Check out this video to hear directly from Howard and learn more about Vittana. Photo: Vittana

Microfinance, as a poverty alleviation strategy, was popularized in the development sector thanks to the work of Muhammad Yunus. Traditional microfinance loans are distributed to small business owners and entrepreneurs with the goal of increasing the scale and profits of their businesses. What is surprising is that after more than thirty years of growth and popularity, the microfinance sector has largely neglected student loan programs.

One reason for this gap is that there has yet to be a proven track record of success for such loans. It was not until Yunus was awarded a Noble Peace Prize, and the astonishingly high repayment rates from borrowers were documented, that large scale funding institutions invested their resources toward microfinance. Vittana, a startup nonprofit were I currently intern, is working to create a track record of microfinance for student loans in developing countries by using a peer-to-peer lending platform.

Student loan programs are effectively nonexistent in countries outside of the US and Europe. Vittana helps students like Howard Rene Alvarez Morales receive the funding they need to get a higher education. Howard is a 21 year-old law and business management student at the Universidad de Ciencias Comericales in Nicaragua. He is an ambitious student who goes to school on the weekends, works as a legal assistant during the week, and takes English classes at night. In order to complete his thesis and get his degree processed, his university charged him a fee of over $1,000, a large sum of money he did not have. In an interview Howard said, “The main problem I have encountered is finding the financial means to finish my degree.” Vittana was a part of Howard’s solution.

Vittana formed a partnership with the microfinance institution (MFI) AFODENIC in Managua, Nicaragua. Our staff provided the expertise, and individual small-scale lenders provided the capital needed for AFODENIC to establish a sustainable student loan program. Howard received an student loan of $1,044 and was able to pay his school fees. The law and business management degree he is working toward is projected to increase his annual income from $2,000 to $12,000. Beyond Nicaragua, Vittana has MFI partnerships in Peru, Paraguay, Mongolia, and Vietnam and will soon be expanding to additional countries. Our long-term vision is a world where students, no matter where they live, have access to higher education.

Howard is pursing his degree because what he wants most “are the means to work and succeed, and everything begins with the first step.” When that first step is a degree, it is a giant stride toward ensuring that students and their families stay out of poverty and have more sound economic futures. Thanks to Vittana, when I imagine microfinance borrowers, I no longer only see animal farmers, salon owners, and the like. I also see students like Howard.

What can you do to help?

It is because of lenders like you and me that Vittana students have access to higher education. Visit www.vittana.org to find the student you connect with and make a loan today. Alternatively, purchase a Vittana Gift Certificate to empower someone in your life to become a lender.

We’d love to hear what you think! questions@vittana.org

A Mercy Corps small business loan helped Najeeba expand her successful baby cradle business in Kabul, Afghanistan. Photo: Cassandra Nelson/Mercy Corps

Over the past decade, Mercy Corps’ microfinance services have lent more than $1.5 billion, reaching more than one million people. Twelve Microfinance Institutions (MFIs) founded and supported by Mercy Corps operate all over the world, with 270,000 active clients — 65 percent of them are women. To better serve those excluded from formal financial services, Mercy Corps is working with these MFIs to develop and offer savings, remittances, and micro-insurance services as well.

I recently sat down with Zhanna Zhakupova and Jim Anderson who were in town for a microfinance conference hosted by Mercy Corps, to find out more about Mercy Corps microfinance programs and how the global economic crisis is impacting microfinance loans. Zhanna is the Executive Director of the Asian Credit Fund (ACF), headquartered in Almaty, Kazakhstan. Jim is Mercy Corps’ Financial Services Manager and works from UlaanBaatar, the capital city of Mongolia. Together, they have experience working in countries as diverse as Uzbekistan, Vietnam, Japan, Bosnia, Poland and Afghanistan.

Haley Dillan: Jim, tell me a little bit about Mercy Corps’ use of Microfinance.

Jim Anderson: Microfinance is an integral part of what we’re [Mercy Corps] doing as an agency. Mercy Corps works with a group of well-established MFIs to complement other programming. All these MFIs provide loans to individuals and small businesses, and in Mongolia and Indonesia our MFI affiliates also offer deposits. Many support agriculture and offer consumer loans for purposes like tuition payments and health care costs. A micro-loan can range from $65 to a Guatemalan woman raising chickens or piglets, to $7,000 for a Kazakh businessperson.

