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Monday, August 18, 2008

Microcredit: Kiva's view from Cambodia


To add to to my previous post on microcredit, there's this e-mail I received from Kiva.org today.

Dear Kiva Lender,

Thank you for supporting an entrepreneur in Cambodia through Kiva!

I'm excited to be writing you as the Kiva Fellow placed at MAXIMA over the past three months. In that time I have visited many Kiva entrepreneurs, checking in on the progress of their Kiva loan and providing updates for Kiva lenders on the impact their loans have had on the lives of rural Cambodians.

As you may know, all entrepreneur profiles on Kiva's website are posted by local Field Partners (microfinance institutions) like MAXIMA, which are organizations that lend to the poor for poverty alleviation. Over the last three months, I have had the opportunity to get to know MAXIMA, its staff, and its clients. MAXIMA's mission is to improve rural household economies for Cambodian entrepreneurs and their families living in the surrounding district of the country's capital Phnom Penh.

One of the MAXIMA clients I met was Pov Sao, a warm and amiable mother of mother of two who represents the model microfinance entrepreneur, a clever flower-selling-turned-motorbike-cleaning entrepreneur. Pov and her husband live along a highway, what they realized was a strategic location for setting up a motorbike cleaning businesses for the hundreds of Cambodians who pass by their house every day on Cambodia's primary form of transportation. With her Kiva loan, Pov was able to move from selling flowers to cleaning motorbikes, an opportunity which has changed the lives of her family in unbelievable ways. Pov's story is one of many which has taught me some of the promising and hopeful lessons of microfinance that I would like to pass along to you:

1. Microcredit can actually reach people who otherwise would have no other access to credit. Pov, like many of the individuals I have interviewed, said that because she lacked the capital to start her business without her loan she would not have been able to capitalize on the opportunity to start a moto cleaning shop. Borrowing from many banks is not an option for people as poor as Pov.. For those that would lend to her, she lacks the transportation means to drive thirty kilometers to an office in Phnom Penh each month, nor can she afford the opportunity costs of taking at least one day off of work to apply for financial services in that office. Microcredit- individual attention and services aimed to meet Pov where she is- was her only option.

2. Repeated lending to the same entrepreneur is not necessarily "dependency." One of the criticisms of microfinance I have heard is that individuals who take out repeated microloans have entered into a cycle of dependency from which they cannot escape. I struggle to believe this. Many entrepreneurs borrow to expand a business which needs to grow based on demand or market opportunities. To withhold a microloan out of fear of "dependency" does not allow the business to scale to its potential. Pov explained to me that she plans to someday expand her motorbike cleaning business and will most likely take out a loan to do so. Is this dependency or strategically accessing financial services to best benefit herbusiness? Isn't this the same process all corporations undergo? Formal, incorporated companies in both the west and the developing world participate in a process repeated lending- this process is crucial for the growth of any viable business. Why should Pov's accessing successive loans to better her business seem any different?

3. Loans can have a tangible impact on the standard of living of an individual. I cannot count the number of times clients have told me that their income is significantly larger now than before they received their loan. An increase of $1 or $2 USD a day can often mean the difference between children attending school and children having to drop out and help their mother weave or assist their father in growing vegetables. It can mean the difference between a family sleeping every night in the rain and having a strong, durable roof over their heads, or a toilet instead of having to walk into the woods and dig a hole in the ground multiple times a day. For Pov, her previous business of selling flowers brought in only 20,000 Riel ($5 USD) a day, an income which she has now doubled to $10 a day with her loan. Facing rising food and fuel prices, growing children, unexpected emergencies, and increasing school costs, the increased income helps Pov take care of her family and ease the financial and emotional shocks poverty can so often cause.

4. Entrepreneurs in rural, developing economies are usually incredibly hard working. I say "usually" because just like everywhere else in the world people are unique- some industrious, creative, and dedicated, others lazy and indolent. That said, I have yet to meet a client who is unlike Pov- whose livelihood, and whose children's survival and future prospects, did not hinge on the number of hours she worked, the number of bananas she harvested, or the number of motorbikes she cleaned that week. Certainly people throughout the world work incredibly hard to better the lives of themselves and their families, but the correlation between hard work and standard of living in the rural, informal economy is extremely direct. Pov has no government safety nets, no worker's compensation, no paid sick days, no minimum wage, no food stamps, no overtime hours. Taking a day off for rest, finishing work early for a day is an option but for someone like Pov with no savings and no recourse for financial emergencies, it seriously impacts the amount of disposable income the family depends on for crucial expenses.

5. Microfinance services are opportunities to better the lives of individuals with the utmost dignity. I believed this long before I stepped foot into "the field" but I firmly subscribe to this opinion now. Pov's loan has allowed her to provide a service to others, to move into a new, more profitable business, act upon her entrepreneurial instincts, become engaged in the dignified world of financial services, and help her family better their financial situation. She recognizes this and handles her loan with the utmost professionalism, preparing her documents and repayments days in advance of her monthly visit with a loan officer. Personal convictions such as these are inherent in all people, regardless of cultural or economic backgrounds, and microfinance provides services that align with and honor these values.

Pov is one of many clients in whom I see microfinance contributing positively and tangibly to bettering the lives of poor Cambodians Seeing her business, and those of numerous others, in action I can't help but be excited to come to work every day for the opportunity to meet more clients like her and to share their stories with lenders like you who have dramatically changed the lives of people like Pov.

As I and other MAXIMA staff check in with entrepreneurs, many of you will receive an update on an entrepreneur who received a loan contribution from you. Unfortunately, due to logistical and administrative constraints, reaching every entrepreneur for an update is not possible, even with MAXIMA's dedicated team. Whether or not we provide an update on an entrepreneur to whom you loaned, I hope that you enjoyed this update on the impact that you have made on MAXIMA and its clients such as Pov.

From Kiva, MAXIMA and its family of borrowers, we thank you for your continued support of our work. To see all currently fundraising loans from MAXIMA on Kiva.org, please click here.

Sincerely,

Amy Killian, Kiva Fellow at MAXIMA