Tuesday, January 19, 2010

The other side of microfinance

Microfinance -- particularly the provision of small loans to women entrepreneurs in developing countries -- is often portrayed as one of the most effective economic development strategies. But as Rebecca Harshbarger at Womens eNews points out, when these loans are directed toward teenage girls, problems often result. For instance:
Partnering with a Kenyan microfinance institution called K-Rep, the Population Council's Tap and Reposition Youth, or TRY, program offered female teens loans at an interest rate of 15 percent.

To receive a loan, the teens were required to provide 4 percent of the loan to the program as collateral.

The program also encouraged the teens to apply peer pressure to ensure members of the borrowing group paid back the loan. In order to borrow, the teens formed watanos, or groups of five, who helped each other to keep up with payments.

Less than 20 percent of the participants lived with their parents or said they had friends they could turn to for support. Most lived transient lives, often staying with boyfriends or male friends.

The program started out well, but most of the teens were soon unable to pay back their loans and lost their collateral. Starting hairdressing salons, food salons and other small businesses was very challenging. An emergency would come up in their personal lives--losing their shelter or getting ill--that require more cash than they had and participants would fall behind on repayments.

The teens told TRY that they disliked the pressure they were under to both take out and pay back the loans.

Harshbarger's entire article is well worth reading.

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