Eid Mubarak | Celebrations & Charity from Pakistan

© Akhuwat 2014

عيد مبارك, Eid Mubarak and blessed celebration to all of Lendwithcare’s entrepreneurs, partners and lenders across the world this Eid al-Fitr. For those of you who didn’t know Eid al-Fitr, the festival of the breaking of the fast, occurred on Monday (or yesterday for some countries) and marked the end of the Islamic holy month of Ramadan with a day of celebrations held across the Muslim world. The festival, which is viewed much like Christmas for Christians or Holi for Hindus, is one of the largest in the Islamic calendar and comes as the culmination to a month spent fasting, praying and giving gifts to fellow Muslims and non-Muslims alike. This year’s Eid al-Fitr is also of special significance to those of us here at Lendwithcare as it marks the end of our first year offering Islamic loans to entrepreneurs in Pakistan through our partner Akhuwat. To commemorate this year’s Eid al-Fitr and the amazing work Akhuwat preforms across Pakistan we asked their Chief Credit Officer Shahzad Akram to tell us how our entrepreneurs in Pakistan normally spend Eid al-Fitr and just what Akhuwat will be doing themselves to celebrate the day.
Shahzad told us that “Eid al-Fitr is celebrated in Pakistan with great religious harmony and enthusiastically and is treated as the second biggest event for all Muslims around the world. In Pakistan many days before Eid, people start to think and buy special dresses for the occasion as everybody wants to be look nice, beautiful and handsome on Eid day (Especially my wife who looks very awesome & pretty on Eid day)”. After attending morning prayers alongside their family people will greet “each other with embraces just to share their happiness” as well as give gifts of money to children and share sweet noodles in milk, a traditional Eid dish, with their neighbours, friends & relatives. Later in the day the children will spend the money they have been given in market stalls on sweets and ice creams while others will visit the graves of loved ones or go to the cinema or carnival with friends.

Shahzad also tells us that one of the most interesting dimensions of the day is the acts of charity that are incorporated into the Eid festivities and the Month of Ramadan as a whole. Many people will commemorate the occasion by donating a great deal towards helping the poor in their communities, either by arranging lunches and dinners, providing grocery items or simply in the form of money so that they too can afford new clothes for their families at Eid. Shahzad explains that for people in Pakistan “a special occasion [like Eid] is an opportunity to try to share their happiness with others rather than just celebrating it within [their immediate] family”. Indeed the Eid celebrations are especially important for entrepreneurs like Fozia Fatima, a mother of four from Lahore who received an interest-free loan from Akhuwat to start a beauticians business to help pay for her children’s education after her husband was injured at work. The desire of people in her local area to look their best on Eid means increased demand for Fozia’s beauty treatments and provides a great opportunity for entrepreneurs like her to gain new customers and grow their businesses. The small loan (£102) Fozia requested to adequately stock her beauty parlour was covered by Lendwithcare lenders, enabling our partner in Pakistan, Akhuwat, to issue more loans to small business owners like Fozia.

In the spirit of the occasion Akhuwat also distributed around 500 family clothes gift packs to their entrepreneurs and other needy people ensuring the poor also celebrate Eid even if they don’t have the capacity to buy clothes. In addition Akhuwat and a full team of volunteers arranged a carnival and a meal for their entrepreneur’s families in recognition of the hard work and achievements they have made in the past year. On behalf of Akhuwat and all of our partners and entrepreneurs across the world we would like to wish all our lenders a blessed celebration Eid al-Fitr and thank them for their continued generosity in allowing people like Fozia Fatima to take advantage of opportunities to improve their lives for the better.

© Akhuwat 2014

Three findings from Lendwithcare’s partners which refute the pessimists on (indirect) peer to peer microfinance

This article is a re-post that first appeared on CARE Insights.

CARE's own microlending initiative, Lendwithcare.org, welcomed its Microfinance Institution partners from around the world to a workshop in London last week. The members highlighted how microcredit remains effective in fighting poverty, how peer-to-peer platforms can support this, and how social performance can be effectively measured and incorporated into its delivery.

