nine other women from the neighbourhood funeral society, or "edir", formed a community savings and loan group. "It has changed my life," she said.
In the previous year she was earning 90 Ethiopian Birr (US$9.38) a month, doing laundry for three neighbouring families. "It was very tiring work," she told IRIN/PlusNews.
With a 300 Birr (US$30) loan from the group, she started a business making beaded necklaces to sell in Addis's central market. Today she has quadrupled her income and though she is still a long way from a middle-class life, she says she'll be able to pay her loan back with interest when it falls due in three months. "I can sit at home with my children and get a rest," she said.
Gadenah has an added incentive to repay her loan. If she defaults, she will be kicked out of the edir. Funeral societies are a pillar of Ethiopian life, even among the poorest of the poor. If a family member dies, members of the edir help pay for the burial and come to comfort survivors during the three-day mourning period.
"You're discriminated against if you're not a member of the edir," said Almaz Kebede, who also belongs to Gadenah's group. "No one will help you if your house burns; no one will bury you if you die."
Microfinance projects have taken off in developing countries in the past decade, a trend highlighted when businessman Muhammad Yunus won the Nobel Peace prize in 2006 for creating the microfinance Grameen Bank in his native Bangladesh.
Small financial cooperatives have been touted as a way to help poor communities like Burayu, which have been hard-hit by the HIV/AIDS epidemic. But they are no panacea.
One recent World Bank study in a district in Kenya found that more than 30 percent of recipients defaulted on their loans. In Burayu, however, the international aid group, CARE, hit on the tactic of linking savings and loan schemes to funeral societies, thus increasing social pressure on loan recipients to keep up their repayments.
The scheme itself is simple. Gadenah and nine of her friends in the Burayu neighbourhood – all members of the same funeral society – received training in how to set up a simple savings and loan programme as part of a project funded by CARE and the United States Agency for International Development (USAID).
For the past eight months, the women have met on Friday afternoons and each has put three Birr ($0.29) into a steel lockbox. Saving even that small amount of money hasn't been easy.
"We believed it was very difficult to save," said Kebede, whose husband died of an unknown illness more than a decade ago. "We are very poor, how can we save?"
The women in the group decided to cut back on one of the small luxuries in their lives: coffee. Ethiopia is widely thought to be the birthplace of coffee, and even in a poor neighbourhood like Burayu, women roast coffee beans three times a day as part of a coffee ceremony. By cutting back on coffee once a day, each was able to save enough for her weekly contribution.
Within months the group had enough to offer Gadenah a loan for her bead business and extend credit to Kebede to start a business baking "injera", a traditional Ethiopian sponge-bread made from "teff", a local grain.
If a recipient doesn't repay her loan plus three percent interest, the other members can report her to the head of their funeral society, who can expel her from the group. She will then face the social ostracism that comes from not belonging to an edir.
"It's like when a country doesn't abide by the rules of the United Nations, there is an embargo," explained Biniyam Habtewold, a programme manager for the Tesfa Social Development Association, an alliance of funeral societies.*continues* Birkay Gadenah is not any bank's idea of a good credit risk. The 36-year-old mother of five lives in the tin-roof shantytown of B... more -
Microloans Pay Off for Planet, Investors
The number of "microborrowers" worldwide—people participating in the rapidly growing field of microfinance—increased by 17 percent in 2006, benefiting both communities and the environment, according to the latest Vital Signs Update released by the Worldwatch Institute.
"By helping individuals and villages replace firewood, oil, and kerosene with solar, wind, hydro, and biofuels, microfinance institutions help to improve the local environment while expanding access to electricity, boiled water, and refrigeration, dramatically improving the quality of life of the poor," said Worldwatch Senior Researcher and Update author Gary Gardner.
Microfinance refers to financial services, including loans, savings accounts, and insurance products, that are designed to serve people with very low incomes. The 17 percent increase seen in 2006, the latest year for which data are available, continued a trend of double-digit growth that averaged some 29 percent annually between 2001 and 2006.
The global loan portfolio of the 340 microfinance institutions tracked by the Microfinance Information Exchange (MIX) also grew rapidly in 2006, increasing by 34 percent to $13.5 billion dollars. The average microloan size worldwide is now $1,026 and the average savings account balance is $1,126. Globally, the loan write-off ratio was 3.1 percent in 2006, lower than that of many commercial banks.
