Is it incompetence? Or pure dishonesty? Sadly, probably the latter. There have been stories in the press recently (see links below) reporting suspected fraud at credit unions in Uganda. These Savings and Credit Cooperatives are set up as societies where members can deposit funds and take out loans, in essence much like any microfinance institution, but due to the law limiting its remit, the Bank of Uganda has no jurisdiction to oversee these institutions. And the body that does oversee these credit unions is reportedly understaffed and lacks expertise. Many clients are reporting that the institutions are making it difficult for them to withdraw their savings. Recent pronouncements by the Bank of Uganda indicate that some of the poor clients may well lose their savings entirely.
It behoves those in positions of authority not to lose sight of what must be one of their primary objectives, supervision. The lack thereof doesn't only exist in Uganda and sadly closer to (my current) home, there are anecdotal stories of heads of microfinance institutions (MFIs) using their loan portfolios to curry favour with friends and influential people. Sad but true. Fraud can occur even in an arena which supposedly attracts those who want to help others. No harm in helping yourself at the same time, I guess the argument runs.
There are three responsible parties when it comes to supervision. The first line of defense is the board of directors. Some may treat being invited onto a board as another line to be added to their curriculum vitae with a couple of meetings to be attended per year as the price to pay. However being on the board carries responsibility and the senior management of the institution must be held to account. Regulators have their obvious role to play and as in the Ugandan case, microfinance institutions (MFIs) of whatever kind must not be excluded from the remit of the banking regulator. These are financial institutions just like those which cater to better-heeled clients. There may be a cost burden to the MFIs of providing information and of course the resultant bureaucracy should be kept to a minimum but this is a necessary precaution. Lastly the rating agencies have an important role to play. There are a handful of agencies which specialise in providing ratings for microfinance institutions, entirely on a voluntary basis for the MFIs. It is an important function of these agencies that they adopt a hard-headed mindset and ask the difficult questions. One would hope that the development world would be immune to such human weakness as defrauding the poor, but knowing that it isn't, all necessary steps should be taken to prevent it.
Microcapital article on Ugandan credit unions
New Vision first report of problems
Monday 10 December 2007
Tuesday 27 November 2007
Recent Peruvian History: An Update
Hot off the press this morning, the Minister of the Interior in Fujimori's cabinet at the time of the dissolution of Congress and the Judiciary in April 1992 has been sentenced to ten years in prison for having participated in and backed what is referred to in Peru as the "autogolpe" (self-coup). Nine other members of the cabinet from that time have been given four year suspended sentences for having been secondary accomplices.
Fujimori himself cannot be tried for this crime as the terms of his extradition from Chile only allow him to be charged for specific offenses, two related to alleged human rights violations and five related to alleged corruption. Fujimori's trial on these charges is to start on 10th December.
Fujimori himself cannot be tried for this crime as the terms of his extradition from Chile only allow him to be charged for specific offenses, two related to alleged human rights violations and five related to alleged corruption. Fujimori's trial on these charges is to start on 10th December.
Friday 23 November 2007
Lima Reconnaissance Trip in May
In May 2007 I hitched a ride with Tom Sanderson, Director of Five Talents UK (FT UK), Craig Cole, Executive Director of Five Talents International (FTI), Helga Buck and Kelli Ross of FTI and David Fletcher, board member of FT UK, to Lima. For them it was an opportunity to visit the project they are funding in one of the southern poor districts of Lima called San Juan de Miraflores. For me it was an opportunity to meet the people I was, at that stage potentially, to work with come July. During the trip David filmed our encounters with clients as well as an interview with the Executive Director of ECLOF Peru, Carlos Venturo, one of the most upstanding citizens of the world you are liable to meet. This is the fruit of those labours.
Thursday 22 November 2007
A Primer on Recent Peruvian History
In amongst the microfinance discussion, it would be remiss of me not to mention the political dimension here in Peru. As Jeffrey Sachs repeatedly says in his rather good book The End of Poverty, you cannot think about altering the economic situation of a country without giving ample thought to all the factors which affect it: political, geographical, historical, infrastructural, personal.
The president of Peru is currently Alan Garcia and this is his second go at running the country. He was previously in charge between 1985 and 1990 and left office with hyperinflation causing economic havoc and Sendero Luminoso (Shining Path) and the MRTA (Tupac Amaru Revolutionary Movement) causing havoc of a different kind. Strong evidence for not electing a 36 year old to head the government it might be suggested. With the country needing some strong direction Alberto Fujimori, a half Peruvian half Japanese politician whose birthplace is disputed (he claims Lima, others claim Japan and it's of importance because only people born in Peru are allowed to run for president) beat writer Mario Vargas Llosa in an unexpected victory in 1990. Interestingly five years later Fujimori beat Javier Perez de Cuellar, former United Nations Secretary General in the 1995 elections.
Fujimori turned out to be quite the authoritarian during his two terms. He succeeded in bringing the economy under control and eventually in crushing Sendero Luminoso and the MRTA. On the other hand, because Vargas Llosa's party retained control of Congress after the 1990 election and since Fujimori was finding it hard to get anything done during his first term, he simply dismissed the entire Congress and judiciary in 1992. ("If only...", Bill Clinton must have been saying a few years later when he faced the same problem.) At the end of his second term, Fujimori tried to circumvent the 1993 constitutional two-term limit which he himself had introduced and ran in and won the 2000 election against Alejandro Toledo. The ruse only lasted until evidence of political bribery eventually forced Fujimori to resign the presidency from the safety of Tokyo.
Worse than the political machinations however were the extra-judicial torture and murders. In 1993 Fujimori became close to an army Captain by the name of Vladimiro Montesinos who alerted Fujimori that certain elements of the army were planning a coup. Montesinos later became the head of Fujimori's security apparatus and was responsible for fighting the terrorists as well as for the political espionage and bribery. The findings of the CVR (Truth and Reconciliation Committee) after the downfall of the Communist terrorist groups found that up to 70,000 people were killed during the fighting. Most of these were innocents in the battles between government forces and the terrorists and their blood was not only on the hands of the terrorists. The tactics used in bringing the terrorists to their knees as well as the bribery landed Montesinos with a lengthy prison sentence with Fujimori similarly awaiting trial on human rights abuses. He was extradited from Chile in September 2007 and the trial is scheduled to start in December.
This is likely to be an unwelcome distraction for the Garcia administration as Fujimori still commands considerable public support. I was recently in the centre of Lima and saw a huge banner hanging from a hotel exclaiming "Fujimori Libertad". This time around Garcia is attempting to cast himself as the economically responsible type and is attracting foreign investment to the country as well as looking to get a Free Trade Agreement signed with the U.S. which is likely to be passed by the U.S. Senate in December, having already passed the House of Representatives. It is likely to sail through the upper house of the U.S. Congress as it did the lower house because from the U.S. point of view Peru is an important ally against the "red tide" of Chavez (Venezuela), Ortega (Nicaragua), Correa (Ecuador) and Morales (Bolivia).
For the good of the country, Alan Garcia needs to be careful to attract investment to all areas of the country and not just around the big cities and the mineral and gas deposits. A little bit of money can achieve big results in a country like Peru and a little bit of patronage can go a long way. When I was visiting Puno last month, on the shores of Lake Titicaca, I met with the head of one of the floating islands of Los Uros who told me at least three times that the solar panels they had attached to their houses providing them with electricity were provided by Fujimori. "And what has Garcia done for you?", I asked. "Nothing."
The danger is that Garcia's political base is along the coast north of Lima and in the centre of the country. Outside of those areas but particularly in the south Ollanta Humala, a man the U.S. would lump in with Chavez and the rest, is the popular politician. In the first round of the most recent presidential election in 2006, Humala came top with 33%. Given that an outright majority is required to win the presidency, a second round was held in which Humala lost to Garcia who had lapped up the votes of the third placed finisher from the first round.
