Considering Microfinance as a Solution to End Extreme Poverty

Continuing on with the structure of last week’s blog, I have divided this blog into two sections: social capital and financial capital. This division is meant to divide business from pleasure- or living from working in rural Kenya.

Social Capital:

I am absolutely an integrationist: I believe that if your project is based in remote rural areas, then you must have staff living in those same remote rural areas. I know this is not always possible, but I believe the benefit greatly outweighs the barriers. I understand that there is a divide among professionals.

I come from a Peace Corps background. Peace Corps can be, in my view, one of the best on-the-ground experiences that one can get as an outsider to help oneself understand poverty. This experience, however, is not to be understood as a replacement for growing up and/or living as a member of one of these societies for an indefinite period of time, but a Peace Corps Service can offer a frame of reference from which someone can begin to understand what it is like to live in poverty.

Living in poverty as a Peace Corps Volunteer can by no means be equated to poverty which surrounds one during one’s service. No matter how real it feels, one’s service is still in some ways pretending to be in the state of poverty for a defined period of time. This is not to take away from Peace Corps or its volunteers. I know volunteers who integrated to the extreme in which behaviorally they were indistinguishable from the people with whom they lived and worked, but essentially there was always a divide. They always had their plane ticket home, and an alternate life waiting for them.

In my opinion, as an integrationist, far too many organizations are based in capital cities. Their projects have large white SUVs with their project decal on the side of the door. Sites are visited, but not lived in. I am not stating this difference because I work for Nuru and Nuru does this, so I think it is right. One of the main reasons that I chose to work for Nuru is because the project is based in the field; Nuru doesn’t have a car, we take public transportation. We are really building relationships with our members. Living in the field and not having a car can be a real pain. Power outages, power surges, no refrigeration, water shortages, not being able to go out past dark, etc..  all can make our lives more challenging in the field, but it makes for a far more successful project. Living in the field; building relationships on a daily basis; and listening to the people with whom you work can allow one to keep one’s finger on the pulse. Disconnect brings problems.

Financial Capital:

Microfinance is not the cure to poverty. Mobile money will not single-handedly eradicate extreme poverty. I wish it could all be that easy. Until people make more money than they spend, poverty will be present worldwide. This poverty can manifest itself in different ways. Depending on one’s ability to access credit, one can appear to be far better off than one is. Sooner or later living beyond one’s means catches up. What is true at home is true here.

Microfinance can be an excellent tool for those who need to have access to credit, savings, and/or insurance; however, the quality among these financial products can vary widely. What can be called microcredit and carry with it all of connotations of helping the poor lift themselves out of extreme poverty can in practice do the opposite. Without adequate safety measures and an extremely elastic demand for credit, predatory lending is all too common. What is touted as eradicating poverty can actually be creating poverty.

Savings products too can be misleading. The fees associated with a savings account can prevent savings altogether. Until recently, it hasn’t been viewed profitable to offer banking services to the extreme poor. Mobile banking will hopefully turn a lot of this on its head. M-Kesho looks like a promising turn for mobile savings accounts.

Lastly, insurance can, perhaps, be most misleading of all. Fine print and impoverished populations can make for a dangerous combination. I have a master’s degree, and I still need my brother (who is a lawyer); my mother (who is a physical therapist); and Karina (Nuru’s HR Director who has become an insurance expert) to tell me what my health insurance plan actually covers. Still when I go into the doctor’s office, I feel like it is a crapshoot. Imagine trying to understand insurance policies without the access to education and educated individuals.

I have heard so many horror stories of micro insurance companies; it is unreal. Still insurance can play an important role for medical expenses, crops, etc.. Most recently, I was conducting a case study with some of our staff to test the efficacy of a national insurance product, which I though might be good. It turns out that in order to use the insurance, you need to bribe the hospital because it takes the insurance company so long to pay that it is not cost effective for government hospitals to accept the government insurance. I am still on the pursuit for better insurance products.