For all the Skeptics

This weekend, I went to El Tunco, El Salvador with a couple of Kiva Fellows for a few days of surf, sand, fish tacos, flat julie filming (the new Kiva Fellows class intro video), smoothies, more fish tacos, and apparently a barrage of questions from some of the most unconvinced, microfinance skeptics I have met traveling.

Now, obviously I will have a tendency to defend microfinance as an industry because it is what I´m doing right now. More than that, its something I believe does a lot of good for a lot of people (maybe not everyone, but a lot of people), and even more than that, I am doing it voluntarily–so yes, I believe in microfinance. But as we sat in hammocks talking to our fellow travelers, we got hit with  a ton of skepticism of the industry (a lot of which I would like to clarify and respond to).

I mentioned that the typical Guatemalan moneylender charges 10% a month, and their immediate response was what you charge 9%? (for the sake of simplicity, I will response from my microfinance institutions (mfi) point of view and not Kiva´s). There are two things that are implied by this question: one, that the majority of mfis are seeking to maximize profit, and two, that the marginal benefit that mfis provide is well, non-existent. Uninformed on both counts. My mfi charges 3% monthly interest which is significantly lower than the moneylenders and in line with microfinance competition in the area. Contrary to popular belief, most mfis are not for profit (if you would like to discuss SKS´s IPO we can talk one on one), my current mfi included.  The majority have a social mission of expanding their clients access to credit and other basic services and generally to alleviate poverty.  In this sense, a 3% monthly credit coupled with other services (see my last three Kiva fellow blogs) doesn´t just provide marginal value to their clients, but adds significant value. Let´s also not insult the client´s intelligence, they would know if they were being taken for a ride, and contract microfinance services because they want too and because the services provided have a higher value for them then their other options.

That´s still a high annualized interest rate. Yes, I agree. It is high, but in order to administer the loans, it is significantly more expensive than going to and signing up for a mortgage or a credit card. Loan officers met and vet each client individually and then have to collect repayments and follow-up on the loan.  The fact of the matter is that microfinance is correcting a market failure (to provide credit to the poor) and at first, correcting this market failure costs more money.  Like I mentioned before, most microfinance organizations are not profit seeking and because of their social missions, some have even lowered their interest rates over time. As the market failure is corrected, more competition will be introduced, and the markets will become more efficient.

Not everyone is an entrepreneur, so whats the point? Does it do anything for the person that gets a loan to provide the same service as another ten people in the town? First of all, Yunus would disagree with this: everyone is an entrepreneur he would say.  But I understand the criticism.  Through microfinance, are we just enabling the clients to provide services that already exist? I would say that most businesses started with a microfinance loan aren´t unique: you will see 12 Kiva loans for corner stores, another 20 for tailors, and 15 more for pig farmers, but the fact of the matter is that they have access to financial services (and hopefully other services through the mfi) that they didn´t have before.  So, although we can´t specifically say that microfinance has improved the lives of its participants (although it is irrefutable that it has improved the lives of some), we can say that providing access to financial services is a step in the right direction to alleviating poverty.

So, for all the skeptics, microfinance isn´t perfect, but until you find something more effective, I´m going to keep working with this system knowing that it is doing a lot more good than harm.

1000 Visits and Some New Vids

I looked at my blog stats this morning and saw that over the last three months, 1000 people had visited my blog. To read, apparently, what I wrote. Now, I would not claim to be a writer, but I’m glad everyone is hopefully enjoying what I’m writing.  I don’t have anything big to write, no deep thoughts, but I do have some videos I’d like to share with you over the past week.

Weekend in Antigua. Solid mash-up of some shots from the weekend:

My KF13 welcome video: the first time I haven’t been behind the camera in a while

And the best lunch I have had in a long time: Pollo Dorado with Fresh Blackberry Juice

Anyway. Thanks for reading! I want to write more of what you guys want to hear *unless its something I really don’t want to write about so post some more comments on stuff you want to hear!

All you ever wanted to know about buses in Guatemala

Read this if you have ever been nervous about riding buses in 3rd world countries… better yet, probably don´t read this if you are nervous.  But perhaps read if you want the down and dirty about bus assalts and extortion around Guatemala—all from a real life interview with a bus driver.