Peru has fantastic advantages relative to some other developing nations. Natural wealth (copper, other metals, natural gas), agriculture (top exporter of asparagus in the world, potatoes, maize, fish), access to the sea, an entrepreneurial workforce and significant tourism. Inflation has been below 4% since 1999 and GDP growth averaged 5.7% between 2002 and 2006. What Peru requires for development, to the advantage both of the poor and the country, is leadership which will, in addition to keeping the economy ticking over, ensure that the benefits of increasing wealth are distributed widely. That's not to say the leaders should tax the rich and kill the entrepreneurial spirit. More that the right combination of fiscal, monetary, trade, diplomatic and social conditions are needed to increase the general wealth of the country, which are best managed by a centrist party with an active and targeted social agenda rather than a more extreme party of one wing or the other with misplaced ideas of how to run an economy and a country.
The president of Peru is currently Alan Garcia and this is his second go at running the country. He was previously in charge between 1985 and 1990 and left office with hyperinflation causing economic havoc and Sendero Luminoso (Shining Path) and the MRTA (Tupac Amaru Revolutionary Movement) causing havoc of a different kind. Strong evidence for not electing a 36 year old to head the government it might be suggested. With the country needing some strong direction Alberto Fujimori, a half Peruvian half Japanese politician whose birthplace is disputed (he claims Lima, others claim Japan and it's of importance because only people born in Peru are allowed to run for president) beat writer Mario Vargas Llosa in an unexpected victory in 1990. Interestingly five years later Fujimori beat Javier Perez de Cuellar, former United Nations Secretary General in the 1995 elections.
Fujimori turned out to be quite the authoritarian during his two terms. He succeeded in bringing the economy under control and eventually in crushing Sendero Luminoso and the MRTA. On the other hand, because Vargas Llosa's party retained control of Congress after the 1990 election and since Fujimori was finding it hard to get anything done during his first term, he simply dismissed the entire Congress and judiciary in 1992. ("If only...", Bill Clinton must have been saying a few years later when he faced the same problem.) At the end of his second term, Fujimori tried to circumvent the 1993 constitutional two-term limit which he himself had introduced and ran in and won the 2000 election against Alejandro Toledo. The ruse only lasted until evidence of political bribery eventually forced Fujimori to resign the presidency from the safety of Tokyo.
Worse than the political machinations however were the extra-judicial torture and murders. In 1993 Fujimori became close to an army Captain by the name of Vladimiro Montesinos who alerted Fujimori that certain elements of the army were planning a coup. Montesinos later became the head of Fujimori's security apparatus and was responsible for fighting the terrorists as well as for the political espionage and bribery. The findings of the CVR (Truth and Reconciliation Committee) after the downfall of the Communist terrorist groups found that up to 70,000 people were killed during the fighting. Most of these were innocents in the battles between government forces and the terrorists and their blood was not only on the hands of the terrorists. The tactics used in bringing the terrorists to their knees as well as the bribery landed Montesinos with a lengthy prison sentence with Fujimori similarly awaiting trial on human rights abuses. He was extradited from Chile in September 2007 and the trial is scheduled to start in December.
This is likely to be an unwelcome distraction for the Garcia administration as Fujimori still commands considerable public support. I was recently in the centre of Lima and saw a huge banner hanging from a hotel exclaiming "Fujimori Libertad". This time around Garcia is attempting to cast himself as the economically responsible type and is attracting foreign investment to the country as well as looking to get a Free Trade Agreement signed with the U.S. which is likely to be passed by the U.S. Senate in December, having already passed the House of Representatives. It is likely to sail through the upper house of the U.S. Congress as it did the lower house because from the U.S. point of view Peru is an important ally against the "red tide" of Chavez (Venezuela), Ortega (Nicaragua), Correa (Ecuador) and Morales (Bolivia).
For the good of the country, Alan Garcia needs to be careful to attract investment to all areas of the country and not just around the big cities and the mineral and gas deposits. A little bit of money can achieve big results in a country like Peru and a little bit of patronage can go a long way. When I was visiting Puno last month, on the shores of Lake Titicaca, I met with the head of one of the floating islands of Los Uros who told me at least three times that the solar panels they had attached to their houses providing them with electricity were provided by Fujimori. "And what has Garcia done for you?", I asked. "Nothing."
The danger is that Garcia's political base is along the coast north of Lima and in the centre of the country. Outside of those areas but particularly in the south Ollanta Humala, a man the U.S. would lump in with Chavez and the rest, is the popular politician. In the first round of the most recent presidential election in 2006, Humala came top with 33%. Given that an outright majority is required to win the presidency, a second round was held in which Humala lost to Garcia who had lapped up the votes of the third placed finisher from the first round.
Peru has fantastic advantages relative to some other developing nations. Natural wealth (copper, other metals, natural gas), agriculture (top exporter of asparagus in the world, potatoes, maize, fish), access to the sea, an entrepreneurial workforce and significant tourism. Inflation has been below 4% since 1999 and GDP growth averaged 5.7% between 2002 and 2006. What Peru requires for development, to the advantage both of the poor and the country, is leadership which will, in addition to keeping the economy ticking over, ensure that the benefits of increasing wealth are distributed widely. That's not to say the leaders should tax the rich and kill the entrepreneurial spirit. More that the right combination of fiscal, monetary, trade, diplomatic and social conditions are needed to increase the general wealth of the country, which are best managed by a centrist party with an active and targeted social agenda rather than a more extreme party of one wing or the other with misplaced ideas of how to run an economy and a country.
Monday 12 November 2007
The Word of the Day: Opportunity
It's impressive how much introspection, if not outright criticism, is going on in microfinance. Not long before I left London, and well after I'd submitted my resignation to Goldman Sachs, I went along to a meeting of the Microfinance Club UK held at the Barclays building in Canary Wharf. The talk was entitled "What's Wrong With Microfinance?" If I was in need of a reality check for my off-to-save-the-world ambitions, here it was in flashing neon lights.
Two gentlemen, who had coincidentally just published a book with the same title, stood forth and pontificated on their views that microfinance is really microcredit, with loans being dispensed but with few other financial services being offered. It promotes debt and often excludes the poorest whom microfinance nominally seeks to help the most. Microfinance isn't the basis for a sound economy. Women (to whom the majority of microloans go) don't create businesses, they work for themselves. [This one drew bemused laughter from the assembled.] Self-employment is just a euphemism for survival. There's too much cash pouring into the arena chasing too few real opportunities for investment. A large section of the population being unbanked doesn't mean there's unmet demand. And so it went. A GS colleague who had similarly just left our esteemed employer to join Five Talents, she on a full time basis, was sitting next to me at the meeting. Was it too late to change our minds, we joked?
So is there any foundation to the accusations? Well three months of exposure to a small corner of microfinance in just one country does not an expert make. However having spoken to quite a few of ECLOF's clients and having perused much of the learned writing of microfinance insiders, both pro and anti, the answer, as ever, lies somewhere in the middle.
Richard Posner exclaims (on the excellent Becker-Posner Blog) that "the idea of borrowing one's way out of poverty is passing strange". Furthermore, he states, "I am unaware of any historical examples of nations that climbed out of poverty on the backs of small entrepreneurs financed by credit". He has a point, but it's unfortunate that he chose to express it so starkly without considering the whole picture. Microfinance is, and should be, the provision of financial services to the poor. That is to say that as well as loans, savings and insurance products should be offered. Many institutions in the field focus on the debt and this is what is drawing much of the criticism. And it is valid. Consumer debt cannot solve the problem on its own.
The crucial goal is to provide opportunities. The poor are not just poor of cash, but generally poor of opportunity, mainly because of the view that providing opportunities to the poor is a money-losing (or at best profit-neutral) proposition. Which for some players it is bound to be mainly because they're not set up for this kind of high-cost, low-margin customer interaction (e.g. my former employer). However this is a profitable (but please, not too profitable) business if done right. Though the providers need to be constantly mindful that the goal is not simply to load up the poor with debt. Microfinance needs to be a means of assisting the poor with all of their financial needs. At times and for certain people the need will be to give them a place to keep their money other than under their mattresses. At different times and for other people the need will be for leverage to enable them to exploit a niche they see in the market. And for all of them the need should be to hold inexpensive insurance such that they aren't starting from scratch if an earthquake fells their home.
