Microcredit movement tackling poverty one tiny loan at a time

from the San Francisco Chronicle

Patricia Yollin, Chronicle Staff Writer

A Peruvian widow borrowed $64 and bought a few pigs. For $55, a villager in Ghana went into the mineral-water trade. A mother of nine in Guatemala upgraded her grocery store with $250.

These women from three continents have something in common: They are beneficiaries of microcredit - very small loans to very poor people for very small businesses. The benefactors, in many cases, are ordinary individuals inspired by a movement that is reshaping philanthropy and making it as accessible as the click of a mouse or a visit to a house party.

More and more of us are becoming convinced that lending even tiny amounts of money to destitute people in the developing world can transform lives - theirs and ours.

"My life has changed because of this loan," said 27-year-old Patience Asare-Boateng, in a phone interview from Ghana.

"This is something that people want: a sense of connection and a sense of community," said Bob Graham, founder of NamasteDirect, a microcredit organization in San Francisco. "Because it's decreasing in our daily lives."

The microcredit approach carved out in Bangladesh three decades ago by 2006 Nobel Peace Prize winner Muhammad Yunus has inspired a war on poverty that blends social conscience and business savvy - especially in Northern California.

"It's so recently exploding there," said Sam Daley-Harris, director of the Microcredit Summit Campaign in Washington, D.C.

Jonathan Lewis, who runs a Davis nonprofit that lends money to poor women, called the region "one of the hotbeds of microfinance" in the United States.

In San Francisco, Kiva.org has raised $12 million from more than 120,000 lenders since 2005, and NamasteDirect has gone from 75 to 1,100 donors in the same amount of time. In Davis, MicroCredit Enterprises has funded 55,000 entrepreneurs, and Freedom from Hunger is serving 700,000 women.

Although Yunus, widely regarded at the father of the modern microcredit movement, made his first loan in 1976 and established Grameen Bank - lending to the poorest of the poor - 24 years ago, microlending only recently started seeping into public consciousness. Former President Bill Clinton has enthusiastically endorsed it, the United Nations declared 2005 the International Year of Microcredit and Yunus won the Nobel almost a year ago.

"Now you have something that's really validated," said Matt Flannery, chief executive officer of Kiva.org. "It's a quick way for people to think, 'OK, what you're doing is legitimate.' "

Daley-Harris, director of the Microcredit Summit Campaign, agreed - up to a point.

"It's off the back burner," he said. "But the Nobel is not the boost that 'An Inconvenient Truth' has given climate change. It's sad, really, when we know what Lindsay Lohan is up to, but we don't know about things that could make a difference."

How much of a difference? Detractors say microcredit is a drop in the bucket, given the scale of world poverty, or that it absolves governments and institutions such as the World Bank of responsibility. Some companies new to the field, such as 3-year-old Omidyar Network in Redwood City - started by eBay c0-founder Pierre Omidyar and his wife - insist that making a profit is as important as having a sense of mission.

Banco Compartamos, a Mexican microfinance institution, raised the stakes in April when it completed an initial public offering and sold 30 percent ownership of the bank, providing $450 million to existing investors.

Despite the debate over purpose versus profit, one thing is clear: Microcredit is on its way to becoming a household word.

Clinton's latest book, "Giving: How Each of Us Can Change the World," is getting attention. In early September, Kiva co-founders Matt and Jessica Flannery appeared on "The Oprah Winfrey Show" and on "Today." The result: The Web site pulled in 6,477 new users, raised $242,000 in new loans and had no borrowers left because every request was funded. On Monday night, actress Natalie Portman will speak at UC Berkeley about the power of microlending.

For the illiterate, for people who can't afford exorbitant fees and for those with no collateral, microloans are an alternative to banks, where interest rates are usually higher. By the end of 2005, according to a Microcredit Summit Campaign report, a total of 113 million microloans had been issued - 84 percent of those aimed at the poorest clients went to women, who are seen as more likely to repay the loan than men and more willing to use it for the well-being of their families.

"There is no other tool that has the potential to empower more women more quickly," Daley-Harris said.

How come people are suddenly so eager to part with their money?

"There is this whole shift in philanthropy to people wanting more engagement," said Iva Kaufman, associate director for planned giving and endowment at United Jewish Communities in New York.

Melissa Faith Klar, a San Francisco art dealer, is a prime example. She has raised $16,500 from 107 donors since going on a NamasteDirect trip to Mexico last year - all of it designated for one village in Chiapas.

