While the importance of micro-finance cannot be denied on one hand, it is my belief that it yet yields continued poverty.

Why do I believe this?

When one is poor and seeks a small loan, the ability to raise one's level of living significantly is still doubtful. The issues of poverty are complex and involve multiple factors: education, water, food, health, housing, and real participation.

Lending money to establish a small enterprise does not provide for a systems solution to these complex issues.

Further, virtually all of the micro-financing undertaken has been focused on those whose "livelihood" is based on some form of non-agricultural production. The loan of a small amount of money allows such people to acquire some inventory or tools which then provide them with an ability to exploit their energies in a setting that has not been agricultural.

My argument is that the foundation of production, of society in developing and under-developed countries is on the land...the farmers and their families.

My further belief is that what is required, or what "are" required are methodologies which provide the infrastructure that then enables the growth of the participants and their families in a systematic method approach.

Imagine, if you will, an investor seeking to build a factory to manufacture clothing (anything will do but lets start with clothing). What is it that such investor will do? Will they offer small loans to individuals and then expect or anticipate they will receive clothing in return? Doubtful.

What they will do is they will create and develop the infrastructure that allows for the implementation of their plan, their business, their dream. In the process of these undertakings, they will establish an integrated systems solution approach and methodology to achieve their goals.

It is my belief and argument that nothing less than this can successfully create programs for true development and enhanced standards of living and active societal participation.

Brian Lewis

And hi, Brian!

I just wanted to drop by briefly to welcome everyone, and to say how delighted I am that this week's event (which may last way longer than a week, don't get me wrong, I hope and trust it will) coincides with both the Unitus series opening and the X-interview with Muhammad Yunus.

I hope you'll find this event offers a friendly space in which to discuss microfinance, but also that you'll click on Muhammad Yunus' name, either at the top of this event or in the top left position within the SocialEdge homepage, and see the interview itself.

Thanks again, and welcome to the triple event...

Well, actually Charles, I've been working on a new approach to microfinance in Scotland - part funded by Norwegian government money - for over two years now.

The fact of the matter is that in the sparsely populated areas of the "Northern Periphery" (Scotland's Highlands & Islands, most of Northern Norway, Sweden & Finland) the only businesses ARE "micro" and they are all keenly conscious that the financial system (and also in matters like public procurement - local government) doesn't want to know them.

So we've developed new tools:

(a) for the mutual guarantee of bilateral "peer to peer" credit - which is "interest-free", but not "cost-free", being backed by provisions into a default fund; and

(b) "micro investment" (again interest-free, but this time with a return on capital) based upon the use of partnership vehicles to allow any enterprise, whatver the legal form, to raise "quasi equity" capital simply by sharing either production or revenue from the sale of production in an equitable way.

We're now looking for pilot schemes and already have a housing coop lined up, plus other projects very interested.

These tools will work perfectly well in the Third World, not least because they are both Islamically sound. In fact, we had an hour with the Norwegian minister responsible for overseas development, who was very interested, but unfortunately, her team were already committed to conventional microfinance.

The "Capital Partnership" is in fact what Dr Yunus is talking about when he advocates "Social businesses": it's just that the legal forms he iios familiar with literally prevent him form the "enterprise model" he is trying to achieve.

Good luck with this discussion: but for me the bottom line re microcredit is that I have never seen how it is that the best way to get people out of poverty is to put them into denbt: there has to be a better way.

Chris, I think you are on a very good track with your "tools". It seems to me they help to build ownership and wealth in a balanced way among members. Is it possible to find out more about them and about your future projects?

Hi Radu

Well,my website

www.opencapital.net

is currently being shifted to another host, but you can find some material in

www.ned.com

in the Open Capital thread, and there is also a lot of discussion and so on in my Diary at

www.eurotrib.com

although that would take a lot of wading through...

By all means drop me a line at cojock (at) hotmail.com and I can maybe dig up something more specific to what you want to do.

