Ben Lyon is Vice President of Business Development for Kopo Kopo, which offers a software-as-a-service platform for integrating mobile money with core banking and enterprise resource planning software.  

The microfinance revolution 

Microfinance has taken a serious beating recently.  With news of massive loan defaults and even suicides continuing to pour out of India and an order by the Bangladeshi government that Muhammad Yunus step down from Grameen Bank, things are looking grim for the industry.  But trouble is only one small side of the story.  On the other side, a technology revolution that promises to increase transparency, lower costs, and streamline reporting is in full swing.

Of the roughly 10,000 microfinance institutions (MFIs) globally, well over 9,000 are classified as Tier 2, 3, or 4, meaning that they are likely less regulated, mature, and sustainable than their Tier 1 counterparts.  These institutions also tend to lack sufficient information technology budgets and, especially with Tier 3 and 4 institutions, are likely to keep track of loans on spreadsheets or in ledger books.  All told, these institutions – the ‘long tail of microfinance’ – grapple with inefficiency and usually lack the means to make the necessary upgrades.  

Only a few years ago, the MFIs above would have had little recourse but to live with their inefficiency and survive by passing costs onto their customers in the form of high interest.  With the advent of free and open source management information systems (MIS) like Mifos, Octopus Micro Finance Suite, and MostFIT, even Tier 4 MFIs can now access robust accounting systems.  These free MIS, along with the emergence of affordable software-as-a-service (SaaS) MIS like Kopesha and Mambu, bring MFIs the benefits of increased efficiency, accuracy, transparency, and reporting without the hassle of an upfront investment or lengthy deployment period.  

Cash management is another major challenge for MFIs, especially those that serve remote, rural customers.  Maintaining tills and transporting cash involves expensive courier and security services, not to mention an ability to predict when and how transactions will peak.  Now that mobile money services like Safaricom M-Pesa are becoming the norm (there are roughly 200 mobile money systems globally), MFIs now have the ability to pass cash management costs onto mobile money providers.  In Kenya, for instance, a growing number of MFIs use M-Pesa for both loan disbursement and repayment, allowing them to focus less on moving cash and more on offering new products and services, monitoring the quality of their portfolios, and enlisting new customers.   

As indicated above, a nascent move toward SaaS is starting to emerge, both with regard to back- and front-end processes.  SaaS is interesting because it offers MFIs affordability and convenience.  What makes SaaS exciting, though, is that it centralizes data.  Loan cycling (paying off one loan with another), for example, was one of the major factors behind the microfinance meltdown in India.  If MFIs in impacted areas had used a common SaaS platform, it would have been simple to flag customers whose unique identifiers popped up on multiple MFI accounts, which would have enabled MFIs to more properly assess risk as well as lay the foundation for a credit reference bureau.  

Despite the very real challenges facing the microfinance industry, there is more than ample reason to be hopeful – even optimistic.  Technologies tailored for MFIs are becoming more accessible and affordable by the day, and everyone involved stands to benefit.

Technology – its value can come in many ways

I'm happy to see Nuru is investing in technology and aiming to maximize its value. Both mobile banking and cloud-based computing are two exciting technologies that have great potential to dramatically shape how microfinance can have a transformational impact on poverty alleviation. 

We could spend days talking about cloud computing or mobile banking individually; M-PESA, the most successful mobile banking platform that has paved the way for other platforms, won the Mobile Money for the Unbanked Award at the 2011 Mobile World in Congress in Barcelona (if you want to learn more about branchless banking worldwide, CGAP just published a great database of branchless banking platforms).  Today I want to focus on bringing these technologies together and the many points of value it could provide.  Throughout the many phone calls I've shared with Vivian as Nuru has rolled out Mifos and M-PESA, I've seen that they are investing in technology very holistically.  Nuru is focusing on sound operational processes, implementing a functional back-end system (Mifos), and integrating the back-end with front-end technologies for reaching out into the field (mobiles and M-PESA).  

Mifos is what powers the back office; it’s the core system that runs the day-to-day operations of the CED program.  The front office consists of the collection and disbursal of loans and savings accounts – all the transactions that must get processed in the back office. M-PESA, by enabling these transactions through the mobile phone, streamlines this process.  With the newly developed integration between Mifos and M-PESA, just a few simple steps, means all these transactions are automatically recorded in Mifos, smoothly bridging the front office with the back office.    

Mifos: 

Nuru is essentially running a bank without all the bricks and mortar infrastructure - they still need the IT infrastructure to keep things rolling smoothly.  That's where Mifos comes in; think of trying to run a bank with nearly 2,000 clients all manually via paper and Excel. Nuru was managing their clients and processing thousands of payment transactions through paper ledgers, paper surveys, and Excel workbooks.  Now with Mifos, all those transactions take place online; all the information they need to provide their services is available real-time anywhere there's an internet connection - through a mobile phone, on a laptop, in the Nuru Kenya office, back at headquarters in the US, from an internet cafe...

M-PESA

While mobile banking has been incredibly successful in Kenya, it still has many challenges for it to scale. One of these is making sure all the transactions taking place in the front office (the mobile phone) show up on the back-end (the MIS). Right now, most MFIs have to manually enter the transactions that occur on the phone into their back office system.  You can imagine that this process wastes a lot of time and is prone to a lot of error. Now that Mifos is integrated with M-PESA all Nuru need do is download the day's M-PESA transactions, and upload that spreadsheet into Mifos. With a couple of clicks, all payments are reconciled with each client with not a paper in sight. 

For each Mifos user, we aim to show the impact of technology on scaling the growth and impact of microfinance.  Measuring the value of technology is an exciting and intriguing journey that leads to the discovery of many ways technology can infuse value in the delivery of financial services to the poor. Across all of our users, we've seen value in many forms.  In India, for some of our larger users - the most significant ROI has been through greater efficiency and cost savings.  Reducing the time to enter transactions, introduce a new product, or open a new branch has made field staff more productive, reduced the costs of expanding service, and allowed them to significantly grow to provide more affordable products to the poor. For other users, the greatest benefits have come through the increased flexibility Mifos provides and better day-to-day management that access to historical data allows.