Microfinance is a great tool because, when managed correctly, it is sustainable. Projects can be established and continue on a sustainable basis: they don’t require ongoing injections of donor money. As the NGO, you create the legacy, and then it often continues independantly.

Haley: Why are the majority of loans extended to women?

Jim: Typically, women are the more common borrowers. From a broad source of statistics, women are more reliable borrowers. They invest their business profits to support the family — educating, feeding, housing, and providing health care for their children. As of this June, Kompanion in Kyrgyzstan had over 91,000 clients, of whom 98 percent were women. What’s the percentage for Asian Credit Fund, Zhanna?

Zhanna Zhakupova: About 93 percent of ACF loans are to women.

Jim: Yes, and the XacBank in Mongolia has over 63,000 clients, and women comprise about 55 percent of that. However, in certain countries, it’s not always clear that just because the borrower is a woman, she’s the one in charge of the money. In Afghanistan, for example, a female borrower may just give the loan money to her husband, and it’s hard to track that.

Zhanna: Also, men are less interested in small loans. When they think about business, they think about “big.” And after the global economic crisis, group lending has grown significantly, and women dominate group lending. Men are more reluctant to join groups.

Haley: What other impacts has the global economic crisis had on microfinance? Have you changed your lending criteria? Has it affected the ability for applicants to repay their loans?

Zhanna: As I mentioned, our portfolio has shifted towards group lending since 2008. So, yes, the global economic crisis definitely caused a shift in our lending. In Kazakhstan, the crisis has been quite severe. The GDP growth was averaging about 8 percent annually since 2000, from oil and mineral resources. A pretty strong middle class had emerged, especially in the two largest cities Almaty and Astana. The economic crisis really affected this middle class; the crisis led to a sharp decline in real estate and that hit a lot of people. It seemed like everyone had loans that were secured by real estate… and when the real estate bubble burst, MFI loans were under water.

The banks stopped lending, because real estate was the key piece of collateral for most people, and it has continued to fall in value. No one had sufficient assets to meet tougher bank requirements, and so couldn’t qualify for loans after the global economic crisis. Lenders accumulated loan repayments, but refused to relend that money, sitting on it instead of pumping it back into the economy. No liquidity — no lending — no economic development — falling living standards.

In the rural areas, lending was completely frozen. When I recently visited rural areas served by ACF, every village asked us to open a branch. Small loans were in big demand but no one was lending. Now, Asian Credit Fund has about $1 million dollars in group loans, with the average loan size at around $500 per person.

Haley: What's the difference between non-profit and for-profit microlending? Does Mercy Corps work with for-profit lenders?

Jim: Actually, microlending is for-profit in most areas of the world, particularly Latin America and Central Asia. Non-profit lenders are more often located in places like India and Bangladesh. So most of Mercy Corps' microfinance work is with for-profit MFIs, many of which source funding from for-profit socially responsible investors (SRIs).

If these SRI lenders were to calculate the true risk of the loans they’re extending to MFIs, the interest rate would be so unmanageably high — possibly 60 or 70 percent in places like Tajikistan or Afghanistan. But the individuals who invest with SRIs are willing to forgo a certain amount of return because they want to encourage social improvements by lending to developing countries. As a result, SRIs can lend to MFIs at affordable interest rates.

In order to help MFIs attract capital to expand and serve more clients, Mercy Corps utilizes various sources of investment, including equity and debt, typically with SRIs.

Haley: Is there an idea or sentiment that you are taking away from the conference?

Jim: At the conference participants included a diverse group of organizations, culturally, geographically and in terms of business models, yet we all face similar challenges and issues, and it’s great that we have an opportunity to come together and talk about that.

Zhanna: Yes, everyone was talking about development, and long-term goals.

What will the growth of the Mongolian mining industry mean for the country's nomadic herders? Photo: Thatcher Cook for Mercy Corps

Mongolia could soon be home to the largest copper mine in the world.