Two weeks ago, Elmer came on the FAPE payroll as a driver. FAPE´s health project, Gems of Hope, enabled them to buy a couple of pick-ups this year and because the newly hired doctora can´t drive…drivers were hired.  I hadn´t talked to Elmer much more than a hello, but on our recent client visits to San Martin Jilotepeque, I ended up in the front (the prized spot for the almost 2 meter tall American) and spent most of the ride back talking to him.

I found out that his last job for 10 years was driving a bus from San Juan Sacatepequez to Guatemala City.  Every day, multiple times a day.  Now, ever since I have got here, I have been taking a minimum of buses (unless its long trips outside the city) and a maximum of cabs (which any of my past travel companions can tell you is VERY uncharacteristic of me–I just would rather be in with the locals and smog experiencing a city than aloof and viewing it from the back of a cab.)

What has me so scared? Assalts. Robbers come on the bus with pistols drawn ready to blow the head of anyone who makes a wrong move.  As a gringo, I am what is affectionately called “un blanco” or a target.  But I´m not the only one, a month ago, another FAPE employee was on a bus when it got assalted and preferred to jump off and break his arm then go face to face with the robbers.  Another loan officer had a similar encounter having to give up her jewelry and phone two weeks ago. An Elmer, as the driver, had been robbed at gunpoint 3 times.  Another Kiva fellow wrote a very interesting blog about this here.

From assalts to extortion. What I found most interesting was the bribes or what Elmer called “impuestos” or taxes.  Every week, he had to deposit Q100 (around $12) into a bank account of these gangsters for “protection”.  Q100 * 52 *10 = $6500.  And these payments still didn´t stop him from being assalted those 3 times! Ok, lets do some math.  Elmer estimated that there are around 5000 buses in the city (I would say that is a conservative estimate), so every week gangsters are receiving half a million quetzales from just short distance buses.  Tack on another 10,000 buses traveling around the country (because although this violence is concentrated around La Capital, it is not isolated to just here), we have Q1.5 million a week.  Q78 million a year which is around $10,000,000.

With $10 million, Guatemala could beef up security and clean up its streets.  If only there was a way to get these “taxes” into the hands of the Guatemalan govt, I (and the rest of Guatemala) wouldn´t be so scared to hop on a bus.

The American and The Fisherman

Second deep blog post this week. I was talking to the Executive Director about the idea that in America, we generally “postpone” happyness for that magical day when we retire, for that day when our 401k hits the millions and we can spend our waking hours (after the age of 65) golfing and traveling.  All not bad things, but what do we sacrifice when we are young to get there?

Then, he told me a story. A young Guatemalan was standing knee-deep in the water of one of Guatemala´s pristine lakes (I am going to imagine it was Lake Atitlan) and fishing.  Hour after hour sitting in the shade, standing in the cool water, occasionally taking a dip in the lake.

Later, an American guy saw him on the side of the lake, and asked him why he was wasting his time.  The young Guatemalan was smart, business savvy, and if he invested his time and money wisely in his bakery, he could go far in the world.  Instead of fishing, the American explained, he should be working, and the American began to describe what could be this young man´s five and ten year plan: working hard, opening two, maybe three bakeries in the surrounding towns, hiring additional workers, and making a bunch of money.

“To what end?” The young man replied. The American began to explain to him the concept of retirement and of savings so that he would no longer have to work in his old age. So that the young man could be happy and then fish all he wanted when he got older.

The young, Guatemalan man replied, “Why? I am very happy and as you can see, I am already fishing”.

So, my question is: what is holding us as Americans back from doing what we love, what we want to do now? Why aren´t we too fishing on the shores of Lake Atitlan?

Three articles worth reading about microfinance:

Kiva Criticisms

The Reply by Kiva Founder Matt Flannery

In regards to SKS and Yunus

Defining Success

Over the weekend, I was talking to one of my friends here in Guatemala, and we somehow found ourselves in a deep conversation about what makes a successful life. It was the type of conversation that I miss most about my housing set-up last year (yes, the mando), and the type of conversations I just miss having.

