Video update | Market fires in Togo & how lendwithcare.org's microfinance partner helped

Early this year two of Togo's biggest markets, Kara and Lomé, were devastated by fire. The fires, which occurred 48 hours apart, destroyed both marketplaces and the hundreds of businesses that lay within their walls.

 

Lendwithcare’s microfinance partner in Togo, WAGES, told us that the fires were a huge disaster and that many market vendors had lost everything – some lost all their money as well as their stock since they had kept it in the marketplace for safekeeping. A large number of the market vendors, particularly in the Grand Market of Lomé, are clients of WAGES and were faced with the added stress of how to meet loan repayments without a way to generate an income. In this short video update, we learn how WAGES helped clients to get their businesses back up and running as well as reworked repayment schedules (often pausing repayments) to give time for businesses to recover.

Watch video here or click picture to view
This film was shot and edited by Fiona Molloy and Nik Wood www.nikwoodtv.co.uk

None of the businesses destroyed in the fires of Kara and Lomé belonged to lendwithcare entrepreneurs since the vendors in these two markets tend to have bigger businesses than those typically supported through lendwithcare. However, some lendwithcare entrepreneurs will have experienced a knock-on effect since many buy their stock from vendors in Lomé market. 

With the assistance of organisations like WAGES, most of the vendors are now trading again and the government is in the process of building a new permanent place for them to trade.

Update from the lendwithcare.org team & WAGES staff

You can support dozens of micro-businesses like those in Togo by going to www.lendwithcare.org today! 

What happens with loan repayments when a natural disaster occurs?

© CARE/Ami Vitale

I am currently in Cambodia where months of heavy rainfall have resulted in the worst flooding in a decade. This has left at least 247 people dead and damaged more than 390,000 hectares of agricultural land, including more than 10% of the country’s rice harvest. The floods have affected 1.2 million people across the country, but particularly those living along the Mekong River. Around 34,000 households have been evacuated to higher ground, and many roads, schools and homes have suffered damage.

Since early 2011 lendwithcare has been partnering with a local microfinance organisation, Cambodia Community Savings Federation (CCSF), which provides loans and other financial services to microentrepreneurs in the north-western provinces of Battambang and Banteay Meanchey, near the border with Thailand. While not as badly affected as other parts of Cambodia, many villages in the province remain isolated and under water. In some parts, cattle have been put in pens on small man made islands of earth, surrounded by flood waters. Many farmers have lost their entire rice crop as their farms have turned into lakes. In these situations, what happens to loan repayments?

 

Since many entrepreneurs have more than one source of income, they may in fact be able to continue making loan repayments from income generated from activities not affected by the flooding. For example, Saret Bou took out a loan of about £360 from the Ek Phnom Credit Union a few months ago. His loan was re-financed through lendwithcare (you can see more details at http://www.lendwithcare.org/entrepreneurs/index/703). He used the loan to prepare his land and buy fertiliser in order to ensure a good rice yield.

However, one hectare of his land has remained under water for the last month and he has lost any rice he planted there. Despite this, he hopes that the two hectares that escaped the flooding will provide him with a reasonable yield when he finally harvests the rice in January. However, Saret is confident that he will continue to be able to meet his monthly loan repayments over the next few months because he and his wife also produce ‘Sambok Nem’. This is a thin type of pastry that can be stuffed with meat, fish or other food and then cooked. They produce and sell Sambok Nem on a daily basis and it provides them with a regular income.

© CARE

Other entrepreneurs though are not as fortunate as Saret Bou, and will be unable to make full and on time repayments. Indeed it would be unfair on borrowers for lenders to insist. In these cases, CCSF and the local credit unions are planning to re-schedule repayments without penalty charges for late repayments and without, importantly, imposing an unreasonable level of debt on borrowers. Usually, this means that entrepreneurs will make much smaller than expected repayments, or suspend repayments altogether for some months while extending the length of the loan. Nobody is quite sure what needs to be done and what the scale of default might be though until the floodwaters subside and they have had the opportunity to visit entrepreneurs and assess the extent of the damage.

Thon Meas, Operations Manager for CCSF, remarked “This level of flooding is unprecedented during the many years that I have worked for CCSF. It is a worrying time for the organisation, but we are determined to continue supporting the credit unions and ensure that our borrowers receive the support they need to re-establish their livelihoods”. In fact, when they have lost their entire rice crop and have few other sources of income, farmers actually need credit more than ever; in order to buy seeds, fertiliser and even in the short-term food to survive. In situations where borrowers are unable to repay their existing loans it is not uncommon therefore for them to be given new loans so that they can buy the necessary inputs and begin producing again as quickly as possible.

By Ajaz Ahmed Khan, microfinance organiser at lendwithcare.org


 

Promoting responsible lending

© CARE/Helen Barnes

I listened to a very interesting and well balanced programme on BBC Radio 4 last week called ‘The Bankers and the Bottom Billion’ about microfinance in India (http://www.bbc.co.uk/programmes/b0112fz9). It illustrated the potential of microfinance in helping poor people to develop their businesses and improve the lives of their families. However, it also highlighted the problems associated with poor people taking out multiple loans and not investing the money in productive ventures. It went on to describe situations where some borrowers, who were unable to generate a return and repay their loans on time, were being chased by ‘microfinance companies’ whose main concern was making a return for their shareholders.Could this also happen to the entrepreneurs supported through lendwithcare?

 

Of course, there will always be some borrowers who, for a variety of reasons, will face difficulties in repaying their loans.  However, I think the approach we adopt makes this scenario far less likely; on the contrary a more likely development is that lendwithcare will contribute to positive changes taking place in the lives of poor people.

There are two reasons for this. Firstly, we take particular care only to work with microfinance institutions (MFIs) that, in addition to a sound financial performance, have a strong social development mission and responsible lending practices. We have lengthy due diligence procedures that involve several field visits to examine the institution’s organisational structure and decision-making processes. We also discuss lending policies and procedures with both staff and borrowers, and reviews documentation and audited reports. And we continue to monitor a range or social and financial indicators to ensure that MFIs are meeting ‘the double bottom line’ of financial sustainability and positive social impact.

Furthermore, we have developed a code of conduct in microfinance (http://www.lendwithcare.org/info/cares_code_of_conduct_in_microfinance) that underpins all our work in poor communities. It protects the rights of borrowers and ensures that they are treated with dignity and respect, while at the same time providing them with the highest quality products and services. All our partners must adhere to this. Among the many principles that the code articulates is a commitment to 'educate clients on financial management and ensure that clients and their families benefit from the services they receive and do not become over-indebted'. It is in fact very similar to other standards being promoted by other initiatives such as, for example, the client protection principles developed by the SMART Campaign

http://www.smartcampaign.org/about-the-campaign/smart-microfinance-and-the-client-protection-principles

Secondly, we only work with MFIs that, in addition to loans, offer other financial services to low-income people such as, for example, savings accounts. In this way, clients are likely to access loans only when they do not have enough savings of their own.  Furthermore, our partners generally offer a range of loan products including short-term emergency loans if a family member falls ill, assistance with funeral costs and even insurance cover.

It is important to increase the provision of microfinance, but given the potential vulnerability of many of the poor people we work with, it is also important that this is done in a responsible and transparent manner while adhering to the highest ethical standards.

By Ajaz Ahmed Khan, microfinance advisor at lendwithcare.org