Best Regards

Chris

Two big trends in microfinance include the peer-to-peer approach pioneered by Kiva.org and mobile banking that is beginning to take off in sub-Saharan Africa. The journal, INNOVATIONS: Technology|Governance|Technology (MIT Press) published case studies by Matt Flannery, founder of Kiva, and M-Pesa, a mobile banking initiative in Kenya, along with articles by various microfinance leaders which specifically address your question "where else can we go from here." See our "Microfinance 2.0" (Volume 2,Issue 1/2 double issue); much of this content is available for free download from http://www.innovationsjournal.net .

Winthrop Carty, editor for cases, Innovations (MIT Press)

Though micro-credit is a way of helping people out of poverty, that alone is certainly enough to deal with poverty. I think the most important option is attitudinal change. Success first begins with having a positive attitude. People ought to be taught and educated on the principles of poverty eradication. More attention should be given to the up and coming generation. According to John F. Kennedy (former US President) "the future promise of every nation can directly be measured by the current prospects of its youth". Therefore young people ought to be empowered. Again, maximising one's talents, potential is another way of making money and eventually the path to wealth creation. Every individual has a gift/talent which ought to harnessed to bring about the desire results.

The thing about micro-finance --and even more so, about person-to-person micro-finance (which is not only what Kiva does, but what Yunus first loan effectively was, too

is that it addresses need at its own level, at its own scale. Yunus, as an academic dealing with the National Development Plan for Bangladesh, was teaching in terms of millions if not billions, but the scale of need was more granular, twenty-seven dollars did the trick.

Is the secret, going forward from here perhaps

the secret that eluded Marxism as it eludes Capital today -- that we are people and families and friendship networks, first and foremost, to a degree that is very, very important to us, and only remotely and much less importantly affiliated with large organizations -- so that the personal level is the level at which we should primarily focus our efforts at transformation?

This is a question I am asking, not a position I am taking

but I think in an age where eg p2p (peer-to-peer) file-sharing has not just facilitated software revolution but provided an archetype of networked participation, person-level social enterprise may be an idea worth considering across a wide variety of venues.

Help me out here

if I knew exactly what that implied, I'd be out doing it.

You wrote: The thing about micro-finance --and even more so, about person-to-person micro-finance (which is not only what Kiva does, but what Yunus first loan effectively was, too is that it addresses need at its own level, at its own scale. Yunus, as an academic dealing with the National Development Plan for Bangladesh, was teaching in terms of millions if not billions, but the scale of need was more granular, twenty-seven dollars did the trick.

----

I agree. It does provide/offer some type of effective response at "...its own level, at its own scale."

However, is that the best that can be done? Is it appropriate to engage in programs that offer/provide a bandage for a given problem but leave unaddressed the underlying causes of the disease? I think that more can and should and must be done. ---

You next ask:

Is the secret, going forward from here perhaps the secret that eluded Marxism as it eludes Capital today

that we are people and families and friendship networks, first and foremost, to a degree that is very, very important to us, and only remotely and much less importantly affiliated with large organizations -- so that the personal level is the level at which we should primarily focus our efforts at transformation?

I believe I understand your question but am not 100% certain. So, if this response is off-point from your perspective, please lead me to where you were going with your question.

Returning to my initial post in this discussion, it is my observation that indeed people do live and work and die in communities...at least this has been the historical societal condition.

The organization of society based on the economic principles of Marxism and Capitalism has, in my opinion, lead to a breakdown of the community and the family. Even the "nuclear family," which has been a development and result of industrialization under both systems, is being further eroded in the search for "meaning" in life as measured under the principles of economic-determinism.

I see your underlying question as being: "is it the person toward whom effort must be directed?" If this observation is correct, then my belief is that this is not a "best" approach. Indeed, it would further weaken social structures as it would likely focus on individuals who are "able" and "capable" of meeting/achieving goal oriented tasks/challenges at the expense of the family and the community.

On the other hand, it is indeed necessary, I propose, that methods and systems be developed/implemented that offer incentives for cooperation, incentives for family and community support, incentives that bring together people in systems whereby cooperative efforts and sustaining enterprises strengthen for the good/benefit of the group.

