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Introduction to Microfinance

Dr. Muhammad Yunus I think since I am mentioning microfinance so much in my posts that I should expand on it a little for those who have not encountered it before.  Microfinance was pioneered by Dr. Muhammad Yunus, an economics professor from Bangladesh.  What Dr. Yunus did was to take traditional banking and transform some of the assumptions so that it helped the poor rather than excluded them.

There are a few problems with traditional banking that Dr. Yunus overcame in his quest to become “Banker to the Poor” and win the Nobel Prize doing it.  For instance, the typical loan process at a bank involves the giving of collateral. Banks do not wish their borrowers to fail repaying loans, so banks demand that borrowers present proof of repayment ability.  Usually, we see borrowers put up houses as collateral in America.  However, this process has the side effect of excluding the poor, since they have very little collateral to put up.  Also, banks are traditionally interested only in giving loans either with large principle amounts or large interest rates.  It is not profitable to earn small interest on a loan that is only $100 in size, given the operating costs that go with granting a loan.

But Dr. Yunus found ways to avoid these problems and make credit accessible to the poor.  Instead of collateral, he demanded something different: community backing.  If someone wants to get a loan, they must first create a credit group — a group of people that all agree to back up the loan.  These people are there for support during the loan process, and they are unable to receive a loan until the first has been repaid.  Thus, the incentives to repay come not from the giving of collateral, but from community ties.  Dr. Yunus also found ways to give small loans at small interest rates.  By standardizing the loan process and minimizing the screening costs, he was actually able to give extremely small loans at rates barely above the inflation rate, and still even turn a profit!

Granted, Dr. Yunus’ will be the first to tell you that his bank, the Grameen Bank, is not a profit-maximizing entity.  It is what he calls a “social business.”  If it makes a profit, that is all well and good; however, its measure of success comes not from the bottom line, but from the number of people that it helps escape poverty.  And by that measure, it has performed quite well.  Today, there are over seven million poor people in Bangladesh who have loans from Grameen Bank.  To date, it has loaned the equivalent of $6 billion (U.S.), and the repayment rate is an astonishing 98.6 percent.  Bangladesh is currently the only country in the world on track to meet the Millennium Development Goals, and that is in no small part due to the Grameen Bank and Dr. Yunus’ many other social businesses.

That brief explanation should be enough to understand anything that I address in future posts.  If you are interested in learning more about Dr. Yunus and his development of the microfinance model, read his autobiography Banker to the Poor. If you are interested in microfinance and social business as it stands today, I recommend his second book, Creating a World without Poverty, which looks more towards the future.

Rhetoric, Reading, and Reflection

Me at Nari Jibon

It’s very easy for blogs to be nothing more than words on a screen. It’s especially easy for a blog focused on important issues like global poverty to come off sounding like meaningless rhetoric. Paying it forward! Changing the conversation! These things are meaningless unless there is action, events, and changes attached to them. It’s thanks to Kathy Ward and her non-profit organization (Nari Jibon) that I’ve been able to see first hand the power of the words that I type on my computer screen.

A few months back, my video about the Young Hardworking Poor of Rural Bangladesh got featured on the YouTube.com global website. Thousands of people started looking at my site – some wondering how to get involved. I wrote a quick post and recommended a few places people could go (Nari Jibon being one of them). As much as I’d hoped that someone might be inspired to “pay it forward”, the pragmatist in me didn’t think it very likely.

Boy was I surprised.

That video eventually made its way to Shaina. Shaina is an undergrad at Florida State University. Little did I know that she had checked out my website, found the post about how to get involved, and got in touch with Kathy at Nari Jibon. Shaina came to Bangladesh on her own dime – and like me – is staying in Dhaka with help from her family in Bangladesh. Unlike me, her two month stay in Bangladesh is definitely a two month stay. FSU awaits her back in August.

The day I met Shaina and learned about how she was inspired to come to Bangladesh was also my opportunity to meet Kathy Ward for the first time. Kathy has been reading this blog for the longest time. I think she was reading this blog before there was even a single video up on YouTube. Meeting her was especially significant for me because not only has she been a long time supporter, but she’s also been able to see how this project and how I have changed over time.

It’s friends like Kathy that have made it possible to see how my blog can make a real difference. It’s also friends like Kathy that keep me honest and make sure – no matter how many YouTube honors, website hits, and video views I get – I never forget why I came here and started this project.

[And as a sidenote, there were also a lot of weird coincidences which kept reminding me of Matt during my meeting with Kathy. Kira (the lady in the far right in the picture) used to live in Uganda before coming to Bangladesh. She was delightfully surprised when she found out this blog was expanding to Uganda. And Shaina is from Florida just like Matt. Small world, eh?]

Getting my Bearings

Well, it has been a week with my host organization, the Organization for the Good Life of the Marginalized, two weeks since I set foot in Uganda, and I finally have a grasp on what my work is going to be for the next seven.

This past Monday was my first day, and I spent it mostly learning names and positions of everyone at my organization. My organization is very multifaceted. They have everything from a microfinance program to AIDS information sessions. The staff is very knowledgeable, and the founder, who is also the boss, is quite serious about his work.

