Money for the Masses

A venue to discuss how person-to-person lending could benefit borrower, lender and our global society.

Sunday, October 29, 2006

The Potential of a Loan

There is a heartbreaking story from the New York Times entitled, "Africa’s World of Forced Labor, in a 6-Year-Old’s Eyes" (requires a free subscription). Some noteable points from the article:
Until their servitude ends in three or four years, they are as trapped as the fish in their nets, forced to work up to 14 hours a day, seven days a week, in a trade that even adult fishermen here call punishing and, at times, dangerous.

Mr. Takyi’s boys — conscripts in a miniature labor camp, deprived of schooling, basic necessities and freedom — are part of a vast traffic in children that supports West and Central African fisheries, quarries, cocoa and rice plantations and street markets. The girls are domestic servants, bread bakers, prostitutes. The boys are field workers, cart pushers, scavengers in abandoned gem and gold mines.

The story is sadly not uncommon. And as it states in the article, it's easier that these children are given a chance to eat and work rather than starve at home. Moreover, the parents are motivated by being given $20 a year as part of the "lease". $20! More from the article:

Nearly every canoe here holds at least a few of them, some no older than 5 or 6, often supervised by a teenager. A dozen boys, interviewed in their canoes or as they sewed up ratty nets ashore, spoke of backbreaking toil, 100-hour workweeks and frequent beatings. They bore a pervasive fear of diving into the lake’s murky waters to free a tangled net, and never resurfacing.

One 10-year-old said he was sometimes so exhausted that he fell asleep as he paddled. Asked when he rested, another boy paused from his net mending, seemingly confused. “This is what you see now,” he said.

They never see the pittance they earn. The fishermen say they pay parents or relatives each December, typically on trips to the families’ villages during the December holidays.

The children’s sole comfort seems to be the shared nature of their misery, a camaraderie of lost boys who have not seen their families in years, have no say in their fate and, in some cases, were lured by false promises of schooling or a quick homecoming.

So this blog is about loans. So let's veer off from the Christian Missionary angle and revisit a thought. How desperate and horrible must the alternatives be that you could "lease" your son for $20 a year? I don't know about you but I'm feeling ridiculously guilty that my lunch at Quizno's could have paid for four months of freedom from this hell.

This isn't black & white, but these are the the worst-case scenarios that are trying to be avoided by Yunus, and some of the microfinanciers mentioned in my previous post and specifically in the New Yorker article. So what can be done? Read this. An excerpt:

FINCA founder John Hatch pioneered the Village Banking model in 1984 at Rural Development Services, a consulting firm where he worked with Rupert Scofield, the current executive director of FINCA International. Mr. Scofield had encountered a similar model during his stint in the Peace Corps working on an agricultural cooperative in the Guatemalan highlands in the early 1970s. Mr. Scofield administered $50 loans to tenant farmers and sharecroppers.

"I was very impressed by how a small amount of capital dropped into a huge surplus of underutilized labor could create a lot of value, allowing borrowers to generate a marketable surplus that could then be ploughed back into the family for better nutrition and education for the kids as well as money to buy medicine," Mr. Scofield told "What a huge rent they were able to extract from a small amount of money!"

Village Banking is a system where a group of 20 to 40 villagers receives small loans of $50 to $100. This system is predicated on a number of social and financial principles. The first principle could be considered "collective collateral," an alternative to material collateral.

"If one or two borrowers fail to repay, then the others have to pay for them," explained Mr. Scofield.

This system incentivizes the group to self-select only those villagers who are least likely to default. A single missed loan payment places the collective loan into FINCA's portfolio at risk (PAR) category, which stood at a mere two percent of their entire portfolio as of January 2003.
The story goes on to say that they are looking to turn this not-for-profit venture into an investment that will aim to return 8% a year.

If you're ready to do something, check out Sheel Mohnot's interview posted on Ryan is Hungry. Check out Kiva's website and see what you can do.


Anonymous Anonymous said...

A very heart-wrenching account. Yet, it is often necessary to "shock" us out of the slumber that our affluent society lulls us into with material distractions. Thank you also for mentioning Kiva. You've provided your readers with a unique opportunity to take part in healing the world, in a practical and relevant way. We've just added a social networking function, so each enterprise will indicate where the loans are coming from. This will solidify the relationship and community that has been established, between the loaner and borrower, and between loaners. Thanks again for your support!

Tim (volunteer with

6:54 PM PST  

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