Access to Capital
This summer, the biggest theme of my experience was the economic position of the people. I had the opportunity to experience some of the poorest people I have ever seen. I saw homes made of mud, people wearing tattered clothes, and 4 year olds with basketball size stomachs. All of these things were related to the lack of opportunities which individuals were presented. For almost everyone, farming was the primary source of household income. How could it not be? Most people only really knew how to farm. None of them had been to a university, let alone graduated from high school. With this agriculture oriented culture in mind, I found something to be a bit off. If everyone engaged in farming, and there was so much unfarmed arable land in the area, why wouldn’t they just expand their farms?
What I did not realize early on in my experience was how the lack of affordable credit limited the people’s development. The big banks like Barclays were not present in the rural parts of Uganda. Even still, if people went to the bank for help, they would receive nothing. As Yunus puts it, “The bank cannot lend money to poor people because these people are not creditworthy.” (Yunus, 132) These poor people don’t have the credit histories or the collateral to receive any money from the bank. The needs of these people are also far too small for a big, multinational bank to handle from their perspective. These banks deal in, minimally, thousand dollar loans so a loan for 50 thousand shillings or 20 dollars would be far too little for them to accept in their mind. I personally believe this to be poor logic. Yes, the transaction fees and expenses are very expensive at the marginal rates for big banks to be profitable in the near term. Still, given that as of 2008, 22 percent of the world’s population lived in poverty, earning less than 1.25 dollars a day, I think that big banks should find a way to service these potential clients. (World Bank, 59)
Moving beyond banks, in my experience there was also a proliferation of micro lending institutions in Uganda. Unfortunately, these were all located in the major cities away from the people living in rural areas who were most severely suffering from poverty. From my community, it would have taken someone a minimum of 12 thousand shillings to reach Kampala or Masaka, the two nearest large cities, and travel back. For someone who is only earning 20 or 30 thousand shillings a week and has five kids to feed, this is too much to risk for merely the chance at getting a loan. In a report by Emeni, he says that, “Less than two percent of rural households.. have access to financial services.” (Emeni, 71) This highlights the problem of the rural population’s needs not being met in developing areas. Later, Emeni recommends that micro finance institutions, “Should expand in more rural areas [rather] than just concentrating in a few rural and urban cities.” (Emeni, 75) I believe that Uganda and other developing countries need to make greater efforts to meet the needs of the rural population. Unfortunately, this is not an easy task for struggling governments in developing countries who are limited by corruption and low tax revenue. More non-governmental organizations (“ngos”) need to step forward and come up with innovative solutions to meet the needs of this huge population.
For the rural farmers in the Nnindye parish, there existed the option to borrow money from their neighbors through informal 1 on 1 agreements or through community savings funds. Unfortunately, the lending conditions barred poorer people from taking out loans. The best terms I heard of were 10 percent interest for three months with all of the principal payable at the end of this time. If you "annualize" this rate, it comes out to over 300 percent! These terms would be impossible for the average American to pay back, let alone someone living in a developing country. This rate is roughly 9 times as high as the 2010 global rate of 37 percent, as stated by the New York Times. (MacFarquhar, 2010)
Micro lending has a huge role to play in bettering the lives of people engaging in agriculture in developing countries. Meeting farmers’ needs with sufficient capital is of extreme importance to the goal of eradicating poverty given that farming is by far the most common profession of those living in extreme poverty. In the 2008 world development report, then World Bank president Robert Zoellick states that improving the proportion of people living in extreme poverty and hunger, “Requires a sharp productivity increase in smallholder farming combined with more effective support to the millions coping as subsistence farmers, many of them in remote areas.” (World Bank, 2008) I personally believe that this productivity increase will only come through additional resources received through affordable micro lending programs. I also think increasing the funding that goes to these small agribusinesses will improve the stability and income of lending institutions. In a paper by Raghunathan, he tests the rapyment rates of 100 micro loans with variable amounts of agriculture related loans. He finds that contrary to popular belief, increasing the number of agriculture loans relative to other loans increases repayment rates. (Raghunathan, 2011)
Moving forward, my wish is that the largest institutions will fully realize the value that exists in the market for micro loans. Furthermore, I hope that the size and amount of agriculture related loans will increase as more institutions expand into rural areas and as ngos and other organizations come up with new, innovative ways to reach those people living in rural areas. Sadly, it is uncertain whether or not these things will happen and how quickly they will come to fruition.
