When I first heard about microfinance a year ago, I was intrigued. As I have learned more about the concept through research, lending, and finally this week interviewing borrowers, I am definitely hooked. Microfinance, largely established by Muhammad Yunus’ Grameen Bank, is the idea of lending money to the poor at low interest rates for the purpose of raising them from poverty. It sounds too good to be true: lend a few dollars to a poor woman for a few months, and you will lift her and her family out of poverty and there is a 99% chance you will get your money back? A cure-all solution to eradicate poverty worldwide? So I read Muhammad Yunus’ book, listened to him speak, joined Kiva and loaned money, and read articles in support and against it, and as far as I could tell, it would work. This week, I have gone further: I went with SEDA (Small Enterprise Development Agency, a local partner of Kiva) to a village in Bac Ninh Province, Vietnam to interview the entrepreneurs on the receiving end.
I conducted a total of 34 interviews over four days, and I am in the process of writing up ‘journals’ about each borrower to post on Kiva. All but two of the borrowers are women, though a few women work alongside their husbands and borrowed for their combined business. These are enterprising women who are excited about their businesses and love receiving loans. I watched a group of nine women (most loans are made to groups to make it easier to pay back) receive their loans. The stacks of dong came out, and their faces lit up as they began to count. Money empowers people, and even much more so when they have somewhere to invest it and when they know they must pay it back. Many of the people I talked to said that paying back their loan weekly to SEDA taught them how to save: they knew that they had to pay back a certain amount weekly, so they saved enough to pay back and then applied the principle even when they were not paying back a loan so they could save in the long term. Most of their income then goes toward educating their children and renovating their houses (unlike the wealthy often do, the poor do not usually use their money for travel or vacations). Despite being extremely uneducated (one woman finished 3rd Grade, most finished middle school or high school, and only one graduated from university), everyone wants their children or grandchildren to attend university. One woman said, “I did not allow my daughter to go to high school, even though she passed the exam, because I did not think education was necessary. When I later regretted my decision (my daughter told me she wished she had gone to school) and wanted to send my three younger sons to school, they did not pass the exam to get into high school. I hope my grandchildren will go to high school and then university if they are able.” Each generation is more educated than the last. But obstacles such as difficult exams and high cost of education often prevent children from continuing their schooling. Another woman said, “When my children were in high school, I could buy nice things for my house. Now that they are in university, I must spend my entire income to pay for their education!”
I was impressed by these women’s commitment to their children, but not entirely surprised, since every good mother hopes for a better life for her child and will do her best to help her child. This is why most of the recipients of microloans are mothers. However, I was surprised by the father I talked to. Some characterize Vietnamese men as being useless and just a drain on resources. And sometimes they are. But the men I talked to in this village were just as eager as their wives for their children to become educated, and they were just as likely to invest their money in their businesses instead of squandering it on cigarettes and alcohol. I still believe it is generally better to loan to women, but I was glad that the men I met were so supportive of their families.
One criticism I have of SEDA is that for nearly all of the people I met, this was at least their second loan from SEDA, and some had taken out loans from other sources. And while most only make about $5 a day, $5 goes much further in rural Vietnam than it does in the US. Many people live in nice big houses with televisions, and one family even had a computer. These people will use their loans well, and repay them, but they are not the poorest of the poor who need money the most. By loaning to more well-off clients, SEDA risks losing sight of its original purpose and becoming like any other bank.
SEDA also loans on a very small scale, with this particular branch in Yen Phong District lending 150-300.000.000 VND to 20-60 people per month. And when I asked the credit office about possible expansion, they sort of laughed and said it was a very long way off. SEDA does not actively advertise, instead relying on its clients to spread the word. There is a lot of unrealized potential here.
However, another improvement needs to be made to SEDA: in their head office in Hanoi, there does not seem to be much work going on. On the administrative side of things, I think SEDA needs to become more efficient and improve. The credit offices seem to be doing most of the work. For example, I have been waiting to edit the English for SEDA’s new website for over a month now, and it seems to be stuck. Perhaps this is one reason SEDA is having trouble expanding. The credit office on the other hand worked very efficiently and I was impressed with their dedication. I did enjoy working with the credit office, though. There are six people working regularly in the office in Yen Phong. They know their clients well, and interact with them often. This fosters good relationships with trust and lets both sides feel more confident throughout the process. The employees of SEDA enjoy working to help other people, and generally promote good will in the office and outside.
I heard many stories of women who were able to expand their businesses, send their children to school, renovate their houses, and learn how to save money because of the loan they received from SEDA. Microcredit clearly has made a huge difference to these people, and will go on to make a difference in the lives of many other people. But what exists now is not enough.
In his book, Creating a World Without Poverty: Social Business and the Future of Capitalism, Muhammad Yunus expands from microcredit to discuss the concept of a social business, a business with a structure similar to that of a profit-maximizing business but with the purpose of reducing poverty. He initiated his idea by creating several social businesses as branches of Grameen. One example is Grameen-Danone, a joint venture between Grameen Bank and Danone food company which produces low-cost nutritional food for the poor. Another Grameen branch provides low cost environment-friendly energy for rural families. Yet another is in development which will consist of a series of rurally located eye-care hospitals where doctors will perform cheap eye surgery for the poor while charging regular market price for the wealthy. Yunus envisions a world with a “social stock market” of social businesses, and eventually a world without poverty[1]. I share this vision, and I want to be part of its accomplishment. However, microfinance, through a few organizations including Grameen Bank, Kiva, and Babyloan, operates on a very small scale compared to how many people it could be helping. In the future, I hope that more people will learn about microfinance and social business and start up social businesses of their own. I hope these businesses will reach to all corners of the world, eradication poverty on a grand scale. Poverty breeds discontent and war, so without poverty, we will be a long way toward achieving peace. And we will achieve the dream.
[1] Creating a World Without Poverty: Social Business and the Future of Capitalism, Muhammad Yunus, 2007
