Cover image courtesy of Microfinancing Africa
–by Jeff Wilson–
In this article we seek to examine a US-based, faith-centered organization which provides individuals and communities across East Africa with financing via microloans provided through local partner organizations. We survey the structure, stability and sustainability of the microfinancing complex as it relates to East Africa. We also look critically at the effectiveness of this NGO’s efforts to alleviate poverty among its target population and will refer to existing scholarship to address whether these methods are efficacious and helpful or whether they might further cyclical poverty in those communities.
Microfinancing Partners in Africa Examined
The global South has witnessed an increasing prevalence of institutions that seek to alleviate widespread poverty by changing the dynamics that surround individual access to capital. Of note, sub-Saharan Africa has been one of the leading areas to attract such efforts aimed at addressing poverty through increased access to capital provided through micro-lending institutions (Kipesha and Zhang 2013, 137). In Africa alone, the microfinance industry has grown in dramatic fashion. For the years of 2002-2012, growth exceeded 1300% with total borrowings growing from $600 million to over $8.4 billion. In the same time, the number of people actively seeking these financing options grew by over 4 million people to 7 million individuals (Njiraini 2015). In this paper, we look at a non-profit organization focused on microlending. In investigating Microfinancing Partners in Africa (MAP), we find issues of scale, replicability and lack of focus on root causes of poverty. This places it squarely amidst similarly situated organizations, even given its non-profit status, and especially its faith orientation and charity focus; there remain questions as to if MAP can sustain its efforts in and effectively impact poverty and entrepreneurship among its client communities.
Microfinancing Partners in Africa is a faith-based, non-profit organization headquartered in the United States that focuses on “providing grants for the strengthening and expansion of microfinancing programs in Africa by empowering those living in extreme poverty to lift themselves up with dignity through access to services and education” (Microfinancing Partners in Africa 2016, 3). MAP was founded in 2006 by Sr. Antoinette “Toni” Temporiti, a Catholic nun, upon her return from an eight month sabbatical in Africa. She began an effort to start building what has now become MAP, based in part on a chance meeting with Mohammad Yunus, founder of Grameen Bank and early leader in the microfinance movement (Microfinancing Partners in Africa n.d.). MAP’s efforts focus on raising capital by means of donors and donor organizations and then redeploying that capital via grantmaking opportunities through locally situated partner organizations that operate primarily in East Africa (Microfinancing Partners in Africa n.d.). Most of these grants are routed to agricultural based animal projects such as MAP’s “living loan” Cow and Piglet projects that use a pay-it-forward method of financing (Microfinancing Partners in Africa 2016, 9 & 13). These efforts vest an individual, selected by the partner institutions, with either a piglet or calf. Once the animal reaches sexual maturity and has offspring, the “living loan” recipient is then required to “pay the loan forward” by contributing some of the offspring to other individuals in the community likewise identified by the local partner organization (Microfinancing Partners in Africa n.d.). MAP also sponsors lending circles through local partner organizations such as Jamii Bora “The Good Families” Trust (Microfinancing Partners in Africa 2016, 23). MAP’s efforts are client oriented, focused and directed. MAP focuses on providing the resource but designating much of the decision-making authority to its local partner organizations. As Sr. Temporiti says in a promotional video describing the MAP approach to microlending: “To make a project sustainable, it has to come from the people” (Microfinancing Partners in Africa – YouTube 2018). Temporiti reinforced this locally oriented approach in an interview with the Wall Street Journal reporter when she said, “I was new to microfinance, so I realized I could best contribute by raising funds for organizations that were already helping people” (Essick 2014). MAP board member Dick Arnoldy describes the organization’s efforts this way: “We feel that by us partnering with Africans who have already stood up their programs, we have been much more successful” (Microfinancing Partners in Africa – YouTube 2018).
A look at the finances of MAP show a profile of increasing financial support and sustainability. These metrics are key when considering an organization’s ability to sustain its efforts with respect to the target population. An examination of MAP’s most recent tax filings with the Internal Revenue Service show that the organization reported donations of $851,741 for the calendar year 2016 (Internal Revenue Service 2016, 1). When compared to the previous five-year period, MAP increased its revenue seven-fold.
