La Ceiba MFI

La Ceiba—

I’d like to thank all who participated in the Blog over our Personal Loan Selection Criteria (due yesterday @ 5pm). Caitlin and I have discussed extensively all of the issues presented in the blog posts, and it has been very helpful to get some positive feedback and constructive suggestions for the program. I hope that all members of LC who have not yet participated in the blog will think seriously about doing so. We have dedicated a great deal of time to this discussion, and know that every member’s input is valuable. Take the time to review the requirements, and be detailed about the reasoning behind your suggestions. It will strengthen LC in the end.

Again, thank you to all who participated. I hope you will continue to discuss on previous posts. If you have any comments or would like any more information than that which has been provided, please feel free to e-mail me.

OUR VISION:

 We envision a world in which every man, woman, and child have the opportunity to  realize their potential through hard work and lead a fulfilling life.

Critique:  agree with this statement as our vision; however I’m not sure the dangling clause “lead a fulfilling life” adds a lot of value to the statements intended meaning. Perhaps this is because I think it sounds awkward when spoken, but maybe better integrating the idea of leading a fulfilling life into the statement will garner a more concise meaning.

Suggestions: We envision a world in which every man, woman, and child have the opportunity to lead a fulfilling life and realize their potential through hard work and determination.

OUR BELIEF

 Sustainable solutions to poverty require the endogenous emergence of effective, legitimate, and resilient community-wide institutions that foster productive cooperation among its members.

Critique: I like this statement a lot. It gets at our unique understanding of poverty. It recognizes that sustainable solutions must emerge from within the community, and that we are simply facilitators of these solutions.

Suggestions: None

 OUR MISSION:

 Empower our clients with the assets and capabilities to participate in, influence and hold accountable the institutions that structure their lives, their children’s lives, and their communities.

Critique: Overall, I like the way the mission acknowledges that our job is to empower our clients so they, themselves, are able to make the changes in their community they wish to see. This is important if we are to foster sustainable improvements in the lives of our clients. Because we want the change to come from within the community we should focus on creating opportunities that can sustain themselves for years after our presence in the community has ended.

Suggestions: Consider clarifying assets. As a group I think we need to define what assets we truly provide. Are they the financial and educational assets provided through our loan program and financial literacy curriculum, or do they encompass the social aspects of community dynamics in areas like improving self-confidence and self-worth through operating one’s own business. This commentary is probably a bit too esoteric for what our mission is trying to convey, but all the same I think we need to come together on solidifying our definition of asset. Also, as other LC members have suggested—the clause, “their children’s lives” may not be absolutely necessary. While I think it shows our recognition of the future of El Progreso, it may already be implied in the inclusion of “communities”.

OUR METHOD:

 Expand economic opportunities for and improve the everyday living conditions of our clients through the provision of financial, social, and educational support.  To do this, we develop long-lasting relationships founded upon mutual respect and open communication with our clients.

Critique: I like this, there is nothing significant I would change here.  I think the reason I really like this is because it includes the many viewpoints within La Ceiba that work cooperatively towards the same goal. There are some of us who are more inclined to weigh heavily the relationships we build with clients in measuring the success of what we do; while others are guided more by the economic and financially stimulating programs we provide. Neither is mutually exclusive, therefore I’m glad our method statement reflects both sentiments.

Suggestions: none.

 OUR MOTIVATION:

 Hope for a better tomorrow, dreams of your children’s future, and optimism that if you work hard and keep working hard that success can be yours are things that poverty can steal from those in its grasp.  When it does, we want to steal it back.

Critique: The modifier your  in “your children’s future”  may be a little ambiguous. The children of our clients and their community are likely what we mean, but leaving it out would simply mean the summation of all children’s futures which could be beneficial for a variety of interested parties. Also I rearranged some of the words (detailed below) to perhaps add some clarity to the statement’s meaning. I really like the conclusion of the sentence. It’s punchy and declarative; I think it reflects our steadfast commitment to what we do.

Suggestions: “Hope for a better tomorrow, dreams of children’s future and optimism that continually working hard can lead to success are things that poverty can steal from those in its grasp. When it does, we want to steal it back.”

VALUE STATEMENT:

We strive to do the most good. Therefore we carefully consider our potential impact when researching, designing, and implementing specific programs, so that our efforts create positive opportunities for growth and progress.

