Returning to the issue of loan distribution and security, there are a number of transaction methods that could replace raw cash handling.

Smart Cards

I stumbled upon smart card technology just the other day.  Portable, durable, and protected by PINs or biometrics, this seems like a logical replacement for cash.  Its benefits include (1) greater security through narrowed usability, (2) tangibility and ease of replacement, and (3) the ability to log and refer to transaction history.  Priced at $6-$10 per card, and possibly requiring an initial expenditure for at least one card reader, the costs of maintaining smart card technology could be tricky for us to maintain at first.  But if we decide that the benefits outweigh the costs, and that we could sustain our operations without significantly raising interest rates, then this would be a good technology to investigate further.

Mobile Banking

This is intriguing.  Some banking firms have utilized telecommunications to enable clients to withdraw and deposit money via text-messaging.  Check out this case study of M-PESA

• Against the Dark aka Last Night ipod

, one such mobile payment solution, and its effects on economic activity in Africa.

La Ceiba could potentially benefit from a payment system like for several reasons.  Firstly it would significantly reduce the need for face-to-face interaction, an natural obstacle for us being based overseas.  Secondly it would tap into the mobile phone technology that is already widely used by our clients.  If there is a way to integrate this payment system with their own phones, we slash the cost of having to provide any sort of transaction devices like cards or phones.  Thirdly our clients would save a lot of valuable time making transactions over the phone, rather than leaving the village to visit some building in Centro.

Costs?

At present these services may end up being too complicated or costly to use during our initial lending period.  CGAP noted that the fees for the M-PESA system may not be suitable for the purpose of microlending:

In the end, M-PESA’s charges are too high to be economical for microfinance clients. So far, Safaricom has geared M-PESA’s fees to the remittance business. The KSh 30 (USD 0.48) it charges for a remittance up to KSh 2500 (USD 40.35) is quite reasonable compared to the post office’s PostaPay product, or even bus drivers who carry remittances. But microloan repayments are a different business, more similar to bill payments (set schedule, relatively small value of $5-10) than a money transfer (less frequent, larger amounts of $50 or more).

The average JB client makes a KSh 394 (USD 6.36) payment each week. If they used M-PESA to send in loan payments, it would cost KSh 600 (USD 9.69) over the life of an average 20 week loan. That’s equal to 69% of the interest paid on that loan! Another way to express the added cost is an increase to the interest rate paid: using M-PESA would be like raising the interest rate from 12.5% to 21% on the average Jamii Bora microbusiness loan. That’s costly.

Source: Pickens, Mark. “Can M-PESA work for microfinance clients?“. Consultative Group to Assist the Poor. 28 May, 2008.

One difference will be that our average loan size could be in the optimal range as suggested by the author—that is, “$50 or more” as opposed to “$5-$10.”  Rather what concerns me is the possible need of an expensive infrastructure that would keep the system moving smoothly, like card readers or software.  I simply don’t know enough yet about the whole transaction process to pass a verdict on either of the technologies.  But we should not rule out idea of using them.  We must research the possibilities, keeping in mind that our end goal here is to minimize long-term costs and to maximize the ease of transactions both for us and for our clients.

This week we tried a new, directive approach to communication.  Everybody met outside of class, divided into small groups, and tackled two critical topics on the agenda: the default policy and the mission statement.  The process was efficient, decisions were agreed upon, and everybody adjourned more or less on the same page with one another.  Most importantly, we constructed detailed outlines that will more readily evolve into official documents.  That one hour was, I believe, our most effective use of time thus far in the semester.

There is much to glean from that discussion, and I think we should reevaluate the process by which we have been running our scheduled class meetings accordingly.  As stimulating as they are, I don’t believe they have been as productive as they could be.  Granted that for each class we have a lot of material to cover in a small amount of time, a more directive approach will help us to settle upon decisions that can be translated into official documents.  It should be more efficient to debate and brainstorm outside of the classroom, and to finalize thoughts into official position statements while we are in the same room and on the same page.

Thinking Ahead

Earlier in the semester we realized that distributing cash loans could create a security risk, both for our clients and for us while we are on the ground.  What has recently grabbed my attention is the fact that however we decide to distribute our loans, to do so in any secure manner will require extensive planning and resources.  How will our clients obtain their loans, and how will they store the money?  How will they repay the loans, and obtain future loans, when we are no longer on the ground?  If we recruit long-term volunteers, where will they reside and where will they facilitate transactions?  The crux of La Ceiba will be its physical transaction procedure.  It will extend beyond our vision and policies, demanding a constant supply of attention and tangible resources as needed by our clients.  Really it is this activity that will determine whether we fail to deliver, and as such we should not neglect in planning this procedure until we near the end of the semester.  Simply said, we need a Director of Logistics that can map out a transaction strategy both on- and off-the-ground.  Perhaps we can assign this role to one of our new full-time teammates from the IAP Initative?Dodge City movie

I’ve been concentrating on the development aspects; a Constitution and structure that will ensure sustainability once the original group graduates.  I’ve found the NGO Cafe, http://www.gdrc.org/ngo/, to be an amazing resource which can answer so many questions and is ideal for any non-profit.  I hope to finish an outline for the Constitution within the next couple weeks so the board can make the necessary decisions about the day-to-day running and we can start on the 501c3 paperwork!

