No matter your income or literacy level, your culture or religion, with little money, a very simple methodology and a group of friends or family, we can all learn how to solve our financial needs and help others, using our own money.
Professor Muhammad Yunus, Nobel Peace Laureate in 2006 and considered by many the father of microfinance, taught the world that “poor people can be financed”; with KAF we want to teach the world that “poor people can be SELF-financed”.
As soon as I met the people in KAF (Self-Financed Communities Association), and heard about KAF’s proposition to the world, I was in. Something clicked inside me. And so three years later I found myself on a plane bound for Indonesia, wanting to prove to myself that it was possible for me to start KAF groups from scratch, alone, with no financial support or supervision from big NGO’s; and moreover, that I could prove that this methodology is a great development tool with the potential to contribute to the empowerment of the poor, and hence to their development.
Imagine that you can start your own little community bank together with family, friends and neighbours, with people you know and trust; imagine that you can all borrow money from this community bank for whatever you need; imagine that by doing this you not only help others but also get a benefit from the money you yourself contribute; imagine that whatever you do and decide depends entirely on the group; imagine that, should you have an emergency, you need not to worry anymore; imagine that, by joining the group, you teach others what you know. Well, you don’t need to imagine anymore, you can just start your own self-financed community, KAF!
This was the beginning of my move away from the formal micro-financing system into what is now being called “The Other Microfinance”—an alternative financial system promoted by organizations and institutions who work to support community-based organizations, using methodologies which are a transformed version of the many informal financial mechanisms that have long existed around the world, focused on financial education by doing.
For perspective, while working for a Spanish NGO as a project director and before I moved to Indonesia, I managed microcredits projects, targeting women in the Caribbean. Although I believed—and still do—that microcredits can be a very useful development tool, as we moved forward in the implementation of the projects I realized that, like in many aspects of life, the devil is in the detail… and that everything depends on how things are done. So in essence, providing access to credit to the poor sounds to me like an important contribution to poverty reduction and development. However, easier said than done.
When it comes to the bottom line what we faced was the following:
- Most people need credit for a wide range of reasons, like to cover daily needs, school expenses, health, emergencies, etc. However our program would only grant credits to people starting a business or who already owned one. Why? Because donors needed to reduce the risk and make sure that money was returned, and having a business was considered to be a pretty good guarantee. So, we closed our eyes to reality and stuck to the donor’s conditions, while people in turn would just lie to us so they could get the money.
- Even those who made the effort to invest the credit in their businesses many times failed to make a positive impact, mainly due to lack of experience and/or business capabilities. Let’s face it, not everyone is of the entrepreneurial kin, be they rich or poor, educated or not.
- Our objective was to grant “x” number of credits per year. Given that it was proving difficult, and to make sure we achieved it to please the donor, our counterpart organization decided to pay the social workers a commission for every credit granted. Were those credits being properly evaluated? Did all those people really need the credits or the amount being granted? Could they actually pay back the money, taking into account their income level? All these things just became second in the priority line; the objective was to meet the target. Welcome to the system!
- Sometimes people could not pay back: after our repeated door-to-door visits like debt collectors, the only alternative left was to either write the credit off or to continue to fill the NGO storage room with assets that were theoretically equivalent to the outstanding payments, and that would rarely be sold.
Looking back at the results we came across all possible scenarios: people who actually managed to improve and grow their businesses; those who had a good experience but whose businesses stayed the same; those who struggled to pay back and felt relieved after doing so—promising themselves never again to take a loan; and those who ended up inside a never-ending circle of indebtedness. Whatever the case, the end result was that once the program finished, most people went back to “similar than before”; the main thing that had changed was that they had moved from being dependent on others to being dependent on us, but still dependent—not quite my idea of what development programs should achieve.
So I decided that if I were to pursue my work in the social sector, I had to find something that was more fit with this independent/self-sufficiency idea of mine. And so we’re back to when I came across KAF methodology.
Part II of this amazing tale is coming pretty soon!