Microcredit

Micro credits or micro loans are between 25 and 1000 US$. They function as a gateway to self-employment, but only if certain conditions are met:
A) An MFI has to be established. (See under 1.2)
B) Where possible, liability groups have to be formed. They are also called “solidarity circles”. The members of such a circle ensure that all other members return the loans in time so that follow up loans can be higher. (See under 1.3)
C) The applicant needs to explain what the money will be used for.
D) The entire sum must be repaid with interest. The interest rate varies usually between 20 to 35%, which is much higher than loans from regular banks. The amount is justified due to the fact that the employees of the MFI are supposed to provide intensive support to the groups.
E) The borrowers are advised by the MFIs; they receive introductory seminars, and they are assisted in the preparation of their business plans.

The history of microcredit

The Grameen Bank

“I believe that we can create a poverty-free world because poverty is not created by poor people. It has been created and sustained by the economic and social systems that we have designed for ourselves; The institutions and concepts that make up that system; the policies that we pursue.” (Muhammad Yunus)
Muhammad Yunus, born in 1940, grew up in a Muslim Family with 9 children, in a village near the town of Chattogram. At that time, this region belonged to India, then it became East Pakistan and from 1971 it is part of the independent country Bangladesh.
In the sixties, he received a scholarship and studied economics at the Vanderbilt University in Nashville Tennessee, USA.
In the early 70s, he returned to his hometown and became a professor of economics. The professorship alone seemed not to satisfy his curiosity. He went out to the poor and recognized their dilemma. He saw them as prisoners of poverty, as they had no means of being financially supported by loans from banks. Yunus started an experiment. He himself lent money to women who were able to realize a long-desired business idea. The conditions he set were that they would join together in liability groups or “solidarity circles” to support each other. An important rule was that they should not buy luxury goods from the loans, and they had to refund the borrowed sum with interest within a set period. The idea became a success: The loans were repaid on time and the women were able to start small businesses, which also made them financially independent of their husbands.
His initiative resulted in the nowadays globally known Grameen bank which was founded in 1983. It is a for profit company that is owned by the poor themselves and this bank gives out microcredits, especially to women, for business ideas. The borrowers don’t need securities for their loans.
The Grameen Bank as well as Muhammad Yunus were awarded with the Nobel Peace Prize in 2006. As a result, microcredits became a “holy grail” in the field of development.
But the idea of lending small loans to the poor dates back to the 19th century. In Ireland as well as in Germany (here given by Friedrich Wilhelm Raiffeisen) micro funds were mainly granted to farmers. The decisive difference, unlike the modern microcredit scheme, back then these loans were provided free of interest.

MFI (Micro finance institution)

Micro loans are handed out by so called MFIs (micro finance institutions. These are often already existing NGOs that are reorienting themselves from the non-profit sector to be transformed into micro-banks with a new objective. Now, that these organisations are seen as profitable, retail investors and larger financial institutions can invest.
(Note: In some countries non-for-profit organisations might need to register as profitable companies or, as in India as a section 8 company in order to gain profits.)
The MFI then determines the instalments, the interest rate, and the corresponding period within which the loan must be returned. A business idea is a requirement. Televisions, radios and/or any other luxury items cannot be purchased from these loans.
The amount of interest is usually used for the administration of the MFI. This is the reason given why interest rates of microloans are often much higher than those of banks.

The process

A) From the perspective of the MFI:
Step 1: Register as a social business or as a business venture.
Be aware that practically seen you are a bank. And banks are profitable. You can then later decide whether the profit goes back into the MFI.

Step 2: Secure capital
At first you need start-up capital. For example, 10.000 US$. You can raise this capital from donors, investors or banks.
If you receive the money from donors, you don’t have to pay back. You just need to report.
If you receive the funds from an investor, you need to give back a certain amount once profit is coming in.
If you get a loan from a bank, you will be in the same position as your own borrowers, only that the interest rate might be lower.

Step 3: Budgeting
Important is a budget.
– How high are your administration costs, usually these are not higher than 10%. (Administration costs include salaries, transport, rent of office, equipment, stationary, electricity, internet.)
– How much would be left for your borrowers? For example, if you have 10.000 us$, – 10% admin, you have 9.000 us$ for providing micro loans. It’s wise to have a buffer.

Step 4: Set conditions
Before reaching out to potential beneficiaries, make a clear guideline of:
• Who can borrow
• What are good applications
• What are no-go’s
• How long are the repayment rates
• How high are the interest rates

Step 5: Finding your beneficiaries
While finding beneficiaries make sure that you just advertise but don’t convince someone to take a loan. Once someone takes a loan to please, the probability of paying back is less likely.
Once you have persons who are interested, make sure that they do understand the guidelines. If they don’t speak the same language, have a translator. If they are illiterate, make sure that you read it together with a person of their trust.

Step 6: Building groups
5 to 8 beneficiaries make a good group. Make sure that the group has a spokesperson and an internal code of conduct.

Step 7: Do regular trainings with each group.
Trainings could include but are not limited to:
• Team building
• Feedback giving
• modes of communication
• conflict management
• Basic calculations (cost price, profit and loss)
• Pitching

Step 8: Reminding on repayment
This is a rather tricky part. Then here usually it goes wrong. Create guidelines for communicating that the period has come to pay back.
don’t use violence or force.
Appeal to their personal responsibility.