While such a goal is perhaps difficult, I suggest it is worthy for our challenge.

_____

You next ask:

This is a question I am asking, not a position I am taking but I think in an age where eg p2p (peer-to-peer) file-sharing has not just facilitated software revolution but provided an archetype of networked participation, person-level social enterprise may be an idea worth considering across a wide variety of venues.

My response is that this method of analysis suggests that the world is connected in a way which I find it is not. While our abilities to communicate and effectively share information and support have grown in ways that would have been difficult to imagine just a few years ago...except for folks such as Howard Rheingold perhaps, we nonetheless do live in a world where the vast majority of people whose needs are at least partially addressed by micro-finance, are nonetheless without access or even understanding of what can be provided via the P2P social enterprise programs.

The need to engage in person cannot be underestimated while the ability to share and create via the Internet also cannot be denied.

My point is that one does not work without the other and as such the importance is to find ways to increase the benefit and value of both.

I believe forums/discussions such as this provide means to further increase understanding and identify problems/challenges which can be addressed at a macro-level while also establishing tools/methods that can be taken and implemented at a micro-level.

I have this habit of writing longish sentences that require breaks

and then making the breaks by using a double dash [ -- ] to separate one part of a thought from the other. I works fine everywhere else I write online, but here, as you can see, the effect of that double dash is to put the first chunk of thought into bold face and then set the rest of the paragraph as though it was a kind of more detailed explanation, indenting it and separating it by a narrow band of white space from the first chunk.

I don't like this. In my last post, it happened with every paragraph. It makes it look as though I am throwing my weight around, pushing my finger into your chest to make a point. But it's just an artefact of the software here, and of my inability to remember a lesson I've learned dozens of times already.

I am very sorry

I'll try not to do it again!

Charles, I can assure you that your last missive was not taken as throwing your weight around (pay no attention to the man behind the curtain, everyone ;-0)

To me, microfinance should been seen as part of the toolkit, not as a panacea for poverty. Agreeing with Brian, there's often a primary need for access and tools for land cultivation, irrigation and potable water.

Agreeing with Chris too, knowing that the asset based models for "credit" he's explained to me have the possibility of real community based p2p lending, through such as the Guarantee Society.

Then there microcredit and microcredit, the spectrum with Grameen type moral collateral models which help poor people start new business, to those which loan only into existing business. I can't say much about it just yet, but may soon go public about microcredit schemes, totally legit in their own right, being exploited by those laundering money from organised crime.

On your last question. Yes, it's the nature of us all to think of me and mine. Isn't this always the problem, varying from benign to pernicious corruption? We might see it locally in development initiatives, where the usual suspects are always to be found, to the third world extreme, denying others to the point of starvation. Other than the real natural disasters, it seems to me that most poverty extremes are consequences of corruption, working as an equal and opposite force to what we may try to do with economic development.

This much is true, where we work in Eastern Europe in places where theres more than a hectare of highly fertile soil for every man, woman and child, yet there are still those who starve, as food, fuel and funding are manipulated to render life unaffordable for many.

It's a holistic plan we pitch now in Ukraine. Social problems - HIV, human trafficking, drug crime, child porn and prostitution arising from the raw material which is the people themselves, those least empowered who are found in institutional care and graduate onto the streets. My colleague and founders holistic Marshall Plan makes it's primary social object, that of putting children into family homes to break the cycle, pulling a country up to create new information technology based industry and fuelling that with microcredit. A faculty for social enterprise, being the final part, to teach them how to do it.

Experience in Russia, 2000-2005 illustrates that a moral colateral based microcredit bank can in itself be a "no loss" business initiative, by leveraging the funding from development aid to be used as seed capital. Combine this with stimulating new industry and the primary social problem can be addressed and stay that way at nil overall cost.

