April 03, 2012
Having Class Outside: Microfinance on the Ground in Malawi (Academics)
Posted by Christine Hurt

For the reasons that I mentioned last week, I supervised a class trip to Malawi over Spring Break as part of my Law of Microfinance course. This is what we experienced.

We were on the ground in Malawi six full days. Most of these days were "observational days" in which we prepped for, experienced, and debriefed something of academic substance. Before each day, two students were tasked with becoming experts on the organization we were meeting, two students were tasked with asking questions, and two students were tasked with being note-takers. (The designated questioners soon proved to be unnecessary, as all of the students asked extremely good questions.) We had planned for three observation days with local microfinance institutions: a not-for-profit, a for-profit commercial bank, and a government-owned community bank (credit union). The last day was cancelled by the banker, but we had an impromptu meeting on another day with microborrowers of a not-for-profit institution whose borrowing groups had defaulted. Here is the run-down:

1. We spent one full day with three bankers from OIBM, or Opportunity International Bank of Malawi. Our class had read Harvard Business School case briefs about OI, which is headquartered in Chicago and is one of the Big Five not-for-profit microfinance organizations. OI partners with local, commercial banks in the countries that it invests in or creates them from scratch. OIBM was created in 2003. We met with them at their head office in Limbe (outside of Blantyre). There, we were given introductions and an orientation. When we were asked if there were any questions, the students were on fire out of the gate. You could actually see the banker have to switch gears as he had not anticipated the level of knowledge and interest the students' hard-edged questions reflected. This was a very proud moment for me, though I was slightly worried for our hosts!

Then, three loan officers (termed "relationship officers") took us to various locations in and around local markets to meet individual microborrowers (all men) and group microborrowers (all women). This was great for the students to see the actual markets and to see the homes of the microborrowers. The students were all allowed to ask as many questions as they wanted, a luxury of which they took full advantage. I was completely in the background here. And, quite on their own, the students remarked later, "Don't you get the feeling that the bankers hand-picked the people we talked to? and "Do you think the borrowers would have answered differently if their loan officers hadn't been in the room?"

This day really transitioned the students from traveling back into academic pursuit and whet their appetite for what would happen the next day.

2. The next day was planned as a different observation day. We were supposed to talk to a public health official at the Mulanje Mission Hospital whose new project is setting up community gardens to improve food security for villagers in Lisanjala. (this is the village I have visited twice before.) However, we learned upon arrival that he had to travel for work to the northern region, so we decided to spend the day at a village school delivering school supplies the students had fundraised for back in Champaign (local news item here). We thought from there we would walk to a village market (Tabwa) and get a tour of the Mulanje Mission Hospital. However, while we were in Lisanjala, one of my friends there asked me when I would like to meet with borrowers from two failed borrowing groups there. (I had asked to do this when I visited in September, but it just never happened.) I suggested right then, and children were dispatched to go round up as many borrowers as they could.

So, the students were able to ask questions of about 10 former OI borrowers (two were long-time microborrowers of The Microloan Foundation). I knew about half of them, and I think we had a fairly candid conversation (though there were some male village elders there for seemingly no reason). Interestingly, one of the groups never got their first disbursement because they were not able to deposit the required savings in order to get the loan (the savings becomes security). This was instructional for us because the borrowers' complaint was in essence "The bank said we needed to do X in order to get Y. We could not do X, so then the bank refused to do Y." The second group received one loan, repaid it, then got disbursed the second loan. This disbursement was apparently absconded with by the chair of the group, a man. This gave us some very interesting points to ponder about mixing genders in trust groups when reputational constraints may not operate in the same way. We had also read a book called African Friends and Money Matters, which taught us amazing things about the norms in Africa about the fringe benefits of leadership positions. I was very glad that the students were able to meet with the former microborrowers. One of the great things about being on the ground is that teachable moments are everywhere!

3.  Our next observational day was spent with a banker from a commercial bank, NBS Bank. NBS Bank advertises microloans to group borrowers, but we actually were able to tour something a little different. this worked out well because we had already spent a day talking to traditional group borrowers. In Zomba, we met the NBS banker who took us to a village "30 kilometers from the road," a journey that took us over an hour by car. The borrowers that we met were part of an agricultural and irrigation scheme. ("Scheme" has no negative connotations there; I wonder what the word does here?). Under the agricultural scheme, villagers are given privileges to work a hectare of village land for a small fee (250 kwacha, or $1.50). Under the irrigation scheme, all users pay another 250 kwacha to support a system of drains and canals from the river to irrigate the land. The land is mainly used to grow rice. The bank makes loans to some percentage of the farmers and helps to find buyers for the rice. One of the problems in microfinance that we discuss is the lack of markets as a limitation on microenterprise. So, this was interesting to find a microlender who also helped find markets (commercial buyers) for the enterprise. My next post will be about our cultural observation days, which are necessary to understand the challenges and limitations of microfinance in Malawi.

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