In 2010, 15 percent of the poor market women served by Fonkoze left our program because of expenses related to health issues,” said Carine Roenen, Director of Fonkoze. “For years our clients have asked us to provide them with health services. Working with Global Partnerships and Linked Foundation will allow us to start responding to that request and reduce our clients’ vulnerability to disease and health-related economic shocks. It’s like a dream come true.

The initiative marks Global Partnerships first project in Haiti and brings to nine the total number of Latin American and Caribbean countries in which the organization is working.

About Global Partnerships: Founded in 1994, Global Partnerships (GP) is a nonprofit social investor based in Seattle, Washington, and Managua, Nicaragua, whose mission is to expand opportunity for people living in poverty. GP invests in and develops sustainable solutions to help impoverished people in Latin America earn a living and improve their lives, including microcredit, basic health care, business education, technical assistance and access to markets for farmers, and green technology. See also www.globalpartnerships.org.

About Fonkoze: Fondasyon Kole Zépol (Fonkoze) is Haiti’s largest microfinance institution with more than 55,000 borrowers, most of whom live and work in the countryside of Haiti, and more than 255,000 savers. It operates out of 46 branches across Haiti and in every province of the country, including many towns and villages where no other banks operate. Fonkoze’s unwavering commitment to serving Haiti’s poor has driven the institution to develop its Staircase out of Poverty approach—a series of complementary programs and products designed to meet clients wherever they are and accompany them on their journey out of poverty.  See also www.fonkoze.org.

About Linked Foundation: Linked Foundation is a private foundation that alleviates poverty by promoting and investing in solutions that improve the health and economic self-reliance of women in Latin America. See also www.linkedfoundation.org.

It is generally assumed that such high interest rates are a necessary cost of making small loans in isolated and impoverished areas. Microlending websites that administer “crowd-funded” loans through local intermediaries assume that the borrowers not only lack the necessary computer skills to communicate with lenders themselves, but also that they cannot be trusted to repay loans without constant visits by loan officers.

Kurnia believed these assumptions were outdated, and to test her theory she founded Zidisha.org, a peer-to-peer microlending platform that turns the traditional approach to microfinance lending on its head. First, there are no intermediaries: instead, the entrepreneurs themselves post loan applications and communicate directly with lenders via facebook-style profile pages. Zidisha does not outsource loan disbursements and repayment collection to local organizations either, but rather uses grassroots technology like mobile banking to conduct financial transactions with borrowers directly. The result? Radical transparency, and lower cost to borrowers than has ever before been possible in the developing world – even though Zidisha.org lenders earn interest as well.

Zidisha is tapping into the growing population of computer-literate, but still economically disadvantaged, small business owners and explosive growth of internet access that have transformed developing countries in recent years. Borrowers log in to Zidisha.org to share business updates with lenders from cheap internet cafés, old laptops donated to local schools, and solar-powered smartphones shared by entire villages.

Today, loans funded through Zidisha.org surpassed the $100,000 mark. Since making their first microloans – to three nomadic herders in Kenya’s remote Masai Mara – in October 2009, Zidisha lenders from around the world have financed 181 small business ventures in Burkina Faso, Indonesia, Kenya and Senegal. Zidisha’s average lender interest rate is 2.96%, and the repayment rate to date is 99.5%.

Zidisha believes in transparency. So ask questions, meet our remarkable entrepreneurs, and become part of the conversation.

Join them at www.zidisha.org or @zidishainc

1 Minute Video: Zidisha Inc.

For example, the question of how to define “microfinance” arose earlier this week at the Multilateral Investment Fund’s (MIF) third annual Caribbean Microfinance Forum. One panelist articulated a definition that includes loans to individuals and small businesses in amounts ranging from $1,000 to $10,000. This definition clearly relies upon a quantitative measure, set in real terms. In contrast, many other uses of the term “microfinance” suggest a qualitatively-based definition, relying upon factors that take into consideration the socioeconomic condition of borrowers. For instance, the Wikipedia entry for “Microfinance” defines the term to include “the provision of financial services to low-income clients or solidarity lending groups including consumers and the self-employed, who traditionally lack access to banking and related services.” Definitions of this sort suggest that microfinance is not merely a series of transactions, but also a movement to bring about social change.

In light of these divergent uses of the term “microfinance,” scholars and activists continue to echo the need for clearer definitional terms. Mohammad Yunus, who received the Nobel Prize in 2006 for his work in microfinance, proposes a definitional framework to identify subsets of microfinance transactions. For instance, the phrase “traditional informal microcredit” refers to highly localized, informal lending transactions. In contrast, “cooperative microcredit” refers to lending transactions that take place by and through cooperative credit enterprises, such as credit unions.

More precise terminology is important, because as Gert van Maanen explains in a leading text on microcredit, the terms “microfinance” and “microcredit” implicate two conflicting schools of thought. On the one hand, microfinance is perceived as a social movement, with development goals. On the other hand, microfinance is construed as a commercial enterprise, with profit motives. When activists, policymakers and journalists engage in the broader discourse about microfinance, consensus building is constrained by language that assumes away the substantial differences in opposing schools of thought.

As with most social questions, language both shapes and constrains discourse, shielding distinctions that have important policy implications. In light of recent efforts to develop legal and industry frameworks to regulate microfinance, it is perhaps more important than ever that we consistently use more specific terms that define the various transactions and social movements that are collectively referred to as “microfinance.”

The regulatory dilemma implicates profound questions of economic and financial theory, and also raises corollary questions as to the balance of power between states and central governments in a federal system. Should governments trust free market mechanisms to achieve balance between the interests of borrowers and lenders? Or is regulation necessary to ensure that powerful banking institutions do not take advantage of a society’s most vulnerable borrowers? Moreover, what sorts of regulatory solutions achieve the desired balance without unnecessarily restricting the flow of capital to those who may need it most?

