Building the Village Bank (VSLA schemes)

Date: 12th July, 2007
Location: DFID, 1 Palace Street, London SW1E 5HE
Network link: Microfinance club

Hugh Allen gave presentation on: Community-managed Savings and Loan: Microfinance for the rural Poor – that promotes sustainable financial interventions and consumption smoothing.

Village based savings and loans schemes (VSLA) are designed to empower local actors to form collective financial solutions for those excluded by mainstream financial systems.
The most vulnerable members of society often have need for savings mechanisms and insurance first rather than loans available under micro-finance schemes. VSLAs mobilise communities to manage their own savings businesses to members who act as a cooperative. Offering savings, loans and insurance.

VSLA features

• Typically 20-30 members
• Schemes have fixed lifecycle 12 months distribution
• Informal association no legal entity or contracts
• Rules defined by community with assistance from “trainer”
• Savings amounts variable and monitored by stamps

Success rates

• High survival rates 70-95% after 2 years
• Zanzibar - after 4 years of program ending 43 associations survived and 113 new ones had begun
• Niger - 94% of the 8,000 associations survived
  India has approx 1.25 million operational schemes and Africa approx 0.6 million
  

Success factors

• Limit all external involvement where possible and focus on enabling the community to form own rules and practices
• Train the trainer model used to increase sustainability and decrease costs in the field
• Uses informal process and structures that have limited reliance on literacy or education levels such as: Physical group witness, transparency and physical passbooks
• Levels of leverage on loans are kept modest from 20% initially up to 85% after 12 months

Social impacts
51% increase in asset ownership by women
48% reduction in use of interest based external finance (Microfinance)
83% increase in community based group activities

How is it delivered?
The program is delivered by using a system of village agents who are centrally trained and supervised. These agents receive fees on a service basis as agreed by the community. Training is undertaken on a train the trainer basis and becomes self-sustaining after 2 iterations. Typical one-off set-up costs range from $20-60 per participant although $10 or less has been achieved in Bangladesh.

Upsides of VSLA
Safe and flexible
Simple and transparent to users
Concentrates on thrift and expenditure smoothing
Accessible and repeatable
Rules defined by community so culturally adaptable
Costs are kept down as external experts are not used
Users can be members of both microfinance and VSLA schemes

Down sides of VSLA
No ability to provide enterprise development
Limited scale and range
Limited term which does not allow for long term accumulation of savings
Considerable pressure from external sources to formalise and regulate
Tendency for Microfinance schemes to absorb schemes which has typically resulted in excess leverage and failure

Useful links:
Microfinance club
http://www.microfinanceclubuk.org/
Savings and Loans impact report
http://www.clp.org.bd/Chars%20Livelihoods%20Programme_files/H.Allen%20Trip%20Report%20Revised.
Care International
http://www.careinternational.org.uk/Savings+and+Loans+7526.twl

Fair Future

Date: 25th June 2007
Location: Mary Ward Centre WC1
Network link: New Economics Forum

Launch of new book and discussion with Wolfgang Sachs (Research Director Wuppertal Institute, IPCC panellist, former chair of Greenpeace Germany)
Oil crisis, water conflicts, declining food security - we hear one report after another about resource scarcity - while with growing populations and huge poverty, nations are demanding their right to development. In the age of globalization this right cannot be disputed, yet the planet is already exhibiting signs of acute environmental stress. This book provides an account of what is involved in the resource conflicts of today and tomorrow. It puts forwards perspectives for resource justice and outlines a global economic and environmental policy equally committed to nature and to humanity.

Overview of themes
The book looks at levels of resource consumption across the North/South divide and positions arguments for equality as necessary and inevitable.

The concept of "ecological rucksack" is introduced being the invisible weight of resources used to produce or import goods to the developed economies. Major themes of the book:

• 1) Progress on Social justice and ecological living are intertwined - through an emerging drive for equality
• 2) Security will be one of the big drivers of equalization, as resource inequality leads to more conflicts. Violence has become de-territorialized and harder to contain without addressing the root cause - injustice
• 3) Equality has become inevitable as a unexpected benefit of globalisation. As our trade flows become ever more interdependent and disparities become more transparent, equality will come from evolution or revolution - it is our choice
  

What is ecological rucksack?
A measure which quantifies the “weight” of resource use associated with production and consumption. That is the “rucksack” is the weight of resource burden associated with any object or person. Similar to footprint except this is more suited to energy conversations and does not consider bio-diversity or biosphere limits in the same way as foot print.

Useful links:
Wuppertal Institute http://www.wupperinst.org/globalisation/
NEF http://neweconomics.org/gen/m1_1_i1_whatwedohome.aspx
Book http://www.zedbooks.co.uk/book.asp?bookdetail=4129

What is wrong with microfinance? Entry II

Forum: Microfinance club UK
Date: 29th May 2007, 5.45-7.30pm
Location: Barclays, One Churchill Place, London E14 5HP
Network link: Microfinance club

Discussion of new book taking a critical look at the affects of micro-finance and the impacts on the poor. These are notes from the session presented by the authors.