B) From the borrower point of view:
Step 1: Find a business idea or think about how you can enlarge your already existing business.

Step 2: Calculate cost price and revenue.

Step 3: Create a brief business plan. Test run it by others who are in similar businesses or have other experiences doing business.

Step 4: Find a suitable MFI in your own location. Check the NFI by looking at:
• Repay periods
• Interest rates
• Conditions and
• Whether there have been mal practices.

Step 5: Find others to build a trust or solidarity group.

Step 6: Make sure you put payment dates and miles stones on your calendar.

Step 7: Practice your pitch.

Good luck

Opportunities and threats

A) Opportunities as the MFI:
If you as the MFI have borrowers who are responsible and pay back in time.
If you as the MFI have a high number of borrowers. This could cover losses.

B) Threats as the MFI
If your borrowers are not intrinsically interested in borrowing money to make more out of it.
If other family members misuse the funding.

C) Opportunities as the beneficiary:
If you have a good business idea and are driven by making profit, a micro loan can fall on fertile ground, especially if the parallel trainings are happening and if there are mentors who can help in times of challenges.
If you have an already well running business and you know exactly what to invest to make more out of it.

D) Threats
If it is not your own wish to use this money for something worthwhile.
If your MFI uses force to get the funding back.
If your solidarity group is not really helping you.

Micro franchising

If persons don’t have their own business idea, they can start a franchise. In fact, they are jumping on other people’s trains. It is often called “business in a box” which means that all branding, all tools, all guidelines are already prepared, and you just have to execute what others had thought for you.

Advantages

The advantages are only advantages for those who don’t have the time, the creativity or the know-how to prepare such a business. You can check ahead whether the business is profitable, and you will have guides from the mother business who can explain what you should or what you better shouldn’t do in order to make profit.

Dangers

You could feel being exploited, because after all you are in the risk of becoming an unpaid employer who is making sure that the brand is spread.
In most cases, you have strict guidelines, what you can and what you cannot do. This of course is very limiting. But if you want to break out and do your own thing, the mother business could claim that you are running away with their brand.

Therefore, make a solid evaluation before entering into franchises.

Table banking

Table banking is a grass root initiative in which no outsider, no external person has power of the basic capital of the group.
The capital is usually generated by the group members not through loans, sometimes through donations. But mainly all assets come from the group members themselves.
Think of a group sitting around a table and dropping whatever they have to either start an individual business or one as a group.
Often these are single businesses which are related to the other’s business ventures.
For example: one gives flower to the baker, another gives eggs to the same baker and from the ingredients, she makes pancakes and sells them on the market. The profit will then be back on the table or distributed to the members.
What you need next to a few assets is passion, perseverance, ideas and knowledge how to make most of little resources.
In table banking, everything becomes voluntary:
Women are no longer assigned to the so-called solidarity groups. Instead, they are selecting their own business-partners.
The type of business is no longer decided by outsiders, by an MFI.
Women are encouraged to follow their own dreams, together or on their own path.
Possible additional funding can come in later, once businesses are already in the making.

Microcredit, a magic wand to fight poverty or profitable business at the cost of the poor?