What I did not realize early on in my experience was how the lack of affordable credit limited the people’s development. The big banks like Barclays were not present in the rural parts of Uganda. Even still, if people went to the bank for help, they would receive nothing. As Yunus puts it, “The bank cannot lend money to poor people because these people are not creditworthy.” (Yunus, 132) These poor people don’t have the credit histories or the collateral to receive any money from the bank. The needs of these people are also far too small for a big, multinational bank to handle from their perspective. These banks deal in, minimally, thousand dollar loans so a loan for 50 thousand shillings or 20 dollars would be far too little for them to accept in their mind. I personally believe this to be poor logic. Yes, the transaction fees and expenses are very expensive at the marginal rates for big banks to be profitable in the near term. Still, given that as of 2008, 22 percent of the world’s population lived in poverty, earning less than 1.25 dollars a day, I think that big banks should find a way to service these potential clients. (World Bank, 59)
Moving beyond banks, in my experience there was also a proliferation of micro lending institutions in Uganda. Unfortunately, these were all located in the major cities away from the people living in rural areas who were most severely suffering from poverty. From my community, it would have taken someone a minimum of 12 thousand shillings to reach Kampala or Masaka, the two nearest large cities, and travel back. For someone who is only earning 20 or 30 thousand shillings a week and has five kids to feed, this is too much to risk for merely the chance at getting a loan. In a report by Emeni, he says that, “Less than two percent of rural households.. have access to financial services.” (Emeni, 71) This highlights the problem of the rural population’s needs not being met in developing areas. Later, Emeni recommends that micro finance institutions, “Should expand in more rural areas [rather] than just concentrating in a few rural and urban cities.” (Emeni, 75) I believe that Uganda and other developing countries need to make greater efforts to meet the needs of the rural population. Unfortunately, this is not an easy task for struggling governments in developing countries who are limited by corruption and low tax revenue. More non-governmental organizations (“ngos”) need to step forward and come up with innovative solutions to meet the needs of this huge population.
For the rural farmers in the Nnindye parish, there existed the option to borrow money from their neighbors through informal 1 on 1 agreements or through community savings funds. Unfortunately, the lending conditions barred poorer people from taking out loans. The best terms I heard of were 10 percent interest for three months with all of the principal payable at the end of this time. If you "annualize" this rate, it comes out to over 300 percent! These terms would be impossible for the average American to pay back, let alone someone living in a developing country. This rate is roughly 9 times as high as the 2010 global rate of 37 percent, as stated by the New York Times. (MacFarquhar, 2010)
Micro lending has a huge role to play in bettering the lives of people engaging in agriculture in developing countries. Meeting farmers’ needs with sufficient capital is of extreme importance to the goal of eradicating poverty given that farming is by far the most common profession of those living in extreme poverty. In the 2008 world development report, then World Bank president Robert Zoellick states that improving the proportion of people living in extreme poverty and hunger, “Requires a sharp productivity increase in smallholder farming combined with more effective support to the millions coping as subsistence farmers, many of them in remote areas.” (World Bank, 2008) I personally believe that this productivity increase will only come through additional resources received through affordable micro lending programs. I also think increasing the funding that goes to these small agribusinesses will improve the stability and income of lending institutions. In a paper by Raghunathan, he tests the rapyment rates of 100 micro loans with variable amounts of agriculture related loans. He finds that contrary to popular belief, increasing the number of agriculture loans relative to other loans increases repayment rates. (Raghunathan, 2011)
Moving forward, my wish is that the largest institutions will fully realize the value that exists in the market for micro loans. Furthermore, I hope that the size and amount of agriculture related loans will increase as more institutions expand into rural areas and as ngos and other organizations come up with new, innovative ways to reach those people living in rural areas. Sadly, it is uncertain whether or not these things will happen and how quickly they will come to fruition.