With Nuru and our other Mifos users in Kenya, this will be the first chance for us to see the value of not only the Mifos technology, but the integration with mobile banking. I'm excited to see what's in store:

• Greater efficiency and more productive staff: The time of Field Officers is precious. By reducing paperwork and data entry through automation and enabling automatic payments and disbursals via mobile phones, Field Officers are able to focus on helping their savings groups thrive. They spend less time collecting payments and more time providing advice and bringing on new clients.
• Expansion to new sub-locations: The ease of branchless banking, the far reach of mobile data connection, and the low cost of open-source web-based software will allow Nuru to expand well beyond typical bricks and mortar organizations to rural areas of extreme poverty where financial services are needed the most.  
• Accuracy, Risk Management, and Visibility: Nuru will be able to manage their portfolio with lower risk through less manual data entry and one centralized source of data. They can ensure greater accuracy and integrity of data and identify potential default or other problems before they occur. Nuru can more proactively react to portfolio at risk and help clients begin to pay off their loans before going into default.
• Insight: Think of Mifos as a Business Intelligence engine and a customer relationship management tool; all the information about a client's economic status, their demographic, and progress out of poverty is stored and can be reported on in Mifos
• Services the Customer Needs: Coupling this insight with the far-reaching capabilities that M-PESA provides, Nuru can deliver the services customers need, when, where and how they need them. For clients like Charles M., who runs a motorcycle taxi business, he can send his payments in via mobile phone. Time is critical for his business, he can now devote the whole day generating income rather than waiting in line or attending a meeting to make a payment
• More loyal and happy clients: Lowering the cost of services, providing more diverse products to meet client needs, decreasing the likelihood of theft for clients, and offering the power to save through the mobile phone equals clients that trust in Nuru deeply.  Clients will be more active in regional savings meetings and a more engaged and expanding community offering advice on the how the CED program can benefit them will grow.   

The list goes on and on. I look forward to watching Nuru measure the value of technology over time. Technology investment is dynamic and Nuru will most certainly need to shift their processes and technology to adapt.  Nevertheless, one thing that will be constant will be what Nuru can do with this value - send it back to the people of Kuria, Kenya through more innovation and better service that will end extreme poverty more rapidly. 

Technology ROI is a topic we’re very passionate about. You can learn more at the upcoming AITEC Banking and Mobile Money Conference on March 2 and 3 in Nairobi. Marie Valdez from our team will be speaking about Technology ROI during the New Frontiers in Microfinance session.  

‘Boot camp’ does not translate in Swahili. I’m trying to describe the next few months of training that our field officers will be going through to build on their skill as loan officers. I tell the team that it will be difficult, a nerdy kind of boot camp, and I hear confused murmuring. “Why is she talking about shoes?”

Bookish credit terms like ‘moral hazard’ and ‘asymmetric information’ aren’t going to translate either. But we’re not going to be memorizing terms; we’re focusing on the concepts behind them. When CED field officers begin working with Nuru, they go through basic field officer training which focuses on the Nuru model, CED program activities, organization and general management. Loan officer training is the next level and will get into the stickier topics of agricultural microfinance, like loan analysis and repayment capacity of small farm households. We started with our fixed processes, but what the team needs now is to practice managing uncertainty. We will never be able to predict the outcome of every loan, but we can get close by managing what the team calls kila siku labda, the constant “maybe”. 

Our training focuses on practical application, so we spend a lot of time comparing topics to field officer experiences. But they are still difficult sessions, and I am often worried if it’s overkill. How sophisticated does our loan analysis knowledge really need to be? Our training takes place outside, in a circle of plastic chairs in the patchy shade of eucalyptus trees around the unfinished Nuru office. Every 20-30 minutes, we pause to move our chairs out of the sun. Our client pool is still small enough for me to know every loan client personally. The loans we deal with are small, usually US$100-200. Most of our members are subsistence farmers that are more worried about feeding their families than about maintaining business cash flow. We’re as scrappy as it gets.

Many would consider scrappiness as a key characteristic of microfinance – decentralized structure, small loan amounts, use of social guarantees and unregulated operations. Of course, this has changed in the last two decades and now many MFI’s are as polished as commercial banks. But meticulous loan analysis or cutting edge cloud and mobile technology isn’t limited to the big players. They often have greater impact on the organizations with the least infrastructure. Nuru works in rural microfinance. Our members are spread out geographically, our operations are low profit, and we have little infrastructure to work with. There is no electricity and poor internet connectivity. With no central credit bureau, my “credit check” is a phone call or visit to the local chief to see if the member has a history of default on informal loans in the community. In this context, mobile money transfer services such as M-PESA, and open source financial information management software like Mifos are even more important. Similarly, CED field officers become more important for effective operations. They are both gatekeeper for the lender and link for the loan client.  

Nothing quite replaces roads and electricity. It would be amazing to see lending institutions in Kenya coordinate credit information to establish individual credit scores. But in the meantime, we’re not waiting around. With a workaround infrastructure, the challenge to build a local team that can own operations and guide members through credit management is not just important; it’s what we start with. 

This week the CED team held the second annual all member meeting for the KAPESA group savings and loans program. Attendance and participation were high, a good sign that the program is strong as it heads into year three. I had my doubts; attendance last year at the weekly KAPESA representative meetings was low and groups weren’t meeting. Many of our best members had graduated to individual credit lines in April, which was great progress for them but often left a leadership vacancy in the groups.

However, after months of hard work by CED field officers there has been a lot of improvement. The normal KAPESA weekly regional meetings are attended only by five to ten group representatives bringing in savings or loan payments for their group members. I’m used to those sleepy, low-key weekly meetings so it was a bit of a shock to see over 90 members descended on the Nuru office for the All KAPESA Member meeting. More importantly, members were actively contributing, raising issues, questions and giving suggestions for the coming year. 