A springboard to get out of poverty

“Things are never as complicated as they seem. It is only our arrogance that prompts us to find unnecessarily complicated answers to simple problems.” (Muhammad Yunus, Nobel Peace Prize laureate and founder of Grameen Bank)
The goal of Muhammad Yunus is to combat poverty using a simple formula. And indeed, it is a truly simple solution: give the poor a loan and they will pull themselves out of their misery. Does this work?
Having read extensively about Microcredits, the following analogy comes to mind: My little 14-month-old niece Mira has recently discovered a wonderful game. She empties a wooden box, places herself inside and calls for my brother to take the attached rope and pull her through the apartment. So far so good. But what if my brother is not around? Then she takes the rope in her own hands while sitting in the box and tries to pull herself forward. That does not lead to success. Well, Mira quickly finds out that with some wiggling and shaking she may be able to move a few Inches forward. Real progress, however, can only be done with a “locomotive”. The Box without my brother is not a “self-runner.”
When I explained this analogy to Selassie from Ghana, a 2018 kanthari graduate and by then a fiery defender of microcredits as a miracle weapon against poverty, he begins to laugh out load. “Of course, you think like that …!” Then he stops and after a moment of silence, to my surprise, he adds: “But actually, I do feel, your analogy is quite right.”
Here in this article, I write about conversations that I had with kanthari alumni, who are familiar with giving out micro credits or who were themselves beneficiaries of the same. I will point out unquestionable stories of success, but I also have a critical look. Finally, I will describe an alternative concept that has been exercised by several kanthari alumni.
But first, read what I came to know through the call with Selassie.
We both remember our extremely heated debates in which he, Selassie accused me of doubting or even ignoring essential means of defeating poverty. Back then I countered that micro finance might be able to address symptoms of injustice, but that the idea of handing out Micro loans is a neoliberalist, self-serving methodology which is neither able to create sustainable social change nor suitable for stopping climate change.
Today, two and a half years later, we both have cooled down a bit, and he tells me about concrete experiences from his work. I have to admit, I am positively surprised, because the examples he cites and the methods he describes are logical and convincing.
Selassie is the founder and director of Eyata, an organisation that focuses on single women in rural areas of Ghana. they receive an intensive training in fashion design, financial literacy, and business administration. In doing so, they learn how to create unique products and how to sell the items to a broader audience. They learn everything from budgeting and accounting, and thus they are well prepared to manage microcredits. Once they understand the ins and outs of micro finance, they will become successful borrowers who can return their credits on time with interests. And this gives them the opportunity to apply for a follow-up loan.
A few examples: Emmanuela is single and in her twenties. She loves sewing and is passionate about developing modern designs for dresses and suits. But due to financial reasons, she never had the opportunity to enroll in a tailoring training. At Eyata, she learned both tailoring and fashion design, and additionally, she was prepared to develop a business idea and finance it through microcredits. Through the first loan, she acquired a sewing machine. Within a short time, she was able to pay back, and she received the follow-up loan with which she could build a small shed. This shed serves as a tailoring unit and at the same time as a small shop. She already has an employee and can comfortably live from the monthly income.
Another example is Grace. She is a bit older and has three children to look after. She had kicked her violent husband out and thus had to work hard to make ends meet. In the meantime, she was able to help with the tomato harvest. This kept her and her children afloat. But once the harvest failed, there was nothing left for Grace to fall back on. Through Eyata she found her passion. She is very creative, designs colorful wedding dresses and from the left-over cloth she sews shopping bags.
During the Covid lockdown, she did not remain idle. She made fashionable masks out of different fabrics, which were also popular by city dwellers. Today she can send 3 children to school. The micro-credits granted helped her out of trouble.
“Grace reminds me of my own mother.”, Selassie says, “She, too would have had it easier through microcredit.”
Growing up, Selassie himself had experienced great poverty. His mother was divorced and had to take care of two children and this without any job nor education. Like Grace, she harvested tomatoes and through the help of her siblings she was able to make sure that Selassie and his sister could attend school.