To be honest, my workplace is a nice change of pace from the African work ethic that many of my friends will have to deal with. It is not that the work ethic here is deficient; it is just slightly different. Whereas in America we focus on individual effort and efficiency, Africans focus on working together and prioritize quality over quantity. OGLM seems to blend the two approaches together to an optimal mix.

Ironically, Tuesday was a public holiday, Martyr’s Day, which meant no work! Wednesday, we went to a rural village called Buwaiswa, which is where most of the people with which I will be working live. There is a boarding school there that OGLM runs among other things.

I met some of the people I will be helping. My project is focused on victims of AIDS. More precisely, the grandmothers of children orphaned by AIDS. These “grannies” are the backbone of the lives of these children. Many are only subsistence farmers, left at the mercy of the weather, so I will be developing a microfinance program aimed at bringing them business training and capital to start small income-generating activities.

Thursday and Friday were slow days at the office where I just sat in front of the computer and typed up some reports on the current needs of the organization. Slow, but necessary. Soon enough, I will be on the front-line very often, and work will move much faster.

[Matt’s article continues after the jump – including some really stunning photos. – Shawn]

Continue reading ‘Getting my Bearings’

My First Post!

Musiibye mutyanno bassebo ne bannyabo!

I must say, Shawn did some digging when he was introducing me, but he didn’t get all the dirt.  My work in Uganda is going to be considerably different than what Shawn is doing in Bangladesh.  Hopefully, you know Shawn’s story (if not, read from the master himself!), so I’ll just share mine.

This summer, instead of getting the normal finance internship in New York or Chicago, I’ve got one with an NGO in Uganda.  I have a lot of help from many different people.  Notre Dame, St. Peter Church in Deland, FL, The Rotary Club of Deland, and several other well-wishers are all helping me to make this trip.  The internship itself is through the Foundation for Sustainable Development (FSD), a multinational NGO operating out of San Francisco with offices on four continents.  FSD placed me with a local NGO in Jinja, Uganda, where I will be acting both as a consultant and a student, exchanging ideas and developing a microfinance project that is self-reliant by the time I leave in eight weeks.

Now that I’ve got the intro out of the way, let’s get on to what you want to read!  I got here in Uganda on last Saturday, May 24, and I’ve been busy ever since.  I am not the only intern working with FSD in Jinja, there are nine others.  Week One of the FSD experience is culture orientation, so I haven’t really gotten dirty yet in terms of aid work.  But, I am slowly getting used to Ugandan culture.

I have been learning Luganda, the primary trade language here, which is why I greeted you all with “Good day, gentlemen and ladies” at the beginning of this post.  Three hours  a day of in-depth language training for five days will get you farther than you think.  It is like your typical language class on speed.  Check out the vocab cards on the wall:

Language Lessons

[More of Matt’s post including more of his first photos since arriving in Uganda after the jump – Shawn]

Continue reading ‘My First Post!’

Murphy’s Law

Today was one of those days when I am kind of in awe at the international scope that this project seems to be taking.

Just hours ago, Matt boarded a plane to Uganda. Before heading out, Matt had informed me that a shipment of mosquito nets (PermaNets) donated by Vestergaard-Frandsen hadn’t arrived at his home in Florida. After touching base with a friend at the company, I found out that unfortunately the shipment had been delayed at customs in Geneva. So now I’m looking into having something donated to Matt from Vestergaard-Frandsen’s Kenyan office which could then be shipped to where Matt will be staying in Uganda.

Meanwhile, back here in Dhaka, I’m stuck with this cold, flu, or whatever it is that I have. It doesn’t seem to want to go away. That’s what has been making it hard for me to make new videos. I was, fortunately, able to keep my friend John Green up-to-date about what I’ve been doing though. He was able to make a video about it on his channel which he filmed in his backyard in Indianapolis. If you’ve seen that video than you already know that I’ve been able to spend the money donated by his brother Hank (who lives in Montana).

Those trying to visit uncultured.com earlier today might have noticed the site was dead. I noticed this as well but I wasn’t sure if the problem was on my end – the internet connection I have here in Bangladesh isn’t that great afterall. After checking with a cousin in Ottawa, I realized the site was actually down. So I had to fire off an email to the California-based company that hosts this website. Looks like everything is back to normal now though. Although, that wasn’t the only problem I’ve been having to deal with today.

I also was shocked to find that my savings account had been frozen by my bank back home. I know everything I’ve been doing with my work in Bangladesh (and my bank back home) is 100% legal – so why on Earth would it be frozen? Turns out there is a rule pertaining to how many times you can transfer money to/from your savings account in a given month. The limit seems to be six times. I had always sent any money from PayPal to my savings account before transferring it to checking before withdrawing it. So, unless, I create a different setup – I might bump into this problem again.

So, at the end of the day, my work with this project has in some way, shape, or form involved people or things happening in Geneva, California, Dhaka, Florida, Ottawa, Indianapolis, Kenya, Montana, and my family and bank back home. While that’s really amazing… it’s also a nightmare because Murphy’s Law is apparently internationally scalable.