I thought the meeting was great, but the true catharsis came the next day. I needed to make a deposit at a certain major commercial bank. Despite its location on the border, Isibania is still relatively isolated and doesn’t have many branches of formal banks. So after traveling for 20km crammed in a matatu with nine other people, I was finally standing in line at the bank in the stifling noon heat. There were only a dozen people ahead of me in line, but the wait made the line at the DMV seem like a McDonald’s drive-through. Every transaction seemed to require 53 different steps. Type, count cash, type, stamp something, shuffle paper, stamp something else, staple, type, print and sign, stamp something, walk away, return with a different stamp, staple and file paper, stamp (what in the world are they stamping?!), type. One hour passed, then two. At one point, I counted eight people in line in front of me. It remained eight people for the next hour and a half. It wasn’t just the 53 steps; a steady stream of well-dressed, portly men would swagger/waddle in the door, exchange a few words with the branch manager and then saunter to the front of the line. I was livid. I snapped my head around wildly to see if anyone else was noticing this. The other bank customers in line were obviously irritated too, but could only sigh or grumble quietly. 

Three hours later, I reached the front of the line. The bank clerk smiled sweetly at me. I smiled (snarled?) back, wondering what percentage of the 23 million men and women in Kenya that aren’t served by the formal financial sector remained unbanked due to distance, cost, or pure unwillingness to stand in line for half the afternoon. 

I thought wistfully of the contrast between the bank and the KAPESA Annual Meeting. In the hot, quiet room I suddenly felt much more hopeful. Many people think of a bank as the ultimate picture of security and the end goal for rural financial services. But we’re building a different kind of financial services organization, in which a farmer can access mobile-based financial services, receive tailored training in credit management, and gather with 90 other community members in a breezy clearing under the trees to tell their service providers how to improve. Ninety farmers is a start, but I hope it’s not long before a very different picture of financial security develops in rural Kenya. 

On December 13, Charles M. became the first loan client to finish repaying his boda boda (motorcycle taxi) loan. Last year, we vetted a group of trusted boda boda drivers to pilot the loan. The learning curve was steep and we’ve learned a lot along the way about the risks and costs. 

The boda boda market is crowded. Most drivers rent their motorcycles by the day and few take formal driving lessons. With such low barriers to entry, the competition has become pretty high. It also creates more risks as a loan product.

Drivers that rent can work a few days a week, but drivers paying off a loan can’t afford to take too many days off. It’s also a risky occupation. Besides the reckless driving of other taxis, boda boda drivers are police bait. In our area, the majority of taxi drivers are not licensed or insured. Safety issues like helmets, reflective vests, side mirrors and limits on the number of passengers are technically required by law but never really practiced. For informal or seasonal boda boda drivers, it’s easier to pay a bribe to the police. But we required loan clients to have a driver’s license and insurance. All those requirements add to the cost of an already expensive investment.  

We’ve been able to adapt to some of the issues with better training, greater flexibility, and a mobile repayment option, but it remains a challenging loan to manage.

It makes Charles’ accomplishment all the more impressive. Promptly every Monday for the last 50 weeks, Charles has appeared at the Nuru office to make his loan payment. When asked about the secret to his success, he says there is no secret. “Ni rahisi, my friend,” (it’s easy) he drawls in his distinctive voice, “I work hard and I pay my loan every week.” All the money Charles earned from driving his boda boda he immediately set aside to make his next loan payment. He even used his farming income to pay for household expenses so that he could save all his taxi revenues for loan repayment. It’s not easy to be that disciplined, but by prioritizing his loan repayment Charles finished his loan three weeks early. With the same weekly payments he made toward renting a motorcycle, he now owns a valuable revenue-generating asset that he can count on as an additional source of income. 

Near Migori there is a roadside store, a bright green-painted shack perched on a steep hillside. It’s called the Hope Shop, and every time I pass it I think, wouldn’t it be nice if it was that easy? Buying a little hope at the same place you get soda and gum?

The holidays are off to a rough start. Three CED loan clients have defaulted on their loan payments and we are now working with the chiefs to recover the loans. This requires some unpleasant conversations with loan guarantors about paying the debts. Ultimately, these cases will help us make changes to improve our loan program, but right now I feel like the anti-Santa. The responsibility of good credit management is two-sided, and our clients’ failure to repay implicates our failure to analyze repayment capacity or to enforce credit training. Of course there were much worse weeks than this, like when the market price of maize plummeted and the ripple effects included higher default on payment of Nuru farm loans. Those were weeks when I would have liked to buy some hope from a bright green roadside kiosk.

Today as I pass the Hope Shop, I think of a conversation I had with one of my field managers while we were discussing his career goals. I asked Moses, do you think you will continue to work with Nuru? Regardless if he decided to stay with Nuru, I wanted to make sure he was happy at work and help him make progress towards his goals. 

Sometimes instead of answering me directly, Moses tells me a story. That day, he started describing a field near the office – where it was, the size of the field, how to get there from the main road. Just as I was wondering where Moses was going with the story, he looked at me and said, “Ten years ago, two children dug up cassava in that field. They knew they couldn’t eat it raw but they were so hungry they ate it anyway. Those children were my cousins, and they died after eating the cassava. They died because there was not enough food and that is how things were.

But last week, I was by that same field when I met one of our loan clients…his business is now doing well and he said to me, ‘Moses, if only Nuru could have come five years ago. I could be rich by now!’ This man, he likes to exaggerate. But he is right [about] Nuru. I have seen things here change. Nuru is good. So me, I will stay with Nuru.”

Moses’ story is something I hang onto during the tough weeks. It doesn’t make loan default management any easier but it reminds me why my response to failure is important. It also reminds me of the impact we have on each other. Moses’ commitment to the community, the same commitment I see in every member of my team, gives me hope and makes me work harder. Thank you to everyone who donated to Nuru this holiday season, and happy new year from the team at Nuru Kenya.

I march off to see the construction foreman about keeping the office out of blast range, but the image of loan contracts next to explosives makes me think about an article I read analyzing the recent microfinance crisis in Andhra Pradesh. Profit-driven companies, corrupt politics, and the tragic and desperate poor. In hindsight it was a time bomb, but this is a story we’ve heard before.  

It’s hard to compare Nuru’s fledgling savings-led microcredit program with a microfinance giant like SKS, but there are important lessons for the CED team to remember as we scale. This week we held meetings in two new locations, Nyabikaye and Nyamaharaga, to form groups for our KAPESA group savings program. We’ve had to balance growth with operational capacity to take on new KAPESA locations. We also must know how to adapt our programs from Nyametaburo and Nyangiti. Nyabikaye is very different from Nyamaharaga, and both are different from our current locations. 