Selassie remembers how both siblings were mocked at school. Their uniforms were old and torn and they had no decent shoes. Often, they had to go to school barefoot. They couldn’t bring anything for lunch either, so they stared with empty stomachs to the other children’s treats. He remembers some classmates even singing mock songs, making fun of their hungry looks.
Whenever he could, he hid in the library, which was an hour’s walk from his home village. Instead of hanging out with the other boys, he studied hard and achieved excellent school degrees. By the time he came to the kanthari Institute, he had already set up an organisation that linked single mothers to microcredit lenders. Here in kanthari he got the tools to expand his project and he was familiarized with the aspect of social change. In many heated debates, he had to defend his method, and to a certain extent he was able to convince us that his help through microcredits for already entrepreneurial minded women is like a seed on fertile ground.
“Our childhood was overshadowed by feelings of shame. We felt guilty about being poor. My mother and we would have benefited greatly from the opportunities that I today give to single mothers.”

Micro credits – a blessing… or a curse?

“The poor themselves can create a poverty-free world. All we have to do is to free them from the chains that we have put around them.” – Muhammad Yunus, Bangladeshi economist, and Nobel Peace Prize laureate.
Muhammad Yunus’ quotes lead to a number of questions:
– What is his definition of “chain”?
– Who does he mean with “we”? And who is putting the chains around the poor?
– How can the poor themselves create a poverty free world?
According to Muhammad Yunus, every person should have a fundamental right to credit. However, this can also be explained in a different way: debt-creation is a human right. Sure, but only if everyone has the same opportunities as the banks which were pulled out of the mess by state subsidies during the global crisis. Only then can one take the risk of accepting a loan.
But for Muhammad Yunus and Grameen Bank, subsidies and grants of all kinds are seen as charity and are therefore strictly excluded from the microfinance program. So, while indebted banks are bailed out during economic crises, the poor are ‘expected to help themselves?’. Microcredit is, after all, branded as a means of self-help.
I wanted to know more and remember some kanthari graduates who came from poor over-indebted families. They saw microcredit as strangulation of their entire communities.
For example, Cavin from Kenya, founder of Wa-Wa, a “Fisherwomen Academy”. He attended kanthari in the same generation as Selassie, the microcredit advocate I gave a voice to in the last blogpost.
Cavin was one of the passionate critics in our debates. He knew first-hand the side of borrowers all too well. His mother had four children to look after at the time. To do so, she sold fish on the market. But to get the fish, she had to offer sexual services to the fishermen. The phenomenon of “sex for fish” made Cavin’s home region of Homabay County on Lake Victoria infamous. Many women became HIV positive, died and left orphans behind. Cavin’s parents also died and he somehow managed to survive two years on the street before being taken in by a childless lady. Today, Cavin fights for the dignity of the women of his region. Through his Fisherwomen Academy, he wants to give mothers direct access to Fish. Wa-Wa trains them in everything about fishing, from tying nets, building boats, fishing on Lake Victoria, to fish farming in self-built ponds.
Microcredit is not part of the Wa-Wa program. Cavin focuses on intensive training, on inner motivation as well as on value creation through work.
During our discussions on microcredit, Cavin vividly described how his mother accepted the offer from lenders out of sheer desperation. But every time payday was approaching, the whole family was under stress. He remembers the lenders coming to their homes, loudly claiming the debts, and eventually, with no cash being available, taking all blankets and bedding, cooking utensils and even the only cow as repayment.
“For us, having debts meant embarrassment and even deeper poverty from which we could no longer recover.”
Cavin’s experience coincides with those of Tony Joy’s, a kanthari graduate of 2017. She is the founder of Durian, a social venture that aims to reduce poverty in remote areas of Nigeria. Her initiative is about “Waste to Value”. For example, bamboo, a plant considered worthless in Nigeria, is used as a material for production of crockery and cutlery, as well as construction of furniture and buildings. Durian also trains the members of the community in both craftsmanship and business administration. But the organisation does not believe in micro-credits as start-up financing.
“It’s the shame of getting into debt and the fear of social exclusion that should stop everyone from falling into the credit trap.” Tony knows about cases in which people were forced to sell their daughters to lenders to pay off their debts.

