21 January, 2009
Short-Term Microfinance Projects
by Ryan T. Young at Common Interest Foundation
Short-term microfinance Projects cause more problems than they purport to solve. This posting addresses the issues that occur when foundations or NGOs decide to implement a short-term project involving microfinance. While the goal of short-term projects may seem noble, their negative side needs to be addressed.
In 2002, there was an organization in Northern Thailand which ran a program that set up “Village Health Banks.” The goal was to integrate health education and economic development in rural villages. Quite a number of villages signed up for the program. Women borrowed money from the program and everything seemed to be going well. However; after approximately two years, the organization informed all the villages that they were cancelling the program. Villages were sent letters from a legal firm instructing them to repay their loans by the end of the month or face legal action.
As expected, the rural villagers panicked. Even though their loan contracts stated that they have several more months before final payment, the villagers were terrified of legal action. As a result, many of them were forced to borrow from moneylenders at high interest rates in order to repay the loan so quickly. Villagers said that the unexpected cancellation significantly destroyed any progress that they were making. When asked why they cancelled their program, the organization stated that the project was only meant to be short-term and they completed their goals.
One has to wonder what goals were really achieved. This program gave “hope” to the villages but left them in a worse financial situation. Is it fair that the rural villagers should suffer the consequences for bad planning on the organization’s part? Why did the program have to end so quickly? Donors gave over 25 million baht for this program - where did it all go?
Many problems arise when microfinance projects are not properly planned. Long-term planning must be considered so that the impact on the poor is positive. If you are considering getting involved in microfinance in Thailand, look at the ones who are taking a long-term approach in their work. Besides our own organization, Common Interest Foundation, I would like to personally suggest that you look at the excellent work being performed by Step Ahead MED and SED.
Short-term microfinance Projects cause more problems than they purport to solve. This posting addresses the issues that occur when foundations or NGOs decide to implement a short-term project involving microfinance. While the goal of short-term projects may seem noble, their negative side needs to be addressed.
In 2002, there was an organization in Northern Thailand which ran a program that set up “Village Health Banks.” The goal was to integrate health education and economic development in rural villages. Quite a number of villages signed up for the program. Women borrowed money from the program and everything seemed to be going well. However; after approximately two years, the organization informed all the villages that they were cancelling the program. Villages were sent letters from a legal firm instructing them to repay their loans by the end of the month or face legal action.
As expected, the rural villagers panicked. Even though their loan contracts stated that they have several more months before final payment, the villagers were terrified of legal action. As a result, many of them were forced to borrow from moneylenders at high interest rates in order to repay the loan so quickly. Villagers said that the unexpected cancellation significantly destroyed any progress that they were making. When asked why they cancelled their program, the organization stated that the project was only meant to be short-term and they completed their goals.
One has to wonder what goals were really achieved. This program gave “hope” to the villages but left them in a worse financial situation. Is it fair that the rural villagers should suffer the consequences for bad planning on the organization’s part? Why did the program have to end so quickly? Donors gave over 25 million baht for this program - where did it all go?
Many problems arise when microfinance projects are not properly planned. Long-term planning must be considered so that the impact on the poor is positive. If you are considering getting involved in microfinance in Thailand, look at the ones who are taking a long-term approach in their work. Besides our own organization, Common Interest Foundation, I would like to personally suggest that you look at the excellent work being performed by Step Ahead MED and SED.
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