All of this is in contrast to recent questions from sceptics over whether the peer-to-peer micro lending model really helps tackle poverty.

© 2012 Wolfgang Gressmann/CARE

Lendwithcare is a microloan platform that enables individuals to make small loans via local Microfinance Institutions (MFIs) to people in low-income countries to help start or expand a small business. Providing affordable and appropriate financial services can help the poorest earn a living, make investments in their homes, make them less vulnerable in emergencies, grow their businesses and create new jobs. Lendwithcare is based on the Kiva model, and has been developed by CARE International to reflect more than 20 years' experience in developing and implementing microfinance programmes across the developing world.

Our recent Lendwithcare workshop was the first time all eight of our microfinance partners had been together to share ideas on best practice, discuss challenges and make plans for a more innovative and impact-driven partnership. And in light of the recent peer-to-peer/microcredit debate, allow us to share three key observations:

1. Dismissing microcredit as ineffective is old news

Like any good development model microfinance has evolved and transformed to better meet needs. The majority of those still working in microfinance agree the traditional narrative of microcredit being the silver bullet for poverty alleviation is hugely oversimplified and not based on evidence. Over the years the model has evolved from microcredit, to microfinance and now Financial Inclusion, following the sector's conscious move away from a limited and limiting poverty alleviation tool to a broader and more appropriate intervention.

The MFIs that Lendwithcare partners with reflect this changing tide in the provision of financial services to the poor. The diverse financial and non-financial products they offer demonstrate a commitment to designing and delivering appropriate products for the specific communities they serve. These products range from interest free "liberation loans" to people who are struggling to repay debt owed to local moneylenders in Pakistan, to health insurance for groups of women in Benin, to training on reproductive health and domestic violence in Ecuador.

While our partners' operations do still centre around the provision of small loans and in many cases savings, even these are starting to look less 'standard' as MFIs move to make their products more appropriate for their clients, now covering, for example, home improvement, education and sanitation loans.

2. Peer-to-peer lending platforms can help MFIs meet their social aims

A worrying criticism levelled at peer-to-peer microloan platforms is that they are not an efficient way for MFIs to access capital. The sole programmatic aim of Lendwithcare is to relieve some of the financial pressure felt by socially-driven MFIs by providing them with a source of interest free capital, thus helping them to avoid any mission drift. Mission drift can occur when the pressure to cover costs and attain financial self-sufficiency results in an organisational bias towards financial aims often at the expense of its social goals.

Of course there are some additional costs involved for an MFI working with a peer-to-peer platform like Lendwithcare and we recognise this by providing a small annual administrative grant to all of our partners. Feedback from our MFI partners at the workshop was that although initial implementation of the Lendwithcare partnership required a bit of work and training, once this initial stage is complete it did not add significantly to their operational costs. In fact the requirements of the Lendwithcare programme should not differ from normal loan provision practices (i.e. collection of loan applications, business and borrower appraisals, repayment collection), the only exception being the required photograph of each borrower.

Interestingly, apart from the benefits of accessing interest free capital through Lendwithcare, which all of our partners identified as more desirable than trying to access interest-bearing commercial loans, they identified additional advantages to the partnership. These included access to technical assistance via CARE's vast networks, help in developing more innovative products (including the facility to support social businesses) and providing linkages with formal markets, and the opportunity to promote their work and mission to people around the world through the Lendwithcare website.

Significantly, some partners mentioned that since Lendwithcare provided capital without interest they were able to pass this benefit on to borrowers by reducing their interest rates.

3. Effective Social Performance Management (SPM) is challenging but possible

As part of CARE's commitment to tracking the social impact of our work, we must have some way of gauging that our partners (all of whom have a social mission) are really doing what they say they are doing. In addition to the work we do at CARE to monitor each of our partners and track the money we raise through our platform, the workshop revealed a fairly wide variety of social impact monitoring practices from our partners. These practices ranged from fully operationalised poverty alleviation tools like the PPI, to academic impact studies, to collecting social performance data for objective information providers such as MIX.