After years of negotiations, Western mining companies Rio Tinto and Ivanhoe are close to reaching an agreement with the Mongolian parliament to develop significantly the Oyu Tolgoi mine. Mineweb reports that the untapped deposit contains 78 billion pounds of copper and 45 million ounces of gold. If all goes to plan, the massive investment would double the size of Mongolia's economy and create thousands of jobs, according to NPR.

The economic crisis has hit Mongolia harder than most countries in East Asia. One in four people are out of work, NPR reports. The country’s nomadic herders – 40 percent of the population – are struggling after the price of cashmere dramatically declined earlier this year (see Manasi Sharma’s Downturn in the Gobi). Now, some are hailing Oyu Tolgoi as an immediate economic fix.

But there are several obvious challenges. First, Mongolia is highly corrupt. It is ranked 102 out of 180 countries in the latest Transparency International index, an annual rating of perceived levels of corruption (defined as the abuse of public office for private gain). Additionally, the editorial in Mineweb suggests that Russia and China may have inordinate influence over Mongolia’s mining industry. Given these two factors, how much will the average Mongolian gain?

Lastly, there are the social implications of this investment to consider. For many nomadic herders, shifting to industrial mining jobs is far from ideal, but there isn’t much else to turn to. People are desperate now that raw cashmere and other materials do not provide a reliable way to feed and clothe families. "They are losing their land, their animals, and even their culture," reported NPR’s Louisa Lim, "for a few specks of gold."

As unemployment increases worldwide, countries are looking at ways to stop the bleeding. Spain, Japan and the Czech Republic have decided to pay unemployed immigrants to return to their homelands.

Spain is offering immigrants from outside Europe an average of $18,500 in unemployment benefits to leave. The government is hoping to lower its 17.4 percent unemployment rate, the highest in Europe. Those who take the deal get 40 percent up front, 60 percent once they arrive in their countries of origin. They can't reapply for work visas in Spain for three years.

Japan is offering a one-time payment of 300,000 yen (about $3,100) to South American factory workers of Japanese descent who buy a plane ticket home, plus an additional sum for each dependent. Immigrants taking the deal agree not to "return until economic and employment conditions improve." Japan's unemployment benefits pay nearly $2,100 per month. So, unemployed immigrants could theoretically make more money without a job in Japan than they would by taking the offer to leave.

The Czech government will provide unemployed non-EU citizens with a ticket home plus 500 Euros — more if the worker has young children, reports the Wall Street Journal. When the program started, there were no restrictions on when a worker could return. On April 1, however, the Czech Republic stopped issuing work visas for five countries including Mongolia, whose citizens represent two-thirds of those in the pay-to-leave program.

Impacts on unemployment have been negligible at best. The Czech Interior Ministry says that their program has been a success: it's filled nearly 65 percent of its 2,000-person quota. Still, that number is less than 1 percent of all unemployed workers. The 4,000 people who've accepted Spain's offer is far from the government's goal of 100,000. And fewer than 400 people have applied for the program in Japan.

It seems that many immigrants are choosing to weather the economic storm where they are. Their chances of gainful employment in the country they left must not be any better.

A Mongolian herder at work. The drop in demand for cashmere made from the soft fibers of Mongolian goats is putting many herders out of work. Photo: Smee (flickr)

The global economic downturn seems to be hitting every corner of the world — including the Gobi desert in Mongolia. A steep drop in demand for cashmere and wool made from the soft fibers of Mongolian goats are putting the country's nomadic herders out of work, according to a Wall Street Journal article.

The implications of the drop in demand for cashmere are very real in Mongolia. The Wall Street Journal reports that about a quarter of the population earns a living off of raising animals. Borrowing more than they could afford, many herders were living off credit from banks, who themselves put too much faith in the price for cashmere. Over-leveraged herders are now being forced to sell their tents or livestock to pay off their debts.

Purevdelger Budkhuu, a 38-year-old widow, sold all of her 128 goats to pay back her $1,270 loan to the bank. Budkhuu moved to the city with her two children in hopes of finding other work but has yet to find a job.

”I don’t know what to do. I can’t go back to the countryside because I have no animals...and I can’t stay here because I can’t find a job.”