Accounting and Program Audit Team
Log # 9
By Daniel Crean
One question that has continued to plague me
throughout the semester is: what happens when a borrower cannot pay
back their loan? Obviously with regard to GLOBE, we do not penalize
our borrowers for defaulting. However, for MFIs in general, how do
they ensure that a borrower pays them back, and if they do not,
what are the consequences? Since microfinance is a social business,
and the goal is helping people, these consequences cannot be severe
enough to damage the borrower economically going forward, because
that would be against the tenants of social entrepreneurship.
However, this makes it very difficult to enforce the repayment of
loans. This fact makes microfinance appear risky to investors. MFIs
normally have extremely good payback rate, which is a testament to
the character of their borrowers. However, this business plan
requires the MFI to trust its borrowers to pay back their loans on
their honor. In a business sector that is increasingly concerned
with risk management, making deals based purely on trust is not
always the most appealing way of doing business. Personally, I have
complete faith in a borrower to pay back a loan and conduct them
honestly. However, as in all things, there are examples where
things go wrong, and I am curious about what happens in those
cases. There must be cases where the borrower simply does not have
the money, and no amount of pressure can create it.
One solution to this problem that I am
aware of is group-loans. Borrowers must pay back their loans in
order for their group mates to receive their own. Is this the most
ethical approach? If, due to some unforeseen circumstance, a
borrower cannot pay their loan back, should their group members be
denied loans? It understandably adds incentive for the borrowers to
pay back their loan, but it seems to punish others for the economic
failings of one person. Micro borrowers by definition do not have
collateral, so the borrower themself does not appear to lose
anything besides a measure of reputation in the eyes of their
peers. In my eyes, it appears that other people are being punished
for the economic failings of someone else (using the word failing
here is harsh, since the decks are stacked against borrowers
economically to begin with). However, I understand that this is a
complicated problem, and it would take an immensely creative
solution to solve it. Furthermore, I am sure there are other plans
and policies to mitigate against the default of a borrower, and I
plan on reading more about this in the future.
Finance and Risk Assessment Team
Log # 9
By John Marchi
This week has been extremely productive for
the Finance and Risk Assessment Team. We not only finished
the draft of our Social Business Plan, but also presented to the
steering committee on the issuance of a new village banking
centered loan, as well as loans we recommend to write off our
books. The Steering Committee meeting presented so much
opportunity. We really learned a lot about the Rosalia Rondu self
help group- how they strive with entrepreneurial spirit, as well as
are motivated. What is unique about this loan is that the borrowers
are equal partners to GLOBE- the lenders. We are providing the
funds for ½ the loan, while they are raising the other ½
themselves. We feel will act as a huge risk mitigation
factor.
We received a report from Sr. Deb, telling us
how the village of Bangladesh is a much different world than other
parts of Kenya. It is located in a suburb of Nairobi. This
Village has approximately 300 families, about 1,800 people. Many of
the households are single parent homes with 4 or more children. The
houses are poorly constructed mud houses. Approximately 90% of the
adults in the village support themselves with day labor jobs. The
average income in the village for one of these day laborers is on
average 150ksh per day or $1.79.
This is a very special week, because it allows
for a time for us to reflect on what we are thankful for. I
am thankful for the Rosalia Rondu group for opening my eyes and
reigniting the flame in me to stay motivated. I am extremely
impressed with their capabilities and motivation to seek education
and better their own lives.
They say that a picture is worth a thousand
words, and when I saw the picture of the borrows who’s loan I
presented, I was at a loss for words because I felt such a
connection, as well as sense of relief, knowing that by really
doing research, my team could make their lives better.
As the semester comes to an end, we are
gearing up for our final presentations, as well as transition to
the next finance team. My key goal is to make next semesters
managers as comfortable as I am with knowing where we stand in
regards to loans outstanding.
Marketing and Fundraising Team
Log # 9
By Claire Cilento
On Wednesday, November 14, the GLOBE class
hosted our Appreciation Luncheon. The luncheon was a means for
GLOBE managers to thank our donors and friends for their support,
as well as have the opportunity to get to know the people who
support GLOBE better. It was exciting to see all of our work come
together and to be able to pull off such a successful event.
Preparing for the luncheon and the hours working together to set up
St. Vincent’s Café really brought the class together and it was
really nice to be a part of! Moreover, I found that getting to meet
all of our donors and supporters was the best part of hosting this
kind of event. I was encouraged and inspired by all of these people
who have chosen to use their success to help our program.
In class last week, we spoke about the risks
associated with microfinance. Because borrowers of microloans
do not have the collateral required of borrowers in typical
financial institutions, there clearly is more risk involved.
There’s a lot of other risk involved as well though. In fact, we
learned last week that some of the biggest risks for microfinance
institutions are things such as management quality and staffing,
things that these institutions can clearly control. There’s also
competition from other microfinance institutions to consider.
Another crucial risk is the question of protection of deposits in
foreign banks. There are also things that are completely out of
control of microfinance institutions, such as some kind of severe
weather that would be a problem because many businesses financed by
microloans are based on agriculture.
The luncheon brought this lesson of risk from
class the day before more close to home for me. I realized that
GLOBE faces risks just like any microfinance institution or just
like any regular business or program. Whenever you’re starting a
new initiative, no matter how prepared you are or how good of an
idea it is, there is always the possibility that something could go
wrong. This made me think about just how amazing our donors that we
met on Wednesday really are. Everyone who puts something into this
program – our donors, our Steering Committee, Dr. Sama, Dean Shoaf
– they all invested their time, efforts, and money into something
the likes of which had never been done before at St. John’s.
Without them taking this risk, GLOBE would not be able to be what
it is and I would not have the opportunity to have had the
experience I had this past semester and that truly is
humbling.
Technology and Communications
Team
Log # 9
By James Vanie
This week’s group reading was very relevant to
what I was doing in Ivory Coast over the summer--micro insurance
was the theme of the chapter. While I didn’t consider it micro
insurance at the time, I had devised a sustainable health insurance
model for primary and secondary schools in Abidjan. Unfortunately,
it was not recognized by the Ministry of Education, mainly because
of the difficulty to break the “red tape” of receiving approval to
engage faculty members and students within the primary and
secondary schools. I found my ways to acquire information, but I
was not as effective as I could have been had I received approval.
This difficulty is one similar to Muhammad Yunus during the
beginning stages of Grameen Bank. As an economics professor, he was
not taken seriously and his plan did not feasible to the commercial
bankers.
To make his own plan work, he operated
independently. My plan would be difficult to implement as an
independent entity, with the Ministry of Education, it would also
face much regulation and possible corruption from the higher ranks
of the school district. So what would motivate the world’s poorest
people to invest in insurance? As I mentioned in class today, there
is no immediate return on investment. People see themselves and
families as perfectly healthy if they are not on their
deathbeds.
Education about the importance of insurance is
not enough for people in the developing world. The communities
would need a social business in place that will use the profits to
invest into causes that will directly benefit the quality of life
for the clients. The model would not work if any profits are made
or dividends taken. Sadly, this is where many governmental
structures fall short in West Africa. This social business
insurance model would thrive in many different fields-schools,
agriculture, and local businesses. If there were an immediate
incentive that participants received, it would greatly increase the
likelihood of individuals buying insurance. It would take a great
amount of research to find the probability and relation of:
accidents and/or losses, the amount of money to pay back out to
borrowers, and affordable amount to ask for.