Sari-sari (variety) stores are really common amongst HSPFI borrowers in the Philippines; they come in all sorts of different shapes and sizes, from a small window display in the back of a home to neat standalone buildings on the side of a street.

One of the things that I was really surprised to learn as a Kiva Fellow is that sari-sari store owners need to obtain a permit in order to operate. One of the last Kiva borrowers who I interviewed in Valencia City happened to be a sari-sari store owner herself, so I asked her to go into more detail about the process of obtaining a sari-sari store permit.

In order for her to get a permit, this Kiva borrower explained, she had to start at the barangay hall in the village to apply for barangay clearance. Currently her business is still under probation, as she’s only had her business for a year – so the barangay will continue observing her business for a while longer. She also attended a two-day seminar on food handling in February, and expected to receive her seminar certification about fifteen days after completion of the seminar. With the seminar certification in hand, she’ll be done with the second step of the permit application process. She’ll then return to the barangay hall for her community tax certificate, and pay P600 for her permit. She’ll need to pay P600 every year to renew her permit, since barangay officials would close her store after one month if she’s caught operating without a permit.

The process of applying for a permit wasn’t too difficult, she explained, but having to wait for processing to go through for the permit is a bit cumbersome.

Given that sari-sari stores are so common and informal looking, I hadn’t expected that there would be such strict regulations around these businesses. But once I found out, it not only explained my relative luck with regards to (mostly) avoiding stomach problems while traveling around in the field, but also gave me something else to marvel at – how all of these small sari-sari store owners are part of an active business sector, supporting a whole other network of inspectors, educators, and government employees through the fees and taxes that they’re paying. These microfinance borrowers are actively contributing to their own communities in ways that aren’t always apparent on the surface – ways that we don’t often think of.

Support a sari-sari store owner by lending through Kiva today!

Ms. Leilita Esparagoza is the owner of Esparagoza Store, a sari-sari (variety) store in Valencia, Bukidnon. Sari-sari stores abound in the Philippines – it’s one of the most popular businesses for HSPFI clients – but it quickly became clear that Leilita is no ordinary sari-sari store owner. As we sat down in front of her store for the interview, I found myself almost mesmerized by her clear, patient voice. She not only had a compelling story, but she also knew how to tell her story well. Leilita was one of the most self-aware and reflective HSPFI borrowers that I had the good fortune to interview in the Philippines – so much so that I wanted to do a more extensive “press profile” interview with her. Unfortunately when we returned to her store later she had left for the afternoon to take care of errands. So I’m sharing her story here instead

Leilita shared that when she started her business with a small sari-sari store nine years ago. She became a wholesaler for Coke in 2002, and started peddling soft drinks around the local village with just a bicycle. As her business grew, she graduated to peddling with a motorela and started selling soft drinks in other nearby villages. By 2009 she was an exclusive wholesaler of Pepsi products, selling over 1,000 cases of soft drinks a month. Pepsi observed her business success and gave her a blue multicab (or small pick-up truck) as a reward, which helped further her business. The multicab parked in front of her store was an impressive sight indeed, as it was stocked high with piles of Pepsi cases waiting to be distributed.

Impressed, I asked her what the secret to her success was. Leilita smiled and replied that she understands the mood of her customers – so she can put herself in their shoes and handle any situations that may arise. She also discovered the need to be humble and patient, because it takes time to build up a business. Leilita added that she always makes sure that the individual customers could afford to pay the amount for items, as she offers her products for credit that’s good for two days only.

Going forward, Leilita wants her children to finish their studies. This year, Leilita said, she hopes to diversity her inventory to include other Cola products like RC Cola, so she can increase her income. She plans to expand her business until it offers all the products that her customers could need – so that her business can be a one-stop store for her customers.

Having seen how far Leilita has come, her business saavy, and her personal drive, I have no doubt that she will succeed.

Imagine you’re a loan officer who’s working for one of Kiva’s partner MFIs. You’ve been traveling around the field, collecting repayments from quite a few clients over the course of the day. It’s getting late, and you’ve amassed a huge amount of cash – the equivalent of a few months’ worth of income for locals. As the sun begins to set, you realize you’re still at least an hour away from the office – an hour’s worth of travel on your motorcycle, over rough roads that are poorly (if at all) lit. What do you think could happen next?

When I ask HSPFI‘s loan or project officers what they find most challenging about their jobs, they always say repayments. Not just because all the hours spent traveling to get to clients is rough and arduous, but because project officers make tempting targets for robbers and thieves as they carry huge sums of cash repayments back to their MFIs. One of the HSPFI project officers who I met was actually robbed at gunpoint in broad daylight. At around 10AM in the morning, the project officer found himself confronted by a robber with a gun and was forced to hand over all the repayments he had collected. Shocked and confused, the project officer went home before heading to the police station to report the crime.