Rationale: This value statement speaks to our self- awareness as an organization. We value the real life consequences of our decisions, therefore we pay particular attention to details and thoroughly consider the costs of what we do so as not to add burdens or create problems where they previously did not exist.

Heisenberg Uncertainty Principle + Loan repayment?

How do we figure out which clients have the potential to borrow and successfully repay small loans? We start with clients who believe that they need our services. Our current selection criteria are based on a basket of qualifiers that we have adapted from programs of successful MFI’s. I believe that our current loan criteria of Gender, Location and the Approval of Honduran Loan Officer are effective at screening our clients, based on the current scale of our programs. I think offering our clients the $25 buyout option is worthwhile, if we expect at least a 4:1 repayment. Mandatory classes for borrowers, smacks a little patronizing to me, but if there are positive results from other MFI’s, I can reconcile that. I would like to see our clients choose from a selection of classes, with topics covering savings, financial education, etc. This way we get some additional information about the demands of our clients.

I would like to see the inclusion of a financial information diary in the loan package given to potential borrowers. I’m convinced that one of the best contributions to the literature that we might be able to collate and present is the household spending of our clients. I don’t think this information is available to most gringo-centric MFI’s in Honduras or around the world. We pride ourselves on the relationships that we build with our clients, and we must be able to use these relationships to help develop innovative services for our clients, as well as advance the scholarly research in the microfinance field.

If we want to grow and increase our repayment rate, I firmly believe that we must evaluate the feasibility of loaning to men.

I don’t think that we should begin loaning to men during this trip, but I believe that we owe it to ourselves and our clients to investigate the demand which already exists in the communities we are working in. There have been multiple cases of women seeking loans, and then turning over the principal sum to a male family member or another male in the community. This gives us no recourse to hold him accountable, and can negatively affect the way she interacts with La Ceiba. One of the fundamental issues raised in the Illich article is that our interactions within a community will have repercussions that we cannot anticipate. Empowering women seems like a great idea, but is it just another way to say destabilizing household norms, or even actively antagonizing the male population of Villa Soleada? We owe it to our female clients to try and understand this relationship, and investigate this issue while on the ground this winter.

I like the idea of a simple bet of 25$ on a client but I think we first need to establish the goals of our loan program before we decide on how it will operate.  If our main objective is to establish a sustainable loan program (in which interest covers costs/lost loans) than our bets must payoff far more than they succeed in order for the interest we make on paid back loans to cover Ana’s salary and our lost bets.  We need to calculate what this percentage of good bets to bad bets must be in order for this screening method to be sustainable.  I fear that we must ‘get lucky’ on more than 9 out of 10 potential clients in order for us not to consistently lose money this way.  Is this reasonable?

If our main goal is to reach as many impoverished people as possible than the 25$ bet may indeed be the best screening method available to us.  It also may allow us to collect valuable data over time regarding the credit needs, actions, and consequences of the poor.  However, I fear the likelihood of repayment will decrease as the numbers of clients grow unless we are able to provide the same individual attention through Ana and CCC as we are currently.  So if we are trying to reach as many people as possible the 25$ bet may become more and more costly as the number of clients grows.

So even if one of these goals is determined to be more important than the other, both seem to need an added component to increase the likelihood of client repayment.  I like the idea of current client recommendation for new clients.  My only reservation with this method would be if current clients realized how easy it would really be to take money from us and passed that information on to a friend in need.  Hopefully the current client values access to our programs and future loans enough to repay and would encourage their friend to do the same.  We could also add a slight penalty to the recommender if his/her recommended client fails to repay the loan.  I think this should be very minor, like ceasing their potential loan progression for a given time period or more dramatically not allowing them to take out another loan for a month or so.  My hope would be that this small penalty would not discourage too many recommendations but give the recommender some interest in seeing their friend succeed in their repayments.  If the new client also knew their delinquency would hurt their recommender they would work harder to ensure that did not happen.  I believe these recommendations should be very simple to minimize disincentives, essentially just a signature or formal verbal vouching from a current client for a new one.  I think this method would increase the likelihood of new client repayment while adding little cost and avoiding more complicated screening methods that would discourage many potential clients.

The 25$ bet combined with a simple nod of approval from a current client (perhaps with small punishment possibilities) would ideally allow La Ceiba’s client base and loan program to grow sustainably in order to effectively reach as many impoverished people as possible.