Beyond the beautiful surface

The solution to poverty reduction has rarely been so ‘sexy’! According to Muhammad Yunus, microcredit can banish poverty to museums, promote the emancipation of women, and they help all of us to do good without making a sacrifice. Or even better, they ensure that everyone involved gets richer.
Measurable indicators of the success of the ‘Miracle Weapon’ are the high repayment rates of 95% to 100%. After all, if you can repay, you must have made it! isn’t it?
Interestingly, most lenders seem to be content with a few success stories, a few beautiful pictures with smiling women, but do not want to know in detail how the lives of borrowers have fundamentally improved and how poverty is supposed to have miraculously reduced. After all, the Nobel Peace Prize, given to Muhammad Yunus and the Grameen Bank in 2006, shines above all this… the result must be right somehow.
But if we want to know more, we don’t have to dig deep to quickly find what we are looking for. Through the authors and journalists Kathrin Hartmann and Gerhard Klas as well as through the award-winning documentary The Micro Debt by Tom Heinemann, one inevitably comes across the renowned economist Anu Muhammad, a compatriot and critic of Muhammad Yunus. In a study by the Jahangirnagar University, he paints a vastly different picture. Here it says that only five to ten percent of borrowers have made the leap out of poverty with the help of micro-credits. 50% live as poorly as before and 40% have even experienced deterioration in their standard of life after taking a loan. Anu Muhammad also believes that the high return rate is likely. But he does not turn a blind eye to the fact that a high return rate does not equal a high success rate.
Micro-finance institutions are often formerly non-profit, non-governmental organizations that, lured by the promise of high returns, suddenly transform themselves into profitable microbanks. The difference: While ordinary customers must travel to the bank in the next village, this bank comes directly to the borrower’s doorstep. The question is, what is the bigger threat?
The mentioned documentary, The Micro Debt, shows through several examples from Bangladesh, Mexico and India how the employees of the MFIs, mostly men, stop their motorcycles in front of the huts of the predominantly female borrowers and loudly demand the overdue payment. Since, according to Gerhard Klas, the MFIs are not regulated, they have every opportunity to put pressure on the debtors by threatening to take off with any essential goods. In the documentary, a Bangladeshi woman tearfully describes how these men dismantled her corrugated tin roof. Others are forced to pay back in the form of chickens, goats, food and even chunks of land they cultivate.
To prevent these attacks, borrowers are repaying one debt with either new loans from other MFIs, relatives or neighbors. The high interest rates cause the women to be trapped in a never-ending cycle of payments.
In Nigeria, too, the practices of the MFIs are questionable. According to “Microdebts”, The MFI LAPO offers loans with interest rates of up to 100%.
In Andhra Pradesh, a state in southern India, some MFI debt collectors suggested to send daughters of debtors for prostitution. Others advised debtors to take their own lives, so that their loans could be paid off using life insurance claims. And if the debts in the village have made one unpopular, there are still the credit sharks, those who Muhammad Yunus actually wanted to ban. Through the practice of the MFI and the resulting economy of shame, the sharks now have the upper hand. Because if no one bails out the MFI debtors, they can easily jack up the interest rate to over 100% even up to 300% and, as usual, use violence to guarantee the return.
And then came 2010 – the great awakening. In just two months, more than 50 microcredit debtors committed suicide in the Indian state of Andhra Pradesh. This resulted in a careful questioning of the practices of lenders and the values of social business as a whole. Do keep in mind that there was/is no evidence that microcredit is leading to sustainable social change. Only in some countries the rules of opening an MFI became stricter. Selassie, the microcredit promoter stands behind the decision of the Ghanaian government, that recently has closed down more than 300 MFIs. He says: “” The MFIs have abused their power position and have put women into incredible hopeless positions. With such practices also the positive sides of microfinance get a bad image.”
Despite all this, till date, not much has changed for the better.
So, what is left? The focus on emancipation of women?