HSPFI project officers are generally fairly philosophical and accepting of the dangers that comes with this line of work (“It is a part of our job and duty… it is an experience.”) But still, it took me some time to digest the fact that many of the project officers who I’ve met and come to respect are quite literally putting themselves in danger every day. Not only are project officers potential targets while they’re on the road, but they can also come under fire from clients or clients’ families. One such encounter involved a project officer and a client’s drunken knife-wielding husband. Luckily no one was hurt, but I don’t think that project officer managed to collect the client’s repayment that day. (This also made me realize that there was another practical reason as to why MFIs tend to target women borrowers – most women are probably less prone to threatening MFI loan officers with weapons or other dangerous household objects.)

What do you do? I pressed. What do you do under these circumstances? After all, as one HSPFI project officer told me, it’s not like we can carry guns with us. Another project officer who’s worked for over thirteen years with HSPFI shared that she tries not to react in difficult situations where she is being provoked by angry clients. You do not react, just do your part. And smile. Smile on the outside even though it’s hard on the inside. She added that most people will usually cool down with time; some clients have felt so ashamed of their outbursts that they’d visit the office and apologize to her.

There are also other strategies that project officers can employ to help reduce their personal risk. Project officers at one of HSPFI’s branches would travel in a group to a particularly remote village, setting out early in the morning on their motorcycles to visiting several villages on the way, and returning to the office after night has fallen – trusting that there is safety in numbers. HSPFI has also taken steps to help ensure the employees’ safety – project officers do not carry cash and give out disbursed loans to clients at their centers or their homes. Instead, clients visit HSPFI branch offices to receive their loan checks. I had guessed the reason behind this policy (as I’m sure you have as well), but I asked why anyways. It was because the risk for project officers carrying all that money one-way was already so high, HSPFI couldn’t risk doubling the danger to project officers by asking them to carry funds to AND from the MFI.

Most of all, project officers tell me that they pray. HSPFI staff pray that God will protect the project officers and ensure their safety while they’re working in the field. Next time you receive your repayments from Kiva, I hope that you can send a thought (or a prayer) to the hardworking MFI loan officers, who are working in difficult and dangerous environments to make sure that your money gets repaid!

Eva Wu has already finished her placement in the Philippines, but she crammed so much field traveling in her last few weeks that she went home with a bunch of stories left to share. She plans to linger on for a bit longer until she’s caught up with her Kiva Fellow duties here and on her personal blog. In the meantime, support HSPFI by joining the HSPFI lending team!

Having read Meg’s excellent blog post “Bad Roads, Interest Rates, and MFI Sustainability” and the ensuing comments from Kiva lenders, I admit that I was rather baffled. Particularly by comments that varied upon the theme of: “In the U.S. you can get loans for ~8%! You can get credit for 18% interest, which we find high and oppressive! So how can MFIs charge 36% interest rates on loans to their poor clients, it is usurious, it can’t be justified…” so on and so forth.

I believe that if you were to plunk a U.S. bank into a developing country with limited infrastructure, where most clients don’t have ready access to the internet that lets them transfer money from one bank account to another with the click of a mouse, where you have to ask employees to constantly risk their personal safety by carrying huge amounts of cash over uncertain roads and territories, those banks would not be charging 8% interest or even 18% interest, but a much, much higher rate.

Still not convinced? Let’s try a quick breakdown of some actual numbers -

HSPFI, my host MFI and Kiva field partner, charges 3% interest a month on loans. So for a first-time borrower with a loan of P5,000 to be repaid over 5 months, in one month the HSPFI borrower would be paying back P1,000 on the capital, and P150 in interest. (The current exchange rate is 46 Philippine pesos to 1 U.S. dollar, so the USD equivalent is $21.74 in capital, and $3.26 in interest.)

The P150 interest collected on that loan covers salaries and benefits of not just the project or loan officers who collect the client repayments on a weekly basis, but also the salaries of admin staff members like the branch cashier, accountant and assistant accountant, as well as the branch manager. Let’s say our first time borrower lives in Camiguin. For HSPFI’s Camiguin Branch (which is HSPFI’s smallest but one of its most efficient branches), total salaries and benefits for their five staff members (three project officers, one admin staff, and one officer-in-charge/branch manager) in January 2010 came to roughly P27,500 (or $598 USD).