It has been frustrating for Russell and I to find metrics to screen potential clients, which will be evident in our Thursday presentation. The only data we felt we could successfully use to compare clients of varying loan size and repayments schedule was the difference between the date due and the date paid for each payment, then an average for each whole loan. From this, we were hoping to do two things:

-Find a clients “upper threshold,” in other words, find out at what amount it became difficult for a client to pay back and possibly cap that client at that point until performance increased. This isn’t meant to limit available capital for any other reason besides not burdening a client with an amount that is too large. This might sound sort of confusing, it’ll be explained in further detail Thursday.

-Be able to report to La Ceiba as a whole a list of potential defaults. If we categorized clients based on repayment data, sorted to only show loans that were still active, and further sorted to find payments due past the acceptable limit, we could share this information with the right people so during CCC sessions they could ask clients for more info (was there some sort of emergency, etc.)

Now, both of these don’t really address the issue at hand, which is eligibility requirements for the first loan, whereas our recent efforts have focused on metrics for subsequent loans. On the initial loans, it seems difficult to muster requirements and some may seem counter-productive if our goals are to help the poorest of the poor. I am not certain, and I meant to ask today, if we force clients to abide by the loan ladder, in such a way that they must take each loan amount in sequence, first $25, then $50, then $75, … , then $150 (Not sure on the amounts, but you get the idea). If the Personal Loan Program were to utilize these two methods (the capping of clients, will be explained further on Thursday and the forcing of the ladder, if it isn’t already policy) along with the $150 cap would I feel, adequately alleviate risk (which is the reason for creating eligibility requirements) without denying anyone the opportunity to receive their first loan (which we’d have to do with more stringent requirements on initial loan disbursement)

We’ve run into some difficulties with this scheme thus far, so we’re looking forward to input in Thursdays presentation. We’ve come to some pretty interesting conclusions, here is a teaser: Right now we do some things because we think they are the right things to do. I can show that they are the right things to do. Exited yet?

Unfortunately, I am not in the Thursday class, so I did not get to enjoy the lively discussion on this topic.  That being said, we did have a synopsis of the presentation and a nice chat on the subject in the Monday class.  Our talk, however, was more on the execution of the business loans and the screening for those types of loans.  We only briefly discussed the screening for personal loans.

The problem I see with these requirements is that they are beneficial for the client or prove that the client is poor, but they do not demonstrate that the potential client has the ability to pay back a loan.  The only requirement that might give us some type of inclination as to how this person behaves is the recommendation.  However, there is a lot of risk that is involved with recommendations as there is no way to know if a person is lying or telling the truth.  The fact of the matter might be that the person giving the recommendation really doesn’t know if the potential client would make a good client or not.

The screening process of our clients should give us a sense of what the person is like so that we can assess their risk of defaulting.  Though it is not full proof, recommendations is the closest to getting an accurate risk assessment that we can feasibly do at this time.

I apologize up front if some of this has already been discussed in class.  First of all I think it the mission and vision statement sounds really good and will be a valuable asset to the website.  I have a few suggestions, but not too many.

Our Vision: I agree with most of the comments about the wording of the mission.  I think “man, woman, and child” is better than “mother, father, son, and daughter.”

Our Belief: I like the phrasing in this statement because you can test to see if we are doing what we say we are doing.  Are we effective? Yes/No?  Are we a legitimate source of change?  Yes/No?

Our Mission: Again, I am happy with this statement.

Our Method: I think this statement is definitely true, but would it be beneficial to slide in a short sentence about our loan program, since it is a big part of what we do?

Our Motivation: This final statement wraps up the mission and vision in a positive way.

Therefore, I am happy with Mission and Vision.  There are a few minor details to be looked at, but I think it sounds excellent.

OK as I went to publish my complete blog post, Cisco internet decided to log me out.  So this will not be nearly as good as it had been.

My main thought (constructive one, at least; I have some issues with each option, but I can deal with those in comments) is that it should be our current clients that help us with screening potential clients.  These women know better than anyone (including us) what it’s like to receive a loan from La Ceiba.  They will be better able to tell potential clients what it’s like, better able to judge which community members will be strong clients.  The community, though they might have some idea what being a LC client is like, can never compete with the firsthand knowledge our clients have.  It is up for discussion whether this is too much to ask of our clients, but I don’t think it is, especially if we make it voluntary, like a recommendation would be, rather than semi-compulsory, like group voting would be.

As far as recommendations go, I would argue that written recommendations are not feasible because literacy is an issue with our clients.  However, I don’t know that a simple spoken recommendation would carry enough weight; we need to find a way to make recommendations a costly enough procedure that they are taken seriously by both current and potential clients.

