Kenya: Day 32

Pray for:
- Rosemary's mom, that she would dream of growth
- Me, as I contemplate my future and where God is calling me (I will expound on this more later)

What happened:
- went to Junction. had meeting with Mercy from Hot Sun. talked about collaboration
- met with Gwatila and Sam. talked about TV opportunities
- hung out with Ken a bit
- went to Ken's place. met Cairo, a publisher. he had published Gwatila's book: Blue Mothertongue
- lunch at prestige
- went to check out Faulu, a micro-finance
- went downtown to do some banking
- went to Kibra Academy. met with Rosemary's mom. talked about her competition and how to differentiate from them
- added credits to my phone
- went home

Ken and I went to visit Faulu, a micro-finance operation, in the interest of helping out Rosemary's mom. What we discovered shocked me.

One of the big problems with micro-finance is managing risk. Usually, the "ventures" that those who are borrowing from you are so small, and their margins so thin, that even minor disruptions can bring them to ruin.

Traditionally, micro-finances have succeeded by making loans to groups. If one person in the group is unable to pay, the debt is passed on to others in the group. In a way, they're co-signing for each other. This also creates a lot of social pressure for everyone in the group to pay back the loan. A good thing right?

Wrong.

The problem with this model, at least where Faulu is concerned, is that it requires groups of at least 15 people to take loans.

I don't even have 15 friends that I would trust taking a loan with me, let alone 15 friends who need loans. As a businessman, why would I co-sign loans with 14 other people I don't know? If they default, then I become responsible for their portion of the loan. Why would I want that responsibility?

What's worse, is that the system encourages people to default because the group will support them. The only reason this doesn't happen is because the shame that would be associated with defaulting would be greater and worse than defaulting.

The result is that a lot of people end up being worse off AFTER they've taken the loan than had they not taken the loan at all.

Even if you wanted to take out a loan, you could only take out however much you're "worth". To determine your "worth", they come to your house and look at what you have. TV, chairs, tables, etc. But if it came down to it, they won't take your bed or plates. How kind.

So I can't find a 14 other people to take loans with. So Faulu has something for individuals. But before the individual can take out a loan, they have to have started a savings account with them and deposited at least 500 KSH ($6.25 USD)/week with an initial balance of 300 KSH ($3.75 USD). That doesn't sound like a lot, but in Rosemary's case, her mom is living paycheck to paycheck. She can't even make ends meet as is. In order to get by without falling into egrecious debt, she can't afford school fees or feminine hygiene products. This is the sacrifice that is made so they can continue "living". For them to put away 500 KSH / week for a year is insane.

Even at the end of all that, they can only borrow 80% of whatever they have saved. And Faulu will hold 20% of your savings as collateral. Essentially, you're borrowing your own money from yourself. So, if you were to do the minimum, 300 KSH initial, then 500 KSH/week, after a year, you'd be able to take out a loan of 26,300 KSH ($328.75 USD) with an interest rate of 22%.

Most of the people who need these kinds of loans can barely plan for tomorrow, let alone for a year.

The system is completely impractical for those who really need it.

This micro-finances have become more interested in loan repayment than actually helping people.

Has this system helped people? I'm sure it has helped a few. But I don't believe that it has brought real change to the community.

As for Rosemary's mom. We're going to do our due diligence on her business plan and help her see ways to grow her business, not just get by.

We are investors, not a charity, not a bank. And we want to see a good return on our investment.