I just want to thank Quint for putting all of the information that I was going to put in my blog. So, I will try to take the microfinance topic on a new level.
As Quint mentioned, one of the aims of microfinance is to inject capital into the economy and allow poorer individuals and companies to grow. It allows the poor farmer to buy another cow so that he can better feed his family. It allows the small company to slowly expand so that they can make more money and be more profitable. Overall, I was very impressed with the presentation and discussion that we had at Brac and left feeling very optimistic for the economy of Uganda because I knew that some individuals were actually trying to fix some of the problems in the economy.
But, after we left and I had some discussions with the professors, I am starting to question how big of an impact microfinance will have on this economy. First, lets back up and look at some basic information. The banks in the area charge 22% per year for a loan. That is a very expensive form of financing and it is very unlikely that you will be able to invest in a project that will be able to return to the company or individual 22%. Now, we look at microfinancing and Barc in particular. They only charge 1.8% interest. This obviously sounds like a better option, until you learn that it is 1.8% per month, or compounded annualy to roughly 28%. The better thing about the microfinancing is that it requires no collateral and if you cant pay, its not as big of a deal, or thats what I took away. Also, you are obtaining credit that you may not have otherwise been able to before.
Now, I get to my point. Microfinancing is about sustainability. Its the fact that you can obtain financing and education to stabalize your family's finances or your business so that it exists in the future. But, how much good is this doing? This country lacks a serious infrastructure and supply chain program so its hard to ship products out of the country. So, even though you are able to grow your company, you are still going to hit a glass ceiling. So, my question for you guys is this: Should microfinancing firms, like Barc, reconsider what firms they give money to? Should they select firms that help with infrastructure to help grow the country? Or, should they stick to their current stategy? So basically, what can microfinancing firms do to make this country more sustainable through financing? And what do you think about the interest costs? Is the high interest rates hurting or helping the country?
Hope you guys are enjoying your trip:)