The sudden and significant success of microfinance is increasing pressure on many microfinance institutions to become more commercially oriented in their operations. Some analysts fear that this shift may cause microfinance institutions to raise interest rates or distribute profits to shareholders rather than reinvesting them in microfinance activities, hindering their original mission of poverty reduction. Proponents of private investment counter that commercializing microfinance is needed to attract the large sums of capital that will allow the practice to spread rapidly.
Regardless, the potential for expansion of microfinance remains significant. Today's 133 million microborrowers represent only 5 percent of the people who lived on $2 or less per day in 2001. The Microcredit Summit Campaign, which helped spur the surge in microfinance with its goal of recruiting 100 million borrowers between 1997 and 2005, is now working to expand the number of microcredit recipients to 175 million by 2015.
Women are the most common benefactors of microfinance programs, accounting for 98 percent of borrowers in Asia and some two thirds of clients in Africa, Latin America, and the Middle East. As the birthplace of microfinance, Asia leads the world with 113 million borrowers, or roughly 85 percent of the global total. Latin America reported the fastest growth in borrowers in 2006, at 53 percent.
"Long ignored by mainstream financial institutions, microfinance is now a hot investment opportunity," notes Gardner. "The poor have proven themselves to be a good investment bet. The challenge now lies in spreading and deepening that investment to bring widespread opportunity and prosperity to the world's poor. " The number of "microborrowers" worldwide—people participating in the rapidly growing field of microfinance—increased by 17 p... more -
Shopping site whose proceeds help female struggling artists
www.buildanest.com This company buys goods (jewelry, clothing, home accessories) from female artists at wholesale and uses the profits to grant loans to female artists in developing nations. www.buildanest.com This company buys goods (jewelry, clothing, home accessories) from female artists at wholesale and uses the profits... more
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What microloans miss
There’s no doubt that microfinance does a tremendous amount of good, yet there are also real limits to what it can accomplish. Microloans make poor borrowers better off. But, on their own, they often don’t do much to make poor countries richer. There’s no doubt that microfinance does a tremendous amount of good, yet there are also real limits to what it can accomplish. Microlo... more
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NYC: Kiva.org Event @Felissimo Townhouse 3/4
Mixer sponsored by microlending Web site Kiva.org and the folks at Good magazine.
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The Ugly Side Of Microlending
Taking advantage of the poor in this manner who only wish to have a chance to live as others do while maintaining dignity is the lowest form of human behavior. Giving them the small loans they need and then charging them 120% interest thus making it impossible for them to actually get ahead simply keeps them down while making these banks richer. And if you read further enough in this article, Walmart is now involved in this as they have expanded into microlending in Mexico and in other places around the world. How insidious. I wish CURRENT could do an expose' on this exploitation of the poor because you will never see this exposed on the mainstream media in this country where Walmart is considered "charitable." //////Excerpt:///Wal-Mart Stores (WMT), which obtained a Mexican banking license a year ago, began offering loans for purchases at 16 of its 997 Mexican outlets in November. In the U.S., the retailer markets itself as a friend to the budget-conscious. In Mexico, it charges interest rates that might set off popular and political revolts back home, although Wal-Mart describes its terms as appropriate to the Mexican market. At one store west of Mexico City, a 32-inch LG plasma TV with a price tag of $957 can ultimately cost as much as $1,474, thanks to a 52-week payment plan that carries an annual percentage rate (APR) of 86%./////end of excerpt. Taking advantage of the poor in this manner who only wish to have a chance to live as others do while maintaining dignity is the lowes... more
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Unitus to be featured in microfinance pod
I'm producing a pod on microfinance and technology. The initial focus of the piece centered around the work of Tapan Parikh and his CAM project
http://www.technologyreview.com/tr35/Profile.aspx?TRID=...
However I came across this video from Unitus, a Redmond based NGO working in microfinance in India. http://www.youtube.com/watch?v=JoEzDOguCAc
I'll be interviewing Unitus CEO & President Geoff Davis tomorrow morning, and his story will be told along with Tapan's....I'm deep into editing now, and should have my post production complete within a few days.
This has been a very interesting pod to produce, and I can't wait to share it with the Current audience. I'm producing a pod on microfinance and technology. The initial focus of the piece centered around the work of Tapan Parikh and h... more -
Ebay for Do-Gooders
Leveraging the Internet and a worldwide network of microfinance institutions (MFIs), Kiva lets individuals lend as little as $25 to help fund small businesses run by low-income entrepreneurs around the world. Leveraging the Internet and a worldwide network of microfinance institutions (MFIs), Kiva lets individuals lend as little as $25 to he... more
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