Searching for Balance

I was given a preview copy of a report prepared by a Mennonite economic development association in partnership with the United Nations Development Programme. The two organizations studied the micro-credit industry in Mozambique and concluded that the high interest rates that I have observed in my sampling of micro-credit banks are indeed the market rates in Mozambique.

I arranged a meeting with a gentleman from Banco Oportunidade to talk about their high rates and what, if anything, we could do to mitigate the underlying risks to bring the rates down for the specific borrowers that we have in mind. He was a very pleasant man, and I’m appreciative that he took the time to meet with me, but the meeting bore little fruit.

He confirmed their high rates (which are in the ballpark of 100 per cent per annum), and indicated that they are likely to stay high for the foreseeable future, citing the need to generate a profit in spite of economic factors (high inflation, currency devaluation) and the high cost structure of running such an organization. I could not help but to wonder if some of those costs were excessive.

He also closed the door to any form of partnership, at least for now. Don’t call us; we’ll call you, perhaps in a year’s time.

We have specific people who want to start specific businesses. Two men want to start a papeleria where the community could come to make photocopies and type out official documents; a woman wants to start a bakery that specializes in cakes for celebrations.

Traditional banks will not lend money to these people because they want to borrow too small an amount of money to be worthwhile, and have no physical collateral or dependable income to back a loan anyway.

The established micro-credit community will not lend money to them since they are not borrowing money to capitalize an existing business. Even the micro-credit lenders want to see a track record of success in business. Our potential borrowers do not want to borrow from the bank because of their high interest rates.

What can we do to help them?

The first obvious answer is to reach into my pocket and lend them my own money at interest rates that are morally justifiable (a subjective test, to be sure). There are many problems with this approach, not least of which is what consequences to use in the event of default that I, as lender, would really be willing to implement.

The biggest problem is that such a model is not sustainable. My money would quickly run out, and building the necessary infrastructure to lend others' money would require more than a year to build up.

Until recently, I’ve been holding sustainability up as if it were the Holy Grail. Maybe it would be more valuable to simply help someone today. Maybe the objective should be to improve one life at a time, and leave worrying about tomorrow for tomorrow.

I’m reminded of a story by Loren Eiseley called “The Star Thrower,” which was paraphrased to me for the first time by a gentleman named Frank Pretorius in South Africa two years ago:

A young man was jogging down the beach one morning when he saw an old man ahead of him bend down, pick up a starfish and throw it into the sea.

As he approached, the young man asked, “What are you doing?”

The old man answered, “There was a storm last night that washed many starfish high up onto the beach. If I don’t throw them back, the sun will kill them by noon.”

The young man laughed and said, “You are a foolish old man. The beach is miles long and there are thousands of starfish stranded on it. You can’t get to them all before the sun dries them out and kills them. What you are doing, old man, just doesn’t matter.”

The old man picked up another starfish and threw it into the safety of the waves. “It mattered to that one!” he replied.

This old guy's approach isn't sustainable. It's not helping the starfish to help themselves, and it can't easily be scaled up to help all of the starfish, but it is helping a few of them through their immediate crisis.

My struggle is where to set the balance between immediate impact and sustainable improvement.

Will providing Mozambicans with a source of income for today create a longer-term dependence?

If I give a man a fish, he might become dependent on me for the next one. If I teach him to fish, on the other hand, he might starve trying to learn.

What is the right balance? My quest for an answer continues...