Two gentlemen, who had coincidentally just published a book with the same title, stood forth and pontificated on their views that microfinance is really microcredit, with loans being dispensed but with few other financial services being offered. It promotes debt and often excludes the poorest whom microfinance nominally seeks to help the most. Microfinance isn't the basis for a sound economy. Women (to whom the majority of microloans go) don't create businesses, they work for themselves. [This one drew bemused laughter from the assembled.] Self-employment is just a euphemism for survival. There's too much cash pouring into the arena chasing too few real opportunities for investment. A large section of the population being unbanked doesn't mean there's unmet demand. And so it went. A GS colleague who had similarly just left our esteemed employer to join Five Talents, she on a full time basis, was sitting next to me at the meeting. Was it too late to change our minds, we joked?
So is there any foundation to the accusations? Well three months of exposure to a small corner of microfinance in just one country does not an expert make. However having spoken to quite a few of ECLOF's clients and having perused much of the learned writing of microfinance insiders, both pro and anti, the answer, as ever, lies somewhere in the middle.
Richard Posner exclaims (on the excellent Becker-Posner Blog) that "the idea of borrowing one's way out of poverty is passing strange". Furthermore, he states, "I am unaware of any historical examples of nations that climbed out of poverty on the backs of small entrepreneurs financed by credit". He has a point, but it's unfortunate that he chose to express it so starkly without considering the whole picture. Microfinance is, and should be, the provision of financial services to the poor. That is to say that as well as loans, savings and insurance products should be offered. Many institutions in the field focus on the debt and this is what is drawing much of the criticism. And it is valid. Consumer debt cannot solve the problem on its own.
The crucial goal is to provide opportunities. The poor are not just poor of cash, but generally poor of opportunity, mainly because of the view that providing opportunities to the poor is a money-losing (or at best profit-neutral) proposition. Which for some players it is bound to be mainly because they're not set up for this kind of high-cost, low-margin customer interaction (e.g. my former employer). However this is a profitable (but please, not too profitable) business if done right. Though the providers need to be constantly mindful that the goal is not simply to load up the poor with debt. Microfinance needs to be a means of assisting the poor with all of their financial needs. At times and for certain people the need will be to give them a place to keep their money other than under their mattresses. At different times and for other people the need will be for leverage to enable them to exploit a niche they see in the market. And for all of them the need should be to hold inexpensive insurance such that they aren't starting from scratch if an earthquake fells their home.
Tuesday 30 October 2007
To profit or not to profit (part II)
Imagine if you will, Mother Teresa finding out that Donald Trump was going to take over her hospice and, although promising to continue catering to the dying, things were going to be run a little differently from now on. This gives you some idea of the shockwave that spread through the microfinance world in April of this year when Banco Compartamos of Mexico, a microfinance lender of 17 years' standing, completed its IPO (initial public offering). The IPO was 13 times oversubscribed and reportedly made US dollar millionaires of some board members and senior officers. Accusations of making money off the backs of hard-working poor people flew.
In the entry from 2nd October I gave a short explanation of the non-profit model of microfinance. The for-profit version involves the same mechanics. Short-term, small-sized loans aimed at poor businesspeople with (comparatively high) interest rates applied. Both the for-profit and non-profit models cover administrative and capital costs (staff salaries, cost of funds, infrastructure) out of interest charged so we'll leave that out of the picture. However there are some very fundamental differences. At first glance, running a microfinance institution (MFI in development parlance) as a for-profit means simply that some of the cash generated from interest on loans is taken out of the cycle as profit, instead of being plowed back into further loans, as all of it is in the non-profit version. Is this making money off the backs of poor people?
Consider two MFIs charging the same level of interest to clients, say the roughly 35% per annum that my firm ECLOF Peru charges. The first, the non-profit uses 30% to cover costs and the remaining 5% goes into enlarging the loan pool. The second, the for-profit uses 30% to cover costs and the remaining 5% goes to infrastructure improvements, staff bonuses and shareholder dividends. From the point of view of an individual borrower there's nothing to separate the two institutions. Whichever she pitches up at, they're charging 35% interest.
One might then argue that the earned interest that doesn't go into increasing liquidity at the for-profit has an opportunity cost which is the reduction in possibilities for an incremental few borrowers to finance their businesses. This is true, but then not providing an opportunity to borrow doesn't count as profiteering from the poor. So in principle a for-profit structure in this field may not necessarily be morally wrong. For-profits bring many advantages which non-profits lack, not least of which is much easier access to funds. Even social investors are more likely to place their available dollars where a financial, as well as social, return of some kind is likely. However, there are also some serious disadvantages to the for-profit model. Not least of which is the profit motive itself.
The returns available in the informal economy are considerable. Which is why MFI loan clients are able to pay such hefty levels of interest. Large institutions are prevented from piling in with large sums of money to take advantage of these returns because the barriers to entry are high and scaling up would be logistically problematic to say the least. In addition to which the margins may be significant relative to the investment (i.e. in percentage terms) but in absolute terms we're still talking about small dollar amounts. An interesting example of this is demonstrated by our recycling clients. There's big demand from large manufacturers for scrap metal, which is abundant in the poor areas around Lima. The same goes for used plastic, cardboard, cans and so on. However there's no systematised collection mechanism. The manufacturers will pay a decent rate for this material, enough to incentivise locals to start businesses and make good money by paying local residents for their scrap and selling it back to the manufacturers. However those manufacturers could never do this for themselves. Having to take on employees, pay benefits, taxes, etc. would likely make them run this part of their business at a loss.
The heads of for-profit MFIs are well aware of this return potential. If the loan clients can therefore absorb higher interest rates, why not charge them? There's clearly a tension between social and commercial objectives here. And even the best-intentioned for-profit MFI head might be at pains to argue the case in the face of agitating shareholders. The current housing situation in several developed countries demonstrates the point. The difference is that intense competition in that arena means that interest rates are set by the market so it's the size of the loans which are being jacked up, with evident consequences. In the microfinance space there's only so much the size of the loans can increase (for now), so the interest rate is the flexible variable.
Banco Compartamos has been skewered on this point from various quarters. Their website is not exactly forthcoming but a report by the Consultative Group to Assist the Poor (CGAP), a kind of industry think-tank, estimates that Compartamos has been charging its clients 100% interest, a quarter of which being profit. Rates are generally higher in the Mexican market for various reasons, however on Compartamos' 2006 reported gross loan portfolio of $271 million, the estimated profit would be around $64 million. Is this profiteering from the poor? Is this the way to fix global poverty?
Further reading / Sources:
CGAP Report on the Compartamos IPO (PDF format)
Commentary on the Compartamos IPO by Jonathan Lewis, CEO Microcredit Enterprises (PDF format)
General discussion on the Compartamos IPO
PBS mini documentary on Compartamos (20 mins)
Banco Compartamos
In the entry from 2nd October I gave a short explanation of the non-profit model of microfinance. The for-profit version involves the same mechanics. Short-term, small-sized loans aimed at poor businesspeople with (comparatively high) interest rates applied. Both the for-profit and non-profit models cover administrative and capital costs (staff salaries, cost of funds, infrastructure) out of interest charged so we'll leave that out of the picture. However there are some very fundamental differences. At first glance, running a microfinance institution (MFI in development parlance) as a for-profit means simply that some of the cash generated from interest on loans is taken out of the cycle as profit, instead of being plowed back into further loans, as all of it is in the non-profit version. Is this making money off the backs of poor people?
Consider two MFIs charging the same level of interest to clients, say the roughly 35% per annum that my firm ECLOF Peru charges. The first, the non-profit uses 30% to cover costs and the remaining 5% goes into enlarging the loan pool. The second, the for-profit uses 30% to cover costs and the remaining 5% goes to infrastructure improvements, staff bonuses and shareholder dividends. From the point of view of an individual borrower there's nothing to separate the two institutions. Whichever she pitches up at, they're charging 35% interest.