Motherly feelings as the repay guarantee

“When a destitute mother starts earning an income, her dreams of success invariably centre around her children. A woman’s second priority is the household. She wants to buy utensils, build a stronger roof, or find a bed for herself and her family. A man has an entirely different set of priorities. When a destitute father earns extra income, he focuses more attention on himself. Thus, money entering a household through a woman brings more benefits to the family as a whole.” – Muhammad Yunus, economist from Bangladesh, founder of Grameen Bank and Nobel Peace Prize Laureate.
The questions I had asked myself during these weeks, in which I have researched about micro finance and its consequences, are whether microcredits are a means of women emancipation, or are they doing the opposite, namely the manifestation of gender injustice?
But let’s start from scratch: Why do male lenders prefer women as borrowers?
“Oh, that’s clear,” the micro-banker would say, “we are concerned about the emancipation of women! As soon as the woman herself has access to financial services, she will be able to free herself from the dominance of men. She will be able to make her own decisions, and these decisions are always in the interest of the family!”
Sounds plausible at first. And not only that, but these new micro-bankers also sound really likeable, empathetic and even refreshingly activist.
But what about their business model?
“No problem. Doing good and maximising profits don’t have to contradict each other!”
Is this a financial “revolution”, a fundamental change of mind, or is the devil hidden deep in the banker’s briefcase?
In order to answer these questions, we must try to put ourselves into the shoes of the micro-bankers.
Micro banks are first of all interested in spreading the maximum number of loans as quickly and profitably as possible among their “customers”. The high return rates are crucial for success. And don’t forget about the average 30% interest that needs to be paid along with the principal.
But who traditionally needs credit?
Entrepreneurial personalities who either want to implement a business idea or who intend to expand an existing business and need a start-up capital to do so. Entrepreneurs tend to not shy away from risks. And that’s what makes lending money a gamble. How much risk may it be? Who has a creditworthy idea? Who can afford it? Who can you bet on?
Until the founding of Grameen Bank by the economist Muhammad Yunus in 1983, the beneficiaries were predominantly educated middle or upper-class men who had to submit a business plan. Business and risk-taking were seen more as male qualities, deliberately or unintentionally keeping women away from financial services. Since the 1980s, however, this attitude seems to have changed. For the micro-finance-industry that is globally worth hundreds of billions of dollars, it is all about this new target group: the true guarantors of success! We talk about the poorest of the poor, about low-income class women who would never have had access to financial services before the Grameen age.
Today, however, under the label of “financial inclusion”, the doors to micro banks are wide open for women. They are welcomed with open arms and offered “financial assistance” as a springboard out of poverty.
Conventionally this would be seen as a significant risk.
Unlike traditional lending, the borrowers who apply for a microcredit are often not assessed for the ability to start a business. Also, in most cases, the women don’t have to provide any collateral. So, what is the final reasoning for giving out a credit? It seems that it comes down to need on one hand and the biological sex on the other.
Let’s look at these in detail:
Need creates inventiveness. We all experienced this at some point. In times of crisis, we suddenly succeed in activating hidden potentials. We are awake, strong, resilient and able to find creative solutions to old and new problems. However, facing a crisis also makes us very vulnerable. We grab at every straw that is held up to us without considering whether the assistance might force us even deeper into the mess. Both creative problem-solving and vulnerability which leads to being needy, meet the criteria of being a potential micro-credit receiver.
And then there is the “revolutionary” focus on women: if we look at this new category of customers from the point of view of lenders, it becomes obvious that they might use a few common female stereotypes:
“Women are brought up to be selfless and take responsibility for others.”
“They see the welfare of their own family as a priority. Everything else, including personal needs, will be put aside.”
“When women become mothers, children and the household are most important.”
In patriarchal structures, and most cultures of this world are patriarchal, these qualities can be considered true for women and especially true for mothers. Why not?! Wives and mothers often have no choice but to be exactly as one would expect her to be caring and always ready to sacrifice, a sense of selfless responsibility, and the need to please everyone. This is not only important when it comes to raising children or keeping a husband happy; they are, no doubt, qualities that belong to the mentality of a perfectly creditworthy personality.
The unusually high return rates of 95 to 100%, a gold mine for the financial sector, may be surprising, but on closer inspection they are logical. In a patriarchy, the woman learns from an early age to fulfil the imposed duties first and only then to take care of herself.
And that’s exactly what’s happening. The loan is repaid on time in full, with interest, even if it affects one’s own well-being. It’s quite different for male borrowers, who tend to be more immune against external pressure and able to live well despite owing money to others. Women, due to their socialisation, are therefore the more suitable debtors. It is not because they are better at business than men; It is their programmed altruism that forms the guarantee of repayment. In addition, illiteracy among women is very high in many countries. So, what happens to a business contract that cannot be read and understood? A thumbprint seals the deal. So, the lack of education becomes a business advantage.
And there are other reasons that make women a popular target group. Gerhard Klas, a German journalist and author, quotes Sardar Amin, a former manager of Grameen Bank, in his essay, “Mythos Mikrokredits”. It says that women are easier to grab and less mobile.
The village and the community are particularly important for women. It often happens that a woman does not leave her own place of residence for as long as she lives. Everyone knows where she is and what she is doing. For the Grameen Bank, which was a decisive advantage. “The villagers take care and stick together.”
An additional aid that micro borrowers receive is the allocation to a “liability group” or “solidarity group”.
These are five to ten borrowers who are supposed to help each other build up a possible business idea and, of course, to repay the loan. But this is where it could start to get ugly.
Gerhard Klas and the documentary The Micro Debt by Tom Heinemann show exactly how this solidarity can turn into the opposite when it comes to money. The women start to clash against each other. A sick child is kept secret because one does not want to be excluded from the group for having other financial burdens.
Teh Francis, a 2016 kanthari graduate, was one of the first to bring microcredit to Cameroon. In the meantime, he became rather critical of this practice and instead took, in my view a convincing alternative path, which I will describe in the fourth part of this series.
His reservations have to do, among other points, with the so-called “solidarity groups”. He experienced how the pressure of being indebted to an external organisation, the MFI (micro-finance institution), was very negatively projected on the whole group. The consequences were not solidarity or cohesion, but the unleashing of psychological terror. It did not stop at “talking sense” to the insolvent group member. It went from bullying to exclusion, and if all that didn’t help, all that remained was: “Save yourself! Every woman for herself!”. Some of the women disappeared without a trace. They left their families and their communities behind on the assumption that the debts had been repaid with their own disappearance. According to Teh, the women who have not repaid are in the minority. But he, too, believes that too many health and psychological sacrifices had to be made in order to be able to comply with the contracts with the respective MFI.
Finally, there is evidence that a large number of women apply for loans for their husbands. But men usually love to buy consumer goods such as motorcycles and televisions, and again there is nothing left for healthy food and for the education of children.
“Emancipation of women is not simply done through financial independence.” Explained Tosin a Nigerian kanthari graduate from 2013.
“My mother had always told me: get a good education and find a well-paying job, then only then you will never be a victim of domestic violence.” Tosin followed her mother’s advice. She studied hard and got a well-paid job. And yet she was beaten so hard by her husband that she woke up in a hospital.
“I allowed him to beat me. Even though I was financially independent, I was far from mental empowerment!”
Tosin had opened my eyes. Until then, I had no doubt that women would only have to have the same opportunities as men; that they would only have to be financially independent in order to free themselves from patriarchal structures. But the reality is much more complicated.
Sustainable social change only happens when the inner attitude to one’s own role, to self-worth, changes. To do this, however, the environment, even an entire society as a whole must also change, especially in its understanding of gender roles. The quote from Muhammad Yunus at the beginning, however, demonstrates that Grameen Bank and its followers are not concerned with this kind of social change. The role clichés are reinforced and it’s “business as usual” at the expense of women.