What stands out to me most though, is how the CED field managers and loan officers introduced the CED program. Most of the demand for CED program services is actually rooted in loan demand. So the CED team has attended agriculture trainings to introduce the program and emphasize that the goal is not just to give loans. The goal is to drive economic development by first creating financial stability, through savings and training, then by increasing income through small business loans. I know the message got through because attendance dropped quickly when we focused on savings over loans. This may not be the way to fuel loan portfolio growth, but it is more responsible. 

A loan is a loan. It is not empowerment, opportunity or hope by itself. During one of our meetings a farmer asked, “How will we get out of poverty if you don’t give us bigger loans?” A perception like this is a time bomb, and I definitely don’t need anything else explosive in my office. So I’m glad that the CED team will expand the program through savings, training, and greater understanding.

“This is not a party, Vivian.” The CED field managers seem to be disappointed in my choice of words for what I call a ‘Mifos party’, which involves pulling my managers out of the field and commandeering the office clerks for a day of sorting data for entry into our Mifos database. “It’s a party”, I insist, and hand him a stack of 20 receipt books.

We have finished deployment of Mifos as our management information system for microfinance operations. The deployment was challenging. In addition to the data entry parties, we were adapting our operational processes to Mifos’ current capabilities while feverishly incorporating other factors like the Agriculture program and overall Nuru Kenya accounting. It’s like trying to build a house during an earthquake. But this is a huge step in the development of the CED program. I know data collection and management may seem like common sense, but in our low-resource rural environment where most of our staff don’t have access to electricity much less computers, it seems like a lot of work for a vague concept. Last week we discussed the importance of MIS with the CED field officers. 

Managing information…

Picture one farmer. Think about every piece of information you could possibly find out about him or her that tells you something about her economic status. I asked the field officers this and in under a minute, they had a page-long list: number of children, spouse(s), size of farm, type of crop, yield, farm income, other income, current debts, food & living expenses, other costs like education and health. How about the information needed to uniquely identify that one farmer out of 1,400 others? Many people in our communities have the same traditional Kurian names, do not know their date of birth, and/or do not have a government-issued ID, so you also need to know Nuru ID, group and field officer, village, and names of relatives. Finally, think of just one intervention we do – small business loans. What is the loan size, the amount of each payment installment, the date of payment, interest, and current balance for every loan that farmer takes?  

Imagine all those pieces of information scattered in journals of written transactions, receipt books, and on handwritten slips of paper over the course of a year or two. Multiply that amount of paper by 1,400 farmers and think about it growing as we scale to 5,000 farmers. Now imagine you need to find one piece of information from 8 months ago… at this point I stop the exercise because the field officers are laughing. We get it. A lot of information.

…and turning it into something useful

But the potential of our information systems is not just in organizing and finding that data. The power lies in what the information tells us about what we’re trying to do. 

Picture one farmer. The farmer lives in extreme poverty and the goal is to change that. Think about what you might want to know about him or her in order to know what her needs are, how to best address those needs, and how to know if your efforts are making a difference. Those thousands of pieces of information together start to answer the bigger questions of CED: How did access to financial resources like savings, loans and training change a farmer’s income, behavior, and quality of life? What happens if we increase loan size, change the rules for loan qualification, or increase the quality or frequency of training? How does what we do affect the level of poverty in Kuria West? Now the field officers are thoughtfully quiet. Setting up Mifos is only the start.

Most glowing articles about the success of microfinance focus on the entrepreneur, which is fair enough. But it’s also important to credit the back story – the work that goes into the systems that let us distill proof of impact from the ground-level relationships built by field staff. A huge thank you for the crucial base work done by our previous program manager Aerie Changala, configuration and customization by Mashariki Solutions, continuous support from Ed Cable and the rest of the Mifos team, and all the groundwork by Nuru’s office clerks, Agriculture and CED teams. 

This week the story of one of our community members, Francis Mwita, was released. When his story was filmed almost a year ago, Francis was an outstanding Nuru farmer. He followed the intensive agricultural training and group work to triple his maize yield. Today, he continues to be a standout member and a great example of the link between Agriculture and CED programs.

I didn’t know Francis very well last year, because I interacted mostly with the Nuru members participating in KAPESA group savings program. Because KAPESA requires members to save weekly, it excludes the many Nuru farmers who rely on seasonal agricultural income only. These members, like Francis, access the CED program’s loans through the Jamii Development Fund, Nuru Kenya’s rural micro finance program. 

It works like this – Nuru farmers can continue taking loans for agricultural inputs season after season. But to qualify for a JDF loan, a member must have saved enough money to purchase their maize inputs rather than taking an agriculture program loan. This keeps members from taking loans on top of agriculture loans and becoming over indebted. It also requires farmers to plan ahead enough to save money from 2 or more harvests to buy inputs for the subsequent season, demanding financial planning and discipline – the foundation of the CED program. 

Francis has not only made that successful transition; he has taken it one step further. Toward the end of the open application period last month for our second round of JDF loans, Francis arrived with his completed application for a school fees loan. The application looked reasonable so I asked the field managers to speed up the loan processing time because most schools were reaching their deadlines for payment of school fees. Francis told us there was no hurry. He actually doesn’t need the loan until next January. However, knowing that JDF loan processing for the next season would run into the deadlines for payment of school fees, he decided to plan ahead and meet loan requirements almost half a year early. Great example of financial planning – kazi nzuri, Francis!

The adoption of mobile loan repayment through M-PESA’s PayBill service has been slow, which doesn’t entirely surprise me. Mobile money services like M-PESA are widely used in Kenya, but the transaction fees usually aren’t cost effective for small loan payments, especially when members attend weekly meetings anyway. But I think there will be a greater need as Nuru scales to areas that aren’t as close to our current office and as members graduate from group to individual services, which will require less meetings. 