Apart from the salaries and wages of the branch staff, the P150 interest will also go towards salaries and benefits of the Head Office staff – HSPFI’s Executive Director, Director of Operations, HR staff, tech staff, community development staff, internal auditors, Kiva Coordinator(!), etc. – as well as Head Office’s administrative costs (for printing, office supplies, utilities, trainings and conferences…). Unlike the branches, HSPFI’s Head Office does not give out loans or collect interest from clients, so the branch offices make monthly contributions to help cover Head Office’s costs. HSPFI Camiguin Branch contributed P53,400 (or $1,161 USD) in management fees to Head Office this past month.

Still with me? Remember that our first time borrower is paying P150, or $3.26 USD in monthly interest on his or her loan of P5,000. But salaries and wages are hardly the only things that a functioning MFI has to pay for. Camiguin project officers spent about P4,500 (or $98 USD) on travel this past month. And to round out the estimated operational costs, total administrative expenses for necessities like utilities, phone, office supplies, rent, taxes/licenses, etc. for the branch came to about P26,150 (or $568 USD).

Note that this is PARTIAL operating costs for HSPFI Camiguin. Kiva is not HSPFI’s only (or biggest) funder by any means, and other funders (e.g. Oikocredit, SEAD, PCFC, SBGFC) actually do charge interest on loans to HSPFI. I left that line item out of the above calculations for the sake of argument that Kiva’s funds are interest-free, but if I were to add that line item in Camiguin’s operational costs would increase by about P49,800 (or $1,082 USD).

By now you’re probably tired of me repeating that our first-time HSPFI borrower is paying P150, or $3.26 USD in interest this month on his or her loan of P5,000 – 0.13% of operational costs. Surely you have to account for repeat borrowers who have taken out higher loans and are correspondingly paying higher interest fees. So if we increase the loan amount to P30,000, our now long-time, repeat HSPFI borrower would be paying P3,000 on the loan capital and P900 (or $19.57) on interest this month – 0.8% of operational costs. This P900 definitely goes farther towards contributing towards operational costs, but note that borrowers with P30,000+ loans only make up about 10% of HSPFI’s total portfolio.

The above is very condensed and much abridged, to keep this post from being three times as long. But by listing out all these figures, I wanted to show that running an MFI is not cheap. It’s easy for us to condemn 3% monthly interest rates are high, but it’s just as easy for us to forget that staff, utilities, rent and a whole range of other operational expenses need to be paid in order for an organization – any organization – to run.

Also, working conditions for MFIs in developing countries are very different from banks in developed countries. This may seem like huge duh point, but it bears pointing out that MFIs’ operational costs are high in part because you need enough project officers to visit hundreds of clients every week and collect cash repayments, and you need enough admin/other staff to support the project officers. U.S. banks don’t need employees to visit every one of their clients on a weekly basis to collect repayments. Furthermore, banks in the U.S. have access the excellent technology/infrastructure in place that allows for automated payments (and greater automation in general) – which helps keep interest rates low. To say that MFIs in developing countries have “high” interest rates in comparison to banks in developed countries with “low” interest rates ignores the fact that banks in developed countries have certain operational advantages that MFIs in developing countries don’t have, and need to compensate for.

At this point maybe some of you are thinking, “I don’t really care about MFIs needing to cover operational costs, I only care about how this 3% monthly interest affects Kiva borrowers!” Leaving aside the fact that there would be no Kiva borrowers without field partner MFIs, I had previously met a Kiva borrower who decided to stop borrowing from HSPFI, and I know she’s not the only person to have ever done so. The interest rate might have been a factor behind her decision to stop borrowing, although there might’ve been other personal factors as well.

But on the other side of the spectrum there are Kiva borrowers like Ms. Mellianita Moron. Since this topic of “high” interest rates had been weighing on my mind, I brought it up during her interview. I explained that businesses in the U.S. can get loans at much lower interest rates, so there are Kiva lenders who are worried that MFIs like HSPFI are charging overly high interest rates to borrowers in the Philippines. I asked what she thought about HSPFI’s interest rate – was it indeed too high?

HSPFI’s 3% monthly interest rate is ok! Mellianita exclaimed. Especially in comparison to other MFIs who she had borrowed from that charged 10% interest a month! And to top it all off the other MFI collects repayments on a DAILY basis, in comparison to HSPFI which collects repayments on a weekly basis. When I then asked if there are any additional services that she would like to see from HSPFI, Mellianita laughed and said that she wished HSPFI could increase loan amounts and release more loans at a faster rate, so she won’t have to borrow from MFIs that charge truly exorbitant interest rates and can just borrow from HSPFI. I looked around at the various center members and extended family who had gathered outside Mellianita’s sari-sari store to watch (and occasionally interject), as they all nodded their heads in agreement.