Business in a box

“All human beings are born entrepreneurs. Some get a chance to unleash that capacity. Some never got the chance, never knew that he or she has that capacity.” – Muhammad Yunus, founder of Grameen Bank, 2006 Nobel Peace Prize laureate.
Is that true? Is every human really born an entrepreneur? And do we only need to be given a chance to exploit this potential?
I have a fundamental concern with any of the following “wisdoms”: every human is an artist, a leader, a philosopher and with this one: everyone is an entrepreneur. What does being an entrepreneur really mean?
In addition to all the admirable qualities that many would wish to have, such as being inventive, always solution-oriented, communicative, passionate, and so on, there is also a challenging side to being an entrepreneur. You must also dare to risk something. You must not be afraid to face failure. Entrepreneurs must take great responsibility for themselves and for others, they are forced to make quick decisions, and this can easily result in disrupted and hostile relationships. All negative consequences need to be accounted for. They often work way more than average hours and do not shy away from exploiting themselves and, in many cases, others too.
This can lead to complete exhaustion of their own resources and thus they risk their own health and often enough it negatively impacts their private life. And last but not least, entrepreneurship is always linked to the pursuit of profit. At this point at the latest, I would say that Muhammad Yunus might have overlooked something crucial: people are different!
It seems, however, that the members of the Grameen Bank have recognized this themselves.
Many microcredit-funded enterprises are floundering because conditions are not ideal, or their own ideas are not good enough. And then, for good reasons, most people do not have the slightest interest and thus not the necessary perseverance to “reinvent” themselves again and again. So, does Muhammad Yunus’ dream of saving the world with billions of single individual enterprises fail? Quite the contrary! Before a significant number of potential customers could evade the lure of micro-loans, the masters of the microfinance industry quickly invented something new: the “Business in a box”. It is remarkably simple. You do not need to invent anything yourself; you don’t have to develop a business plan, do cost-price calculations, or even design a brand. Everything you need to implement will be delivered in a ‘plug and play’ manner, just like a franchise.
At this point, it becomes really uncomfortable for the poorest of the poor, who are usually not educated and thus inadequately prepared for the challenges of running a franchise. They become unpaid self-employed persons in the service of the corporations, in short, the ‘solidarity group’ described in the previous chapters is turning into a door-to-door marketing brigade.
As I write these sentences, it strikes me that many years ago I got a quick course on this type of “poverty reduction” method from an Indian street child. When I travel alone in Nepal or India, I often meet street children. I experience them as helpful and eager to provide useful information. Due to their trained observation skills which help them to survive, they quickly realize that I cannot see. And somehow, they seem to feel some form of solidarity. Whenever I want to give them some Rupees for helping me to cross a multi-lane road or finding an address, they usually object with the reply: “No Mam, you are one of us!”. To be blind in such situations becomes an advantage as it lowers the threshold for a more direct and open communication.
I met this first lecturer in micro franchising about ten years ago at the main railway station in Pune. At that time, I was travelling on my own. I remember sitting on a bench with a little backpack and my white cane, waiting for my train to Mumbai, when I suddenly realized that I was no longer alone.
Someone had quietly approached me and now stood right in front of me. After a while, I spoke to him, and he said with a laugh, “You’re not REALLY blind, aren’t you?!”
It was a teenager, about 15, 16 years old. He was homeless, and, as he told me in surprisingly clear English, he felt good about it. No sign of self-pity. He explained that begging served his needs. Sometimes he could even afford a train ticket to a different city. Others were much worse off; they were forced to sell products. At that moment I heard a choir of voices, shouting or singing. As the singers trotted past us in a long row, the boy explained to me that these were blind youths from a nearby hostel. To cover the cost of their accommodation, they had to sell toys and snacks. Such activities, my companion said, often end up in a loss-making business. After all, the toys first had to be bought from the dealer, and then they got stuck with whatever could not be sold.
What I did not realize at the time, this was probably one of the many alternative concepts that Yunus raves about in his public speeches: beggars get a microcredit and the opportunity to buy products from this money. And then, Yunus explains to the astonished audience, they do something naturally, that others first must learn in Harvard Business School: “Market segmentation!” These beggars would know exactly at which house it would be worth selling snacks and where its ok to beg… Leaving his audience in awe.
Through the many YouTube clips which teach me about alternative concepts of financial inclusion, I get more and more suspicious.
Although the whole idea still runs under the label of “Entrepreneurship” or in this case also more precisely “Micro Franchising”, it is obvious that this is about unpaid “sales-personnel”. On behalf of the corporate, they venture out to distribute products in the most remote areas, at their own expense and… at own risk. Thus, unknowingly, and for the corporate conveniently promoting the brand to completely new, potential customers.
The corporations, which include Coca-Cola, Telenor, Danone, BASF, Unilever, Adidas, and many others, are happy to engage in these experiments with poverty. And why not? They don’t have any financial risk as the mostly female “Sales agents” are given a microcredit by the Grameen Bank or by any other MFI and for that they shall buy the products with a little discount. These women, who are supposed to open a new market for the companies in often impenetrable regions, with ‘paternal patronizing condescension’ are called: Capitalism’s frontiers, Grameen Phone Ladies, Danone Ladies or Solar Sisters. And the corporates decorate themselves with the Grameen brand and sell the whole concept as “Social Business”.
The question is, what is “social” about this business? Is it a social act to send women miles through the most remote regions to familiarize those who are even poorer with over-sugared soft drinks? To people who would never be able to afford seeing a dentist! Is it social if they produce sneakers in low-wage countries, under most adverse circumstances, for only $1.50 and thus ruin the business of local cobblers?
Does it encourage solidarity when whole brigades of competing sellers march from house to house in a village to sell phone cards?
Most of the articles and academic papers I have received so far from well-meaning acquaintances, with the remark that these are excellent ideas for poverty alleviation and would certainly provide great teaching material, were consistently positive. But the more they praised Muhammad Yunus’ statement that a business can solve any problem, the more outraged I became.
I wanted to dig deeper and, in my attempt, to imagine in more detail the disturbing implementation of the so-called “responsible capitalism” the book of the German author and journalist Kathrin Hartmann “wir müssen leider draußen bleiben” (“Sorry, we have to remain outside”), was a great help to me. Here she impressively describes how the management of Danone proudly talks about the newly built “yogurt factory for the poor”. The gentleman enthusiastically mentioned how hundreds of dedicated women are walking around the countryside, selling the small, specially branded yoghurt bites to families with children. This Yoghurt, although enriched with important minerals and vitamins, is extremely sweet and thus health-wise a rather questionable treat.
Hartmann became alert and set off to see it for herself. When she arrived in Bangladesh, she found the Yoghurt in all supermarkets, but she didn’t find a single “Danone Lady”. Only after intense research, she was able to meet a former saleswoman who had strong regrets to have ever committed to the scheme.
In an interview with the author, she describes how she had to walk from village to village with heavy cooling bags, walking through swamps, sandy roads and bad weather, only to be shouted at and shamed for the overpriced sweet product. Especially men did not appreciate her “franchise business” because in a Muslim culture, women who try to stand on their own feet are looked at with great scepticism.
Moreover, the profit was sparse. In good times, she earned no more than $1.50 for three days of work, and often she got stuck with the perishable products.
In the same interview, her bitterness was evident. She felt exploited and not taken seriously. And finally, she asked the question that I had asked myself often enough, why couldn’t she, a dedicated hard-working woman just be regularly employed with a fair wage.
It is certain that a CEO of a “social business” like Grameen-Danone would argue that the risk of a losing profit would be too high, of course. Therefore, handing over the responsibility of success or failure to the poor would be more convenient for the corporate and more “empowering” for the ladies.
It can also be put in a different way: the poor are used to overcoming crises and do not have much to lose anyway. Well, I would say, they have something crucial to lose: their energy, their will to live, their health and especially their dignity!
Muhammad Yunus, how about changing your quote that was mentioned at the beginning of this post, a little: “All human beings have a right to employment. Some get a chance to unleash that capacity. Some never got the chance, or never knew that they have that capacity.”

