Evaluating Opposition to Find Key to Success

This week’s reading of Datar’s Clients Must Come First and Fisher’s Real Good not Feel Good provided insightful commentary on the essence of MFIs and their self -prescribed purpose in achieving a number of different goals.

 I’d like to examine the opposition to the institution of MFIs as I found that particularly interesting in the evaluation of my own purpose and goals at La Ceiba. The belief that the most vulnerable poor are not in a position to take risks is an assertion that holds water, but does not suffice in explaining why micro-finance is not a proper tool in motivating movement out of poverty. We know that entrepreneurs will take risks when they feel confident that their investment in human capital (job training, increasing stock of knowledge) or physical capital (new tools or inputs) will have greater benefit than cost. With this information, I think it is our job as an MFI to do two things: provide opportunities for this confidence to grow, and offer guidance in risk taking activities to realize a greater income potential. It is the manner in which we take these steps that sets us, La Ceiba, apart from institutions’ whose endgame is bigger and better loans. The trust we build with our clients is an essential part to the mutual success of what we do and what the women achieve. We use their needs to guide us in what we provide, and if they feel there is too much risk to take on a new endeavor then it is our duty to carefully propose the type of mechanism necessary to alleviate the stress of that risk.

The second claim of the opposition is that there is more stability in bigger industry than there is in small enterprise. This is valid in a more developed environment, but what if the infrastructure necessary for these big industries is not available, as is the case in many under developed locations.  It is in places of poverty that are already often subject to native-discrimination, corruption, and disease which prevent big enterprises, let alone small enterprises from being successful. In a location with few specialists, markets are small; it should be a goal of La Ceiba to help the women to gain confidence, through education, in their ability to specialize which in turn will have both personal benefits and social benefits. Both of which are important in close-knit communities where often the success of one woman MAY be indicative of the success of many.

The next point of opposition that the author addresses deals with the danger in making loans that could further burden the entrepreneur. He mentions the burden of scrimping on other daily activities in order for the entrepreneur to pay back the loan. In regards to this, I recently learned that La Ceiba does not use a system of collateral for that very reason. We do not want our clients to sell assets that may actually be production enhancing, just to repay the loan; I think this is a wise choice.

With these details in mind, I’d just like to draw a few pieces together. A common thread in countering the oppositions laid out in Datar’s article (not that the opposition was suggesting staunchly anti-mfi sentiments, rather it raised some important issues to consider) was client confidence, and the personal nature of our relationships. After reading the blog posts of others and getting to know some new perspectives I’ve come to the conclusion that above all other objectives we really should see the woman first and foremost on a micro level and then address the issue of community poverty on a macro level.  Understandably the two are intertwined, but the essence of what we do doesn’t need to be solely a means of providing financial opportunity. I think one of the keys to making these financial opportunities work is education…the minutia of which we are still in the process of figuring out.

While I’m still familiarizing myself with the intricacies of BPC, I’m realizing more than anything the importance of first discerning the women’s desired goals, expressed in their business plan, and then providing curriculum that really gets at the core of those issues. Perhaps that’s an idealistic goal, but as Datar’s article suggests “understanding how clients use financial products” is really important in helping to determine what and how to provide such products.

As the third week of school comes to close I think the thing I’m struggling with the most is being able to visualize instead of theorize. This point gets at the core of Fisher’s Real Good not Feel Good article which calls MFIs to ask four important questions: Does the Project have measurable, proven human impact? Are the impacts Cost effective? Will the impacts be sustained? Can the model be scaled and replicated? These are all questions that I’m constantly trying to understand and answer. In regards to BPC, I’m trying to see where and how the pieces are going to come together, without really having the pieces, themselves, pinned down. In the coming days I hope to solidify preliminary plans for an application which will be important in determining the most impactful curriculum we can provide.

3 Responses to “Evaluating Opposition to Find Key to Success

  • A very interesting response. I found your analysis of client confidence and risk assessment as a major goal of La Ceiba of particular interest. To what extent should we limit the risk of our clients? On the other hand, should we encourage clients who have proven that they will pay back loans to take on greater risk? .. & How would we be able to gauge client confidence in a cultural environment so different from our own? Maybe some of the members who have already been to Honduras could provide more insight. Overall interesting analysis, BPC will play a large role in guiding our clients to use loan money for business (more measurable) purposes.

  • I also found your discussion of the risks that our clients take on to be stimulating. However, we have to always bear in mind that risks are extremely relative, and pose a much greater threat to the livelihood of an individual on the brink of poverty. Though it is well accepted that risks are necessary for economic growth, we cannot pressure or force our clients to take risks that though they might seem minor for us, could push them into real poverty if they go wrong. Basically, we have to confront a different conception of investment that poverty creates and enforces.

    Another minor point you make that I take issue with, and I might have misunderstood what you were saying, is that the success of one individual can indicate the success of the community. While it may be true that one individual’s increase in material well being contributes to the aggregate, there are often social costs associated with this developing inequality. While this is less of an issue because of La Ceiba’s model, working intensely within one community, many MFIs unintentionally create strife by providing aid to only a few members of a community, which can create a sense of unfairness. In fact, at times this effect can be so severe that potential clients will choose not to participate, anticipating these social costs.

    Overall, while you address each of Datar’s points extremely well, I don’t agree that he is attacking MFIs. In fact, I think he is attempting to work within the MFI framework to help those institutions provide more real impacts on clients.

    • salvarez2012
      14 years ago

      It’s interesting the comments you made, because they were things I was also thinking about as I was writing my post—sort of like an internal commentary of my own words. With that being said, I feel obliged to clarify a few things.
      In my analysis of risk: I was commenting on how risk can be addressed, so that is not always seen as a hindrance to success. I am by no means encouraging the ignorance of risk. I think it’s important to acknowledge our role as advisors, not decision makers. That is to say, we can’t make choices for our clients, but we can share our knowledge of risk, when desired, so they may be able to choose what’s best for them. You are absolutely right; risk plays a more exaggerated role in the decision-making process of the poor than it would otherwise. I suggest we help our clients confront these risks in the most responsible way possible. Whether that means advising them against an act or suggesting alternatives, I think it’s better to acknowledge than ignore the reality of the risks they face.
      You raise a great point about social costs. I hadn’t considered the economic costs on non-clients as potentially negatively impacting the relationships with our clients as well as the relationships with one another. When I was calculating the social benefits of our work I was reflecting on the value of community confidence. My thinking was that if our clients began realizing benefits from their commitment to education, training and loan repayment than more members of the community would be inclined to invest in similar or complementary efforts. Even so, I agree with your assessment that the costs of our relationships should definitely be considered as well—good call.
      Finally, I think there was a miscommunication. I did harp on the opposition to MFIs (perhaps too much), but I did recognize the purpose of the author’s commentary as providing objective context to the MFI debate. When I said, “not that the opposition was suggesting staunchly anti-mfi sentiments, rather it raised some important issues to consider”, I was trying to address this idea that Datar was providing framework and not just subjective attacks on MFIs.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.