Not new in the developing world

 

Matthew Pattinson  

 

Although the current economic crisis has shown that one can have too much debt, the resulting credit crunch has demonstrated the negative effects that a lack of available capital has on growth. Credit is no less important to the poor than the rich; it allows people to lump together sums of money that would otherwise take a long time to save. With these lump sums, borrowers are able to pursue profit-making opportunities such as investing in a new or existing business or purchasing productive assets such as sewing machines or stoves. Previously, the poor were excluded from the banking system, being forced to sell assets or go through informal channels such as exploitive moneylenders to borrow lump sums of money. With microcredit, which is the lending of small amounts of capital at reasonable interest rates to entrepreneurs, the poor are getting access to loans and making differences in their own lives.  

 

Recently, I returned from a 6-month internship in Kabala, a small town in northern Sierra Leone.  Working for an NGO called CAUSE Canada, my assignment was to work alongside local staff to develop a microcredit programme for women. The initial loan for each woman began at € 35 for a period of 2-6 months; payments were due on a weekly basis. Because material collateral is not possible in most microlending situations, collateral is created through the formation of solidarity groups.  These groups typically consist of 4-6 women who mutually agree to guarantee the loans of the others. As the group pays back each loan, group members will be eligible to receive a larger loan in the following cycle. This opportunity for larger loans and the provision of a valued service ensures loan repayment. Microcredit programmes typically have greater repayment rates than banks; some are 95-98%.  

 

One of CAUSE Canada’s borrowers, Katie M. Koroma, is a shining example of how microcredit can assist poor entrepreneurs. Katie is the guardian of nine children, six of which are hers. She cooks and sells a delicious dish of beans, beef, sweet potato and cassava root, working around 12-hours a day 6-days a week. After rising early in the morning and preparing the food in a large steel pot, Katie sells her product from midday onwards by walking around town with her apprentice, each carrying the heavy load on their heads, delivering the food directly to clientele. Due to a lack of access to capital, Katie had to purchase her goods in smaller amounts. This meant having higher transport costs from more frequent trips to remote villages to purchase specific ingredients. Price was also increased when supplies were bought in smaller amounts. After receiving a loan, Katie now buys in bulk and travels to the villages less often. With her additional profits, Katie hides part away in case of an emergency, while the other half goes towards providing her children with more nutritious foods, purchasing school supplies, visiting the local health clinic and purchasing medicines.  

 

The most effective microfinance institutions (MFI) have developed programs to try and improve the health of their clients. The simplest way in which an MFI tries to do this is by offering its services predominantly or completely to women. As the income of a woman increases, she is more likely than her male counterpart to spend a higher percentage of it on her household by providing medicines and more nutritious foods. Also, giving women more control over household income raises their self-esteem and how they are perceived in the family and community. This results in women being more likely to seek treatment for their illnesses and less likely to be subjected to violence by their partners. Finally, health can be improved through the provision of health education during meetings with microcredit client groups. During this time clients can be sensitized to immunization programs, diarrheal treatment, or to preventative measures to afflictions such as malaria and HIV/AIDS.  

 

One of the moments that left a big impression on me occurred while I was out working in a village called Sarakoh. It was early on in my internship and I was trying to get a better understanding of the lives of our programme beneficiaries. With the help of one of the field workers translating I asked a woman who was enrolled in the programme how many kids she had. Her response was: I have given birth to six, but three are alive. Poverty and poor health are intertwined. Examples of courageous women such as Katie M. Koroma show how microcredit can play a small role in improving the health and lives of people in developing countries. While it may be a new crisis in the West, the poor have had to face a credit crunch for far too long.  

About the author

Matthew Pattinson is a former business student at Simon Fraser University.  

References

1. Daley-Harris, S (Ed.). Pathways out Poverty: Innovations in Microfinance for the Poorest Families. 2002. 
2. Kim JC et al. Understanding the impact of a microfinance-based intervention on women's empowerment and the reduction of intimate partner violence in South Africa. Am j public health. 2007.
3. Rutherford, S. The Poor and Their Money. 2000
4. Sapovadia, Vrajlal K., "Micro Finance: The Pillars of a Tool to Socio-Economic Development" . Development Gateway, 2006 
5. Lecture International Delopment Studies, University of Amsterdam, 4 March, 2009, Sophy Wolters, Namaste Direct, Guatemala. 
6. Grameen Bank. www.grameen-info.org

 

Photo © by Matthew Pattinson, all rights reserved.