MAP’s contributions to its partner organizations across East Africa have stayed relatively flat considering this quite significant increase in revenue. In 2016, again the latest year for which we have information, MAP reported grantmaking donations totaling $314, 699 (Internal Revenue Service 2016, 1). When compared to the same five-year period above, the distributions from MAP to grant recipients has remained relatively flat, hovering around roughly $300,000 annually (Internal Revenue Service 2015, 1) (Internal Revenue Service 2014, 1).
A Critical Look at the State of Microfinance in Africa
As the concept of microfinance has grown and spread throughout the developing world, scholarship around the concept has evolved critically. The ideas that once drove the expansion of these programs has changed and much can be said that is critical of the effectiveness of microlending and microfinance programs. Articles and analysis across the spectrum assail the efficacy of microlending and microfinance as a method of widespread poverty reduction in Africa. Speaking to The Guardian, mathematician and development economist David Roodman puts it like this: “On current evidence, the best estimate of the average impact of microcredit on the poverty of clients is zero” (Sinclair 2014). Likewise an NPR inquiry struck a similar chord reporting that the impact of microfinance on women across Africa by MFIs (Microfinancing Institutions) was largely non-existent, saying that, “Based on the economic studies that have been done to date, it doesn’t appear that increasing access to microloans is an effective strategy for helping more women start businesses that will allow them to vault themselves out of poverty, at least not on a large enough scale to be detected” (Aizenman 2016).
So why does this skepticism exist and what does this say about the efficacy of programs such as those run by Microfinancing Partners in Africa?
Looking at the scholarship, there are several key pieces that come to the fore. We see that as microfinance programs have expanded throughout the developing world, and as we note above, especially with respect to Africa, the types of institutions and methods of financing have grown in diversity. This diversity includes for-profit organizations, NGOs, programs aimed at financing individual efforts, and group financing efforts such as lending circles.
One worrying consequence of a reliance on microcredit loans from MFIs is the persistence of high interest rates in loan vehicles and structures provided by MFIs. According to Hickel, “The only consistent winners in the microfinance game are the lenders, many of whom charge exorbitant interest rates that sometimes reach up to 200% per annum” (Hickel 2015). Indeed, research from Stanford concluded similarly that such high interest rates could severely undercut poverty reduction efforts via debt traps saying, “But if poor clients cannot earn a greater return on their investment that the interest they must pay, they will become poorer as a result of microcredit, not wealthier” (Karnani 2007, 37). To that same end, there is an increasing call by observers of MFIs to understand the impacts of the debt cycle on those in poverty who choose to borrow via microloans.
According to one study, “In particular there is a growing concern among policymakers, advocates, and funders that one or more behavioral tendencies leads some, perhaps many, people to do themselves more harm than good by borrowing” (Banerjee, Karlan and Zinman 2015, 20). Much of this concern is driven by the very nature of the loans themselves. As they reach out to people in the depths of poverty, there is a worry that many, suffering from such stifling poverty, must make use of the proceedings to cover the fundamentals of existence and thus are unable to fund an enterprise capable of not only paying off the principal debt but leaving consumers unable to pay off the combined interest. As is noted, large percentages of loans are spent on consumptive uses which reduce the borrower’s ability to repay (Hickel 2015). “The very small loans available may not be sufficient for borrowers to invest constructively in their future. If a loan is too small to start an enterprise, it is not altogether surprising if instead clients spend that money on consumables” (Stewart 2010, 48). There is evidence that borrowing for the sake of subsistence might undermine the structure of microfinance programs. One study noted that, “Poor borrowers…tend to take out conservative loans that protect their subsistence, and rarely invest in new technology, fixed capital, or the hiring of labor” (Karnani 2007, 36).
