Accounting and Program Audit Team
Log # 9
By Chi Le
One of the issues in microfinance in general as well as in GLOBE
is the foreign exchange rate risk. Since GLOBE works with people
from all over the world and makes global loans, the foreign
exchange rate has been a risk to the borrowing microfinance
institutions. It has listed three main components of this risk:
depreciation risk, convertibility risk and transfer risk.
It is a fact that most of the developing countries, such as Haiti,
Kenya, Vietnam, etc. where GLOBE mostly focuses on, have been
struggling in their economies. Their currencies have been devalued
and therefore it is hard for them to repay the loans completely or
the interest. Even though GLOBE does not charge a high interest
rate and has a sufficient amount of time for the borrowers to pay
back the loans, it is still emphasized that our candidates are the
poorest of the poor plus the fact that their currency values have
been falling for these past years, and as a result this has been a
risk of our microfinance program.
Convertibility and transfer risks are the two other foreign
exchange rate risks that come from the national government.
Convertibility risk arises when the national government will not
sell foreign currency to borrowers or others and transfers risk
results from these countries not allowing foreign currency to go
abroad without its source. I think this is also the problem that
happens in some developing countries without open markets and have
restrictions in the economy as well as relations with other
countries.
Foreign exchange rate risk is only one of the risks in microfinance
but it does have an impact on its development. As in GLOBE, getting
back the loans is one of the factors to evaluate the success of
this program and therefore the foreign exchange rate risk has
partly brought a little difficulty to the program.
Finance and Risk Assessment Team
Log # 9
By Danai Shirihuru
Wow, I can’t believe yet another week has gone by. In an attempt
to diversify as well as reduce our risk, in December last year
GLOBE gave out its first group loan to Vietnam, something which we
are all very excited about and can’t wait to see the result. I
personally am excited to see the effect it has on our rate of
return and the effect that it has on our borrowers’ lives, as this
group loan is actually reaching a lot more people. This week the
Finance team was assigned a reading on the group lending model,
something that I already think we as GLOBE managers should take
into serious consideration, and make more use of, but this reading
also brought something else that people in business often
forget.
Our reading advised micro finance institutions to look into
alternative ways to be more efficient. One of the things our
reading mentioned that I found very interesting was that when
borrowers borrow, it’s not that they can’t pay back the loan, it’s
that they won’t pay back. This to me is very interesting and very
powerful. The borrowers can pay back, they are not poor and unable
to pay back, and they simply have no reason to pay back, no reason
to want to pay back. Just like any human being their needs to be an
incentive, a motivation to not just be someone living in poverty
and is comfortable with taking charitable handouts. When we create
criteria for our borrowers we look for their annual income, the
size of their loan, the period of repayment and other quantitative
qualities, we forget that we are in social business where we aren’t
dealing with people’s past successes but are enabling them a
successful future.
This reminds me of a story close to my heart. My own parents
came from a background similar to that of our borrowers, probably
worse than that of our borrowers, but now they are able to send and
support their child to school in New York City. It was not a case
of great circumstances that lead to my parents’ success; rather it
was their motivation to be successful. Most of these people are not
incapable of success and creating their own lives, they just lack
the motivation, perhaps the belief that they will be successful.
One of the things I would like to work on for the remainder this
semester is a way in which we can motivate our borrowers, rather on
just assessing their risk we should work with our borrowers and
give them some motivation. While it is important to give out loans
that aren’t quantitatively risky, I think one of the things that
sets GLOBE apart is that it also puts a value on those qualities
that can’t be so easily quantified and I think it’s time we further
capitalized on this.
Marketing and Fundraising Team
Log # 9
By Princy Ann Abraham
This week the marketing & fundraising team was assigned to
read chapter 6 of the “Microfinance Handbook” by Joanna Ledgerwood.
This chapter discussed savings accounts and products as related to
microfinance.
The chapter began by unveiling the misconception that low-income
individuals do not save or have no reason to save. Often, the
poor’s demand for savings products goes either “unnoticed or
unheard.” Many bank branches are not situated in socio-economically
disadvantaged areas. Additionally, banks that are available to
low-income clients are hesitant to deal with small amounts of
money.
Research shows that savings accounts are a crucial part of
developing a stable financial market. So we see that even
low-income customers can impact an economy while still benefiting
themselves. For savings to be effective in impacting an economy,
the transaction must take place in a suitable economic and
political environment that is reliable and secure. Depositors need
to be assured that their funds will be held safely or else they
will not risk leaving their funds with a bank.
This week’s reading can be applied to GLOBE. Savings accounts
can lead our borrowers to be stable and independent. I think our
organization should start encouraging borrowers to save a small
portion of the money we give them. They can turn to this savings
fund in case of an emergency. They can also start saving money from
their revenue in order to repay our loans back in a timely manner.
Borrowers can also use their savings for additional expenditures
that they are interested in.
Having a savings account is a wise alternative to keeping cash
in the household. Many women in developing countries have difficult
time saving cash at home because the male head of their household
wants to spend any excess money that is available. Money kept at
home can be stolen or destroyed through natural disasters such as
fires or floods. Investing all of one’s money in animals or other
assets is also not wise since the animal can die or the assets can
lose their market value over time.
Savings accounts have the potential to lead our borrowers to a more
sustainable life.
Technology and Communications Team
Log # 9
By Anastasia Zavgorodni
Our latest reading involved the field of Micro insurance. From
what I read, I understood that micro insurance faces the same
obstacles as microfinance, in that both are social businesses,
which lack the appropriate funding to easily succeed. In terms of
life insurance, the venture has been more successful through making
a small percentage of a microloan be directed toward such a
measure. Health insurance has proved a trickier field, as the
poorest do not face the same health challenges as those who are a
bit better off than them. The specialization of those providing the
healthcare is also of grave concern, as there are obviously great
expenses involved with providing pristine health services.
As a member of the IT team, our sector of an MFI could be in charge
of providing the necessary software responsible for managing
insurances. However, as I have reflected in my previous blogs, this
is easier said than done. Seeing as it is a challenge to even
provide comprehensive, affordable technology systems for MFIs,
incorporating the insurance aspects would only raise the costs. I
feel that perhaps such systems could be a large goal for an MFI
slowly incorporating insurance into their microfinance system.
Initially, helping the borrowers understand health and life
insurance should be of foremost concern. As Grameen Bank has done
with its borrowers and flourished in terms of microfinance, there
is no reason why the benefits of insurance could not be explained
as well; particularly when it can be incorporated into a
microloan.
Our guest speaker, Susan Kagemi Saiyiorri of Jamii Bora, was
particularly inspiring in revealing Jamii Bora’s promising venture
into micro insurance for their borrowers. Health insurance was
offered at $15 per year for every household, covering one adult
with four dependents and all patient costs at a hospital. I am
assuming from my readings, that this last part is particularly
specific since many people in developing countries will often visit
shamans or untrained doctors to relieve their health problems,
making matters worse; thus the incentive for actually visiting a
hospital. These services reveal such a multidimensional aspect of
micro insurance and especially social business. The goal of social
business is truly to help people flourish in all aspects of life.
To Jamii Bora, their borrowers seem like family, and such a level
of care is so rare to find in for-profit business. Sure,
corporations, institutions, and foundation may donate money to a
cause, but it is in question whether they truly care about the
individuals they claim to help. This dimension of involvement is
completely essential in breaking the cycle of poverty.