Overview:
Pace of Microfinance is like a machine that is running fast. It is time to have a look at the progress and re-appraise our actual achievements in order to counteract any exaggerated claims. The phenomenon has been fanned by the recent Nobel prize for Grameen Bank, and considerable interest has been raised.

In order to ensure that attention and funds are directed where they can make the best impact on poverty a re-evaluation is urgently needed. There is very poor quality of actual data available and a lot of the success of microfinance is anecdotal at best. However, estimates suggest that 500 million people have been affected by microfinance in over 100 million households

This talk sets out to provoke a number of questions, in service of a better solution for the worlds poor. Issues that were raised during discussions about mf:

• Promotes debt not savings, and does not offer a full financial solution
• Often excludes the very poorest, and even within schemes the poorest tend to have the lowest levels of improvement in favour of those with higher income potential
• Under utilised and does not combine with other community development services such as health/education
• Does not create jobs and so does not build a strong sustainable local economy, but does create self-employed informal workers
  

Pod groups
Microfinance loans are typically organized in pods with shared credit exposure, these pod effectively guarantee the loans of the whole group and have weekly meetings to collect debts and discuss progress

• Very time consuming for the borrower hours lost from working of childcare to attend sessions
• Drop-outs often face sever implications from society which has led to suicides and group conflicts not covered by press
• Promotes mistrust and self-policing attitudes
• A better model may well be individual loans as proposed in Grameen2.
  

Gender empowerment
Microfinance has high uptake from women (95%) and are considered to be more reliable due to higher levels of repayment. Studies from University of Maine suggest that MF adds considerably to a woman’s workload and they would prefer wage employment.

Women do tend to be sole traders in the informal market, often distributing goods for more wealthy individuals. As such they are unlikely to become employers and do not enlarge the local economy.

Women are easier to intimidate in the group, and can be subject to abuse. They are rarely given training to develop themselves and their “business”.

Cost of capital
Once the costs of administration and other supporting services have been added to the base interest rate the affect cost for a loan can be very excessive for the borrower e.g. 80%-100%.

Where as this is lower then other means such as money lenders, the implication is that the borrower is supporting a pyramid of costs including several highly paid support staff, loan officers etc. As a result microfinance is not suitable for some sectors, especially farming which rarely produces returns above 50-60%.

Economic model
MF is debt based, typical economic development begins with savings models and proceeds to leverage unused capital. There is no evidence of a sustainable economic system that began with debt. MF does not provide capital for small business or housing, the typical economy created is petty informal short-term sole trading, which is highly susceptible to shock.

Transparency
Poorly measured, with little rigour, rely on anecdotes and heart warming stories. “Repeat borrowing is often quoted as a success measure. So what we are really saying is that these people paid of their loans and then came back to borrow more. Is that success? The same behaviour can be seen with drug users yet we consider increasing need and dependency as bad."
Not enough data is available to look at the purpose of loans or track the progress of “Borrowers”, there is some evidence that consumption smoothing is a major use of mf, often to pay off money-lenders.

Jumping on the bandwagon
The current media attention could potentially be diverting attention away from better interventions for the poor. There is evidence of a considerable amount of money entering the system looking for investment homes. Potentially 20-70% of current funds are unallocated waiting for assessment. A number of new investment funds have entered the market with $7-10bn potentially in the pipeline from 90 new funds in 2007.

The poor of the world may not have the capacity to handle that volume of debt, and there is not that much effective demand for capital.

Notes:
Organization looking at helping progress rural farmers in Mozambique
http://www.technoserve.org/strategy-1.html

Useful links:
Purchase the Book http://styluspub.com/books/BookDetail.aspx?productID=165037
Microfinance club http://www.microfinanceclubuk.org/
Grameen Bank site http://www.grameenfoundation.org/
Personal blog

Warriors without swords- Santos Brazil

Forum: Hub project talks
Date: 17th May 2007
Location: The Hub, Islington
Network link: Pioneers of change, Hub, Ashoka

Open discussion and presentation on the work of the Warriors without Swords group from Brazil.

Web documentation
Edgard Gouveia - Elos Institute (Brazil) works to rebuild the links between people and communities, their vision and the reality in which they live. Edgard’s approach aims to empower communities from within so they can improve and restore their cultural and environmental balance. To achieve this he works both strengthening communities and training students who support the process of sustainable community development.

Ashoka Fellow Edgard Gouveia from Instituto Elos in Santos, Brazil. He's one of six architects and city planners who founded Elos. Their mission is to cultivate a new generation of social entrepreneurs that can respond more effectively to social issues. Their approach combines space and urban collaborative design and supporting communities to communicate, leverage potential and cooperate for a better world.

In the deep-seated poverty of Brazil’s urban favelas (slums), Edgard uses community-led physical revitalization to spur momentum for community change. When outside architects exclude local people from designing and building public spaces, these structures are often inappropriate for the context. They also end up being neglected because no one in the community feels responsible for them. Edgard’s solution is to engage slum communities in joint projects with architectural students, demonstrating to residents that they are capable of improving their surroundings. At the same time, the projects foster a new role for architects to improve urban communities rather than simply design buildings. After the architectural students complete these programs – already being implemented in Brazil, Argentina, and Paraguay – Edgard’s organization continues working with local leaders to carry out initiatives for community improvement, such as building cultural centers and restoring city buildings.

