Microfinance and Poverty

It appears that Microfinance is the anti-poverty measure du jour. Muhammad Yunus winning the Nobel Peace Prize obviously has something to do with all the attention it is garnering but what might also be important is that microfinance is actually, you know, successful. Nicholas Kristof wrote a column a couple of days ago and followed it up with a blog post, some of which I'd like to highlight (don't bother clicking on either link if you don't have NY Times Select. By the way, Times Select is now free for anyone with a .edu email address, so if you're a student, you no longer have any excuse for not signing up).

One reader commented that micro-lending is not for the poorest but for the lower middle class, because the poorest don’t have the capacity to borrow. That’s just not true. In Afghanistan, Pakistan, Bangladesh and India, you routinely see the poorest and most vulnerable people (e.g. widows) borrowing $50 or so to buy goods from a wholesale market and sell them in a retail market for a mark-up.

Moreover, empowering women is an essential part of the micro-finance story, and you don’t find anybody more vulnerable than poor women in these societies. In Pakistan, I spent a day with Kashf Foundation (a superb micro-lending organization, run entirely by Pakistanis), and it was incredibly inspiring. The borrowers are often completely illiterate and barely able to buy food. And the stories are amazing.

One woman who had only had daughters told me that her husband had been about to get a second wife (on the theory that she would bear him a son) when she borrowed a bit of money from Kashf to start a small embroidery business in her home. The business prospered, and now her husband says he would never think of getting another wife. Another woman told me that whenever her husband beats her, she tells him that she’ll stop borrowing — and then he stops and goes off sulking, but doesn’t beat her.

I'd never heard of the Kashf Foundation so I googled them and found their website. I find it a little strange that they have no link for people wanting to donate. Anyways, I found that the Kashf Foundation is actually affiliated with the Grameen Foundation, which has this story up on its website.

Kishwar lives with her family in a slum near the railway station in Lahore, Pakistan. Health and sanitation conditions are extremely poor, causing disease and infections to run rampant. Kishwar’s husband and sons together run their shoe-making and selling business-selling from the shop and also taking orders from wholesalers. In 2001, their business suffered huge losses and they nearly went bankrupt. The family took a loan from a moneylender to rejuvenate their business. Unfortunately, the exorbitant interest rates, coupled with harsh penalties for late repayments, caused the family’s debt to spiral out of control. Desperate for a way out, Kishwar discovered Kashf Foundation through a friend. Kishwar was wary of taking another loan, but her husband encouraged her to have faith.

The first loan of 5000 Rs. ($83) was used to purchase leather, rexine, ready-made soles, thread and other material for their shoe shop. As production increased, sales also picked up. Slowly Kishwar and her husband were able to pay back the moneylender. Savings in the first year of the Kashf loan were nominal because of this, but now their weekly profits are between 1000-2000 Rs. ($16-30). Kishwar plans to take the next loan and increase their product range.

Recently, one of Kishwar’s daughters had to submit the equivalent of $16 as a fee for her college entrance exam. Unable to come up with such a large amount of money on short notice, Kishwar applied for and received a consumption loan from Kashf to cover the expense. Though illiterate, Kishwar understands the value of education. She has chosen to use the family’s meager resources to educate her two daughters, rather than her five sons, because she believes her daughters are more serious about their education. In a society where male children are given first priority in everything, particularly schooling, Kishwar has bravely broken with tradition and set an example for her entire community.

Kishwar has aspirations for sending both her daughters to college and also helping her sons establish individual, reliable and profitable enterprises. In two years, with Kashf’s sustained assistance she sees her family’s business thriving like never before with ten employees and a telephone installed at the shop.

Kashf’s impact on Kishwar’s life has been more than just financial. She is now a center manager (five groups of five clients each form one center) and says that she can confidently address and advise her center members on different issues, whereas earlier she was too timid to say more than a few words to anybody. With this new sense of self-esteem and confidence, Kishwar mentors other women in her community, encouraging them to take advantage of the opportunity provided by Kashf and to take control of their economic situations and make better lives for themselves and their families.

Having been around for more than a decade, and having loaned more than $17 million to more than 100,000 clients, it's a little puzzling to me why Kashf has restricted itself to Punjab - according to their website, their working areas are Lahore, Kasur, Sheikhupura and Gujranwala. That's not necessarily a "bad thing" - I'd much rather have an organization do really good work in a limited geographical space, as they are, than average work in an expansive one - just difficult to understand. What could possibly be holding them back from moving to the slums of Karachi?