Animal Capital - Why MFI's Matter
MFIs are getting trounced these days. Read all about it in a book reviewed in a recent post. This same book makes an important point: well-executed MFIs can make a difference. In fact, microfinance is all about execution. Done properly, MFIs provide a crucial service; done poorly, they spell ruin for all but the most brutal, buccaneering investors who stay the ship, or jump it.
On a recent trip to Tajikistan I saw good MFIs, the old fashioned kind, discredited by slick nihilists (“no, no, microcredit can never be good!”) and best practitioners (“if they aren’t making a fortune, they can’t scale!”). But these MFIs, run profitably, were making difference, especially when fused with savings groups.
Boutaev Dodiqudrat, a Tajik farmer who crops potatoes and sells flour for a living, saw the gain to be made in raising goats. From his land he takes in the view beyond the Pamir River that divides his pasture from the hardscrabble hills of Afghanistan. Even on this dun and lifeless landscape Boutaev can see herders grazing their goats. Goats he knows are not only sold for their meat but also produce fine and valuable cashmere.
Boutaev decided to try his hand at rearing livestock. If his neighbors across the river could do it, why couldn’t he? The problem was no bank would lend to him (why bother lending to a scruffy farmer) and his savings group lacked the money to capitalize his herd. Because Boutaev was part of a village organization, he had access to loans from a local MFI. His loan officer, also a goat and yak rancher, was able to issue him within two days of his application, enough credit to buy twenty goats, worth $1,000.
Headstrong, Boutaev vowed never to sell a single goat to pay back his loan. It was critical that he not subtract from his herd. Mustering income from the sale of potatoes, flour and sometimes vegetables, he deposited $4-$12 every two weeks into the savings group, and a bit more in his household safe. He borrowed from the group now and then to help repay the goat loan or to cover household expenses. He used the annual share-out to increase his herd.
The herd multiplied, but not quickly enough for Boutaev. He wasn’t getting any younger. He decided to take out another loan to bring the herd to sixty heads, all the while mining funds from his savings group to help with repayment. Today as before, Boutaev and his wife are aiming for herd of 100 heads. Then, he says, he finally can relax.
Why 100? It turns out that is the magic number that allows a herd to sustain itself. With 100 goats, a farmer can sell enough cashmere to keep his animals vaccinated and can sell enough animals for meat to earn a good income without diminishing the size of his base stock, his animal capital.
The point is, this farmer needed a loan to make things happen and he needed his savings group to repay the loan. So while a livestock loan lacks financial bling and it is hard to kit out a savings group beyond its box, these simple, unflashy, tools have worked together to allow one herder and his wife to build a better life.
The Aga Khan Foundation and the Mountain Societies Development Support Program have established 2,500 Community Based Savings Groups (CBSG) and five Microlending Organizations in Afghanistan.
Reader Comments (1)
Love this story Kim! I think there is an important distinction to make here between linkages to MFIs for individuals to make that leap to a more sustainable business and those made to the group as a whole. I like the individual linkage, but the whole group linking? not so much....
What do others think?
Wed, October 10, 2012 | Jill Thompson