Now that I’m back in Seattle, instead of eating freshly-caught fish, helping pull fishing nets, and learning about how the people of Atorkor conduct business despite having such little access to technology and capital, I’ve been drinking lots of coffee, eating lots of processed foods, and catching up on lots of online articles (a few of them are: New York Times, Slate, Foreign Policy, Esquire, Popular Science, Engadget, All About Finance). In addition to all of the Seattleite activities, I’ve had lots of time to reflect upon my time in Ghana.
In terms of the PPI (Progress out of Poverty Index), my findings resulted in mixed feelings about Lumana’s impact in Atorkor. The average PPI score of the 99 people I interviewed was 51.42. This number means that as a measure of the people in Atorkor, 6% of them are living under the $1.25/day (at 2005 purchasing power parity) international poverty line set by the World Bank (a data set of 99 numbers is hardly statistically significant, but we gotta start somewhere, right?). The PPI score of 51.42 also corresponds to 9% of the people living below the Ghanaian national poverty line.
Having these statistics, we can infer several things about Lumana’s current client base. First, the data shows that Lumana’s current clients are very unlikely to be living in poverty (by the World Bank’s standards). As the field of statistics goes, many interpretations could go with this finding. At first glance, it seems as if the people in Atorkor are much too wealthy to benefit from Lumana’s financial products. One might also infer that Lumana has not been actively seeking the impoverished, who would truly benefit from access to credit.
Although these deductions are worthy of further analysis, I’d prefer to offer a different point of view; one of someone (me, obviously) who became interested in microfinance through grandiose stories told through books and TED talks and yet had the opportunity to witness how the field really operates in practice. Ironically, starting MFOs are very strapped for resources and capital; the exact services that it advertises to its clients and investors. Having such constraints, having a sustainable business model is just as important as having social impact. While giving loans to the poorest of the poor obviously looks pretty good ideologically, without an appropriate selection system (to weed out the people who won’t succeed as entrepreneurs or people who are just looking for a quick break), Lumana would have to charge higher interest rates to all its clients to cover the risk incurred by weaker clients (adverse selection, for you curious cats).
In addition, while the Grameen Foundation has accomplished a great feat in creating the PPI as a measure of poverty, it is far from perfect in analyzing the impact of loans on entrepreneurs. Unlike the United States, where a premium is put on physical labor, labor is in abundance in Atorkor, therefore driving the costs of it down. Despite the fact that a fisherman could make several times the poverty line in a day during high season, it is hard to imagine how anyone would be content with baking in the scorching heat on the beach pulling, cleaning, and fixing nets for just a couple of Cedi ($1=$1.5 Cedi) per day. In this sense, by giving fishermen loans to buy bigger nets and pay his workers to increase his returns seem pretty reasonable.
As an industry heralded by its social and moral consciousness, I believe that transparency is important. Hopefully, after reading this, I’ve convinced you that microfinance isn’t a panacea for eradicating poverty, nor is it something that can be completely understood through reading about it in front of a $2,000 computer in an air-conditioned room. Both metrics for measuring social returns and new business models for conducting microfinance are being constantly improved upon to gain a better understanding of the field.
As you know, my experience in Ghana ended about three weeks ago. While I hope that this is only the starting point of my contact with microfinance, there’s only so much I could write about now that I am stateside. Having said that, I’ll be making several changes over the next couple of weeks to my blog. It’ll have lots of new content, along with a new name!
Stay tuned…