One might then argue that the earned interest that doesn't go into increasing liquidity at the for-profit has an opportunity cost which is the reduction in possibilities for an incremental few borrowers to finance their businesses. This is true, but then not providing an opportunity to borrow doesn't count as profiteering from the poor. So in principle a for-profit structure in this field may not necessarily be morally wrong. For-profits bring many advantages which non-profits lack, not least of which is much easier access to funds. Even social investors are more likely to place their available dollars where a financial, as well as social, return of some kind is likely. However, there are also some serious disadvantages to the for-profit model. Not least of which is the profit motive itself.
The returns available in the informal economy are considerable. Which is why MFI loan clients are able to pay such hefty levels of interest. Large institutions are prevented from piling in with large sums of money to take advantage of these returns because the barriers to entry are high and scaling up would be logistically problematic to say the least. In addition to which the margins may be significant relative to the investment (i.e. in percentage terms) but in absolute terms we're still talking about small dollar amounts. An interesting example of this is demonstrated by our recycling clients. There's big demand from large manufacturers for scrap metal, which is abundant in the poor areas around Lima. The same goes for used plastic, cardboard, cans and so on. However there's no systematised collection mechanism. The manufacturers will pay a decent rate for this material, enough to incentivise locals to start businesses and make good money by paying local residents for their scrap and selling it back to the manufacturers. However those manufacturers could never do this for themselves. Having to take on employees, pay benefits, taxes, etc. would likely make them run this part of their business at a loss.
The heads of for-profit MFIs are well aware of this return potential. If the loan clients can therefore absorb higher interest rates, why not charge them? There's clearly a tension between social and commercial objectives here. And even the best-intentioned for-profit MFI head might be at pains to argue the case in the face of agitating shareholders. The current housing situation in several developed countries demonstrates the point. The difference is that intense competition in that arena means that interest rates are set by the market so it's the size of the loans which are being jacked up, with evident consequences. In the microfinance space there's only so much the size of the loans can increase (for now), so the interest rate is the flexible variable.
Banco Compartamos has been skewered on this point from various quarters. Their website is not exactly forthcoming but a report by the Consultative Group to Assist the Poor (CGAP), a kind of industry think-tank, estimates that Compartamos has been charging its clients 100% interest, a quarter of which being profit. Rates are generally higher in the Mexican market for various reasons, however on Compartamos' 2006 reported gross loan portfolio of $271 million, the estimated profit would be around $64 million. Is this profiteering from the poor? Is this the way to fix global poverty?
Further reading / Sources:
CGAP Report on the Compartamos IPO (PDF format)
Commentary on the Compartamos IPO by Jonathan Lewis, CEO Microcredit Enterprises (PDF format)
General discussion on the Compartamos IPO
PBS mini documentary on Compartamos (20 mins)
Banco Compartamos
Wednesday 24 October 2007
Change the flower pot
I am linking to the next two videos in the same series on Grameen and Yunus. Both of these are well worth the three or four minutes they last, but my favourite is this one on creating a poverty-free world. "No matter how rich you get under the present [financial] system, you'll have poor people", states Mr Yunus. So let's change the system.
The other video focuses on social business entrepreneurs. A subject close to my heart. There exists a growing population of young people who don't see a contradiction between making money and helping the disenfranchised, but where are the educational and financial structures to accommodate them?
(Our Man in Lima has been Our Man Around Peru and Bolivia these last few weeks, so please excuse my absence!)
The other video focuses on social business entrepreneurs. A subject close to my heart. There exists a growing population of young people who don't see a contradiction between making money and helping the disenfranchised, but where are the educational and financial structures to accommodate them?
(Our Man in Lima has been Our Man Around Peru and Bolivia these last few weeks, so please excuse my absence!)
Wednesday 3 October 2007
Banker to the Poor
Meet Muhammad Yunus. Rock star of the microfinance world. Nobel Peace Prize winner 2006 (shared with the institution he founded). This man started making loans, out of his own pocket, in the mid 70s. He first lent about $27 to a bunch of ladies in a village in Bangladesh, from whence he hails. As of his most recent update Grameen Bank had dished out a cumulative $6.44 billion (that's United States greenbacks) in loans. Rather embarrassingly I would suggest, the Banker to the Poor is starting up an office in Queens, New York City to provide microfinance services there and more widely in the United States. Not sure how it is that the richest country in the world with the most sophisticated financial markets needs to rely on a Bangladeshi to come solve a domestic poverty issue, but there you have it. A shining example of globalisation you might argue.
This is the first of three videos in a series made on Yunus and Grameen Bank. It's an appropriate juncture in my 'basics of microfinance' to include this because Yunus was the original structurer of a microfinance institution as a non-profit venture. These days Grameen Bank is majority owned by its (poor) borrowers. There's a wealth of information out there on Yunus and Grameen. A good place to start, as ever, is with the respective Wikipedia entries (Yunus, Grameen). For information from Yunus himself, see here.
This is the first of three videos in a series made on Yunus and Grameen Bank. It's an appropriate juncture in my 'basics of microfinance' to include this because Yunus was the original structurer of a microfinance institution as a non-profit venture. These days Grameen Bank is majority owned by its (poor) borrowers. There's a wealth of information out there on Yunus and Grameen. A good place to start, as ever, is with the respective Wikipedia entries (Yunus, Grameen). For information from Yunus himself, see here.
Tuesday 2 October 2007
To profit or not to profit (part I)
After two months here, it's about time I got around to explaining what this microfinance stuff is all about. This is going to require several entries, so bear with me. There are a plethora of models around in the microfinance world so in the interests of ease, here's a stab at classifying them. Perhaps the most contentious division and that which splits the microfinance world in two (not in terms of 50% of assets fall into each camp, more in terms of two very different points of view), is the for-profit vs non-profit model. Each model has its proponents with varying justifications as to why their world view is better. Each model also has a range of incarnations with varying service levels and product offerings. But let's make one aspect clear at the outset: they all charge interest, and they all expect the loan capital to be paid back. Helping the poor microfinance may be, but charity it ain't.
Let's start with the non-profit version. ECLOF Peru, whose offices I work in, are of the non-profit mould. Thus interest is charged on loans, but there is no profit taking out of this interest. All proceeds are used to pay operating costs and whatever is left over is capitalised and used to make further loans. ECLOF International in Geneva is the head office of the ECLOF empire. It is an organisation that was set up after the Second World War to help in the reconstruction of churches bombed by various parties. In 1971, after its primary mission had been completed, it transformed itself into a development organisation. In part due to ECLOF's roots in the Christian faith its view of how to implement microfinance in practice is grounded in values of support, justice and humanity. This means that whilst charging what almost anyone in the developed world would consider at first glance a seriously steep interest rate, when viewed in context the reality is that ECLOF Peru's clients are actually getting a decent bang for their buck.
When people from the impoverished parts of Peru with few assets and no home ownership walk into a Peruvian retail bank (Interbank, Scotiabank, Banco Continental, Banco de Credito) and ask for a loan, they'll politely be told that their financial situation disqualifies them. End of conversation. So the next place to turn to might be a loan shark in the street, happy to lend money to all and sundry at his attractive interest rate of 100% p.a. or higher. Step in the microfinance institutions (MFIs). Even the for-profit types charge far better rates than this. These might range up to 60%. Still high, but more manageable. ECLOF Peru's policy is to charge 2.5% per month. Annual equivalent rate 34.49%.
The story does not end there however. Even in the non-profit space, the range of services provided by the MFIs varies from the warm and cuddly to the cold and distant. A characteristic of the microfinance client base which I had failed to appreciate prior to arriving here is a lack of what in the developed world we take for granted: an understanding of the most basic financial instruments. Many of the people who want to borrow money have never encountered the fine print of a loan agreement. Overdrafts and credit cards, means by which most of us become acquainted with the pleasant minutiae of compound interest are non existent in this segment of Peruvian society, where even holding a bank account is a rare thing indeed.