"When I approached my friends, I'd just ask for $20," said Klar, adding that most gave more. "It's the price of a lipstick or a bottle of wine or a cheap dinner in an ethnic restaurant."

Berkeley schoolteacher Dana Whitaker made a different kind of contribution. She traveled to 13 countries to see what microcredit could do. The odyssey led to a book of stories and photographs, "Transforming Lives $4o at a Time," which came out last year.

"It's changing the status quo of how women are perceived," Whitaker said.

It is also altering how they see themselves.

"I feel good and I'm so proud," said Asare-Boateng, who lives in the central Ghana town of Jeikrodua with her husband and baby girl.

Four years ago, she borrowed $55 and started selling bags of mineral water from a cooler in front of her house. Sixteen loans later - the current one is for $1,000 - she has created a reservoir where villagers can bring their buckets. She is also selling products, such as malaria nets, insecticide, condoms and rehydration tablets, through a new Freedom from Hunger program called MicroBusiness for Health.

"I'm no more staying with my family," she said. "I've been able to buy food on my own and clothing. I pay my own rent. And I support my husband when he's in need of money."

Maria Cuc Yaxon, a 40-year-old woman with nine children who lives in Pujujil, a remote village in the highlands of Guatemala, received a $250 loan last year through NamasteDirect.

She invested it in her small grocery store, where weaving thread and sodas are now the hot items and sales have soared.

She repaid the first loan and took out a second, which she also repaid. On Sept. 7, she received a third for $525, and two days later voted for the first time in her life in her country's presidential election - along with most of the others in her credit group, who had never been registered before.

In an e-mail interview translated from Mayan dialect to Spanish to English, Cuc Yaxon said she has learned a lot by being a member of this group: "The loan officer asks us to go to the bank to make the deposits. I had never gone to a bank before. Now I know I can do it."

She also realized she needed to do some things differently.

"It is important, for example, that my kids go to school," she said. "We talk about this in the group. We never went to school and we don't know how to speak Spanish. But our children need to get ahead."

Borrowing successfully has led to new ambitions.

"I want to be less poor," Cuc Yaxon said. "I want to rebuild my house."

In Northern California, MicroCredit Enterprises, NamasteDirect, Kiva.org and Freedom from Hunger fight poverty with four very different approaches, but they rely on the same human impulse - a desire to give.
MicroCredit Enterprises

Giving is an urge that 59-year-old Jonathan Lewis knows well. He worked in the California Legislature for a long time and then owned an international health insurance consulting firm. Five years ago, he sold his business and became a volunteer with Freedom from Hunger.

"I decided to go back to my roots as a child of the '60s," Lewis said.

As a volunteer, he went to Bolivia and saw microcredit in action.

"What impressed me was sitting in the middle of a field with 15 or so women, with three or four kids apiece hanging on their skirts," he recalled. "The women were very unkempt, and the kids were filthy. But when those women sat down and started doing their banking business and counting their money, I felt like I was in the most deadly serious business meeting I've ever been in. It could have been on Wall Street or any corporate board of directors."

The women were speaking Aymara, a pre-Inca language, and wiping their children's noses with the edges of their skirts - because that's all they had, Lewis said.

"This is the sappy part," he said. "When they stood up, they had pride of self. And I was moved by that."

In January 2005, he started MicroCredit Enterprises. Lewis doesn't draw a salary. Forty executives and 12 professional service firms also work pro bono; there is one paid employee.

The nonprofit has lent $9.6 million to microfinance institutions in 15 countries, who have made 55,000 loans - ranging from $37 to $800. It does this by mobilizing private capital, relying on a network of guarantors to secure lines of credit from lenders and in turn make loans to overseas partners who then lend to the poor.

If the financing is complicated, the logic behind it isn't: The poor lack opportunity, and microloans are an effective way to provide it.

"The question is: Is doing good good enough?" Lewis said. "I happen to be a marketplace guy. But capital markets don't factor in externalities, to use the economic term. They don't measure the twinkle in the eye of a proud mom who's feeding her children, or the net asset of that kid's life. All the statistics and all the ledgers and all the reports about microcredit - to me the value is the part that's not on the ledger."
NamasteDirect

Founded in 2005 by Bob Graham, a retired certified public accountant, NamasteDirect works with female villagers in Mexico and Guatemala. Like other microcredit outfits, it relies on carefully selected field partners to decide who gets loans and to administer them. Unlike others, it focuses only on first-time borrowers - organizing groups of 100 or more women each time it receives $25,000 in donations.