I also want to take the time to address Christine’s last post Dodge City move .  I know we’ll be talking about this tomorrow, but this is a path that’s so easy to go down when reading academic papers.  Dr. Humphrey and I, while sitting in a Starbucks one afternoon, went from a strict zero-tolerance policy to thinking about how you say no to an entire group when one person doesn’t pay off their loan, and what if that person is going through terrible times?  A legitimate business failure (they do happen!) and perhaps a death of a child, or sickness in the family?  How do you say no?!  Through this path we came up with an entirely new system involving forgiveness and mediation and multiple chances, something that stuck with me until I got the minutes from a meeting with an expert.  Yes, it’s harsh, but everyone we’ve talked to with on-the-ground experience has emphasized nothing else nearly as much as zero tolerance.  The idea is to truly help people, and if we go out of business after a round or two of loans we can’t help anyone.  I still struggle with this idea some because I know that I hope to be on the ground over the Summer and Fall of 09, but I know that in order for La Ceiba to be sustainable we have to have zero tolerance.  It’s not about having a pretty statistic to show high repayment rates, it’s about having enough money to loan out more money, to pay loan officers who can work with the clients and find out what further services are needed, to have the resources to facilitate more holistic initiatives.

I struggle because I don’t want to have to be the one to cut off a woman’s access to loans because someone else in their group defaulted, but I keep going back to why I’m here.  I want to help as many people as much as possible, and to do that La Ceiba must be sustainable.  Making it so some women cannot participate will be extremely difficult, but we are not taking opportunities away from anyone, we are providing opportunities that were not previously there to anyone who can participate.

Client Must Come First– it is the title of the article that shook my “rational” thought.  In particular, i am talking about zero tolerance default policy.  The simplistic economics makes sense- zero tolerance creates the incentve for the individual and the group to not default (i.e. comittment and enforcement).   But how about the resulting free rider problem?  Or, how about the cases that some people will punish group members so severly for defaulting that loan groups no longer serve as a support system but instead serve as a threat (sometimes even a threat of death)?

And, at the end of the day, what is more important–high loan repayment rates or helping the people we are set out to help?  These questions may seem interliked because they are.  But, as to which side of the fence to lean on, I am starting to lean on the help the people we are setting out to help.  Perhaps, if La Ceiba expands into a larger MFI we may need to re-evaulate our policies.  But until then, the question is, what are the best policies for the people of Siete de Abril?

• Echelon Conspiracy video

The ball is rolling…

Mission Development

Dodge City on dvd

• We Were Soldiers on dvd

As you can tell from a recent post by Erin, we’ve been dedicating the past couple classes to defining who we are, what we’re trying to accomplish and by what means. Yesterday we initiated round two of mission statement brainstorming, writing up possible statements and slogans on the white board. A lot of good keen observations are in the works—I particularly like the concept of “buttressing” our clients, as Dr. Humphrey put it. I can tell we’re honing in on our identity. My own focus, coming from a communication background, has been less on what we say and more on how we say it.

What is the purpose of stating our purpose? I asked myself this as we brainstormed. From a business perspective, at least two answers come to mind: to inform and persuade our donors, and to keep our actions squarely on track. With that idea in mind I subdivided our mission into three levels in a systematic sequence that progresses from broad and grandiose to nuanced and technical:

1. Vision — This statement defines the end goal of our mission. Here we define the overarching problem we perceive and describe a world that has benefited from our mission. For example…we see a world in poverty; we wish to subdue that poverty; we envision a world in which people, who were once poor, have had a chance to pull themselves up into comfort.
2. Mission — Here we define the means to which we hope to attain our end goal as stated in our vision. That means will be based on our unique specialization, which in our case would be microlending and anything else we deem critical to our methods (e.g. whether we are holistic).
3. Objectives — Finally we outline our benchmarks of success. Essentially our objectives detail the approach to our mission, which may include granular and quantified goals.

From a fundraising perspective, these levels create a simple road map for communication. We open up with our vision statement, where our donors will decide whether or not they agree in principle with our end goal. If they do not, they will walk away and there is nothing we can or should do to persuade them otherwise. If they do, we may proceed to explain our mission statement, which explains the means to which we pursue the end goal of our stated vision. If the donors agree with those means, we may outline in more detail how we plan to carry out our mission. For most donors, a donation can be considered a social investment. All three levels of our identity—goals, means, and methods—are crucial details that all donors would want to understand to ensure that they and we are on equal moral grounds.

As the axis of our wheel—the foundation of our identity, our incorporation, our fundraising, our progress and our success—the mission statement is perhaps the most urgent item on our agenda.

Wild at Heart

Marketing

I’ve merged my department (IT) with Marketing and Communication. Recently I have been outlining an exciting web-marketing strategy for the blog, La Ceiba, and, possibly, the Two Dollar Challenge, which will a critical fundraiser for the capital base of La Ceiba. I won’t delve into that strategy now, but I hope to articulate them next week. Time is of the essence, and powerful word-of-mouth publicity requires time to mature.