Even those entrepreneurs that do see some semblance of success may find their eventual upside limited as the purchasing power of the market in which they are located does not advance alongside their enterprise. According to Jason Hickel, MFI-backed entrepreneurs’ “potential customers are [also] poor and low on cash, and what little money they do have gets spent on basic goods that tend already to be available. In this context, new businesses end up displacing already-existing ones, yielding no net increase in employment or incomes” (Hickel 2015). This ties back into the debt-cycle mentioned above. Hickel continues, “The worst – and much more likely [outcome] – is that the new businesses fail, which then leads, once again, to vicious cycles of over-indebtedness that drive borrowers even further into poverty” (Hickel 2015). These issues bring to light concerns that structurally, microfinance and microloan programs, may be inherently unstable from a sustainability standpoint. Worse yet, they may further impoverish their clientele.
Additionally, microfinance initiatives may not actually address the structural problems which lead to cyclical poverty that retards growth. Grinding poverty and all its retinue issues may plague any effort to foster entrepreneurship as a means of social uplift. According to Baumann’s analysis, “Their performance [NGOs focused on microfinance] in providing access to small-scale credit for business, emergencies, and consumption based on intermediated group savings is poor. Their main effectiveness as poverty alleviation strategies lies in the development of social capital in savings and credit groups and in their larger networks” (Baumann 2005, 99). The substantial societal issues surrounding impoverished communities may not prove a nurturing environment for such progress. “They [the ultra-poor] may benefit more from services that help them solve other pressing problems such as illiteracy, lack of skills, poor health, and lack of savings. Although microcredit potentially still may be useful for this set of individuals, its impact will be at most minimal if it is not provided in conjunction with other supporting services that can help them solve other non-credit problems simultaneously” (Bhatt and Tang 2001, 326). Hickel argues that, “This is not to say that we should abolish microfinance altogether, but simply that microfinance will never work until we address the background conditions that produce poverty in the first place. We also need to set up the right systems for small businesses to succeed, such as strong subsidies, state assistance, and welfare support to prop up entrepreneurs when they fail – the very systems that neoliberalism has convinced us to abandon” (Hickel 2015).
How Does MAP Measure Up?
As a faith-based non-profit, MAP is freed from several of the criticisms we find in the existing literature. Much of the existing scholarship has focused on microfinancing institutions that are government-sponsored or privately held for-profit institutions. As such, MAP falls outside the scrutiny of many of these studies. As van Rooyen, et. al. surmise, “We also found relatively few evaluations of ‘traditional’ self-help models of micro-credit and -savings where the community saves and borrows from the same ‘pot.’ This is inconsistent with the microfinance profile in sub-Saharan Africa. However, given that the current trend is for microfinance, not as informal community-grown initiatives, but more formal NGO (including private sector) and government-driven development and commercial programs, perhaps it is not surprising that evaluations of their programs dominate the evidence” (van Rooyen November 2012, 2251).
Of note though, Nitin Bhatt and Shui-Yan Tang examine just such a situation as applies to MAP. When analyzing the effectiveness of NGOs as the delivery points for financial services they note, “NGOs have had widespread appeal as microfinance delivery vehicles among donors, technical cooperation agencies, and consumers for several reasons. First and foremost, NGOs have demonstrated a concern for their constituencies by establishing close linkages with civil society. By including the community in the decision making and governance aspects of financial service delivery, such ‘participatory development’ organizations appeal to those who have criticized traditional technical assistance efforts for their top-down, bureaucratic approaches to development” (Bhatt and Tang 2001, 321). It is this sort of independence that provides MAP with the flexibility to adapt to changing conditions that challenge more formal institutions and lends it some success. Loan repayment figures from MAP are encouraging. According to MAP, their repayment statistics show a greater than 98% repayment rate (Microfinancing Partners in Africa 2018).
With respect to issues around the debt cycle and interest rates that impede successful microfinance efforts, MAP seems well insulated. Although charging rates of up to 10%, which may seem usurious in Western terms, in comparison to other microfinance organizations examined in the literature, the terms offered through MAPs loans are reasonable given the circumstances (Microfinancing Partners in Africa n.d.). Likewise, the borrower-centric philosophy employed by MAP either through group lending or lending circle and “pay it forward” methods ensure a healthier loan ecosystem than what we have encountered in much of the scholarship.