Thank you Charles for your welcome and for hosting this discussion...nice to see you here too Jeff. Chris, your statement about micro-credit being a limitation because of the new indebtedness of the borrow is a statement that rings true in my heart and mind...wish I had thought to say it so eloquently.

My thoughts and ideas on ways in which to breech the impasse of poverty involve an approach that challenges the paradigms which compel the operation and organization of ngos and non-for-profits.

I believe Dr. Yunus' insights and compassionate undertakings deserve our accolades but of course the world has done this already.

A systems' solution based approach takes into account the goals of the people who come into it to participate in the work of development and improved life participation.

If it is possible to raise capital to build a factory, why does it appear so difficult to raise capital to build a community program that does not engage in charity but builds on skills and knowledge and expresses economic development in ways that would be as novel as the creation by Henry Ford of the assembly line? Today's economic world is replete with successful models where companies have operated based on value systems that profit the people involved in both monetary and non-monetary ways...I see this being done at the bottom of the economic ladder incorporating those who have been denied participation in new and novel organizations that are not charity and yet are more than just for profit.

(Charles...just noted this is a rather long sentence too!)

I wish there were more participation.

Here is something to share with everyone...maybe Howard's talk with offer some inspiration on cooperation.

Forgot the link...

http://www.ted.com/index.php/talks/view/id/216

The story Yunus tells is so amazing because it is such a small number. Who can imagine struggling over the lack of 2 cents? I find that microfinance is an incredibly inspiring way to get students more interested in social entrepreneurship and our organization, Gumball Capital, tells the story of 27 all the time. In fact, its integrated into the competition we run - the Gumball Challenge - where teams of students have one week to create value with a $27 loan and 27 gumballs.

Where and when is the next Kiva.org going to happen? I've been loaning monthly for nearly a year and I've seen the growth in activity of Kiva. Matt and Jessica did an amazing thing. My question is, why are there not a thousand variations on this plan? Kiva remains, to my knowledge, unique in several ways.

On Tuesday, Feb 19th at 12 Noon EST, I am assembling a panel on a conference call. You can join us to discuss your ideas:

Call (724) 444-7444 Enter 22062# 1#

See http://Talkathon.org for more info or go to http://x2z.eu to listen live.

I'd gone a bit quiet after Brian said,

Charles...just noted this is a rather long sentence too!

until Victor nudged me back in, and I found a cluster of new posts, and in particular Brian saying

I wish there were more participation.

I suspect that part of the thing here is that we go back to check if there are more new posts more regularly when (a) the specific topic under discussion hits a nerve for us, seems timely and relevant, (b) the item in question is at the top of the list of events, and thus an "obvious" choice as somewhere that's likely to be hopping, (c) there were posts we hadn't seen in that item the last time we looked, ie it's a place where the posting rate is fairly consistently higher than the rate at which we check in, and (d) we have come to feel it's a meeting place or our friends.

The first one depends on the actual needs and interests of the people who come here, and on our ability to chose topics that will be of interest.

The second is pretty automatic, an event starts at the top of the list the first week it's open, and moves down until it's off the list

or moved across to the special area for "top discussions" -- I guess our "ambition" here would be to keep the better conversations here going long enough, and with enough enthusiasm, to make it onto that list.

The third is a sort of conviviality / aloneness marker

we tend to forget gathering places when we go tere and there's no gathering.

But the fourth is the one I really think brings the place alive

when we begin to make SocialEdge our meeting place,and our colleagues here our companions.

There was a "special moment" that happened in another of the events here recently, when two people, both using rugby football as a way to work with "youth" met up, one from the US, one from Italy. That kind of detailed common interest has the potential to spark a real connection, t' "build community" as I understand it

it makes SocialEdge so much more than a resource.

Just sayin', as they say.

Well Charles, this is a very good discussion. Clearly lots of energy.

Thanks to Brian for providing a challenging position. But, I fundamentally disagree with his position that micro-finance yields continued poverty.

Straight away on the economic results, I think Brian would be proved wrong. But the more important thing to note I think is that Micro-finance works because it gives a start, a shot if you will at the individual level.