Thus ECLOF Peru provides financial and business training to all of its loan clients. This takes the form of workshops run by ECLOF Peru's analysts attended by anywhere from five to twenty new clients. This service is free, or the price is included in the interest rate charged on the loan, however you want to view it. On top of this there's a significant amount of hand-holding, particularly with clients taking out their first loan. Reminders are hand delivered a week in advance of a repayment date and analysts are available on the end of a phone or in the office to resolve any problems. No six option automated phone lines here. On the other hand, some of the non-profits simply hand over the cash and say "let's have that back in six months please with 40% annualised interest" and on to the next client. The ECLOF Peru approach of hands-on service yields one very positive financial benefit: default rates across the portfolio of less than 2%. By contrast the biggest microfinance player in Peru (one of the two beasts of the market with a loan pool of $345 million at the end of 2006 versus ECLOF Peru's $2.2 million), Banco del Trabajo, has a write off ratio above 10%.
The effect a default has on a client's borrowing potential at this end of the income spectrum can be devastating. Even an organisation like ECLOF Peru which seeks to help the least enfranchised at the "base of the pyramid" (on oft-used phrase in development circles) has to keep its financial risk wits about it. Lending to individuals with no assets to use as collateral, nor much in the way of income, with a previous black mark, or several, against their name is not going to prove a solid foundation to building a sustainable lending business.
Let's start with the non-profit version. ECLOF Peru, whose offices I work in, are of the non-profit mould. Thus interest is charged on loans, but there is no profit taking out of this interest. All proceeds are used to pay operating costs and whatever is left over is capitalised and used to make further loans. ECLOF International in Geneva is the head office of the ECLOF empire. It is an organisation that was set up after the Second World War to help in the reconstruction of churches bombed by various parties. In 1971, after its primary mission had been completed, it transformed itself into a development organisation. In part due to ECLOF's roots in the Christian faith its view of how to implement microfinance in practice is grounded in values of support, justice and humanity. This means that whilst charging what almost anyone in the developed world would consider at first glance a seriously steep interest rate, when viewed in context the reality is that ECLOF Peru's clients are actually getting a decent bang for their buck.
When people from the impoverished parts of Peru with few assets and no home ownership walk into a Peruvian retail bank (Interbank, Scotiabank, Banco Continental, Banco de Credito) and ask for a loan, they'll politely be told that their financial situation disqualifies them. End of conversation. So the next place to turn to might be a loan shark in the street, happy to lend money to all and sundry at his attractive interest rate of 100% p.a. or higher. Step in the microfinance institutions (MFIs). Even the for-profit types charge far better rates than this. These might range up to 60%. Still high, but more manageable. ECLOF Peru's policy is to charge 2.5% per month. Annual equivalent rate 34.49%.
The story does not end there however. Even in the non-profit space, the range of services provided by the MFIs varies from the warm and cuddly to the cold and distant. A characteristic of the microfinance client base which I had failed to appreciate prior to arriving here is a lack of what in the developed world we take for granted: an understanding of the most basic financial instruments. Many of the people who want to borrow money have never encountered the fine print of a loan agreement. Overdrafts and credit cards, means by which most of us become acquainted with the pleasant minutiae of compound interest are non existent in this segment of Peruvian society, where even holding a bank account is a rare thing indeed.
Thus ECLOF Peru provides financial and business training to all of its loan clients. This takes the form of workshops run by ECLOF Peru's analysts attended by anywhere from five to twenty new clients. This service is free, or the price is included in the interest rate charged on the loan, however you want to view it. On top of this there's a significant amount of hand-holding, particularly with clients taking out their first loan. Reminders are hand delivered a week in advance of a repayment date and analysts are available on the end of a phone or in the office to resolve any problems. No six option automated phone lines here. On the other hand, some of the non-profits simply hand over the cash and say "let's have that back in six months please with 40% annualised interest" and on to the next client. The ECLOF Peru approach of hands-on service yields one very positive financial benefit: default rates across the portfolio of less than 2%. By contrast the biggest microfinance player in Peru (one of the two beasts of the market with a loan pool of $345 million at the end of 2006 versus ECLOF Peru's $2.2 million), Banco del Trabajo, has a write off ratio above 10%.
The effect a default has on a client's borrowing potential at this end of the income spectrum can be devastating. Even an organisation like ECLOF Peru which seeks to help the least enfranchised at the "base of the pyramid" (on oft-used phrase in development circles) has to keep its financial risk wits about it. Lending to individuals with no assets to use as collateral, nor much in the way of income, with a previous black mark, or several, against their name is not going to prove a solid foundation to building a sustainable lending business.
Wednesday 19 September 2007
Return to Chincha
Judging by the aching in my every muscle and the sheer exhaustion that turned me into a zombie at the office on Monday, my body has atrophied after six years of sitting in front of a computer for ten hours a day. I was back in Chincha on Saturday and Sunday to assist the good citizens of that destroyed town. The trip was organised by the same lot with whom I went three weeks ago. On the one month anniversary of the earthquake there were far fewer volunteers heading south from Lima; 70 vs 650. A good deal was achieved nonetheless. Saturday was a similar exercise to the last trip, conducting a census. We, my two female charges and I, were entrusted with a map covering a square mile or so which marked the locations of the known communal kitchens in the area. Communal kitchens are being set up either by NGOs or by groups of locals. Anywhere between 5 and 40 families might congregate around one of these kitchens to get their food. It's vitally important for the local authorities to know where these kitchens are located so that when food aid does arrive, they aren't wandering around aimlessly trying to find them, or worse, overlooking the kitchens because they don't know they even exist.
This is where we came in. Armed with the map we went in search of all the kitchens already marked on the map, to ensure they were where the map indicated (which in three out of four cases they weren't so good thing we checked), and to find any new ones which had sprung up in the week or two since the last party conducted this exercise. We found seven more on top of the original four so all in all, a good afternoon's work. In addition we brought the kitchens' organisers important information on registering with the authorities and making sure they continually check in with them. In an ideal world, this wouldn't be necessary, but when resources are scarce, you have to make sure that those in charge of distribution aren't forgetting about you. The harsh realities on the ground.
My several visits down south, as well as conversations with interested parties back in Lima, have demonstrated beyond a doubt how crucial it is to have people in charge of aid and rescue efforts who know what they're doing. Who have experience. Who understand the minutiae which can disrupt the best-laid plans. Who are people managers. And perhaps most important of all, who display a grasp of common sense and good judgement. I'm reminded of the man at the helm of the US agency FEMA (Federal Emergency Management Agency) when Hurricane Katrina hit the south coast of the US in 2005. Michael Brown, lawyer. He was relieved of his duties nine days into the response effort for extreme incompetence. Prior experience: Judges and Stewards Commissioner for the International Arabian Horse Association, 1989 to 2001. Chairman of the Board of the Oklahoma Municipal Power Authority, 1982 to 1988. Clearly the man for the job.
Our task on the Sunday was of a different order. Helping some families clear rubble from their houses and into the street so that it could be taken away by the roaming loaders sent by the government. Our team of twelve was a model of productivity. Getting in and out of our chosen house with a wheelbarrow was impossible, so we formed a human chain to pass the adobe bricks out of the house, over the wall which we partly demolised to accomplish this. The volume of debris we removed in just a few hours was both impressive in terms of mass and saddening in terms of drop-in-the-ocean insignificance of outcome. We cleared half of one house. It showed both how much can be achieved through coordinated teamwork (the same process had been used several times over the weekend to load and unload trucks back at base camp with similar military efficiency) and what an immense effort lies ahead to rebuild Chincha, Pisco and Ica. That thought however hasn't prevented the pain and fatigue brought on by this sudden laborious shock to my system feeling very satisfying indeed.
More pictures at Picasa.
This is where we came in. Armed with the map we went in search of all the kitchens already marked on the map, to ensure they were where the map indicated (which in three out of four cases they weren't so good thing we checked), and to find any new ones which had sprung up in the week or two since the last party conducted this exercise. We found seven more on top of the original four so all in all, a good afternoon's work. In addition we brought the kitchens' organisers important information on registering with the authorities and making sure they continually check in with them. In an ideal world, this wouldn't be necessary, but when resources are scarce, you have to make sure that those in charge of distribution aren't forgetting about you. The harsh realities on the ground.
