More than 1000 farmers protested outside of Government House in Bangkok today with demands about restructuring their debt.  As seen in most cases, government microfinance programs are very succeptible to political pressure and influences.  
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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.
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By Tamsin Harriman at the Common Interest Foundation

One important way to combat poverty is to ensure that the children of poor people are able to educate themselves, and thus have the opportunity of a better future for themselves and their families. With this in mind, many MFIs ask their borrowers to promise to send all of their school age children to school as a condition of receiving MFI services. Some are taking it even further and providing services especially for students.

An organization called Qifang in China is providing a peer-to-peer lending service for collateral-free student loans. From the article, "A good education is a stepping stone to a better life. That's just as true in China as it is anywhere else, but attending university requires financial resources that many Chinese students, especially those coming from poorer rural areas, don't have." In order to attend university, students usually borrow from family members, since bank loans for education are difficult to apply for and hard to get. Thus the founders of Qifang decided to create this service to allow students easier access to needed funds for school. Loans through the site can be quite small, and can cover anything from a new laptop to tuition to an extra class.

Grameen Bank in Bangladesh has also started to provide services for its members' children. Grameen, realizing the importance of a university education, now offers scholarships for the best students among its borrowers' children to go to university.

This is an interesting new area of microfinance and, I believe, a very promising one. Microfinance helps poor people to provide for their children, but microfinance education loans help those children to provide for themselves, and create a better future for themselves and their own children.

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This year's Microfinance Forum to take place in Vienna on 19-20 March

Following the success of last year's Microfinance Forum, the second Microfinance Forum will take place this year in Vienna on March 19 and 20. This event is an opportunity for industry leaders in microfinance, including many mainstream financial institutions, to discuss trends, strategies, and other issues pertaining to microfinance. From the article: "Banks have started to consider a closer link between their micro-finance-oriented products and their 'normal' business. There is increasing commitment to microfinance, greater variety in microfinance products and a closer focus on the market. The upcoming premier World Private Banking conference in Vienna organized by Uniglobal Research will bring together top representatives of the microfinance and banking environment as well as microfinance networks from all around the world. This is the place to learn from and share strategies with other professionals as well as to extend your network."

This year's conference will include contributions from organizations as diverse as Deutsche Bank, Finca International, Habitat for Humanity and Zurich Insurance, among many others.

This is just another indication that mainstream financial institutions are beginning to focus much more on microfinance. The results of this conference should be interesting to see!

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Finally, a quick note to say that I have really enjoyed writing for this blog and working for the Common Interest Foundation. Sadly, my internship is at an end, so I will no longer be a regular contributor to this blog (although you may see a post from me from time to time). I will be handing the blogging reigns to Common Interest's talented managing director, whose posts I'm sure will be excellent. Thank you to all of our readers who have read and commented on my posts!
--Tamsin
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By Tamsin Harriman at the Common Interest Foundation

Microfinance initiatives (MFIs) have largely been very successful in helping the poor around the world. However, there are occasionally some problems. One especially serious problem that MFIs can face is corruption. Since their clients are poor and often uneducated, it is easy for staff to take advantage of them. In fact, this is one of the reasons people get involved in microfinance to begin with - to stop poor people from being taken advantage of by moneylenders. Unfortunately, there are all too many possibilities for MFIs or their staff to engage in corrupt behavior themselves.

In Benin, West Africa, NGOs subcontracted by a large MFI have reportedly been taking bribes from borrowers and engaging in other corrupt activities. Due to rapid growth, the MFI has not been particularly scrupulous about the NGOs it subcontracts to. According to the above article, the MFI's director Komi Koutche says that "subcontracted local community associations are benefiting from borrowers’ desperation. 'Instead of taking US$2 in processing fees, they are charging [borrowers] up to $7. As long as the borrowers pay this willingly, we cannot stop it. It is only when they protest that we can intervene.'” They are also keeping funds that should be remitted to the MFI: "[According to] Benin’s Minister of Microfinance Reckya Madougou [...] recent studies revealed that loan intermediaries 'collect loan payments from borrowers promising to remit them to the fund’s partners [banks], but then do not do so.'”

Another form of corruption sometimes seen in MFIs is the use of extreme methods to coerce defaulting borrowers into repaying their loans. As detailed in the book What's Wrong With Microfinance? by Thomas Dichter and Malcolm Harper, pressure tactics can become so bad they could be considered bullying. In extreme cases, staff use tactics such as sitting outside defaulting borrowers' homes and refusing to let anyone in or out until the borrower repays her loan. Of course a high repayment rate is important for an MFI to be sustainable, and thus to continue helping the poor, but this is no excuse for such harrassment.

If commercial banks treated borrowers in these ways, it would be a major issue, covered by newspapers worldwide, and the bank would quickly lose all of its customers and quite likely be taken to court. Unfortunately, as in the Benin case above, corruption in MFIs goes largely unreported, as the poor people they serve depend on them and have no other options - if they need access to financial services, it's the MFI or nothing (except perhaps a moneylender who charges exorbitantly high interest rates).

Corruption in any organization is bad, but in an MFI it is especially so, since it perpetuates the helplessness that comes with being poor. MFIs should seek to alleviate poor people's helplessness, not to exacerbate it. Thankfully, corrupt practices are fairly rare in microfinance. Even so, MFIs should encourage their clients to speak up if an MFI staff member is doing something wrong. Hopefully if borrowers understand that it is okay, and even good, to speak up in such cases, then those who wish to take advantage of them will no longer be able to do so.
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By Tamsin Harriman at the Common Interest Foundation

The regulatory environment for microfinance in Thailand is among the strictest in the world, yet the country has a great need for microfinance, and the MFIs that do operate here are successful. Microfinance has an important role to play in Thailand's development and eradication of poverty.

Many households in Thailand have moved out of poverty, and when one thinks of Thailand, one doesn't think of a destitute country. However, there are still many people who live in extreme poverty. In fact, the Microfinance Gateway found that fully 33% of Thailand's population live on less than US$2 per day. The poorest people in Thailand are mostly ethnic min