As it stands now, there is little between us and someone making off with our money.  La Ceiba has been extremely lucky thus far to not have lost more loans on a “cut and run” basis.  I think that is partially due to the intuition of our loan officer and our unique relationship with our clients through SHH. As we expand into new areas with new clients, these current screening methods will begin to prove less effective.  So I will start off by saying, if La Ceiba wants nothing more than to remain in its current situation, providing small personal loans to a few individuals in a confined area, then I really see no problem with keeping the system how it currently exists.  If however, La Ceiba would like to expand and grow into new areas, diversify their portfolio and create new loan programs that involve higher loans, then staying the way we are presently is irresponsible.

The first and foremost reason is the creation of the business loan program.  Before, all of the loans we were/are handing out are personal loans.  As their loans grew progressively, so too did our relationship with them.  All of our clients receiving the highest loans have jumped through the hurdles with us, and as a result, have invested as much in us as we have in them.  In some ways, although not in a tangible way by any means, this ensures La Ceiba the eventual repayment of our loan…even if it is a little late.  As the business loan program progresses however, and we seek to eventually open up an established business track that attracts clients with an existing business with a higher loan rate, we will begin to hand out more money without forming those same relationships.  If the relationship is not present, we must think of another screening method to ensure that we will be repaid.

This idea is not meant to be specific to the business loan program; it applies to the personal loans as well.  As the number of clients we take on increases due to expansion, our ability to form as strong of relationships with every single one of them begins to fade; hence, the need for additional screening methods.

The ideas that I had were to require the attendance of La Ceiba classes and/or provide the loan team with letters of recommendation from community members.  The problem we run into with the classes is that they will only be taught twice a year.  This means that we would only be able to accept new business loans twice a year, and has an undeterminable affect on the personal loans.  Eventually it was decided that this could not be a deciding factor, although I would still like it to way fairly heavily in the decision process of determining who would be eligible for loans.  Perhaps not the deciding factor, but allow it to increase their chances of receiving a loan after applying.

The second of the two ideas is to have potential clients provide letters of recommendation from community members.  I feel like in the class discussion on Thursday things became a little convoluted as everyone began throwing out their own versions of this idea and everyone forgot where we began.  My idea for the letters of recommendation was to have anyone outside the family write, or provide witness, to the verification of why this individual ought to receive a loan.  This could be a former employer, a prominent religious figure or a prominent political figure within the community.  My reason for this is that having individuals vouch for you, especially those that have no familial relations to you, is one of the leading indicators to deciphering whether or not you are a trust worthy person.  Someone who is vouched for is no accountable to that other person if they shirk, because it affects their reputation,  and perhaps their own eligibility to receive a loan.

Many objected to this for a number of reasons.  The first is that it may give the voucher too much power over the vouchee.  Here is the dilemma we face:  La Ceiba has a presence in Honduras once a year as a group.  Our lack of presence really leaves our clients accountable to no one.  If they find themselves accountable to someone within the community that they admire, they may be less willing to shirk on the loan.  The second reason that many objected to this idea is that they did not see any incentive for the community members to sign/write a letter of recommendation.  I disagree with this.  There are a great many incentives for individuals within the community to sign/write letters of recommendation, especially prominent members.  The first of which is to see the community grow and prosper.  I am sure that any political figure within the community, especially if he/she is elected, would love to see economic growth in their time in office.  Additionally, all of the religious figures I know, which is admittedly not many, dedicate their live to the betterment of the community.  I do not believe that incentive would be a problem.

After the presentation on Thursday I walked away with a new appreciation for the loan team and the dilemmas they face as a rule-making and agenda setting group for the future of La Ceiba’s loan program. The unique approach we take to administering loans makes the issue of eligibility a perplexing one. We discussed many ideas, but the one that jumped out at me because of the necessity for creating sustainable loan criteria was choosing the mechanism that would supplement what Ana (or any future loan officer) does in screening candidates by the personal knowledge of who they are. One idea heavily debated was the idea of community recommendation and considering, in a way, their personal reputation in the community. After looking at the breakdown of the various MFIs requirements I noticed that only one MFI (Amhara Credit and Savings Intuition) really got at the issue of community recommendation in the way that we were discussing. I was curious as to why ACSI chose this method and how it makes them unique. Details of their operation revealed that a potential client must have a good reputation among the community that can be confirmed by the local credit and savings committees as well as the staff at ACSI. This lends to the belief that the actual recommendations by the community members on behalf of prospective client don’t really hold much weight unless they are confirmed by a third party. This leads to our dilemma: if we choose a method of community evaluation similar to this one, presumably Ana or another loan officer would be the third party check on the community’s recommendation. However, my question is why ACSI doesn’t leave the recommendations to the community without the oversight of a secondary committee (which right now, for LC, would only be Ana). Perhaps there is something about the dynamic that this possible evaluation method creates that may have an effect on more than what we can see as outsiders.