My several visits down south, as well as conversations with interested parties back in Lima, have demonstrated beyond a doubt how crucial it is to have people in charge of aid and rescue efforts who know what they're doing. Who have experience. Who understand the minutiae which can disrupt the best-laid plans. Who are people managers. And perhaps most important of all, who display a grasp of common sense and good judgement. I'm reminded of the man at the helm of the US agency FEMA (Federal Emergency Management Agency) when Hurricane Katrina hit the south coast of the US in 2005. Michael Brown, lawyer. He was relieved of his duties nine days into the response effort for extreme incompetence. Prior experience: Judges and Stewards Commissioner for the International Arabian Horse Association, 1989 to 2001. Chairman of the Board of the Oklahoma Municipal Power Authority, 1982 to 1988. Clearly the man for the job.
Our task on the Sunday was of a different order. Helping some families clear rubble from their houses and into the street so that it could be taken away by the roaming loaders sent by the government. Our team of twelve was a model of productivity. Getting in and out of our chosen house with a wheelbarrow was impossible, so we formed a human chain to pass the adobe bricks out of the house, over the wall which we partly demolised to accomplish this. The volume of debris we removed in just a few hours was both impressive in terms of mass and saddening in terms of drop-in-the-ocean insignificance of outcome. We cleared half of one house. It showed both how much can be achieved through coordinated teamwork (the same process had been used several times over the weekend to load and unload trucks back at base camp with similar military efficiency) and what an immense effort lies ahead to rebuild Chincha, Pisco and Ica. That thought however hasn't prevented the pain and fatigue brought on by this sudden laborious shock to my system feeling very satisfying indeed.
More pictures at Picasa.
Tuesday 11 September 2007
An introduction to microfinance
Whilst Comunion Peru's excellent work to help earthquake victims continues, I unfortunately don't have any major successes to report. At last count we had opened eight communal kitchens in the areas around Chincha, Pisco and Ica. I'll be heading back down to Chincha this weekend with Movimiento de Vida Cristiana to pack boxes of food, clothes and so on and to distribute them. This organisation has also been doing sterling work, including organising a concert on Saturday by a major international classical pianist (who I'd never heard of; more a comment on my knowledge of classical music than his level of fame I suspect) all receipts from which will go to their earthquake fund.
I'd like to say thank you to those who have either donated money to Comunion Peru's efforts or are engaging in efforts to fundraise on our behalf. It is truly appreciated and I can assure you every penny goes to relieve suffering and help people who need it.
I'm posting a video produced by Five Talents and starring the UK Director Tom Sanderson (oddly flirting with a South African accent during the radio interview) and Charles Eve, a Five Talents Trustee and Co-head of EMEA Compliance at Goldman Sachs. It was the latter of these two gentlemen who started the ball rolling towards my eventual employment with Five Talents and secondment to ECLOF Peru.
This blog is supposed to be geared towards explaining the ins and outs of microfinance, but for good reason has been diverted to discussion of the earthquake. In anticipation of my first post on microfinance, provisionally entitled Microfinance 101, this video is a good introduction to the topic and although filmed in Uganda the realities, views and ideas observable and expressed therein give a good feel for the issues I will raise later.
I'd like to say thank you to those who have either donated money to Comunion Peru's efforts or are engaging in efforts to fundraise on our behalf. It is truly appreciated and I can assure you every penny goes to relieve suffering and help people who need it.
I'm posting a video produced by Five Talents and starring the UK Director Tom Sanderson (oddly flirting with a South African accent during the radio interview) and Charles Eve, a Five Talents Trustee and Co-head of EMEA Compliance at Goldman Sachs. It was the latter of these two gentlemen who started the ball rolling towards my eventual employment with Five Talents and secondment to ECLOF Peru.
This blog is supposed to be geared towards explaining the ins and outs of microfinance, but for good reason has been diverted to discussion of the earthquake. In anticipation of my first post on microfinance, provisionally entitled Microfinance 101, this video is a good introduction to the topic and although filmed in Uganda the realities, views and ideas observable and expressed therein give a good feel for the issues I will raise later.
Monday 3 September 2007
Give me the map
Since Peru does not yet appear on Google maps and since I'm sure most people's knowledge of Peruvian cities and towns doesn't extend much beyond Lima, Cuzco, Arequipa and Iquitos at best (mine didn't extend at all past knowing that Lima was the capital until March this year), I'm attaching a map of the region I've been talking about to give some geographical context. Pueblo Nuevo (near Chincha Alta) and San Juan Bautista (near Ica) are the two areas I've been working in, both circled.This map was drawn up by the Instituto Geofisico del Peru and interestingly shows where the epicentre of the original earthquake and subsequent tremors were located. It's clear from the map why Pisco and surrounds were the towns worst affected by the earthquake, suffering the lion's share of the fatalities and structural damage. It was in Pisco that the church collapsed during mass, killing 148 people, more than a quarter of the total number of deaths reported so far for all of Peru following the earthquake.
Please click on the map for a larger view.
The suffering doesn't let up
Last week I was working with a third NGO called Comunion Peru (in case you missed the first two, please see blog entry of 10th August), started by the Anglican Bishop of Peru, William Godfrey. Comunion Peru has set up eight kitchens (so far) in the regions of Chincha, Pisco and Ica where the earthquake had its most devastating effect. My main goal has been to raise funds to keep these kitchens, and the additional ones we plan to open, supplied with food to keep them running and to keep the citizens of the surrounding communities fed.
The situation the people of San Juan Bautista, where I was on Friday night delivering storage sheds to three of our kitchens, and Pueblo Nuevo, where I was last weekend, find themselves in is desperate. When your house collapses, you don't just lose a place to live, a safe place to sleep, a place to congregate, a place to cook, a place to wash, a place to be. You lose most of your possessions. They get buried, crushed, smashed or just lost. The money you make which in normal times goes primarily to feed and clothe the family, to pay the lighting and water bills and in miniscule amounts, if there's any left over, to a little home improvement, suddenly is required to pay for new everythings. Plates, glasses, forks, knives, spoons, cups, beds, blankets, clothes, lights. There's no insurance policy. Even if you could afford it, who's going to provide contents insurance against an earthquake for houses built of mud brick lying near a major fault line, or if you could find that person, how could you afford the necessarily stratospheric premiums?
The kitchens which Comunion Peru (and others) have set up and are setting up provide a small amount of relief to people from the overwhelming challenges they now face, one less thing they need to worry about. All are looking to their government for help. And millions of dollars have already been earmarked for reconstruction by President Alan Garcia. When this will begin however is anyone's guess and in the interim, life must go on. The only visible contribution the government is making to this end thus far is to demolish the structurally unsafe houses and cart away the remains. In San Juan Bautista that duty falls to one man with a loader for what must be heading for 200 houses to be cleared (related article from El Comercio).
In the mean time, people are sleeping in tents or temporary straw shelters, visible in at least one of the photographs I took. On Friday night I passed the night in a tent in San Juan Bautista's main square, fully clothed all the way to my jacket in a sleeping bag and I barely slept from the intense cold. I'll admit that I couldn't wait to get home to a warm shower and my bed. One of the ladies we spoke to last week, when we were conducting the census in Pueblo Nuevo, told us that the worst part about the nights was not the dark from lack of electricity, nor the cold, nor the uncomfortable sleeping conditions, but the screaming of children. Screaming out of fear of further tremors. Screaming out of suffering from the cold.
The situation the people of San Juan Bautista, where I was on Friday night delivering storage sheds to three of our kitchens, and Pueblo Nuevo, where I was last weekend, find themselves in is desperate. When your house collapses, you don't just lose a place to live, a safe place to sleep, a place to congregate, a place to cook, a place to wash, a place to be. You lose most of your possessions. They get buried, crushed, smashed or just lost. The money you make which in normal times goes primarily to feed and clothe the family, to pay the lighting and water bills and in miniscule amounts, if there's any left over, to a little home improvement, suddenly is required to pay for new everythings. Plates, glasses, forks, knives, spoons, cups, beds, blankets, clothes, lights. There's no insurance policy. Even if you could afford it, who's going to provide contents insurance against an earthquake for houses built of mud brick lying near a major fault line, or if you could find that person, how could you afford the necessarily stratospheric premiums?