Eva Wu would like to thank HSPFI for generously allowing her to use figures from their latest financial statement in this blog post. She has lots of thoughts on the (unsexy) topic of MFI interest rates, but hopes for now that people can understand that asking why MFIs in developing countries can’t offer interest rates as low as banks in developed countries is a bit like asking why apples can’t be oranges. Or to use a more Filipino analogy, why lanzones can’t be rambotan.

I was just two days off the plane and back in the Philippines when I heard that HSPFI’s 2009 Q4 Project Officers Meeting would be taking place the next day. I really wanted to make something for the POs as a small token of thanks, so I threw a video together and showed it the next day to whoops and cheers. I actually think this is the best Kiva/HSPFI video that I’ve edited to-date, so I was really glad to see it well-received.

A bit of context – the first part of the video is mostly made up of footage from the HSPFI 2009 Staff Christmas Party. The day kicked off with gift exchanges and team-building/general bonding activities at a nearby resort; the night activities took place in the HSPFI office and consisted of a big delicious dinner and the HSPFI staff dance competition (and videoke/impromptu dancing). Having seen how hard HSPFI staff works on a regular basis, it was really cool to see the organization give back to dedicated staff members on the ground with a kickass Christmas celebration.

(Video Background Music: Allison Crowe – “Immersed” and “Midnight”, available on Jamendo.com)

Other footage used in the video were taken from the 2009 Q3 HSPFI POs Meeting & After-Party; Iligan Branch’s 15th Anniversary and 2009 Client Christmas Party; and Gingoog Branch’s 2009 Client Christmas Party. I also threw in some of my favorite photos from various branch visits/field travels with awesome HSPFI POs.

Enjoy

As a Kiva Fellow, I’ve seen the successes. I’ve visited businesses and interviewed clients who have succeeded because of microfinance. These borrowers were able to grow their businesses that not only provide the owners with a comfortable living, but also provide additional livelihoods for hired employees. Abhijit Vinayak Banerjee and Esther Duflo of M.I.T, and Dean Karlan of Yale wrote in their New York Times op-ed “The Role of Microfinance,” microcredit is generally viewed as either “transformative” successes, or “ruinous” failures. Having seen the former, I believe that much of the latter is caused by over-high expectations – that poor people all over the world would be lifted out of poverty through lending. When recent research failed to support this concept of global poverty alleviation, people started to lose faith in microfinance.

Again, from “The Role of Microfinance” (which I highly recommend reading if you haven’t already):

…as we see it, microcredit seems to have delivered exactly what a successful new financial product is supposed deliver—allowing people to make large purchases that they would not have been able to otherwise. The fact that some people expected much more from it (and perhaps they are right, may be it will just take longer), is perhaps inevitable given how eager the world is to find that one magic bullet that would finally “solve” poverty. But to actually blame microcredit for not promoting the immunization of children is no different from blaming immunization campaigns for not generating new businesses.

Microfinance is a tool, like a hammer. Some people have natural creative skill with a hammer, whereas others have to invest some time in learning how to put the hammer to best use. Still others might decide that they don’t like using the hammer at all and opt for another tool. Overall though, has the hammer made people’s lives easier? Yes, it has – so it is a successful tool. Can a tool like microfinance be transformative? Yes, for some people. Should the tool be completely discarded (or discredited) because it does NOT transform the lives of everyone? No, definitely not.

In a previous blog post “The Savings Behind the Interest” I had written that the microfinance arena in the Philippines is crowded with players, and that there are a lot of microfinance institutions jousting for clients by offering a variety of attractive programs apart from loans. My host MFI HSPFI for example offers savings, insurance, business training, a small competitive scholarship program for clients’ children, as well as community development initiatives. Other Kiva partner MFIs in the Philippines also have a similar array of programs, as several Kiva Fellows have shared. In other words, if you take product diversification and competitive commercialization as indicators of maturity, the Philippine microfinance industry has clearly “come of age” – largely to the benefit of microfinance borrowers.

To be honest, I believe that most microfinance critiques focus mostly on the effects of lending to the poor. Many other programs like savings or insurance offered by microfinance institutions are ignored, so the critics are out of step with the maturing of the microfinance industry. Case in point – much of the recent public fallout over microfinance was fueled by randomized control trials (RCT) that measured the short-term impact of microcredit on clients, and most of those studies found no evidence of microcredit bring about a transformative improvement in household income or consumption. However, in “Does Microcredit Really Help Poor People?” Richard Rosenburg of CGAP noted that “Interestingly, the only RCT study of microfinance so far that found short-term welfare improvements looked at microsavings, not microcredit (Dupas and Robinson 2009).”