More urgently, I’ve spent the past several months working on the banking information systems that will be crucial to our microfinance operations as we grow. We’re finally wrapping up deployment of Mifos as our management information system (MIS), after months of work collecting member information from over 1,300 farmers, scrubbing 2 years’ worth of member and financial data, and stumbling through the Mifos learning curve. This is hard enough without the regular chaos that accompanies our work – a falling maize market, an infestation of weevils, internal staff issues, a cholera outbreak. The time spent will be worth it, though. A CGAP study describes mobile banking as “fundamentally a front end to a financial institution’s information technology system.” So as we move toward branchless banking we’ll need to strengthen our backend processes that much more. The team will spend the remainder of this season adjusting our operations around our new MIS solution and I am excited by the potential Mifos gives us to effectively scale, especially since the newest version that will be released in December will include mobile money support specifically for M-PESA.

This week I went with the agriculture team on farm visits in Ngochoni, one of our newest locations. We walked only on small goat paths and the farms are sprawled out; it took us most of the day to cover 1 group of farmers. But in the middle of a maize field, I get a text message from a member asking if I’d received his loan payment through M-PESA. It’s a slow start, but mobile looks promising.

CED Program Manager, Vivian Lu, shows us the exciting groundbreaking of Nuru's new Regional Training Center, which will house the Jamii Development Fund and the hub of all of our mobile banking services.

The last two entries describe pretty different profiles. But you may have noticed that Nuru’s target population, those living in extreme poverty, begins working with the Agriculture program instead of CED. It turns out that many CED loan clients are not the extreme poor. 

It’s widely accepted that microfinance is not a development panacea. Prominent theories go further to argue that microcredit only benefits the “economically active” poor because the destitute and those living in extreme poverty are subject to too much need and instability to repay a loan or create value from one. Thomas Dichter describes the microcredit paradox, that “the poorest people can do little productive with the credit, and the ones who can do the most with it are those who don't really need microcredit, but larger amounts with different (often longer) credit terms.” Despite this, the extreme poor can still be served by microfinance. Poverty is dynamic, not a static line that neatly divides extreme and moderate poverty. An individual just out of poverty is especially vulnerable to shocks like illness or loss, and easily moves in and out of poverty. So lending to those who are out of extreme poverty can have a wider effect, by preventing further impoverishment. Targeting a specific population doesn’t mean you don’t look outside that group. This is why we design for the extreme user.

Last week I went to G-Kenya, a Google event for business and technology entrepreneurs to view Google’s suite of products to drive innovation in technology and business across Africa. Nuru was a bit out of place, a small non-profit focused on remote rural areas in a room full of savvy urban businesses. But Google’s applications are equally important for us. Google docs help us work with co-workers a continent away, using Google Earth we can map the footprint of a Nuru well, and Google forms accessed with a mobile browser let CED officers conduct site visits to loan clients in the field. The development of internet usage in Africa and the trend toward mobile internet access doesn’t just come from consumers in the cities. I happen to know over 60 community leaders armed with internet-enabled Nokia 1680s, who represent over 1,300 rural farmers ready to join the global market. We’d make an interesting extreme user for the business and technology world.

In my last post I wrote about designing for the extreme user, and Nuru’s holistic, need-based solution for our target “users”, those living in extreme poverty. This week I’d like to think about a different kind of extreme user – the individual poised to break away from extreme poverty.

If Nuru’s programs work as they should, an impoverished farmer will be able to feed her family through greater maize yields, access clean water, and improve her family’s health. Furthermore, the farmer will be able to save money and invest in her children’s education, or a new business to generate additional income. With the foundation, knowledge and financial means to continue growth, the farmer will be equipped to get out of extreme poverty. But development is not a linear formula. One factor is that there is a strong social obligation to help one’s family and neighbors, if able. The sense of community is strong, and the individual in Kuria does not exist in a vacuum. So as our farmer’s life and economic stability improve, she is also expected to help others financially. Community solidarity is powerful: neighbors will bolt out of the house in a second’s notice, weapon in hand, if they hear the familiar cry that means a cattle thief has struck; it is also a kind of insurance in case of emergencies. But in the case of our prospering farmer, the requests are often disproportional to her actual gain, and this can limit her trajectory out of poverty. This is a common issue for Nuru’s Kenyan staff. Most people in the community think working with a foreign NGO means a fat paycheck, and many times it does. At Nuru however, our leaders are hired after an extensive, unpaid vetting and training process. Even after hire, the salary is modest to reflect our commitment to serving the community rather than self-interest. As a result, our own staff is often unable to save because the requests for help are many and the need is great.   

Recently, many of our managers were pushing for large staff loans. I was concerned because I would expect Nuru staff to be the most financially disciplined as an example to others. The problem, though, is not always a question of financial discipline. It was explained to me like this: even if a distant relative you don’t know requests an emergency loan that you know will not get repaid, how do you justify saving for a business venture or to qualify for a loan when that relative’s child is dying? With a loan, however, people understand that your money is off-limits. There is usually physical evidence – a new business or construction on the house – and everyone knows a loan must be repaid. When saving is impossible, you borrow to save.

Is this a reason to grant credit? I don’t think so. But it does at least provide perspective, and focus my efforts on the right things. Maybe instead of more training on responsible credit we need to create savings solutions that work with, not against, community responsibilities. For example, using illiquid savings and including social obligations in financial planning. The Kurians have been keeping livestock as living savings accounts for generations. Maybe it’s time we caught on.

The Community Economic Development program is established on savings-led credit and good financial planning. To that extent, we have programs that encourage saving and financial planning before taking out a loan. It is a reasonable path for individual economic development.

But design thinking teaches us to profile “the extreme user”. Design thinking is described as a process that combines empathy, creativity and rationality to meet user needs. It is a powerful tool for creating impact in development as well as a driver for business innovation, and is an important part of our foundation team toolkit. Why the extreme user? Designing for extreme users often provides insight into issues and needs that aren’t yet apparent in the mainstream.

My next entries will explore issues facing the extreme CED “user”. These entries are more thoughts and questions than answers, so any comments or ideas are welcome.

