Micro-lending allows small entrepreneurs access to capital when or where, they would not traditionally have access to funds. 
This sounds like a great idea! In essence, micro-lending allows folks to borrow money who are otherwise "un-bankable,"  meaning they do not have collateral for a loan, and may not even have a bank account. Micro-finance institutions lend small amounts of money to aspiring entrepreneurs at interest comparable to what we might pay on a credit card cash advance.  
To guarantee payment, the institutions often group friends and neighbors together in a loan where they co-sign for each other. Each person promises that the other is a person of good character and will pay back the loan. This system has proven successful in that loan repayment is remarkably high in the micro-finance institution industry (MFI).  There are also several anecdotal success stories of entrepreneurs who have succeeded to the next level and grown their business into a formal sector, tax-paying operation thanks to the access to capital that micro-lending has provided. Considering how long micro-lending has been around, a short bit of thinking may have you wondering why burgeoning entrepreneurs are not exploding out of the informal sector and hiring people to work with them as they expand their businesses into larger markets? If the premise behind micro-lending is correct, that access to capital is the stumbling block holding enterprise back, then we should have a small enterprise revolution by now - right?  Let's reconsider.

Most lenders measure success by looking at the rate their loans are paid back. If the loan is paid back it is a success for the MFI and practices continue without too much question. But, how can we know what is really happening and what the needs of aspiring entrepreneurs really are?  Are relatively high interest loans the best way to enable nascent enterprise to grow in highly competitive, resource poor local markets? 

Walking With Angels recently carried out a study with the Community Health Workers (CHW) of Kawangware-Kenya, and University of Illinois undergrad and graduate students, looking at the effects of poverty on households. The households we looked at were particularly vulnerable because of the geography, Kawangware is an unincorporated neighborhood (a.k.a. a slum), and the families were affected by HIV. While the households we looked at are not a proxy for vulnerable populations in general, the responses from these people confirmed some of our ideas and dramatically shifted others. 

Our study found poverty well below the international definition of $1.25/day per person. People in our survey earned an average of $0.46/person, per day. Additionally, debt incurred was an average of 141% of income. Giving people additional debt in the form of micro-loans seems like a very bad idea in this scenario. Debt for the families we surveyed was incurred for things that affect everyone; rent, water, kerosene for lighting, food.  The HIV status of the households had little effect on debt as antiretroviral medications are generally given at no cost. People in our survey lived in homes without electricity or running water, they had access to communal pit latrines and bought water from a community well. We found that those with at least a tertiary education were more likely to be formerly employed then those without and the least educated were the people who were trying to be entrepreneurs. As you may have deduced, income levels directly coincided with education, the more education a person had achieved, the higher their income was. This was statistically significant for entrepreneurs, who had the lowest incomes and the least education across the board.

What does this small sample help us to ask? It shows us the high sensitivity to risk experienced by vulnerable populations. The slightest misstep will create exponential chaos in their lives. For this reason, before we speak of loans, we believe in mitigating some of the risk entrepreneurs face, so that they can focus on their livelihoods. In Kawangware the interventions are clear to see - we cut household spending by an average of 17% in perpetuity via a onetime purchase of solar lamps and are running a pilot with Kenya National health insurance for each family (beginning with the most vulnerable first). Our idea is that you have to "stop drowning" before you can learn to swim."  We believe that lending high interest loans to entrepreneurs is a non-starter and much prefer small grants, or zero interest loans that convert if the contract is violated.  Measuring success must begin in the household, rather then with payback. Paying back a loan with funds designated for a family's food is not success. When the household and the business are stable, we see success. 

We are currently in the midst of a national health insurance pilot with our partners in Kawangware and will keep you posted. The results of our study were presented at the Unite for Sight Global Health and Innovations Conference at Yale University, April 2016. You are most welcome to view the results and abstract on our website.  Please consider helping the CHWs with their incredible work and this pilot. A commitment of $2 to $5 dollars a month makes a world of difference. Can you imagine...that's all it takes and can change the outlook on the world for entire families! 

Thanks for being on the journey.... Annette