Meeting discussions and notes

Vision: That the community knows best what their needs are, and they have the resourcefulness and creativity available to them to make the change.

Project overview:
The objective is to make change in community that makes a profound impact on those affected. Targeting a symbol of degradation in the locale and transforming it this is known as - The oasis game. Typical projects last 2 to 30 days, examples are:
· Clean up undesirable derelict buildings
· Build library or school
· Build garden
· Paint mural

Projects are staffed by volunteers with some professional help from garden planners, architects, plumbers, electricians and builders. The project is set up a game that focuses on team building, leveraging diversity, and developing connections with the community.

People are taken from a wide variety of backgrounds and ages. Teams undergo some training prior to the project, but are very quickly thrown in at the deep-end. Projects are given very limited funds and must seek the majority of their resources from local sources. Such ask left over paint and tools from the community.

Projects are established after 2 weeks of discussion with the community and working with informal community leaders such as respected shop keepers, and elders. First an open forum community meeting is held. Then the team prepare designs to be voted on by the community. The community has the role of coach and client.

Reported feedback:

• Amazing levels of creativity found from adversity and from limited resources
• This project has created a sense of pride in the community
• This is the first time anyone has asked us what we wanted - "no one ever asked us about our dreams"

Project is currently expanding to Nepal and has recently been awarded an Ashoka prize for community interventions

Useful links:
Elos Institute (Portuguese) http://www.institutoelosbr.org.br/
The Hub http://www.the-hub.net/
Ashoka http://www.ashoka.org/ and http://www.changemakers.net/

What is wrong with microfinance? Entry I

With my new Corporately Socially Responsible hat on, I attended a meeting last night of the Micro-Finance Club UK (The agenda being the title of this blog).

Having worked with Microfinance ("MF") in Angola and been exposed to it in Bangladesh, I was looking forward to a lively debate with interesting viewpoints expressed. But sadly no!


Winners and losers
Since Dr. Yunus's Nobel prize, I have harbored a growing disquiet at the amount of interest and attention MF has got. Whilst I acknowledge there are winners, I have also seen losers and I feel it is an area for discussion. All the current attention seems a distraction, that funds and creativity have been diverted from real needs.

In London, everyone wants a piece of the MF action and to have MF on your CV is suddenly very "bankable" experience. It is as if MF is the silver bullet and we don't have to think of a solution to the problem of poverty anymore. If she were here today; Marie-Antoinette may well have said "Let them have credit".

What is wrong with MF?
The meeting was held in the shiny glass corporate HQ of Barclays Bank and introduced by the Group Vice Chairman, who proudly announced that MF was "now part of the banks business strategy, not just philanthropy".

The speakers ploughed through their intelligent, thought provoking research to general heckling from the Armani suited and Gucci carrying Investment Banking audience. One of the most provocative statements the speakers raised was:

• "Repeat borrowing is often quoted as a success measure..So what we are really saying is that these people paid of their loans and then came back to borrow more. Is that success? The same behaviour can be seen with drug users yet we consider increasing need and dependency as bad."

Every question to the speakers was either an attack or a self-justification. One eldery gentleman, purple with frustration, jumped up and yelled "Tosh!!" (A terribly British word last uttered in public in 1853)

I am a big believer in open forum discussion, I easily slip into devil's advocacy and feel the need for all perspectives to be considered. Far from a debate, all I saw were closed minds, self-serving celebration and a desire for profit.

I left as early as politely possible, thanking the speakers on my way to the door. I am left with the sad impression that the biggest thing wrong with microfinance is to voice any criticism of it.

Africa ++ forum

Forum: Africa ++ Date: 23rd May 2007
Location: Young foundation, Bethnal Green , London
Network link: Pioneers of change, Facebook

World café style open forum meeting to look at dealing with issues in Africa.

Discussions:
1) What is the Vision for Africa?
· To be a model of a new way of living
· To stay grounded in history an culture
· Break free from victim image and mentality
· To be creative, resourceful, and whole in the eyes of the world
· To be the solar OPEC

2) What needs to address?
· Inspire collaborative learning that is culturally relevant
· To allow the communities to express their own needs and ideas (Participatory planning)
· To build capacity for inventiveness
· To develop and empower natural leaders
· To network best practise examples from across globe on specific topics
· To provide linkages between local activists/entrepreneurs
· Constraints could be access to Internet and English/IT skills
· Develop more social entrepreneurs

3) Practical ways to make a difference today?
· Start small and grow (Reference Gandhi's salt march)
· Provide direct mentor ship and assist in the development of business cases
· Provide access to technology/information
· Direct individual sponsorship of known individuals
· Advocacy in respect to funding
· Establish fund for social entrepreneurs (Unlimited model)

Note) Shell have program similar to AED called "Better World" for formalised sabbaticals with NGOs

Influence

Currenly no notes available

Resilience

Currently no notes available

Human Assets

Currently no notes available

Physical Assets

Currently no notes available

Natural Assets

Currently no notes available