MORE THAN GOOD INTENTIONS -TO BORROW 1213047 HORIE AOI

MORE THAN GOOD INTENTIONS-TO BORROW 1213047　 HORIE AOI

CONTENTS• Why the Taxi Driver Didn’t Take a Loan

• The Miracle of Microcredit

• Erlyn Drops Out

• Stripping Down to Bare-bones Loans

• Golden Eggs and the Case for Microcredit

• Why isn’t Microcredit More Popular?

• A Little Meat on the Bare Bones

• Can Microcredit Transform Communities?

• The Means, Not the End

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WHY THE TAXI DRIVER DIDN’T TAKE A LOAN

• The driver’s goal was to own his own car, and he felt he would need a loan to buy one.

• Here was a man with the will and aptitude to succeed; he had just been unaware of the resources already available to him.

• Getting poor people to borrow money has become one of the best hopes for alleviating global poverty.

I will come tomorrow!

THE MIRACLE OF MICROCREDIT

• First, they show loans improving borrowers’ material standard of living.

• Second, they suggest profound changes taking place.

Look! We used to suffer, but now

we’re prospering thanks to a loan

from…


• We usually think of debt as a burden and an obligation, not as a miracle cure for poverty.

• There must be something truly alchemical about microcredit to have turned the act of borrowing money into the kind of transformative, life-affirming experience.


• Muhammad Yunus embarked on a research project about the feasibility of delivering formal credit and banking services to the poor.

• He gave the woman a better interest rate

• Yunus had an explicit social agenda – namely, pulling borrowers out of poverty.

• What he could do was to encourage behaviors and habits, using the loans as an incentive.


• Yunus founded the Grameen Bank to make a group loans.

• The 2006 Nobel Peace Prize for their efforts.• Today, over a thousand microcredit

　 institutions operate on six continents,

serving some 155 million borrowers.


• Some see it as the storied ‘golden bullet’ – the singular big idea that will solve poverty.

The key to ending extreme poverty is to enable the poorest of the people to get

their foot on the ladder of development…They lack the amount of capital necessary

to get a foothold, and therefore need a boost up to the first rung.


Give a man a fish, he’ll eat for a day.Give a woman microcredit, she, her

husband, her children, and her extended family will eat for a lifetime.

ERLYN DROPS OUT

• The principle behind a successful store is simple: What do people want?

• The answer, of course, is always changing.

ERLYN DROPS OUT

• Erlyn did more than cater to her patrons’ tastes.

• Individual cigarettes• Half-saving of Coke

• Through this myriad of goods, sold bit by bit, Erlyn built a successful business.

ERLYN DROPS OUT

• She had been very successful with her first few microloans, and so her coborrowers and loan officer encouraged her to borrow more.

• She invested what she could in inventory, and the rest commenced to burn a hole in her pocket.

• she was struck.

ERLYN DROPS OUT

• Using credit from neighbors, family members, store owners, and the reviled moneylender.

• Erlyn had a specific solution: the local moneylender offered forty-five-day and sixty-day loans, and came by the shop each day to collect payments.

• His interest rate was higher than the nonprofit lenders

• Microcredit is supposed to help you wrest yourself away from the local moneylender.

STRIPPING DOWN TO BARE-BONES LOANS

• There is less of a clear dividing line between microcredit and moneylending than you might imagine.

• Many microloans around the world would violate the usury laws of most U.S. states.

• Microcredit interest rate spectrum is high by our standards.


• What is microcredit if it’s not just another way of saying ‘small loans’?

• An explicit social mission• An emphasis on entrepreneurship• A requirement to spend loans on microbusiness• Group lending• Frequent group meeting to make loan payments• A focus on women’s empowerment through

borrowing


• Credit Indemnity in south Africa

• Didn’t target women or entrepreneurs• Didn’t care what borrowers did with the money• Lent only to working people• It charged about 200 percent APR

• Do these loans actually make people better off?


• Credit Indemnity spent a surprising amount of time turning away potential clients.

• Could it be that the barely rejected applicants would have been profitable too?

• When a new customer came in to apply for a loan, a staff member fed some information into computer.