In the Indian microfinance context, these and related questions gained considerable traction in 2010, when the Indian state of Andhra Pradesh passed the Regulation of Moneylending Act (the “Act”). The Act, which was passed in response to high rates of interest and aggressive enforcement measures by certain microlenders, requires, in pertinent part, that microlenders obtain state governmental approval of every microloan application.

SKS Microfinance, a large, publicly-traded Indian microfinance institution, challenged the Act. In particular, SKS argued that the regulation unduly and excessively interferes with lending activities in Andhra Pradesh. As of this writing, the legal challenge is ongoing.  Most recently, the Supreme Court of India directed SKS to bring its case in the highest court of Andhra Pradesh rather than in India’s federal courts.

Meanwhile, additional regulatory measures are being considered. In particular, Indian lawmakers have identified a need to provide a formal, countrywide statutory framework for the microfinance sector. Reform efforts have recently centered upon a comprehensive draft legislative proposal. Pursuant to the Micro Financial Sector (Development & Regulation) Bill, 2011 (the “Bill”), the Reserve Bank of India would become a federal regulator of microfinance activities, and all microlenders would be required to register with the central bank. The Bill will be introduced in the upcoming Winter Session of India’s Parliament.

As these judicial and legislative contests press forward, the legal debate over governmental regulation of microfinance is likely to be ongoing. As a central bank official surmised, conflicts of law questions may potentially introduce new legal challenges: “Once the [Bill] comes into practice, it might be argued that it supersedes state laws. In this case, the [Act, in Andhra Pradesh] becomes ineffective. On the other hand, states can probably argue under the Constitution, money lending is under the states purview.” These and related questions are likely to emerge in all countries where microfinance activity thrives. Thus, we can expect a lively and continuing discourse on the role of governmental regulation in microfinance.

What are “secured transactions,” and how do these initiatives relate to microfinance?

In the United States, the body of law known as “secured transactions” applies to transactions that involve the consensual grant of a security interest in personal property. Personal property includes “moveable” property (as opposed to “immovable” real estate). Items such as inventory, equipment, consumer goods, automobiles and jewelry constitute “personal property.” In addition, “intangible” assets, such as intellectual property, also constitute personal property. For example, a loan to purchase an automobile is a secured transaction to the extent the loan is secured by the automobile.

In a legal as well as physical sense, personal property is very different from real estate. As a result, a special legal system is needed to govern security interests in personal property. Secured transactions laws in the United States, which are largely codified in state statutes modeled after Article 9 of the Uniform Commercial Code, provide a system for granting, enforcing and providing notice of such security interests.

From a microfinance perspective, the adoption of secured transactions laws would enable borrowers to leverage personal property collateral. This is particularly important for borrowers who do not own real property that can be mortgaged, and for small and mid-sized businesses seeking credit for working capital. However, it is important to note that secured transactions laws in the United States operate in conjunction with other legal systems that afford certain protections for borrowers. For instance, federal bankruptcy laws, consumer lending laws and fair debt collection laws provide important safeguards. Additionally, decades of judicial decisions clarify statutory language regarding repossession and foreclosure. These are just a handful of examples. Therefore, as developing countries consider adopting secured transactions laws, members of the microfinance community should gain a deeper understanding of the full range of substantive and procedural safeguards that often operate alongside secured transactions laws, and evaluate whether such safeguards will be available.

Rick will provide an in-depth look at the stories and impact behind GP’s work and discuss GP’s new focus on innovative solutions beyond microfinance, such as women’s health education, agricultural training for small-scale coffee farmers and green technology that improves lives. There will be ample time for questions and conversation.

When: Tuesday, October 25, 5:00 – 6:30 p.m.

Where: Wing Luke Museum, Seattle  directions

Register: Register by emailing events@globalpartnerships.org

Global Partnerships is organizing a delegation to visit partner microfinance institutions in Peru:

Join us for an unforgettable journey to one of the most fascinating countries in Latin America. We’ll travel to remote areas to witness firsthand how people are building businesses and improving their lives with the help of microloans and other support from GP’s microfinance partners. Along the way we’ll take in the amazing sights, culture and history of Peru, including a day at Machu Picchu and other Incan ruins.

As a GP delegation alumnus, I can personally attest to the value of these trips, and would encourage anyone considering investing in or donating to microfinance to consider this opportunity.

Today, Global Partnerships is announcing a partnership with another Northwest organization–specialty coffee importer Sustainable Harvest–to reach these small-scale farmers with with the type of flexible financing and support that they need to succeed over the long haul.

With Sustainable Harvest’s support and expertise, Global Partnerships has collaborated on an innovative loan product to two fair-trade coffee cooperatives in Latin America: Aprocassi, a cooperative of small-scale coffee growers in Cajamarca, Peru; and Café y Desarrollo/REDCAFES, an association of coffee cooperatives in Mexico serving small landholder farmers. The loans, which were made by Global Partnerships and fully secured by coffee sales contracts from Sustainable Harvest, are helping provide much-needed flexible financing to the region’s small-scale coffee growers.

The cooperatives associated with Café y Desarollo/REDCAFES operate in five of the poorest states in Mexico, Veracruz, Puebla, Oaxaca, Guerrero and Chiapas. One hundred percent of its 1,500 members are fair trade certified, and 80 percent are organic certified. One hundred percent of Aprocassi’s 400 members are fair trade certified, and more than 80 percent are organic certified.

See the full press release here.

In its sixteen year history Washington CASH has helped nearly 1200 businesses to grow and disbursed nearly $1million in loans. In 2011 Washington CASH has worked with over 750 micro-entrepreneurs in the Puget Sound region.