The bank around one’s own table – Table-Banking

“Whenever I see a Problem, I start a business to solve it.” – Muhammad Yunus, founder of the Grameen Bank, and poster-boy for all who believe that doing good and getting rich in the process is not a paradox.
Just like in the last chapter, my fingers are itching to rewrite this quote a little, maybe like this: “Whenever I start a business, I cause new problems that need to be solved.”
I have noticed several problems arising from Dr. Yunus’ various business ideas.
Among others, there is:
– massive stress to the point of illness from being in an all-consuming never-ending debt cycle,
– over-indebtedness due to too short repayment periods and excessive interest rates,
– even greater power to credit sharks, who happily step in to ‘’fill” debt holes,
– patronizing of women, now not only by their own husband, but also by the mostly male employees of the MFI (microfinance-institutes) etc
I wonder, is there an alternative that can free the microfinance victims from their misery and stop top-down control?
In this chapter, I would like to present a possible alternative: Table-banking, a special type of entrepreneurial empowerment which has been developed from the grass roots and which leaves micro bankers and investors standing in the rain.
Whenever investors in the microfinance industry mention BOP (bottom of the pyramid), they mean economic support for the poorest of the poor. If the economists, the micro-bankers and other investors really care about alleviating poverty, then it seems that their imagination only goes as far as to promote women, but not a step further.
The worldwide one billion people with disabilities are generally left out when it comes to financial inclusion. Does this mean business as a cure for all problems has its limitations? Is it a sheer lack of confidence in the skills of the disabled? Or just a lack of inventiveness?
In the kanthari Institute, we are completely convinced of the possibilities of those who have been forced to see the world from a different perspective. Of course, we do see disability as an “obstacle” to achieve a goal by conventional means, but we have also learned that ground-breaking opportunities are found precisely in these “obstacles”. Often ideas can only develop due to a deficiency.
In 2014, Paul and I travelled to Kenya to visit some projects of kanthari graduates.
In Kitale, a small town in the northern Rift Valley, located in the shadow of the 4,300-meter-high Mount Elgon, we met Joseck Otongo. Joseck was already well over 50 when he joined us at the kanthari Institute in 2010. He had worked as an accountant all his life. But then he became blind and lost his job. Together with other unemployed blind people they tried to start a business. But although MFIs usually try to talk self-help groups into accepting micro-credits, no one had trust in the business skills of blind entrepreneurs. Banks as well as MFIs refused to provide a loan.
Joseck and his team did not give up. In a crisis meeting they put everything they had to the table. One had some chickens, the other had a small Cornfield, the third knew how to bake and Joseck had knowledge of financial management. And so, they got started: harvesting, cooking, baking, selling. The profit was reinvested.
Born out of necessity, Joseck and his blind friends, like many other MFI victims, developed a dignified alternative to handing out microcredits, a method nowadays referred to as “table-banking”.
It was only after many years that a local MFI became aware of Joseck’s organisation Mbusie, and they offered a loan. Joseck and his friends refused. They wanted to be independent. A donation of 10,000 shillings, which did not have to be returned, was however gladly accepted. Most of the group members who started together are now freelance entrepreneurs. For me this is an interesting example, how business without external influence, but with the appropriate basic “equipment” passion, perseverance, ideas and knowledge, can bring a business quite far.
Teh Francis, kanthari graduate of 2016, is a pastor of a large congregation in the war-torn west of Cameroon. He was one of the first to bring microcredit to women in his country. For his commitment he gained national and international fame. From the viewpoint of the investors, his action was a great success. But Teh felt the pressure and self-sacrifice of the women and was desperately looking for an alternative. I told him about Joseck and his table-banking concept, and he was amazed. Together, we developed a business curriculum for illiterate women, women who had dreams that can be realized with talent, passion and initiative. For Teh and his women’s self-help groups a lot has changed since then.
Women are no longer assigned to the so-called solidarity groups. Instead, they are selecting their own business-partners. Also, the type of business is no longer prescribed to them. Previously, they were advised to get involved in the palm oil business. But Teh got to understand that solely focusing on palm oil is ecologically problematic and he feared that the women’s groups were pushed into a profit-making activity without it being their real Interest.
In order to counteract possible patronization, his organization initially acts only in an advising role. Women are encouraged to follow their own dreams and learn the methods for implementing their ideas, as Teh himself experienced in the kanthari Institute.
Possible additional funding only plays a role later, when the women put a common idea on the table, which can also consist of several business models that are related to one another.
What is important for Teh is that the business idea is initiated through an intrinsic interest. Only then, according to him, the concept develops organically. Like in the case of Joseck and his team, the members of each group first bring to the table all own available resources such as food items, animals, but also utensils, knowledge and time.
And only once the small business has overcome the start-up phase, when the idea has matured, has been tested and the female entrepreneurs are even more encouraged and motivated, the group can receive a grant from Teh’s organization “Enkindle Cameroon”. This grant is not a loan that needs to be returned. So, there is no external pressure, which significantly eases the power dynamics of the whole process.
Of course, disputes and quarrels in the groups cannot be ruled out in any team. But the stakes remain in the group. Both profits or losses are shared.
These examples show that economic support for the poor can be a whole different ball game. It is no longer a matter of investors putting their money through a high profit generating cycle. The important point is that all involved have the right to decide for themselves how to use the available means, whether money, materials, knowledge or labour. The assets remain in the ownership of the entrepreneurs. They do not owe anyone outside the circle. So, when the level of dedication is high, every additional business training falls on fertile ground.
And yet I think it is naive, perhaps even negligent to believe that business can provide a universal cure for every problem in this world.
Now, Muhammad Yunus’ dream has been implemented in the most remote areas for more than 30 years.
However, poverty has not been solved. What remains is a small thought game: What if the hundreds of billions of U.S. dollars that were invested in microfinance programs had gone into high-quality skill training and into sustainable environmental projects?
“A beautiful dream!”, the micro banker would confirm. Then he would smile and with a condescending pat on my back, he would say: “And where is my profit?”