It’s important to remember that “microcredit” or lending is part of a suite of services that makes up “microfinance.” Especially in areas of the world with a mature microfinance industry (like the Philippines), microsavings is a part of microfinance. When you’re making a loan through Kiva to a Filipino borrower, it’s safe to assume that many of those borrowers are utilizing additional programs from partner MFIs in the Philippines, and are receiving other benefits that branch out beyond the loan itself.

Returning to my original question – does microfinance really work? The pragmatist in me says yes – but not in a magical transformative way for every poor person, while the idealist in me adds that the successes would mount if all the other microfinance programs offered by MFIs were taken into account. Rosenburg wrote in “Does Microcredit Really Help Poor People?” that, “For now, it seems an honest summary of the evidence to say that we simply do not know yet whether microcredit or other forms of microfinance are helping to lift millions out of poverty… [but] poor people think this ‘palliative’ is enormously important in helping them deal with their circumstances.” Even as we in the developed world throw up our hands and bemoan the ruinous effects of high interest rates, etc. the poor believes that microfinance has helped improve their lives and are “voting with their feet.” And that, really, is the most important thing.

Every time I come back from the field, I’m weighed down by videos, photos, barely legible notebook scribbles. Stories from Kiva borrowers, the good and the bad. As I turn these stories into journals I try to imagine what it would be like to be a Kiva lender on the other side, receiving an update on the Kiva borrower that they chose to fund. There’s a lot of joy in sharing the good, the success stories, a cause for celebration. Why we’re proud to be lending through Kiva. But what about the bad, stories of something gone awry? How does it feel, as a lender, to receive those updates?

What do Kiva lenders expect to hear from Kiva borrowers?

This question has been in the back of my mind for a while now. Particularly since, as lenders we browse through borrower profiles on Kiva and feel a degree of certainty. I’ve decided to lend to the fish vendor or the sari-sari variety store owner in the Philippines. But since I’ve started my fellowship, I’ve found that this certainty doesn’t always hold. In the months since the loan was disbursed, the borrower might have switched businesses or used the loan for other purposes. This could happen for a multitude of reasons. The seasonal nature of certain businesses may mean that, during certain times of the year it’s no longer possible to support one’s family just by peddling fish. So the fish vendor turns into a sari-sari store owner. Other times, the borrower might still be selling fish, but a family member has fallen ill and so the loan funds had to be diverted towards medical bills.

Near the beginning of my fellowship, I remember holding off on posting these “hard” journal updates until after I’ve finished the “easy” ones – where the borrowers’ stories still matched their profiles on Kiva, where borrowers used the loans on their business, where borrowers said that receiving this loan was really helpful to their businesses and family. But as time went on, I came to accept that the difficult stories reflect hardships and choices that Kiva borrowers face on a daily basis. Life is not easy. Neither are these stories. But that is the challenge for Kiva Fellows, to paint the complex human landscape behind microfinance and shine light on these issues with honesty and respect.

Sometimes though, I turn up stories that leave me completely staggered.

Here are two such stories from a recent field visit which prompted this bout of introspection:

We visit a Kiva borrower who starts crying and cannot stop. Later that evening, her HSPFI project officer told us that this borrower’s husband is having an affair with another woman. The borrower had four children with her husband; the other woman is now pregnant. Microfinance can be very personal, but this goes beyond the pale of what I thought project or loan officers at MFIs would have to deal with. My Western mindset breaks down; the solution that I naturally and quickly jump to (divorce!) is a non-option here in the Philippines. The HSPFI project officer is kind, compassionate, and has clearly gained the borrower’s trust. I know that the project officer will continue to encourage and be there for this Kiva borrower. But what’s the right thing to do? I don’t know. I don’t know how this story will end.

I met another Kiva borrower who peddles vegetables. Cradling her baby, she sets down on the wooden bench a handful of okra, a small bunch of kangkong. Something in her eyes, her face prompts me to ask if she’ll be taking out another loan. I’ve never asked this question before. I’ve heard many borrowers declare that they are good payers and that they would like to get bigger loans from HSPFI – sometimes prompted by the fact that I’m visiting them on behalf of Kiva, a foreign funder. I’d smile, mentally acknowledging the nature of business transactions, thank them for their time. This Kiva borrower shook her head, looked down. When asked why, she said simply, “Kapoy.” Tired. Weariness hangs over her like a persistent veil. I catch a glimpse of the limp kangkong leaves, brown edges crinkled.

The project officer added that this Kiva borrower will still keep her HSPFI savings account. I hope she finds it useful – a helpful benefit from a thoughtful MFI. But again, another story with an unknown ending. I wish I knew.

These are the stories that are hard to share. Maybe they’re equally hard to hear. What we hope to learn is not always what we actually learn. I’m uncovering more and more questions that don’t have straightforward answers, but I’m continuously humbled by the almost brutal honesty of both HSPFI staff and borrowers. The harshness that dogs transparency. A different face of the truth from the ground.