College students in its fellowship program visit the women and provide updates. Namaste also arranges fundraising house parties and offers several trips a year to Central America so that donors can see where their money went.

People frequently ask why microcredit can't be used to help poor people in the United States. Although the domestic version does exist, Graham called it "the small end of the cow" in the overall world of microfinance.

"One hundred dollars won't do anything for anyone in this country, and social collateral hasn't really been used," he said. "In these villages, they've lived there forever and they know everyone. Here in the United States, where people move every two years, who wants to cross-guarantee a loan for somebody who might be moving to Denver tomorrow?"

Now in its third year, NamasteDirect has raised $550,000 and funded more than 3,000 women. Graham, who also works pro bono, said the repayment rate worldwide is very high - 97 to 98 percent.

"For the women, this is the opportunity of a lifetime," said Graham, 71. "The first time they get a loan, it's a door. To show how valuable that experience is: Hurricane Stan wiped out 20 of our borrowers in Guatemala in March 2005. They lost their homes, their businesses, their possessions. Everything. I would have thought that some of those people would default. Their terms were extended, but every one of those women repaid their loans."

The enterprises are varied. Weaving, handicrafts, food production, tamale stands, coffee-growing, animal husbandry and bike repair are examples.

"One woman in Honduras started her own lottery," Graham said. "She got a loan, bought prizes and sold tickets for the prizes. She was competing with the government - but people would rather buy tickets from her."
Kiva.org

Kiva.org, praised by Clinton in his new book, is the first organization to take microcredit online and link lenders and borrowers. People who want to make loans - the minimum is $25 - choose recipients on the Web site and use their credit cards and PayPal.

Lenders include inmates in an Oregon prison, a resident of Antarctica and a Palo Alto womb dweller not yet born.

Matt and Jessica Flannery created their Internet site in 2005 as a way for people with average incomes to make modest loans to specific businesses.

"Jessica had a social conscience and a huge desire to make an impact on poverty," said Matt Flannery, 30, during an interview in a Mission District cafe. "I always wanted to be an entrepreneur with a startup."

In the early days, money was scarce and it was a scrappy operation. Even as recently as early March, Flannery stayed up all night and responded to 600 e-mails in 12 hours because Kiva had fallen behind in its customer service. Those days are probably over - but Flannery is trying not to lose perspective.

"Microcredit is a really, really valuable part of the poverty alleviation toolkit," he said. "I've seen it transform people's lives. But I think sometimes it might get overblown. You can't end world poverty through microcredit, you can't build a road or a hospital or create an AIDS vaccine through microcredit. But there are a lot of things you can do."

Last year, around Christmastime, Colin McLaughlin of San Francisco heard about Kiva.

"It was a great idea because it was so simple," said McLaughlin, 38, a chef and caterer. "I wondered why it hadn't happened sooner."

He decided to lend $100 to Catherine Musene in Uganda to start a catering business.

Kiva lenders receive updates about the status of their loans and how borrowers are progressing. McLaughlin received a refund instead - the organization discovered during a routine audit that one of its 60-plus field partners wasn't giving some entrepreneurs the full amount. Kiva e-mailed him in mid-August and said that it had begun a new feature to help lenders evaluate their partners' risk levels and past performances.

McLaughlin was impressed with Kiva's thoroughness and integrity, and decided to lend the money again.

Daley-Harris said scams happen from time to time with microlenders. "But more often than not," he said, "these are islands of integrity in seas of corruption."
Freedom from Hunger

Compared to newcomers like Kiva.org, NamasteDirect and MicroCredit Enterprises, Freedom from Hunger is an elder statesman in the world of microcredit. Starting out as Meals for Millions in 1946, it occupies a two-story building in an industrial park in Davis.

Sitting in his office, organization president Chris Dunford conveys a sense of energy and purpose that make him seem like a fresh recruit instead of a seasoned veteran of the microcredit movement.

"Our name tells the story," Dunford said. "We're concerned about people who are poor enough to be chronically hungry."

His nonprofit pioneered "credit with education," in which entrepreneurs receive training in health and nutrition along with their loans.

The organization's reach is vast. It has about 50 partners in 17 countries and has reached 700,000 women.

People often ask if his work is depressing. He always says no.

"It's just the opposite," said Dunford, 59. "It's uplifting. You see a level of resourcefulness and resilience that's absolutely astounding."