I am probably like many members, like Brian - I can see all the big things that are wrong and the broad sweeping programs that ought to be mobilized. So how could lending a few dollars at the micro-level possibly eradicate something as large as severe poverty.

Well it can and it does. I have spent my career in transformation and change. Change is really only successful, meaningful and sustainable when it hits at an individual level. Does Rwanda with its Vision 2020 (a great plan) without giving individual Rwandans a role and a funding mechanism to contribute to fulfilling the vision? No. Definitely not. Without something like micro-finance that brings people individually from a community to a position of action, it is highly unlikely to be successful. That's just my experience. Rwanda's government understands this and respects it. They hold a strong line on individual accountability and contribution without, perhaps to Brian's point which I agree with, without defeating or undermining the importance of community.

Micro-finance works, and it works in a big way, because it empowers people and places accountability at the individual level. Spending time on the ground in Africa, I am resolved that what people want is a fair shot at prosperity and survival. Micro-finance gives people that individual control and opportunity to prove themselves. That's what makes it great. That's why we have more hope today that we will see and end to poverty than we have ever before. Micro-finance is and will play a big role in success.

One of the missing pieces in many of the discussions about microcredit is that in many cases it's not the money, or not the money alone, that has made the difference in communities where microlending has had an impact.

Part of the Grameen model is for loan recipients to meet together regularly, and for groups of recipients to be responsible for one another's success. This element of peer support is more valuable than many realize.

Another factor in determining whether microcredit has the impact of lifting people out of poverty is whether the recipients also receive educational support to further the enterprise they are borrowing money for. Not all microcredit is used for business capital, but when it is, those programs that include business education as a mandatory component of borrowing can produce much more significant results.

The future of microcredit should be to incorporate education and peer support as integral elements in any lending program. Many microcredit programs already do this, but far too many focus on providing money alone as the solution.

1. J. Hayden

1. J., your point is on the mark. The assumption is that lending alone will alleviate poverty. We know that’s incomplete. But lending, combined with business education, may be the key to propelling these entrepreneurs out of poverty.

To understand the problem, place yourself for a moment in the shoes of a tailor with a small business. You struggle to feed and provide shelter for your family, and your hope for a better life rests on expanding your business. You’ve learned to sew from your father, and since his death you’ve taken over his shop, sewing two pairs of pants per day but barely making enough to cover the costs of business and taking home very little. You have seen others with sewing machines provide for their families and think that if you bought a sewing machine, you could sew 10 pairs of pants per day. You take out a small loan. You buy the sewing machine and extra fabric and increase production. But the sales don’t come. It soon becomes clear that the success of others is exactly what is preventing your own success. The market is not large enough to support the 4th or 10th or 20th pants tailor. You have to repay your debt – and still need to support your family.

What if you, the business owner, understood the microeconomic relationship between price and supply? What if you could take the same sewing skills, the same loan, buy the same sewing machine and instead of making more pants, make shirts?

Now you have less competition. You’ve developed a more sustainable and more profitable small business. You can take home more money. You’re able to pay off your loan, take home more for your family, buy medicine for sick parents, buy schoolbooks for children and buy blankets to keep you all warm in winter.

My colleague and I created an adaptable, modular discussion guide to help MFIs and entrepreneurs begin discussions that examine basic business concepts and apply them to the real-life situations. The Barefoot MBA seeks to give the world’s smallest business owners knowledge and concepts to empower them to make better business decisions and provide better lives for themselves, their families and their communities.

We have 2 versions up and running in Thailand, and are going to Guatemala in March to adapt our curriculum to poor, rural entrepreneurs there. We have interest from others in Africa and India, and hope others continue to take advantage of our work to bridge the gap between throwing money, in the form of loans, at poverty and truly adding a valuable solution.

Whether the support is through the Barefoot MBA, through other experienced villagers or entrepreneurs, or through some other curriculum used by the lender, some form of guidance is a necessary element to ensure the success of those who access microcredit.

