The Working Poor vs The Unbanked.

By Drew Loizeaux, KF11, Uganda

When talking to people about microfinance, many times the poverty level of the clients is brought up as a big way to measure an organization’s success. I felt this way for a long time and it makes sense. We have all heard stories of a poor farmer expanding his business or a “phone women” in a Bangladeshi village. As I have spent more time at microfinance institutions however, I’ve realized that view is incomplete. Yes, empowering the poor is a very important part of microfinance, but they are only a subsection of the really important group that a successful MFI must target; the unbanked.

Many times, poor and unbanked are synonymous, but other times they are not and it is important to recognize the difference between the two and how each group can help a community. To illustrate this point I want to introduce you to Fred.

Fred is does not fall into the category of “working poor”. He owns a fairly large carpentry shop and is currently running for mayor in his village (see picture for his campaign poster). Despite owning a very successful business, in the past, finding outside funding for his business had been difficult because his village is hours away from any major town. However, a Hofokam loan officer now serves his area and Fred has been receiving loans for about two years now.

Before he started receiving loans, Fred had one full-time employee and three apprentices. He now has three full-time employees and five apprentices. His most recent loan was used to pay for the raw materials to fulfill a large order submitted by several local schools. He told me that because he was able to take out the loan from Hofokam and complete the work on time, he now has new orders from other schools and will be able to further expand his business. In the near future, he hopes to move his business to another part of town that has electricity so that he can purchase modern tools and increase his productivity.

For me, a story like Fred’s was not what I used to think of when I pictured a successful microfinance loan. However, I now see that the unbanked is a much larger group than I had originally thought. In some ways, a loan to a person like Fred can have an even greater impact on a community than a few smaller loans. Fred’s business is bringing money into the town that otherwise, would have gone elsewhere. By providing capital, the Kiva lenders have enabled Fred to expand his business, hire more people and, very directly, help the overall economic condition of his entire village.