The nonprofit gets money from individual donations, grants, foundations and corporations. Unlike Kiva.org, Freedom from Hunger can't "individualize poverty," as Dunford put it, but still has devotees everywhere.

There's an active chapter at Davis High School. Jane Pauley did a segment for an online event Friday - believed a first in the nonprofit world - that included real-time podcasts from India and Africa, video clips and a virtual tour of the Andes. And a New York schoolteacher and his students hold an annual read-a-thon to fund a credit union in Bolivia.

"It was an easy sell," said Dan Kriesberg, a sixth-grade science teacher at the Friends Academy on Long Island. "A $100 donation will help 20 people down the way. I tell the kids that when you ask people for money, it can feel uncomfortable. But people want to help. You're not just helping the people in Bolivia - you're helping the people who want to help. You're making a connection."

In 16 years, Kriesberg and his wife have raised at least $22,000 for Freedom from Hunger - $12,000 from students and the rest from family and friends.

The organization's online event - which can be seen all weekend - includes 42-year-old Sebastiana Ore Meza, a widow with nine children who borrowed $64 and started raising pigs in her Andean village in Peru.

"I want my business to grow bigger to be able to support my big family," she said online.

Like Graham, Lewis and Flannery, Dunford mixes idealism and pragmatism. All four remain optimistic, despite devastating numbers: More than 1.2 billion people in the developing world live below the international poverty line and earn less than $1 per day.

"If you present microcredit as a cure-all for global poverty, you're wrong," Dunford said. "There will always be haves and have-nots, and relative poverty will always be there.

"But absolute poverty - when you just can't meet basic necessities - that kind of poverty can be eliminated."

-- To see an audio slide show on NamasteDirect donor Melissa Faith Klar's visit to women in Chiapas, Mexico, go to sfgate.com.

Jonathan Lewis

Chief executive officer MicroCredit Enterprises in Davis

Total loans: $9.6 million

Number of loans: 55,000

Average loan: $397

Countries: 15

Range of loans: $37 to $800

Web site: www.mcenterprises.org

Chris Dunford

President

Freedom from Hunger in Davis

Total cumulative loans since 1989 for Credit with Education program: $606,628,292

Number of loans for last quarter 2006: 437,962

Average loan for last quarter 2006: $168

Range of loans: $20 to $400

Countries for all programs: 17

Women reached through all programs: 700,000

Web site: www.freedomfromhunger.org

Matt Flannery

Co-founder and chief executive officer Kiva.org in San Francisco

Total loans: $12,151,660

Lenders: 121,167

Number of loans: 18,424

Countries: 38

Average loan size: $650

Range: $25 to $200,000

Web site: www.kiva.org

Atahuarco, Peru

First loan amount: $64

What it went for: Three pigs

Sebastiana Ore Meza used her microloan to purchase livestock that she will later sell at market for a profit. She lives above 12,000 feet in the Andes Mountains, in the village of Atahuarco.

Jeikrodua, Ghana

First loan amount: $55

What it went for: Mineral water that was sold in bags from a cooler

Patience Asare-Boateng pays back part of her microloan in her central Ghana village

Moding, Kenya

Loan amount: $450

What it went for: Clothing sales

Rose Amoit stands in front of her hair salon in the Teso district of Kenya. Her business also includes making and designing clothing. She also distributes uniforms to the schools in her

Kabul, Afghanistan

Loan amount: $175

What it went for: Carpet weaving

Fatima Syed Shah Esmil is a 31-year-old mother of three living in Kabul, Afghanistan. She has been working for 10 years in carpet weaving. She is married and her husband works in his own mechanic's shop. She started her business during the war to support her family financially. Then she taught her daughter the work. Together, mother and daughter can complete one carpet in six months. Fatima hopes to get ahead with their businesses and to keep working.

Pujujil, Guatemala

First loan amount: $250

What it went for: Staples, sodas, soap, snacks, weaving thread and medicine for her small grocery store

Maria Cuc Yaxon got her first loan from NamasteDirect in San Francisco. She lives in a remote village in the highlands of Guatemala.

Bob Graham

Founder and chief executive officer NamasteDirect in San Francisco

Total loans: $550,000

Donors: 1,130

Number of loans: 3,000

Countries: Mexico and Guatemala

Average loan: $183

Range of loans: $130 to $275

Web site: www.namaste-direct.org

E-mail Patricia Yollin at pyollin@sfchronicle.com.