This week should be the last week of catching up from Summer. The first meeting of the week I led the class in a discussion of some basic micro finance theory, and after each section we went through the implications for La Ceiba, what we’re doing right and what we need to do better. A few of the key points:
Timeliness!! We had volunteers down with our customer base this summer talking about the program and having the women start their business plans and groups despite the fact that we’re not giving out loans until January! There are some MFIs that process loans within a week, granted those are individual loans, and while that is quite a ways away if we ever get there we also impose extremely high costs on our customers by demanding time so far in advance. Part of the dynamic of working with people in such extreme conditions is that nothing is certain; investing in the future with the -very- scarce resources of today is risky and not taken lightly. Requiring so much work so far up front actually may start an adverse selection process - La Ceiba may be getting customers that are slightly worse because better customers may find another way. This particular issue is minimized because of our previous ties with the community through Students Helping Honduras, but it is something we need to make sure we correct for as we look to the future and past the first round of loans.
Market driven targeting is best. Coming from an economics background this makes sense, but everyone involved in this project is invested in the human aspect as well. We want to make sure we reach those in the most need, and a few ways to do this is by lowering costs in using our services. I don’t mean the obvious costs of application fees or interest rates, but rather the cost of taking a bus to get to a meeting and the time it takes to fill out paperwork. This can include strategies like locating our organization in an area with many people in need so that transportation costs and time are cut down.
Keeping with the idea of reducing these kinds of cost, we are looking into our business plan requirements. This summer Dr. Humphrey worked on a business plan checklist, an extensive list of questions and point that needed to be addressed in each woman’s business plan. While it is important to have some sort of basic business plan to prove the customers have considered what they are doing with the loan ahead of time, understand what they’re getting into, and have a basic idea of what will be required to succeed we have to face facts. Not only is this detailed paperwork extra time required from each customer, but in most instances some of the loan is used for other purposes than strictly investment in the business. A large part of what I love about La Ceiba is that we are there to help provide an opportunity for people to help themselves, we simply try to level the playing field some and see what happens. While the loan may not all go to the stated purpose it goes towards what these people need. It is a -loan-, something that is very clear to these women, but who is in a better position to know what they need better than the borrowers themselves?
And finally, the line that scares me: “An MFI is closely associated with the charity work of the parent NGO…increases the risk of defaults.” There is no denying that we are currently very associated with SHH in the communities in which we’re working. This has provided the necessary trust, willingness for cooperation, and patience from our customers. However as our Fall long-term volunteer leaves we need to make sure she brings several messages with her including that we are partners with SHH, but we are not Riders download a charity. Defaults are not tolerated and will have severe consequences. A large part of having a low to non-existent default rate is doing preventative work including coming in with a strong reputation and having frequent interactions between customers and a loan officer. This is especially important going into the first round of loans because if we do have any defaults then it becomes something that has been done and is doable, creating a much harder situation where defaulting becomes contagious.
This week I also got in contact with my high school mentor, a woman who has worked in the non-profit arena for years and specifically development and funding. She now owns her own non-profit consulting firm (I don’t know if we’re allowed to name companies on this yet, so I’m not…). I will bring it up at the next meeting, but my hope is that we can put together the non-profit side and have her look over everything and make suggestions. Naturally we can research and put together a Board of Directors and Advisers and departments and missions and visions, but having someone with her experience look over it and give open critique would help to ensure that La Ceiba has the ability to thrive in the long-run.
And finally, I got the paperwork required to file for our 501c3 status. One student put in a lot of time this summer collecting these resources and verifying with the IRS about the specifics of filling them out. Unfortunately she is unable to dedicate enough time to this project to be a leader in developing La Ceiba, but she passed along her information so we can start the ball rolling immediately on that process. I believe that was the last bit of outstanding work from the summer and we are now all caught up and ready to complete our progress reports for next week.