Nuru works in remote, rural areas of extreme poverty. So it makes sense to start with the extreme poor. Living in extreme poverty, as defined by the World Bank, is living on less than USD1.25 per day (adjusted for purchasing power parity). But economic definitions don’t capture the desperation, the lack of choice, options and opportunity experienced by 1.4 billion people - the poorest of the poor. It is the most severe state of poverty, the level at which basic survival needs are not met: food, water, shelter, sanitation and healthcare. Imagine having no option for basic healthcare and adequate methods to dispose of human waste. Imagine if your choices were bitterly limited to choosing which one of your children gets to eat each night during the hunger season. This reality jettisons much of the capacity to save and plan that the CED program seeks. You can't save if you don't have enough to eat, and you can't plan if you are struggling just to survive.

So we started with the agriculture program, providing a loan of high quality maize seed and fertilizer. Combined with improved farming methods, Nuru members were able to harvest a yield high enough to feed their families, repay their loans - and save. Is this borrowing to save? In a way. But improved yields rely on more than just the loaned farm inputs. Before the loan is given, farmers form groups to receive training and help carry out the group-based farming methods. Attendance and participation are heavily enforced. Training includes an investment in the group and the planning required to carry out the farming methods, as well as the expectation to save enough maize to feed the family until the next season. A lot is expected to qualify as a Nuru member, ensuring that the farmer who receives an agricultural loan is a farmer who has invested, planned and saved. 

It's harvest time once again at Nuru's project in Kuria, Kenya. Hear from CED Program Manager Vivian Lu and Field Officer Andrew Chacha as they discuss Nuru's Agriculture Loan repayment program and provide an update from the field.

This capped off an already rough week. Every program hit a road block at some point – a database crash, errors in the farmer seed/acreage data, attendance issues, stalled progress on well permits and school sponsorship. Everyone has these weeks – when despite all your work nothing got done and previous work was actually undone. 

As the ants appeared to be flanking the house, our night guard Evans appeared and calmly asked for a cardboard box and matches. On cue, an orange glow rose from the neighbors’ yard as they too, battled ants. So we set the yard on fire, forming a burning barricade of cardboard strips in front of the house. The ants retreated (local knowledge wins again). Over the next few days there were smaller surges of ants but we had help – our neighbor Thomas, and one of our regular motorcycle taxi drivers Peter dug up the nests and smoked them with burning tires. 

It’s hard to have perspective when you’re having a bad week. Yes, next week will probably be the best week of your life but this week it seems your work and life are crumbling to the ground. Yes, the week would have been better spent catching up on sleep. But that’s a moot point. When there is a biblical swarm of biting ants in the backyard (or whatever your case may be), no one asks the ants why. 

Like most bad weeks, when the ant raid was over we recalled it in gory detail and laughed about it later. For the next army ant swarm I will know what to do: 1. Forget about your other plans for Friday night. 2. Go for help from the people who know. 3. Set stuff on fire. For the next bad week in general, I may try to apply the same strategy: 1. Dig in. 2. Surround yourself with good people. 3. Go forward with gusto.

Transition time in the Nuru Project is a month long whirlwind of action. The culmination of a rotation’s work is all coming to fruition as we transfer all of our knowledge, work plans, initiatives, books, etc.. over to Foundation Team 5. Vivian Lu and I have done two previous transitions with each other, so we know how each other work and have a knack for making the most out of our transition time together.

There is so much activity right now that it is hard to keep track of where everyone is. The houses are packed: David and I are living in the living room of the lower house and Jake is living in the living room of the upper house. It is beginning to feel like a youth hostel. Needless to say the houses are alive with all that is Nuru.

I have just over a week left of work to do in the project before I transition back home to work with Nuru’s Development Director, Don Jorgenson. In this short time left, I have got a lot on my plate: we are deploying MIFOS (our banking software); we are starting our M-PESA (mobile money transfer) capabilities; and we are training all of the CED staff on both. 

By next week we will be able to have all of our accounts on MIFOS and access them all remotely with mobile banking capabilities. This is a huge jump to make in a week, but while the capabilities are there, we are going to be cautious with the implementation of our new technology. Before we unleash it completely to all of our members, we will get all of the kinks out. 

With the pace that we are keeping and my recent late night coffee consumption, I am going to be sprinting until I leave next week. There is such synergy in the project at the moment. New teams bring new ideas, and all I can really do is harness all of the energy here at the moment to develop lasting solutions that will impact the lives of the people whom we serve. 

I aim to do a video next week that will demonstrate the new technology. I apologize in advance if I am a bit disheveled looking next week, I will most likely be running on fumes. See you next week.

The end of my rotation is quickly approaching. Vivian, my counterpart in the CED Program, arrives on Monday, then I will be transitioning out of the project. I am set to fly out on 11 July. Time always flies on our Foundation Team tours. The past 5 months have gone by more quickly than summer vacation.

Looking back at the program, we have come a long, long was since we started. As we approach the completion of our second year in Kenya, it is remarkable to think of our humble beginnings. Just over a year ago, the savings clubs were just starting. Now, we have members who have graduated from the yearlong vetting process and managed to accomplish so much in such a short amount of time. I cannot help but be amazed at how far they have come. 

I am very thankful for the wonderful people with whom I work. The CED team (Moses Woirungu, Peter Gati, Joseph Gikaro, and our Field Officers) have come a long way since we started. They have all become quite skilled in finance and experts in using the Internet via mobile phone. Next week, a couple new netbooks will be arriving, so the CED team will begin training on computers in preparation for MIFOS

Vivian and I are going to be testing MIFOS next week, so I am very excited to get this all set-up. As you may remember from my video post two weeks ago, all of the CED Field Officers have become quite skilled with mobile phones. In the coming weeks, we are going to be expanding on their skills to incorporate more and more mobile banking activities.

In a matter of weeks, we will be transitioning from Excel spreadsheets and paper ledgers to MIFOS and Google Forms accessed through Internet-enabled mobile phones. This is sure to be an interesting transition, so rather than talk about it, I think that it would be better to do a series of videos. I will cut this blog short to save some footage for next week. 

Until then, thanks for reading!