The kitchens which Comunion Peru (and others) have set up and are setting up provide a small amount of relief to people from the overwhelming challenges they now face, one less thing they need to worry about. All are looking to their government for help. And millions of dollars have already been earmarked for reconstruction by President Alan Garcia. When this will begin however is anyone's guess and in the interim, life must go on. The only visible contribution the government is making to this end thus far is to demolish the structurally unsafe houses and cart away the remains. In San Juan Bautista that duty falls to one man with a loader for what must be heading for 200 houses to be cleared (related article from El Comercio).
In the mean time, people are sleeping in tents or temporary straw shelters, visible in at least one of the photographs I took. On Friday night I passed the night in a tent in San Juan Bautista's main square, fully clothed all the way to my jacket in a sleeping bag and I barely slept from the intense cold. I'll admit that I couldn't wait to get home to a warm shower and my bed. One of the ladies we spoke to last week, when we were conducting the census in Pueblo Nuevo, told us that the worst part about the nights was not the dark from lack of electricity, nor the cold, nor the uncomfortable sleeping conditions, but the screaming of children. Screaming out of fear of further tremors. Screaming out of suffering from the cold.
Monday 27 August 2007
A minor miracle
Miraculous.
This weekend I was down in the province of Chincha, three hours by road south of Lima. I was asked by a group unaffiliated with my organisation to help out with a census the government has been conducting in the last week in the three provinces of Chincha, Pisco and Ica. Several of my new Peruvian friends are members of the Movimiento de Vida Cristiana which at the government's behest mobilised 650 volunteers in the space of a few days to spend the whole weekend, from very early on Saturday to late on Sunday, in Chincha and go house to house, filling out one questionnaire per household on the status of the occupants and their dwellings.
The number of people who died in the whole province of Chincha, as reported by the government as of late Sunday (26th Aug), was 99 out of a total population in that province of 182,000. The miracle I refer to should be evident from the photos I took (please see Picasa link top right to view whole album). I wasn't able to be fully adventurous in taking shots for fear of being relieved of my camera so the angles are limited. However from the shot at right, you get some idea. It's difficult to describe how this view should look without having been there, but take my word for it that you're looking straight through three houses, at least. The lower of the two walls at middle left of the shot is almost all of what's left of the house on the corner of the street, which if it were still standing would take up most of the picture. Just above that wall an old lady in dark blue is visible, reduced to washing her family's clothes in the street, outside of the temporary straw and bamboo hut which for the forseeable future counts as home.
Not one of the households which my partner and I censused, approaching 50 in number with perhaps an average of 6 inhabitants each, had suffered much more than a few scrapes. Despite the fact that in my estimation fully a third of the houses were razed to the ground and heading towards four fifths would have experienced flying debris of the very heavy variety during the quake or subsequent tremors. An aerial shot of the surrounds, though impossible due to lack of a helicopter, would have shown that despite the mercifully low number of deaths, the scale of the tragedy is yet mammoth and urgent. How more people were not seriously injured or worse I don't know.
This weekend I was down in the province of Chincha, three hours by road south of Lima. I was asked by a group unaffiliated with my organisation to help out with a census the government has been conducting in the last week in the three provinces of Chincha, Pisco and Ica. Several of my new Peruvian friends are members of the Movimiento de Vida Cristiana which at the government's behest mobilised 650 volunteers in the space of a few days to spend the whole weekend, from very early on Saturday to late on Sunday, in Chincha and go house to house, filling out one questionnaire per household on the status of the occupants and their dwellings.
The number of people who died in the whole province of Chincha, as reported by the government as of late Sunday (26th Aug), was 99 out of a total population in that province of 182,000. The miracle I refer to should be evident from the photos I took (please see Picasa link top right to view whole album). I wasn't able to be fully adventurous in taking shots for fear of being relieved of my camera so the angles are limited. However from the shot at right, you get some idea. It's difficult to describe how this view should look without having been there, but take my word for it that you're looking straight through three houses, at least. The lower of the two walls at middle left of the shot is almost all of what's left of the house on the corner of the street, which if it were still standing would take up most of the picture. Just above that wall an old lady in dark blue is visible, reduced to washing her family's clothes in the street, outside of the temporary straw and bamboo hut which for the forseeable future counts as home.Not one of the households which my partner and I censused, approaching 50 in number with perhaps an average of 6 inhabitants each, had suffered much more than a few scrapes. Despite the fact that in my estimation fully a third of the houses were razed to the ground and heading towards four fifths would have experienced flying debris of the very heavy variety during the quake or subsequent tremors. An aerial shot of the surrounds, though impossible due to lack of a helicopter, would have shown that despite the mercifully low number of deaths, the scale of the tragedy is yet mammoth and urgent. How more people were not seriously injured or worse I don't know.
Wednesday 22 August 2007
Total destruction
Thank you to all those who sent me emails and texts or who called (at three in the morning!) to check up on me, following the earthquake last week. Lima escaped largely unscathed from the disaster with minor damage to buildings. As nothing compared to the total destruction of the towns in and around Chicha Alta and Pisco to the south. The mayor of Pisco started to cry during a press conference in the days following the earthquake whilst describing to the media the full extent of the damage and the aid they required. The town has been utterly overwhelmed by the scale of the rebuilding effort required, both physical and mental. Here at ECLOF Peru we're looking at sourcing funds to purchase more aid for those still suffering. Almost a week later and of course the press has moved on (almost immediately to Hurricane Dean which just hit the Yucatan Peninsula in Mexico where I spent a month studying Spanish in July), but the emergency needs of the population are as pressing as they were five days ago.
Friday 17 August 2007
Are the walls moving?
It was my first earthquake. In the first seconds it seemed a large vehicle was driving past our office building, but the more the office shook, the more the realisation dawned that the earth was moving under our feet and the walls and ceiling around our heads. There was nothing man-made about it. My colleagues and I walked out into the street, to find that our neighbours in this residential district had done the same. Some were very affected by the tremors, wailing uncontrollably. Night had already fallen (the earthquake hit at twenty to seven in the evening) and suddenly many lights went out and lightning struck. The fear in people’s hearts amplified as many devoutly Catholic Peruvians instinctively attached great significance to the events.
Mobile and landline networks were quickly overwhelmed. Twenty minutes went by before colleagues were able to get in touch with loved ones. Older colleagues were saying it was the strongest and most protracted tremor they had ever felt in Lima, guessing that it must be greater than Richter magnitude 6. In 1970 an earthquake killed an estimated 50,000 people in Yungay, to the north of Lima. Getting home proved difficult. Traffic was backed up and taxis willing to tackle it hard to find. Queues were forming at public payphones as people struggled to contact family around the country. Initial panic had evolved into controlled tension. Back at my apartment building, few wanted to return to their abodes for fear of aftershocks.
The first tremor is always the worst, I told myself, and strode up the stairs, outwardly confident, to my eleventh floor home. Various objects had fallen from shelves, the kitchen floor was inexplicably drenched in a pool of water and a patch of shoddy plastering outside the rear door had crumbled to the floor. Not more than two hours after the first shock wave BBC World was already broadcasting video footage of the quake in Lima. Magnitude 7.9 was being reported by the US Geological Survey. (Since upgraded to 8.)
I left the back door open as I dried the kitchen only to see my neighbours on their way out, packed bag in hand, to spend the night with family, uncomfortable at the thought of being so high up. My initial fortitude in the face of Mother Nature was starting to slip. The first significant aftershock struck at around eleven twenty, causing me to bolt from my bed, grab my shoes and head for the door. Either previous Peruvian experience would have forced them to design earthquake-resistant buildings, or the cost-conscious contractor might have cut corners in construction. Ignorant of which might be the more accurate, I was taking no chances. But the swaying quickly subsided.
Very sadly the relatively low casualty rate being reported late that night had been revised upwards significantly by the early hours of the morning and still further in the early afternoon. As I write, a day and a half later, estimates are that more than 500 are dead. Many thousands have lost their homes, mainly in the areas surrounding Pisco to the south of Lima where mud brick is commonly used in construction. A significant amount of help is needed with hospitals operating without power, bodies lining the streets and aid struggling to travel down the ruptured Panamerican Highway. Speed of response is critical in these situations. Let us hope it arrives in time for those in need.