My question/idea was born after reading Muhammad Yunus's book "Banker to the Poor"

My question concerns children who end up as slaves/forced laborers to corrupt moneylenders.

Situation: A child falls ill, and the parents opt to treat the child and receive approximately a $20 medical bill. Being poor, they cannot pay. They go to a moneylender who gives them a loan. To pay back the loan, the child is given to the moneylender as a worker. He, however, being corrupt sets her salary so low that she never make a profit. She remains in bondage for her life, unable to pay the loan. (I first read about this specific issue in Not For Sale by David Batstone).

Questions:

1) Is anyone familiar with this issue or know of organizations seeking to address this issue?

2) Does anyone know a model "out there" for addressing this specific situation? (To me, it seems the model would be creating a SAFE MONEYLENDING ENTITY).

I am familiar with a few microfinance companies as well as the model of the Grameen Bank (Professor Yunus mentions in his book Banker to the Poor that a small percentage of loans from his bank go to these specific cases). However, I know at least in the Grameen Bank the majority of loans are for profit-generating business ideas/plans/start-ups rather than non-profit generating issues, such as medical bills. 3) Hence, must our "model" solution/company be changed in this case to best address this type of poverty?

Thank you for your time.

Michelle,

I don't have an answer for you or a model to point to, but I think your idea is amazing. After reading your post, I realized that micro-finance as it is conceived today, is a "business-to-business" model. YOu are suggesting a "business-to-consumer" model where it is about supporting personal needs rather than business development. A friend posed another expansion of the micro-finance model which I found fascinating. I can't share it because he said it in confidence.

I think there is great potential in your idea. Why? We know from the recent history of micro-finance in developing countries there is one thing we know for sure - that poor people make an unusually strong commitment to repay their loans. I think something like you put forward would work. You should talk to Kiva to see if they have any plans to expand this way. I think it would be a huge step, now that the first BtoB model is now proven successful.

If I ever come across anything, I'll let you know.

M

I'm sorry I didn't read this sooner Michelle. You may find some congruence in something we're doing to address much the same problems, in another location.

http://www.p-ced.com/Projects/Ukraine/AMarshallPlanforUkraine/tabid/69/Default.aspx

The aim is a holistic approach in which microfinance and technology both feature yet the primary target is children. Rather than treating the symptoms alone, it's a cause and effect approach in that the primary objective is to get children out of the exploitative enviromnent in to family type homes and for people to build sustainable lives, and be able to support their families.

This topic in general draws attention to the fact that many loansharking outfits can pass themselves off as microcredit today. Indeed as we have discovered, even bona-fide micro credit is not without corruption where only existing business is funded.

I wasn't there at the inception of P-CED but I know it drew on Grameens model in its founding white paper which in turn became one of the earliest inceptions of a social business. We make the point that microcredit only serves the poor when deployed under a moral collateral or reputation based model.

Jeff

I worked for Catholic Relief Services (CRS)

the int aid & dev agency of the US Catholic Church -- providing technical assistance to our local partners operating MF programmes in the Middle East 2002-06. Towards the end of that time I had some very interesting conversations with a community development org in Egypt about how they could adapt their MF services to tackle the question of child labour, a phenomenon they had been attempting to change through parent education, etc. Having come to recognise the economic basis to child labour, they were seeking to match their MF services to the needs of families.

I returned home to NZ before practical steps were taken, but I would be happy to give you some Egypt contacts for you to make enquiries if you wish.

Greg

Hi Michelle:

Like Michael, I don't have a clear answer to your question as to whether this approach you are proposing has been tried, but it seems like an application of what I'll call Yunus method to the problem that Kailash Satyarthi deals with by means of daring raids on slave factories and camps. You may already be in contact with him or his organization, South Asian Coalition on Child Servitude (SACCS), but if not, they would be logical people to approach, along with people like Kiva already working with microfinance but with a distinctly personal-level touch.

Somewhere at the intersection of method and problem, the powerful impact you envision should find the soil to flourish.