What would Kiva lenders hope to hear from these Kiva borrowers?

Celebrate transparency in all its facets by lending to a HSPFI borrower through Kiva.

The world has been abuzz with Monday’s news of the election “massacre” in Maguindanao, Mindanao. About 50 lawyers, journalists and relatives of local politicians were abducted and brutally killed because of their affiliation with an opposition politician. This horrific event is being followed closely by the international media, including the New York Times and CNN, because it made Monday “the deadliest single day for journalists anywhere in the world” and was also “the worst politically motivated violence in the Philippines’ recent history.” The U.S. Embassy in Manila issued a travel alert on Wednesday as a result, because of “heightened tensions” and “significant military presence” in Maguindanao.

Ironically, while news of the Monday killings shocked the world, it hasn’t physically affected people here in Northern Mindanao quite as much as another news event which, in contrast, made just a small blip among international media outlets – tropical depression Urduja, which hit the area on Tuesday and caused flooding and landslides in Northern Mindanao. (Incidentally, no U.S. Embassy alert on the tropical storm thus far. Not one that I’ve received, anyways.)

The water had a bit abated by Wednesday morning, but across the street from the office people were wading in water up to their hips. A HSPFI colleague said the traffic island was completely flooded over when he looked outside at 3AM.

To be honest, after the initial shock and sadness of hearing about the Monday massacre, I shrugged and went about as usual. The murders happened relatively far away, and I’ve always felt pretty safe in Northern Mindanao despite the fact that there’s been a travel alert against U.S. citizens traveling to Mindanao for years. Ongoing conflict between the Philippines Government and Islamic militant groups such as the Moro Islamic Liberation Front and Abu Sayyaf have resulted in sporadic clashes and kidnappings. (Having a very cursory understanding of this ongoing conflict, I was fascinated when I first learned that HSPFI, a Christian MFI, also serves Muslim clients. Unfortunately visiting those clients are largely off the table for me as a Kiva Fellow because of the safety concerns in those areas.)

The Monday killings however were NOT instigated by Islamic insurgents, but was instead (per the New York Times) “rooted in rivalries among local clans that the government had empowered as a way of combating the insurgents.” Sadly, news of violence between political clans aren’t new here. While the news was shocking, nobody seemed to be really surprised. People tell me that widespread corruption that occurs here, on all levels of society and government. Slip the cop a few hundred pesos to get out of paying a couple thousand pesos for a traffic ticket. Haggling over taxes on large businesses is an art form to be perfected. Local politicians who are in power aren’t individuals, they’re family. That’s just the way it is. It happens all the time here.

It happens all the time here. Just like natural disasters happen all the time here. Mindanao was lucky to be spared from the typhoons that hit Luzon/Manila in October, but that doesn’t mean that people here are immune to the whims of nature. I’ve met HSPFI clients who were affected by flooding this past January. Ms. Gilda Campeña stood in front of her lush garden and thanked Kiva lenders for her loan as my HSPFI colleagues told me that she had to rebuild her garden after it was destroyed by the January flood. How long did that take? Is she ok right now? Are all of the other HSPFI/Kiva borrowers ok? On the way to visit clients in certain villages I’ve passed treacherously bare sandy cliffs, that looked like they can swallow up the nearby landscape with the slightest provocation of rain. As other Kiva Fellows have shared, borrowers are vulnerable, and they’re often just one random event away from falling into additional hardships. Thoughts like this drove the election killings out of my mind and made me feel sick with worry.

With the worry came some anger as well. This was just a tropical depression. I’ve gone through many tropical storm landfalls without a thought or worry about after damage. How much could the damage from this storm have been avoided? Granted I lived out those tropical storms in developed countries, with good infrastructure that could channel storm flow and limit the damage. Maybe this is too much to expect from the government of a developing country though. Corruption, financing of political clans, power, violence. How high is providing good infrastructure on that list?

My HSPFI colleagues told me that the various branches are checking in with clients now and surveying the amount of damage that’s been caused by the storm. At least three branches were hit by Urduja. Hopefully everyone is ok, but it’s hard to say for sure right now. After this past January’s flood, HSPFI solicited food and clothing donations for affected clients; this might be done again now. Another HSPFI co-worker added that, in the worst case scenario hopefully the Hagdan’s life insurance programs would help. This is pretty dismal context for introducing HSPFI’s life insurance programs, but they’re very good and are worth mentioning here. The in-house mortuary aid fund (MAF) covers clients between the age of 18 to 60, spouses, and four beneficiaries/children (below 21 years of age, not married or employed) for natural and accidental deaths. For a one-time P50 registration fee and a P100 MAF contribution, the client’s family will receive a burial fee P10,000 if the client dies. If a spouse or one of the children dies, the client will receive P5,000 for each death. Coverage ends when the client’s loan ends.