It is rare that earth-shattering news is actually delivered with earth shattering. Late last night, in those wee hours that are technically morning, we awoke to the sound of crashing, booming, and something like an explosion. These were the kind of sounds that aren’t accidental. Terror was the first thing that wrestled me from my slumber. Was the compound being attacked? Were we being robbed? Was there a riot or had civil war started? All of these are very, very logical assumptions when one is awoken by these sounds in our area. 

I am from Southern California. Earthquakes are a part of life. As kids, we used to find the small ones amusing, and we’d laugh at my grandmother as she ran around the house in a panic (she is not a Californian). Now as an adult, earthquakes are greeted with a bit more reverence. I think every Californian is a part-time water cooler seismologist. I, also, think people probably rush to update their Facebook  status quicker than going to seek cover under a doorway; get under their desk; stop, drop, and roll; or whatever you are supposed to do in an earthquake. 

Last night we had what from all accounts was an earthquake, but I have seen no news or reports on it. Let me tell you, as a Californian, the earthquake last night was a pretty scary one. I have been through my fair share, but it is something else entirely when you are in a building in an area where there are no building codes. A brick building with metal doors is not where you want to be in an earthquake. From what we have heard today from our friends and neighbors, everyone is still pretty stunned. Luckily, I haven’t heard of any injuries. 

Financial Capital:

So, I started by saying that “it is rare that earth shattering news is actually delivered with earth shattering”, now that I have explained the earth shattering part, allow me to explain the news. It is actually quite personal, but I think that it is relevant to mention. Laura and I are finishing up our tour in Kenya. We will soon be moving back to California. We have been trying to buy a house, which is no easy task in this economy, in Orange County, and based on our income, and due to the fact that Laura has not been a resident of the USA for a full year yet; but it has been our goal for quite some time. We found the house that we wanted; we were in escrow; and we thought that we had everything for our mortgage squared away, but immediately after the earthquake, we got news that we won’t be able to get a mortgage for at least several months, meaning that we will loose the house that we have been in the process of buying.

I know this isn’t exactly earth shattering news in the context of extreme poverty, but it is pretty horrible news for us in the context of our lives, goals, and dreams. Combined with last night’s earthquake, it made for a pretty bad night last night. This experience has led me to reflect a bit on walking in the shoes of our members who are applying for Nuru loans everyday. I have forgotten how crushing denial of one’s aspirations can be. I deny loan applications everyday because I do not deem them to be viable. I think that the rejection of my mortgage will be instructional for me in my work. 

Does this mean that I am going to start approving loans with my heart rather than my head? Absolutely not. The most frustrating part of the mortgage process for Laura and I was not the rejection (yes, that was ultimately the most frustrating part), but the lack of knowledge and the inability to understand the process and language being used. I work in microfinance, but I still had no idea what more than half of the terms meant in the real estate process. I think if we could have been better informed throughout the process, we could have managed our expectations better. 

I am using this experience to improve our process for applying for loans. I can do a better job to keep our loan products and qualifications clear and in language that everyone can understand. While Nuru can’t approve every loan application that crosses our desk, we can make our process clear, quick, and easy to understand so that our members can manage their expectations throughout the whole process. If our members don’t qualify, I would like to provide guidance for them, so that they can qualify in the future. 

Live and learn. 

Continuing on with the structure of last week’s blog, I have divided the blog into two sections: social capital and financial capital. This division is meant to divide business from pleasure- or living from working in rural Kenya. 

Social Capital:

I am absolutely an integrationist: I believe that if your project is based in remote rural areas, then you must have staff living in those same remote rural areas. I know this is not always possible, but I believe the benefit greatly outweighs the barriers. I understand that there is a divide among professionals. 

I come from a Peace Corps background. Peace Corps can be, in my view, one of the best on-the-ground experiences that one can get as an outsider to help oneself understand poverty. This experience, however, is not to be understood as a replacement for growing up and/or living as a member of one of these societies for an indefinite period of time, but a Peace Corps Service can offer a frame of reference from which someone can begin to understand what it is like to live in poverty. 

Living in poverty as a Peace Corps Volunteer can by no means be equated to poverty which surrounds one during one’s service. No matter how real it feels, one’s service is still in some ways pretending to be in the state of poverty for a defined period of time. This is not to take away from Peace Corps or its volunteers. I know volunteers who integrated to the extreme in which behaviorally they were indistinguishable from the people with whom they lived and worked, but essentially there was always a divide. They always had their plane ticket home, and an alternate life waiting for them.

In my opinion, as an integrationist, far too many organizations are based in capital cities. Their projects have large white SUVs with their project decal on the side of the door. Sites are visited, but not lived in. I am not stating this difference because I work for Nuru and Nuru does this, so I think it is right. One of the main reasons that I chose to work for Nuru is because the project is based in the field; Nuru doesn’t have a car, we take public transportation. We are really building relationships with our members. Living in the field and not having a car can be a real pain. Power outages, power surges, no refrigeration, water shortages, not being able to go out past dark, etc..  all can make our lives more challenging in the field, but it makes for a far more successful project. Living in the field; building relationships on a daily basis; and listening to the people with whom you work can allow one to keep one’s finger on the pulse. Disconnect brings problems. 

Next week, I am going to be discussing integration in the context of brain drain and language. 

Financial Capital:

Microfinance is not the cure to poverty. Mobile money will not single-handedly eradicate extreme poverty. I wish it could all be that easy. Until people make more money than they spend, poverty will be present worldwide. This poverty can manifest itself in different ways. Depending on one’s ability to access credit, one can appear to be far better off than one is. Sooner or later living beyond one’s means catches up. What is true at home is true here. 

Microfinance can be an excellent tool for those who need to have access to credit, savings, and/or insurance; however, the quality among these financial products can vary widely. What can be called microcredit and carry with it all of connotations of helping the poor lift themselves out of extreme poverty can in practice do the opposite. Without adequate safety measures and an extremely elastic demand for credit, predatory lending is all too common. What is touted as eradicating poverty can actually be creating poverty.

Savings products too can be misleading. The fees associated with a savings account can prevent savings altogether. Until recently, it hasn’t been viewed profitable to offer banking services to the extreme poor. Mobile banking will hopefully turn a lot of this on its head. M-Kesho looks like a promising turn for mobile savings accounts.

