Introduction: Edpyme Alternativa (EA), the microfinance institution with which I currently work, offers a reduced interest rate product that is funded by Kiva lenders. Edpyme Alternativa (EA) is using the product to reach unbanked or underbanked communities. Because the capital that you, the lender, provides to EA is interest free and low risk, EA is able to take greater risks on local borrowers and provide them with a more affordable product. In my opinion this is a beautiful use of the Kiva funding and one that I expect will take on a larger share of Kiva’s lending activity as microfinance continues to grow and become more competitive.
One of the major issues that is holding EA back in providing the product on a larger scale and making the interest rate even more affordable*, is the work involved in meeting Kiva’s requirements. Like it or not, posting profiles, repayments and journals is a time consuming and expensive activity. This is especially true when you are an institution like EA which has thirteen agencies spread across a broad section of northern Peru and over sixty different credit officers disbursing loans.
EA and I are struggling to work through the kinks of training credit officers, meeting deadlines, building systems, tweaking templates and adapting to the different levels of technology available in each agency. Over the last year, the first year of operation with Kiva, EA has only managed to post 60% of the loans it disbursed under the program to the Kiva website. There have been various failures in the collection, organization and drafting of information in order to complete a borrower profile.
Recently I visited one of EA’s agencies which has struggled to provide borrower profile data and journal data within the period allowed by Kiva. We spent the day visiting six borrowers that had received the Kiva product. Of the six, only two were funded on Kiva. Here are is an update on one of those that didn’t make it onto the website. It is a story of a borrower that is bettering her life with the help of microfinance, but not necessarily Kiva.
Rosa Margarita Tallo Acuña'
Rosa lives on the border of the city of Piajan. It is city on a hill which looks out over a vast agricultural district. She lives with her husband and young son in a home they own. Across the street from their home they own a lot in which they manufacture brooms and raise animals. The whole family works in the business, dedicating the majority of each day to manufacturing the brooms.
The production process involves five major ingredients:
One, seeded out straw. The straw grows to be approximately seven feet tall. Rosa uses the thicker portions of the stock the form the interior of the broom heads and then attaches the finer portions of the straw to form the bristles. She buys the straw in bulk from local farmers and often uses loans to take advantage of deals and to make the bulk purchases.
Two, wire. Metal is an expensive commodity in most of the developing world. For this reason recycling proves to be a major method of obtaining metals. In Rosa’s case, the family obtains wire from tires. Truck tires contain a significant quantity of wire and the family burns the tires in order to extract the wire. She then uses the wire to hold the straw in place.
Three, sticks. A broom is of little use without a handle. Rosa obtains handles from the pole dealers which harvest the wood from fast growing trees in the jungles on the eastern side of Peru.
Four, mechanical advantage. Rosa uses tools to construct the brooms. She benefits from a machine that was constructed over thirty years ago. It assists her in applying the significant tension on the wire that is required to construct a good broom. The machine functions by rotating the broom handle whenever she applies pressure to a pedal and passing the wire along a number of pulleys which resist the rotation. She has another tool which subsequently smashes the broom into a rectangle. Once the broom is in the form of a rectangle, she passes more wire through the bristles in order to maintain the position. The rectangle shape provides a more functional broom due to the wider surface of the broom head. Finally, Rosa cuts off the excess straw to form a clean and professional looking broom using a sharp blade.
Five, labor. It took Rosa about ten minutes to put together a broom. She sells the brooms for about $2.00 a piece. She guesses that about $0.60 cents of which is profit. She works the machines and organizes her inventory with the efficiency of an intelligent and diligent woman. Her strong hands manufacture the brooms with out rest. She cuts the straw, adjusts it, rotates the broom handle, applies more straw, rotates again, twists the wire into a knot with a pair of pliers and then with a few quick motions of her hand breaks the wire off.
Rosa took out a loan a number of months ago of approximately $700.00. This was her fifteenth loan with EA over the last four years. She used the loan to take advantage of a good price on the straw, overflowing her small property with straw. Since the purchase, she has dedicated every day to the manufacture of brooms and has used up approximately half of her straw.
She says that the demand for her products remains strong, but she has limited opportunity to adjust her prices and worries about potential increases in the costs of her inputs. She plans to continue in her business for as long as she can in order to support her nine year old son. He is already a hard worker and interested in the business as well, but Rosa wants to ensure that he gets good education before entering the business. She wants him to have many options and many opportunities.
*Affordable interest rates are variable across the world. In Peru, the majority of the microfinance interest rates run between 45% and 70% APR depending on the size of the loan and the region (smaller loans have higher rates). Banks offer larger loans to individuals with good credit histories and steady jobs at interest rates around 20% APR. The current APR for EA’s Kiva product is 46% APR. They hope to lower the rate to 39% in the near term.
Casey Unrein KF 12 joined the Kiva Fellows program in Sept. 2010. Prior to becoming a Fellow, Casey worked with a fiduciary management company in Seattle, WA, providing financial management services for minors, the elderly and the disabled. Casey completed a bachelors in Economics and Education at Occidental College. He expects to become a certified public accountant by then end of 2010. Casey is currently a Fellow with EDPYME Alternativa in Chiclayo, Peru. Please support Kiva.org and EDPYME Alternativa by joining lending teams and expanding the community. You can join Friends of EDPYME Alternativa by clicking on the link.