The second HSPFI program, linked with insurance company UCPB, is even better. $300 pesos covers clients between 18 to 60 years of age, their spouses, and up to four children (below 20 years of age, again not married or employed) for a whole year, even if the client’s loan term ends or if the client leaves Hagdan. If the client dies in an accident, his or her family can receive a P100,000 claim plus a P7,500 burial fee. If a spouse dies accidentally, the client can receive 25% of P107,500; and 10% for a child. If the client dies a natural death, his or her family can receive a P50,000 claim plus the P7,500 burial fee. The same 25% and 10% of the P57,500 total applies for a spouse or a child’s natural deaths.

As the project officers survey damage from the storm, work and life continues as usual. This happens all the time here. I’m thankful that MFIs like Hagdan and microfinance can help in these situations, in whatever small ways possible. But still, it drives me crazy to think about the what-ifs. If things could somehow be different. How wonderful it could be.

Eva Wu hates asking questions that don’t have good solutions, and being angsty on Thanksgiving week despite the fact that it’s not a holiday in the Philippines! She’s trying Twitter as another way to get more up-to-date news out. Support her host MFI, Hagdan sa Pag-uswag Foundation, Inc. and Kiva borrowers in Mindanao through tough times by lending, or by joining the HSPFI lending team.

Having followed the recent debate over Kiva’s transparency and the P2P model, the main critique that stuck with me was that there should be more transparency on Kiva’s partner MFIs. This resonated with me because I believe that Kiva has, on the whole, picked out partner MFIs that do amazing work and have really compelling stories to tell about their organization. So in that spirit, I’ve decided to share more details here about some of the products and services that my host MFI, Hagdan sa Pag-uswag Foundation, Inc. offers. In addition to lending, Hagdan also offers a mandatory savings program, insurance programs, and leadership/business trainings. Hagdan also runs community development programs out of a different part of the organization.

Before I dive into those services though, I want to devote this post to HSPFI’s interest repayment policy. Over the last six weeks I’ve realized that my understanding of the details is sadly lacking. So one weekend when I was in the office, I grabbed Sir Melchie Badion, HSPFI Internal Auditor, and asked him for a detailed rundown. Knowing that interest payments cover much of an MFI’s operational costs, I wanted to make sure I had everything straight in my head from start to end.

A few minutes into our conversation I quickly realized was that loan term is very important to keep in mind when thinking about interest. Before I started on my fellowship, I’d look at a Kiva partner MFI page and assume that all clients are paying a uniform 32% interest rate on their loans, without taking into account that the interest rate on Kiva is expressed in one-year increments. Hagdan charges 3% interest a month, and has two loan terms – 5 months and 10 months. So a client who took out a 5-month loan will be paying 15% interest on the loan, whereas a client who took out a 10-month loan will be paying 30% interest on the loan.

It should be obvious by now that I’m a terrible finance person. But Melchie was patient. We then got to talking about early repayments. I had noticed that quite a few Hagdan clients had paid off their loans early. Melchie explained that HSPFI allows clients to repay their loans anytime in full after three months of payment. If you’re a first cycle client (with your first HSPFI loan), after your payments for the first three months are complete you can opt pay off the rest of your loan, plus the full interest amount owed. However, if you’re a second cycle client or above, after the first three months of principal plus interest payments you can then opt to pay off the rest of your loan, interest free. So technically you can get a HSPFI loan with only 9% interest if you’re a) not a new client b) have a good repayment history and c) have enough money to pay off the rest of your loan after three months. This completely blew my mind in a really awesome way when I first heard about it.

Melchie added as a caveat though that the project officer (or loan officer) can deny early repayment if the client doesn’t pass the business assessment. For example, if a client took a loan from another MFI and wants to pay off their HSPFI loan with this other loan, the project officer may deny their request so as to discourage poor borrowing practices that could rack up more debt.

This is definitely quite an amazing way to give back to the clients though, I thought. I also wondered if this policy would give some HSPFI borrowers additional incentive to focus on their businesses so they can take advantage of the “interest discount.” In any case, this seems to be a win-win policy for both the borrowers and HSPFI. Melchie explained that most other MFIs will allow clients to pay off their loans early, but the interest on the rest of the loan is never waived. This policy gives Hagdan a competitive edge over other MFIs that are operating in the same space.