Most of our partners admitted that achieving the correct balance between financial and social objectives was challenging and they identified the key challenges as:

1. Cost of implementing an effective poverty assessment tool and resourcing continued evaluation.
2. Lack of incentive for staff to incorporate social objectives into their day-to-day activities.
3. Inadequate regulation due to a lack of differentiation by financial regulators between social and commercial MFIs.

Over the next year, CARE will be working closely with our partners to help roll out appropriate impact assessment tools.

Like the entire Financial Inclusion sector, the peer-to-peer model is evolving and we fully intend on evolving with it. Opportunities like our recent workshop allow us to improve what we do, learn from our mistakes and focus our minds on what we are really trying to achieve – providing poor people with access to a full range of suitable and affordable financial services.

And good peer-to-peer microloan models - in partnership with good MFIs - can help to achieve this.

By Nancy Thomas, lendwithcare Executive at CARE International UK

"Liberation loans" offered by our partner in Pakistan to free poor people from spiralling debt

After the 2014 Oscars ceremony, Steve McQueen's film “12 Years A Slave” deservedly took home the big prize of best picture. However, it is important to remind ourselves that the barbaric practice of slavery is not something we can consign to the history books. It is still a contemporary issue in many countries around the world.

The epic 1957 Bollywood film ‘Mother India’ movingly portrays the story of a family struggling to survive against the machinations of a local moneylender. Many decades later this is still one of the rare examples of Indian cinema vividly reflecting the reality faced by millions on the Indian sub-continent, and instances of local moneylenders charging usurious rates of interest remain as prevalent as ever throughout much of South Asia.

As well as providing loans to people wanting to establish or develop their microenterprises, lendwithcare’s partner in Pakistan, Akhuwat, provides ‘liberation loans’ to people who are struggling to repay debt that has been taken from local moneylenders. In most instances, borrowers took out small loans at interest rates of up to 20% per month and the debt has spiralled out of control. Sometimes borrowers have already sold what few assets they own, yet still struggle to keep up with repayments. Shahzad Akram, Akhuwat’s Chief Credit Officer, recalls instances where young borrowers have even committed suicide and some moneylenders demanded that borrowers sell their daughters to repay the debt. In parts of southern Punjab and Sindh it is not uncommon to find borrowers and their children who have been forced to become indentured labourers for feudal landlords as they struggle to repay debts that were often taken out many years ago.

Akhuwat calls them liberation loans because they free the borrower from the seemingly never-ending cycle of increasing debt. Each request is carefully considered on an individual basis to ensure that the application is genuine. There is a maximum loan size of 100,000 rupees or about $1000, although most loans are smaller, typically around 35,000 rupees or $350. Akhuwat does not charge any interest and borrowers are asked to simply repay the loan in monthly instalments over a period of up to 18 months. Each year Akhuwat makes several thousand liberation loans to clear the debts of heavily indebted borrowers.

Rather than providing the borrower with the cash, Akhuwat instead directly repays the whole amount owing to the moneylender in the presence of the borrower and often other witnesses as well. It then asks the moneylender to sign a contract stating that loan has been settled in full and that he/she will not demand anything further from the borrower. The organisation also educates borrowers on the dangers associated with taking out short-term high interest loans to ensure that they do not fall into the same debt traps again.

[The first example of a liberation loan to be uploaded on lendwithcare can be found here. Ilyas Maseeh found himself in spiralling debt after one of his relatives got him involved in a court case. He took out a loan from a private money lender who imposed harsh conditions on this loan. Akhuwat is now helping him clear his debt and resume a normal life.]

Akhuwat, which was established in 2001 by Dr Amjad Saqib, has grown quickly to become one of the largest specialist providers of microloans in Pakistan – it now has almost two hundred thousand active clients, including many non-Muslims, served by more than 250 branches located throughout the country. Akhuwat provides interest free, referred to as Qard Hasan, loans to the working poor. Qard Hasan loans are promoted in Islamic teachings as one of the mechanisms to assist poor people; indeed they are preferred to providing the poor with outright charity. With an average loan size the equivalent of just US$144, Akhuwat lends to some of the poorest people in Pakistan without any formal collateral and has a remarkable on-time repayment rate of 99.83%.

By Dr. Ajaz Ahmed Khan