But MAP also comes in for scrutiny on a few other accounts. Baumann points out that microfinance NGOs’ focus on poverty reduction often falls short and MAP appears to be no exception. “Their performance [NGO’s] in providing access to small-scale credit for business, emergencies, and consumption based on intermediated group savings is poor. Their main effectiveness as poverty alleviation strategies lies in the development of social capital in savings and credit groups and in their larger networks” (Baumann 2005, 117).
Also, despite a successful track record with respect to financial stability via their fundraising efforts, MAP is still solely reliant on donor support. This reliance is a weakness from a sustainability standpoint. As Kipesha and Zhang write, “The need for sustainability in microfinance institutions is a result of several factors…first due to declining donor support as a result of the increasing number of microfinance institutions requiring donor support. Second, is due to changes in the operations and increased competition as a result of increased involvement of commercial banks in microfinance services” (Kipesha and Zhang 2013, 137).
Issues surrounding sustainability and the ability to affect structural issues undergirding poverty also arise. There is no evidence to address MAP’s ability to foster markets for their budding entrepreneurs and there also exists no evidence that MAP’s efforts are scalable, replicable or that they impact poverty on an appreciable scale. Hickel addresses this efficacy and sustainability issue thusly, “This is not to say that we should abolish microfinance altogether, but simply that microfinance will never work until we address the background conditions that produce poverty in the first place. We also need to set up the right systems for small businesses to succeed, such as strong subsidies, state assistance, and welfare support to prop up entrepreneurs when they fail – the very systems that neoliberalism has convinced us to abandon” (Hickel 2015).
Microfinancing Partners in Africa (MAP) fits squarely in the heart of the current discussions surrounding microfinance institutions in sub-Saharan Africa. As a faith-centered non-profit, much of the microfinance complex in Africa is evolving away from its model. In general, we see a professionalization of this “industry” and the scholarship is following those burgeoning models. MAP exists in a relatively small niche, comparatively speaking, in this growing area of finance and as such questions remain about its ability to endure over the longer term.
There are certainly reasons to question the ability of MAP to address the root concerns of poverty in the communities that it serves and there are similar concerns relative to the overall efficacy of its poverty reduction aims. As the organization continues to grow its donor base and its investments, it demonstrates a lack of ability to increase its investmentss as dramatically in its partner organizations across East Africa (Internal Revenue Service 2014) (Internal Revenue Service 2015) (Internal Revenue Service 2016).
Questions also remain about the structural integrity of the microfinance process and the promotion of entrepreneurialism by NGOs such as MAP and whether these efforts are the most effective means of poverty reduction. According to Karnani’s analysis, “Most people do not have the skills, vision, creativity, and persistence to be entrepreneurial. Even in developed countries with high levels of education and access to financial services, about 90 per cent of the labor force is employees, not entrepreneurs” (Karnani 2007, 37). Are institutions, such as MAP, which are geared to microfinance likely to succeed in poverty reduction or should the bar be set lower? As Baumann says, “The best use of microfinance may be to assist households to reduce their vulnerability by smoothing incomes through locally based savings and credit rather than microcredit for microenterprise” (Baumann 2005, 117).
Ultimately though, these efforts will persist. Hickel, writing to this end allows, “Why is microfinance such a resilient idea? Because it promises an elegant, win-win solution to the problem of poverty. It assures us that we – the rich world – can eradicate poverty in the global South without any cost to us, and without any threat to existing arrangements of political and economic power” (Hickel 2015). This ultimately is why MAP and many others will continue to grow their presence in Africa and across the global South: MFIs like MAP provide an elegant solution for the Western world albeit without tangible results to show. Perhaps Hickel says it best when he bluntly writes, “The demand-side problem can be stated quite simply: poor people don’t have enough money. Apparently, we need expensive research studies to point this out” (Hickel 2015).
This post may have been edited by admin for clarity and length.
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