Mobile and landline networks were quickly overwhelmed. Twenty minutes went by before colleagues were able to get in touch with loved ones. Older colleagues were saying it was the strongest and most protracted tremor they had ever felt in Lima, guessing that it must be greater than Richter magnitude 6. In 1970 an earthquake killed an estimated 50,000 people in Yungay, to the north of Lima. Getting home proved difficult. Traffic was backed up and taxis willing to tackle it hard to find. Queues were forming at public payphones as people struggled to contact family around the country. Initial panic had evolved into controlled tension. Back at my apartment building, few wanted to return to their abodes for fear of aftershocks.
The first tremor is always the worst, I told myself, and strode up the stairs, outwardly confident, to my eleventh floor home. Various objects had fallen from shelves, the kitchen floor was inexplicably drenched in a pool of water and a patch of shoddy plastering outside the rear door had crumbled to the floor. Not more than two hours after the first shock wave BBC World was already broadcasting video footage of the quake in Lima. Magnitude 7.9 was being reported by the US Geological Survey. (Since upgraded to 8.)
I left the back door open as I dried the kitchen only to see my neighbours on their way out, packed bag in hand, to spend the night with family, uncomfortable at the thought of being so high up. My initial fortitude in the face of Mother Nature was starting to slip. The first significant aftershock struck at around eleven twenty, causing me to bolt from my bed, grab my shoes and head for the door. Either previous Peruvian experience would have forced them to design earthquake-resistant buildings, or the cost-conscious contractor might have cut corners in construction. Ignorant of which might be the more accurate, I was taking no chances. But the swaying quickly subsided.
Very sadly the relatively low casualty rate being reported late that night had been revised upwards significantly by the early hours of the morning and still further in the early afternoon. As I write, a day and a half later, estimates are that more than 500 are dead. Many thousands have lost their homes, mainly in the areas surrounding Pisco to the south of Lima where mud brick is commonly used in construction. A significant amount of help is needed with hospitals operating without power, bodies lining the streets and aid struggling to travel down the ruptured Panamerican Highway. Speed of response is critical in these situations. Let us hope it arrives in time for those in need.
Friday 10 August 2007
Meeting good people
The organisation I'm working for here in Lima is called ECLOF (Ecumenical Church Loan Fund) Peru. I've been seconded to them by the organisation that hired me in London, Five Talents. ECLOF's set up here includes a central office, where I'll be spending most of my time and three regional offices, one in the northern suburb of Lima, one in the southern and one outside of Lima down near Lake Titicaca (the highest commercially navigable lake in the world, so they tell me). In each of the regional offices, between one and five credit analysts meet clients, provide business training and moral support and of course cash.
I've been spending this week in the two suburbs of Lima, following the credit analysts around as they visit clients. It's been a humbling experience to witness both the work the credit analysts perform day in, day out in uncomfortable conditions, as well as witnessing the habitats of our clients. These run the gamut from those who have the basic necessities of a decent amount of space, four walls with a solid roof, running water and waste disposal services to those who live in shacks to which a stiff wind would pose a problem, to which water has to be brought by tanker (not by the government but by enterprising private individuals) and whose toilets are communal outhouses.
At the end of each day this week, I've been able to come home to my brand new apartment in a quiet area of the swankiest part of town. Those clients are still in their little abodes in the hills around Lima probably somewhat cold as the evenings close in. And the credit analysts also live out in the burbs in (obviously) much better conditions than most of our clients, but probably still in areas that many of us would find difficult to cope with. I've met a few people over the years I've thought were doing virtuous work. These credit analysts rank with the best of them. A lesson in humility.
I've been spending this week in the two suburbs of Lima, following the credit analysts around as they visit clients. It's been a humbling experience to witness both the work the credit analysts perform day in, day out in uncomfortable conditions, as well as witnessing the habitats of our clients. These run the gamut from those who have the basic necessities of a decent amount of space, four walls with a solid roof, running water and waste disposal services to those who live in shacks to which a stiff wind would pose a problem, to which water has to be brought by tanker (not by the government but by enterprising private individuals) and whose toilets are communal outhouses.
At the end of each day this week, I've been able to come home to my brand new apartment in a quiet area of the swankiest part of town. Those clients are still in their little abodes in the hills around Lima probably somewhat cold as the evenings close in. And the credit analysts also live out in the burbs in (obviously) much better conditions than most of our clients, but probably still in areas that many of us would find difficult to cope with. I've met a few people over the years I've thought were doing virtuous work. These credit analysts rank with the best of them. A lesson in humility.
Wednesday 8 August 2007
The cost of living in Lima
A chocolate bar - 8p. Twenty five minute bus ride to work - 20p. A can of beer - 37p. Lunch of fresh fish with rice and veg - 65p. Taxi ride to work - ₤1.30 (and I'm more than likely being ripped off at that). Cinema - ₤2.50. 100 channel cable TV - ₤9 per month. Rent on a two bed flat on the penultimate floor of a highrise with a swimming pool on the roof in the equivalent of Chelsea - ₤215 per month. The warm welcome I've received from my colleagues and adopted Peruvian family - priceless. [Apologies to Mastercard.]
Thursday 2 August 2007
Mr Fix It
Small differences between life in a top tier bank in one of the financial capitals of the world and life in a non profit organisation in a developing country. Here we have a geezer who deals with everything. Need copies made of the keys to your flat, Juan's your man. Need a local mobile phone number, Juan's your man. Need a new battery for your laptop, Juan's your man. Need someone to "kindly" ask your landlord to lower the rent, Juan's your man. Ok, so the last one's a slight exaggeration. But where was this guy when I needed him in London?
Saturday 28 July 2007
Searching whilst doing good
Raise money for charity, just by using www.goodsearch.com as your search engine!!!
The bright folks in our Washington office have latched on to an ingenious little development. A search page, powered by Yahoo, has been launched in which you can set your favo(u)rite charity and thereafter every search you conduct through the site results in roughly 1 US cent being donated to that charity. So if you can tear yourself away from Google, which I have done as of today, please go to www.goodsearch.com, set your charity to Five Talents International and use this site frequently. You can even see on the site how much cash is being generated for Five Talents. The sums may look small, but even a few thousand bucks go a long way in our line of work.
(The exact amount donated to charity appears to depend on how much money the site makes from the sum total of all searches through advertising, 50% of which is then divied between the charities according to number of clicks.)
The bright folks in our Washington office have latched on to an ingenious little development. A search page, powered by Yahoo, has been launched in which you can set your favo(u)rite charity and thereafter every search you conduct through the site results in roughly 1 US cent being donated to that charity. So if you can tear yourself away from Google, which I have done as of today, please go to www.goodsearch.com, set your charity to Five Talents International and use this site frequently. You can even see on the site how much cash is being generated for Five Talents. The sums may look small, but even a few thousand bucks go a long way in our line of work.
(The exact amount donated to charity appears to depend on how much money the site makes from the sum total of all searches through advertising, 50% of which is then divied between the charities according to number of clicks.)
Friday 15 June 2007
Humble Beginnings
With a little application and no small amount of hope that I might discover a well hidden talent for writing, the goal of this blog is to let you know what's going on in the world of Erik and more importantly in the world of microfinance, in Peru and more widely. Microfinance is exploding in terms of resource allocation all over the world and debate rages as to whether it is having an overall positive effect, but there is plenty of evidence to suggest that it is. My two-line view of the merits of the microfinance approach is that we're applying capitalist incentivisation principles to help the disenfranchised. Working from the grass roots up, rather than injecting massive funds at the top and hoping that they trickle down, is the best way to lift the extreme poor to a higher standard of living and with them, the whole of humanity. For those of you inclined to read around the subject, I'll be posting links to articles and papers of interest (bullish and bearish). For those who aren't, there'll be plenty of amusing anecdotes (by nature of the events rather than the telling of them) about my failed attempts to make myself understood in Spanish, pictures of my travels in Lima and beyond and highlights of the work I'll be doing with Five Talents and ECLOF Peru.
Hasta Pronto
Hasta Pronto
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