Lastly, insurance can, perhaps, be most misleading of all. Fine print and impoverished populations can make for a dangerous combination. I have a master’s degree, and I still need my brother (who is a lawyer); my mother (who is a physical therapist); and Karina (Nuru’s HR Director who has become an insurance expert) to tell me what my health insurance plan actually covers. Still when I go into the doctor’s office, I feel like it is a crapshoot. Imagine trying to understand insurance policies without the access to education and educated individuals. 

I have heard so many horror stories of micro insurance companies; it is unreal. Still insurance can play an important role for medical expenses, crops, etc.. Most recently, I was conducting a case study with some of our staff to test the efficacy of a national insurance product, which I though might be good. It turns out that in order to use the insurance, you need to bribe the hospital because it takes the insurance company so long to pay that it is not cost effective for government hospitals to accept the government insurance. I am still on the pursuit for better insurance products.

Next week, I will be discussing the local organic micro financial institutions in Kuria: the collective.

I am undoubtedly on my phone more in rural Kenya than I am in Southern California. I use my Nokia here for more things than all the apps put together on my iphone at home. Most recently, I am looking at using phones for banking. In past blog entries, I have mentioned Nuru’s teaming up with FrontlineSMS:Credit and MIFOS to develop a mobile banking solution. The goal is to allow Nuru farmers the ability to manage their accounts, receive loans, and repay loans with their phones from their fields. I will keep you updated as we progress.

M-KESHO: Mobile banking is becoming a force to be reckoned with in Kenya- at least potentially. For those of you who missed my blog post last week, M-Kesho is a product born out of a partnership between M-PESA (mobile money) and Equity Bank. It allows for a mobile phone-based savings account, which also has loan and insurance capabilities. The idea is to extend branchless banking all the way down to the poorest of the poor- who have a mobile phone.  There has been a large void in the Kenyan banking community. Poor, unbanked populations often view the high fees associated with banking as prohibitive. These views are further reinforced with alleged reports of individuals opening accounts, keeping 200 Ksh (<$3.00) in the account only to come back a year later and find the 200 Ksh gone, and the account holder actually owing money to the bank for services. The merits of these allegations are never known, but for many these are plausible outcomes. 

M-KESHO seeks to address this void by reducing transaction costs overhead, thereby allowing the majority of their banking services to be free. I feel there is no better way to learn about a product, than to test it oneself. I plan to set up an M-KESHO account ASAP to test it, and see how it works. M-KESHO took Kenyan banking and microfinance by storm last week. I believe that mobile banking will have the potential to expand financial services to the otherwise unbanked. I am, however, wary of early claims that this was the missing link to poverty eradication, and the “mission accomplished” is just around the corner. So many false dawns have been touted in this field that I cannot help but be skeptical. M-KESHO, like any other mobile banking product, is a tool. It may have the potential to be a very powerful tool, but it shouldn’t be ascribed to as the new panacea to poverty. 

The Kenyan banking climate is rout with perils for the poorest of the poor. High banking fees, high transaction costs, lower interest rates on savings accounts, a high inflation rate, and predatory lending can all lead to making the poor poorer. By educating and increasing access to services, Nuru is preparing its members to have a securer tomorrow. 

Next week I will continue to expand on this series on managing capital. 

As I have mentioned in previous blogs, I am not much of writer, but my job requires me to write blogs, so we are stuck with each other, so let’s make the most of it. While I am not much of a writer, I try to make up for it with an above average understanding of punctuation and sentence structure; however, if you are looking for a boring blog about microfinance with perfect sentence structure and grammar, then I am sorry; you have come to the wrong place. This is a boring microfinance blog with above average sentence structure and grammar. 

If you haven’t already noticed, this first paragraph was what they call a hook in the writing biz. I am fully aware of my ineptness as a writer. While the subject matter I am writing about is tremendously important and interesting, I have the uncanny ability to make it sound boring. To supplement my lack of scholarly skills, I plan to use lots of links to photos, videos, and sounds to make my writing come to life. Hold on tight for this week’s blog. 

Managing Capital Series: 

I want to start a several entry series on managing capital. In these entries, I am going to focus on the management of two types of capital: social capital and financial capital. The latter is far more commonly used in microfinance than the former, but, in my experience, the two go hand and hand with one another.

This series of blogs will be divided into parts 

Social Capital:

A large part of my work is not finance related; in fact, nearly any banker (who is still in business) would be better at my job if it were purely a financial management mandate in nature; however, the majority of my job has nothing to do with finance. This is where social capital management comes in. 

From day one when one is entering a project, one is working against a series of preconceived notions about who you are and what you do. Projects never start from scratch, one is always building upon the past. When Kurians see wazungu (foreigners/white people/the English) projects, their reaction to the project will likely be based on any pre-existing experiences, perceptions, and/or misperceptions of what projects are and do. This is a difficult inheritance for many “aid workers” who see themselves as “different” to accept. Regardless of one’s own direct responsibility, it is a collective legacy within which one assumes a role- albeit at times reluctantly. 

I have found through experience (ie., trial and error) that trying to convince people that you are different; you’re not rich; you are honestly here to help; you don’t give hand-outs; you aren’t going to abandon them, etc.. is more or less futile. These recitals are cliché, and generally only work to reinforce preconceived notions of projects and wazungu; instead, I recommend circumventing this preexisting belief structure by doing the unexpected. Actions speak louder than words, but the language of the words used helps add to their impact.

In our project, for example, we don’t have a car or even a motorcycle for our Foundation Teams. There is no white SUV with the project’s decal on the door. This decision is in part due to financial constraints (we would rather be spending our donors’ money on the project not vehicles) and in part due to reluctance on our part, as an organization, to fall into the preconceived notions of what “projects” look like. We walk a lot, which gives us an in-depth knowledge of the communities we live and work. When we aren’t walking we use public transportation.

Again, I am not coming from any sort of high-ground or expertise. This is an account based upon personal and organizational experiences. These recommendations/observations are often the result of trial and error. I will continue to build on this anecdotal account over the next series of blogs. In the meantime, check out this blog, which is a good starting point for any sort of discussion on how development workers should live.