It started about with a question “Has oido de la intelligencia emocional?”  We were at Samuelito´s birthday party surrounded by little kids playing and screaming so it took me a while to figure out what he was saying. When he mentioned the book´s author, my mind immediately flashed by to Service Leadership and we spent the next hour talking about developing emotional intelligence and the differences between emotional intelligence and traditional “book smarts”.

Our conversation moved to Warren Buffett, to Colonel Sanders, to Bill Gates.  All wildly successful (and very rich) men.  So, are these men successful because they are rich? Or are they successful because they overcame unlikely circumstances and followed their dreams?

And then he said one of the most profound things I have heard in a while: success comes from the forward progression on your dreams.  Meaning first, success is relative to each individual depending on what they desire to do in their life.  Obviously, not everyone can be as rich as Bill Gates, but does that been they are less successful? I believe the answer is no. Personally, I am successful because I wanted to go abroad after college and help people through microfinance.

So the question follows, ¿what are your dreams, and are you moving forward to achieve them?  Your success is not based on what you have, but you do with what you have.

Just some thoughts on life from a Kiva Fellow.  Click here to see some new videos from the weekend on my youtube channel.

Bitter Fruit: A History to Never Forget

Most of the time I try to make my blogs light-hearted and slightly informative on my life and the work that I am pursuing.  This, however, is not one of those blogs.  I would like to relate to you part of the story of Guatemala’s history that I have recently derived from a book called Bitter Fruit.  This is a tale of intrigue, deception, the dangers of excessive capitalism, and a unneccessarily bloody revolution.  Do not read if you wish to perserve your gran ideal of American imperialism…

The story starts in 1944.  A historically violent and oppresive dictator General Jorge Ubico was overthrown by a group of dissendent military officers, teachers, and liberal professionals in a movement that is later dubbed the October Revolutionaries.  Spearheading the movement are two military officers Jacobo Arbenz and Francisco Arana.

The next ten years are referred as the ten years of spring in Guatemala.  A civilian president Juan Jose Arevalo assumes the presidency in Guatemala’s first democratic election, and is succeeded in 1951 by Jacobo Arbenz.  Both were outspoken against communism and supported political free speech and a land reform bill that was only controversial in the sense that it affected American interests in Guatemala.  The land reform bill specifically affected the United Fruit Company in the way that the Guatemalan government was reclaiming unused land (paying for it in 5-25 year government bonds) and redistributing it to the severly oppressed class of indigenous people for agricultural use.  Note that both Arbenz and Arevalo’s hero and inspiration for the new legislation was President Roosevelt’s New Deal (the main street in Guate City is even named after him).

Unfortunately for United Fruit, the Guatemala government under Arevalo also proposed to begin construting its own infrastructure to compete with United Fruit Company who controlled Guatemala’s only Atlantic port, the majority of the railroads, and the telegraph system.  The idea was to remove United Fruit’s privileges in Guatemala (both tax and otherwise) to begin to benefit the Guatemalan people instead of a handleful of rich Americans who benefited off the banana trade in Central America.

Needless to say, United Fruit Company’s President and Board of Directors were less than thrilled.  First of all with the land reappropriations: Guatemalan government offered to pay them the Q600,000 for the land (the estimated value that United Fruit itself reported a year before for tax purposes) instead of the Q15,000,000 that United Fruit claimed it was worth.  Note the irony and the fact that this land was UNUSED by United Fruit to grow bananas.

United Fruit’s leaders had significant sway in the American government (most were well connected with or a part of the State Department and CIA).  They arraigned a media campaign and subsequent support (in both paychecks and arms) for their handpicked revoluntionary: Carlos Castillo Armas.  In the summer of 1954, the democratic goverment and its ten years of spring had come to an end under the American goverment’s premise that Guatemala’s land reform act was Communistic (note that both Guatemala presidents were outspokenly anti-Communist).

Armas was pliable for the U.S. and United Fruit Supply’s intents and purposes (American support was contigent on United Fruit’s privileges and land in Guatemala being restored); however, the unstable goverment gave way to a 36 year civil war from 1960 – 1996.  The affects of U.S. action in the 1950’s are still being felt today.

I write so that us as Americans can remember a history that we were never told. And without any political agenda, I urge to remember the story of Guatemala…