My concerns with the idea of community evaluation are not with their merit, because I do think they would be very valuable in helping to screen candidates. My concern lies in the dynamic that the implementation of this screening method may create. We discussed the possibility of convening current clients (regardless of their repayment status?) to submit an anonymous vote on prospective clients. While I agree that the anonymity of this setup liberates the current clients from considering more than just the facts about the individual’s repayment potential, there is the possibility that a divide may be created between the rejected clients and La Ceiba clients. This results in the potential for animosity or embarrassment. In turn those feelings may create a, in the worst case scenario, possible retribution against existing LC clients which would in no way help the community, the client, or LC.

 I stress the word potential because there is no guarantee that this method will create any of these feelings. It is possible that the closeness of the community leaves little room for privacy in financial matters anyway. Additionally, maybe the pressure of this peer scrutiny will incentivize teamwork and cooperation within the community. Knowing that the prospect of admittance is in some way tied to community responsibilities may be motivation enough to take steps in becoming a financially viable candidate, which presents a winning combination for the community, LC clients, and LC as an MFI.

If we conclude that the LC client group vote is not a viable choice for the selection of prospective clients we should consider the prospect of convening a permanent committee of economic, community leaders to assist in the screening process. These leaders may be business owners, teachers, or religious leaders in the community. There role would be the same as that of the LC clients in evaluating prospective clients, but provided the distance in their personal proximity to the prospective client there arises two points of contention. One being the type and value of the evaluation the panel is able to provide; a weaker knowledge of the prospective client’s background and traits. Secondly, again, there is the potential for the creation of an inadvertent hierarchy between the recommenders and the recommended. Thus, allowing for the potential of division which I believe undermines what LC is trying to do for the development of the whole community.

Perhaps my fear of this is exaggerated based on my ignorance of community standards and institutions. However, again, I’m considering the potential divisions that may emerge as a result of creating a, what may be considered, unnatural grouping of prospective clients and established economic, community leaders.  

Another option we discussed was personal letters of recommendation by community members. I like this idea because it provides a strong, direct assessment of a prospective client, so assuming the recommendation is fair, and objective (which certainly will not be the case  all the time) we’ve ensured an in depth look at a client before they are screened by Ana or anyone else. An issue I have with this approach includes the willingness or unwillingness for an individual to provide information about someone of whom we don’t necessarily know the relationship between. With that, there is no way to ensure the accuracy or the objectivity of the evaluation, and chances are there are relatively few disincentives for someone who supports or depends on the prospective client to evaluate them in an unfavorable light. How valuable will the recommendations be, if everyone who provides them says that the prospective client is a wonderful choice. I think one way we can perhaps use this idea, and streamline the variations in answers we get is preparing, yet another, application, or template that has specific traits and or experiences that the recommender could use in their evaluation. We would create sort of the ideal candidate we are looking for, at least on paper, and ask the evaluator to consider those traits in their evaluation. That way we are actively participating in the structure of the screening process, yet giving the recommendation flexibility in its completion. This method of screening would add minimally more work to the loan officer’s work load as they would only be responsible for collecting the completed evaluation form. Another benefit of screening this way is that we are able to guide the recommenders in what we are looking for, forcing them to ask tough questions of the candidates while also reducing the time and effort they spend on formulating their own recommendation. One issue I foresee with this is the possibility of encountering illiterate recommenders in which case the paper form could easily be turned into an informational interview with the loan officer. Additionally, there is always the issue of incentive. Exactly what incentive the recommender has for evaluating a candidate is still unclear; unless they see the success of the prospective client tied in some way to their own, and even then the commitment to evaluating honestly and accurately isn’t guaranteed.

These are some ideas I’ve been mulling over since Thursday. I would like to discuss this with the loan group again, as I feel this is an issue that deserves time and attention for the sake of LC’s loan program sustainability.