Q&A: Restoring Dignity

Mercy Corps helped Cut Zuni, a businesswoman who'd lost her shop and inventory to the tsunami, procure a loan to rebuild and reopen. She now employs seven women from her community. Photo: Cassandra Nelson/Mercy Corps

Nearly a decade ago, Pam Eser was an unsatisfied investment banker on vacation in Vietnam.

"I didn't feel like my career was very fulfilling," she says now. She knew the money industry, but wanted to do something to help people who don't have much money.

During that trip to Vietnam, Eser found the solution to her dilemma when she met a woman who worked in the fast-growing, innovative field of "microfinance." A relatively new factor in the world of international development, microfinance initiatives provide small-scale loans, grants and other services to entrepreneurs in the developing world.

"It matched my skill set," says Eser. "I started doing some research. Eight and a half years later, here I am."

From her home base in Sweden, Eser directs Mercy Corps' microfinance and economic development programs around the world. From kick-starting grassroots tourism businesses in Lebanon to helping rural Chinese farmers buy pigs, Mercy Corps' small-scale economic programs help make communities financially stronger.

Eser explained some of microfinance's ins and outs in a telephone interview.

Q: For starters, Pam, just what is microfinance?

Pam Eser: Essentially, providing financial services in a sustainable manner to those who don't have access to them - everything that you and I, in developed countries, have access to. Those could be loans, they could be savings or mortgage services. There are lots of products and programs, and lots of purposes.

Maybe someone is looking to expand a business, or start a business. Maybe a community lacks a way to save. People may have to rely on buying animals to save, or jewelry - methods that aren't very flexible or secure. So microfinance has grown into a large industry, with the purpose to provide a wide range of financial services that meet the needs of poor families.

Is this a new thing?

You could say that moneylending has been going on since the beginning of time. But in a modern sense, microfinance really began in the 1970s in Bangladesh and Latin America.

Mercy Corps' programs started in 1997 in Kazahkstan and Bosnia - those were our first attempts to set up structures that would continue to function after we pulled out. An important aspect of microfinance is sustainability - you're trying to develop institutions that can continue to operate without external support, be it human resources or grant funding.

How "micro" is micro?

Well, of course it depends on the country. In Bosnia, you're in Europe and costs are higher. So naturally the loans have to be bigger, so borrowers can do something productive.

In Latin America or Bangladesh, you sometimes see loans of $30 to $50, with repayment periods of just a few weeks to a few months. Some of our programs issue loans up to a few thousand dollars. In any case, we're generally talking about amounts that seem small, but which can make big differences in poor, developing communities.

How so?

In post-conflict scenarios like Bosnia and Kosovo, as well as in disaster-afflicted areas like Indonesia and Sri Lanka, our target populations lost housing, savings, assets, businesses, jobs - everything. Access to loans allows them to rebuild small businesses, which in turn spurs the rebuilding of infrastructure and society at large. In China, if you help a family buy a pig to raise and sell, they can double their income in two loan cycles. The investment in dollars is very small but the relative payoff is huge.

Humanitarian concerns aside, how is this good business for the lender?

Microfinance is sustainable and long term. The lender covers costs and makes a profit, which can then be plowed back into the organization, to reach more clients, increase loan sizes for clients whose businesses are growing and diversify into other services as demand grows.

Across the board, we're working on deepening the infrastructure that's available in developing areas, and also on showing the existing infrastructure - the banks and other institutions that are already there - that poorer people can be reached and reached profitably.

When I apply for a credit card, the company issuing the card can look at my credit history and figure out if I'm worth the risk. How does it work for people who have never had dealings with a financial institution?

If a program is operating in an area where clients wouldn't have any history with taking credit from someone other than moneylenders or family and friends, the most likely thing for the program to do would be to offer what we call solidarity group loans. Five to seven people who know each other together and promise to repay each other's loans. They guarantee each other, allowing an institution to make a loan without ‘hard' collateral.

If one member of the group can't make a payment - for example, due to funeral expenses that month - the others make it for him or her. Then that person pays the group back when they can. Using this methodology, you can make lots of small loans, but you don't have to monitor each and every one of them.

We're used to thinking of aid in terms of food or maybe education. Why is this as important?

Without these services, you really can't expand your income potential. Imagine life in a U.S. city if no one could ever get a small business loan, or if no one could save safely or get insurance.

Also, another aspect of this is, if I'm going to give you seeds or give you food or give you clothes, that's somewhat paternalistic. I'm deciding what you need. On the other hand, if I give you cash, you can decide what you need. Maybe you want to buy food that day, or maybe you can use the money to grow whatever business you're in.

People don't want hand-outs. With a hand-out, you're a beneficiary. With a loan, you get dignity, and the respect that comes when someone is willing to make an investment in you, to trust that you will repay.