• We modified the software so that

some ‘maybe’ would randomly

be assigned a thumbs-up and

others thumbs-down


• Applicants who received a random thumbs-up were more likely to have kept their jobs, and had higher incomes.

• Most important, the strength of the result allowed us to rule out the possibility that these loans were pernicious.

• The loans were used to deal with unexpected shocks.

• Many borrowers used the loan to pay for transport-related costs.

• Borrowers sent money home to needy relatives in rural areas.

GOLDEN EGGS AND THE CASE FOR MICROCREDIT

• The poor actually have great economic opportunities, but that they lack the resources to take advantage of them.

• High interest rate on microloans are not such a problem; borrowers and bankers can both win.

Golden eggs!

GOLDEN EGGS AND THE CASE FOR MICROCREDIT

• To know whether and when microcredit can be beneficial at all.

• It can only work if clients pay back their loans.• What is the marginal return to capital for the

enterprise?

• If a microentrepreneur puts an extra dollar into her business, how much more profit will she earn?

WHY ISN’T MICROCREDIT MORE POPULAR?

• Golden-egg-laying geese is actually a profound puzzle.

• It would appear that one very important group is not sold on microcredit: the poor.

5％


• The first, explanation is a mathematical quirk.

• More educated and smarter• Men had high return than women did..?

• Second, people were driven away from microlenders by excessive restrictions.

• The loans is used exclusively to finance business


• Entrepreneurs didn’t want to finance just their business activities; they had other ideas.

• Why were microlenders making so many rules?

In-kind Cash with no strings attached

A LITTLE MEAT ON THE BARE BONES

• First Macro in Philippine

• Community development• Customer-driven products• Sustainable development

• We surveyed to see how their lives had changed.

• The results were unremarkable.• We can’t say that the change in profits had

anything to do with getting loans.

A LITTLE MEAT ON THE BARE BONES

• There were some striking things to say - Not everybody succeeded.

• Men did much better than women.• Better-off borrowers proved much more adept at

putting their loans.• There was something else about the story that didn’t

square with conventional wisdom.

• Increases in profit were driven mostly by shrinking firms, not expanding ones.

• Applicants who received loans consolidated and pared down their operations.

CAN MICROCREDIT TRANSFORM COMMUNITIES?• The great promise of microcredit is that it can be

plunked down almost anywhere and be expected to pull entire communities up out of poverty.

• See what happens when

　microfinance arrives in a

　 community for the first time.

CAN MICROCREDIT TRANSFORM COMMUNITIES?• The first thing they noticed was that there actually

weren’t all that many go-getters.

• Fewer than one in five people were enticed to take loans.

• Despite the shiny new Spandana branches on their streets, communities were not transformed overnight.

• A year after branch openings, total expenditures hadn’t increased.

• It looked like people were, no wealthier than before.

CAN MICROCREDIT TRANSFORM COMMUNITIES?• The introduction of microcredit didn’t mean instant

prosperity for all; but this was not the whole story.

• Different kinds of people and the different ways they respond.

• The researchers broke down the residents.

• An actual entrepreneur• A likely entrepreneur• An unlikely entrepreneur

CAN MICROCREDIT TRANSFORM COMMUNITIES?

• Actual entrepreneurs tended to funnel money into their existing enterprises.

• Likely entrepreneurs cut back on temptation goods’ consumption.

• All this business-related spending meant people were building and fueling economic engines.

• People were making smart sacrifices to achieve their goals.

• The unlikely entrepreneurs didn’t buy durable goods.

THE MEANS, NOT THE END

• The limitations of microcredit is not a tragedy!

• It just means that not everybody is a born entrepreneur.

• Thanks to the explosion of the industry, millions of people around have more choices than they did before.

THE MEANS, NOT THE END

• The future of microcredit is at stake.

• Millions of dollars pour into development aid, but it’s not nearly enough to solve the problems of poverty.

• How we can do the best with the resources we have?

• Can we inspire more people to get involved, by giving them the confidence that there are programs that really work?

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MORE THAN GOOD INTENTIONS -TO BORROW 1213047 HORIE AOI