Wrapping up the conversation, my mind floated back to a great CGAP Microfinance Blog post, in which author Richard Rosenberg wrote,

I think there is strong evidence that poor people find microcredit very valuable in helping to deal with their circumstances. When you offer microcredit in a new setting, you almost never have to advertise: customers come out of the woodwork in droves. Most of them come back for additional loans. Most important, they usually repay those loans at extremely high rates year after year, when the main motive to repay is not collateral or group pressure, but rather their desire to keep future access to a service they find very helpful. They are voting with their feet.

I think most people’s concern over high microcredit interest rates comes from the fact that we’re worried about the poor getting exploited by profit-greedy MFIs. That poor people in rural areas are driven to a particular MFI despite high interest rates because there is no one else to borrow from. The reality as I’m finding in Cagayan de Oro is that the microfinance arena here is crowded with players. There are a LOT of MFIs competing here who want to retain and grow their client base at the same time. Even in rural villages that takes three hours to reach by motorcycle over rugged terrain, I’ve spoken to HSPFI clients who openly acknowledged that they have multiple loans from different MFIs. But with choice comes savvy. When I ask HSPFI clients what they like about Hagdan, many of them were able to clearly articulate the Hagdan products and services that they like, in comparison to products and services from other MFIs that they’ve borrowed from.

Also, with choice comes the need to stay competitive. MFIs here need competitive interest rates and a variety of attractive programs to attract clients and encourage them to “vote with their feet.” So an innovative interest repayment policy isn’t the only service that Hagdan offers to its clients. Stay tuned for more on HSPFI’s savings and insurance programs!

Eva Wu is a proud member of KF9, and hopes that she did this topic justice without boring everyone to tears! She’s working to spread the love for her host MFI, Hagdan sa Pag-uswag Foundation, Inc. through the Kiva Fellows Blog and the HSPFI lending team. Support HSPFI by lending today!

Bizarre is probably not the best word to describe this client interview, but without a doubt we were intrigued and utterly fascinated by the alien-looking blob we saw sitting pretty before us. Corroi, HSPFI‘s Kiva Coordinator and I found ourselves staring at a live (or semi-live) sea cucumber during a visit to HSPFI client and Kiva borrower Ann Lagrada on Camiguin Island.

(This is the second part of my “most memorable client interviews on Camiguin” series – check out “The Most Beautiful Client Interview (Part 1 of 2)” if you haven’t already!)

(If you have a soft spot in your heart, an ongoing and lasting fondness for sea cucumbers like the one above, and the thought of chopping/prepping a sea cucumber for consumption would cause you much undue stress, do NOT click on the “more” link.)

We peppered Ann with questions. I had eaten sea cucumbers before – it’s fairly common in Chinese cuisine – but I had never seen a live one before. Corroi hadn’t known before this that people actually eat sea cucumbers – so I tried my best to describe the slightly glutinous yet crunchy taste of sea cucumbers for her. A little bit like the seaweed dish that we had eaten earlier in the day.

Ann explained that her husband dives at night to catch the sea cucumbers. There are places in the Philippines where sea cucumbers are protected, she added, but there are currently no restrictions on harvesting sea cucumbers in Camiguin. After her husband returns with the catch, she’ll leave the sea cucumbers in small basins until they spew out any leftover sand and innards, then boil and dry them. Every two weeks Ann and her husband sells the dried sea cucumbers to a Filipino agent for $1,500 pesos/kilogram. She said that the agent will then export the dried product to Korea.

Ann estimates that she and her husband sells two kilograms of dried sea cucumbers to the agent every time they meet. At $6,000 pesos a month, this business is bringing in solid income for their family. John, the HSPFI project officer (or loan officer) who brought us here later told me that this business had successfully found a niche market and was one of the client businesses that he was most proud of.

Seeing our continued and somewhat lurid fascination for the sea cucumber, which had by this point of the interview ejected its innards, Ann asked for a knife and proceeded to saw the now completely dead sea cucumber in half. It had hardened much more than what I would’ve expected from its slimy exterior.

(Watch the below video at your own risk! Although I assume if you’ve gotten this far, this is probably what you’ve been waiting for…)

Ann’s husband had joined us towards the middle of the interview, presumably to find out why a foreign bumpkin interviewer was getting all excited over his sea cucumbers – joined in some of the answers and showed us his diving flashlight. We wrapped up with a few more questions and thanked them both. As we walked out to another interview, this time with Ann’s mother-in-law Perpetua Lagrada, John joked that Koreans liked to eat sea cucumbers because they’re believed to increase sexual drives. To which I laughed and replied, if that’s the case, sadly they haven’t worked on me at all!

Eva Wu is a proud member of KF9, and she’s still head over heels in love with the Philippines and her host MFI, Hagdan sa Pag-uswag Foundation, Inc.! Support HSPFI by lending or by joining the HSPFI lending team today!