Microfinance programs: West Africa’s next task force?
February 5, 2015
By Jeff Tyson*
Microfinance programs could play a critical role in helping Ebola affected communities in West Africa recover — and now that Sierra Leone has lifted its travel restrictions, such programs are seeking ways to get back up and running.
BRAC, considered the world’s largest nongovernmental organization, has set March 1 as the date it wants to resume operations in both Sierra Leone and Liberia. The organization does not operate a microfinance program in Guinea.
Like other aid groups, BRAC and its peers have struggled over the past few months to connect with local beneficiaries and partners after freezing programs during last year’s Ebola outbreak. But they’ve been itching to get back given Ebola’s devastating impact on small enterprises and microbusinesses in the region.
Traditional donors and other aid groups like the World Bank have pointed out the need for assistance to spur on economic recovery at the community and household level.
The World Bank is considering implementing cash transfers. And last week, its private sector arm, the International Finance Corp., announced plans to invest $30 million in Guinea in 2015 to bolster small and medium-sized enterprises in the country. For Sierra Leone, Liberia and Guinea together, IFC is mobilizing at least $450 million for trade, investment and employment, according to the financing institution.
The U.S. Agency for International Development is working on different payment schemes to help affected households, Jeremy Konyndyk, USAID’s director of foreign disaster assistance, said last month on Capitol Hill.
Microfinance programs have traditionally worked somewhat removed from the more traditional aid community since they don’t rely on multilateral or bilateral funding.
And yet, their role in helping to rebuild communities affected by the deadly virus cannot be understated according to Kristen Himelein, senior economist and statistician in the World Bank’s poverty global practice.
“If [microfinance programs] can target getting those small and microbusinesses going again, there is real opportunity to accelerate the economic recovery,” Himelein told Devex.
The microfinance freeze
This past year, families and businesses were uprooted by Ebola. The epidemic claimed lives, while quarantines, travel restrictions, and fear robbed people of their livelihoods and the money needed to advance the small enterprises and microbusinesses that serve as the backbone of so many communities in the region.
Microfinance programs were forced to shut down as a result.
BRAC runs one of the most robust microfinance programs in Sierra Leone and Liberia, targeting women and marginalized families through microloans and small enterprise loans that help them start businesses and contribute to thriving communities. In August, at the height of Ebola’s fury, the Bangladeshi institution was forced to shut down operations in the region as a result of travel restrictions and quarantine policies that prevented credit officers from meeting with loan borrowers.
The deadly virus and strict quarantines also “made it difficult for borrowers to even consider that financial aspect of their lives,” Aissatou Diallo, special assistant to BRAC USA CEO Susan Davis, told Devex. “When you’re trying to figure out what you need to eat … the last thing you really want to deal with is a microfinance credit officer.”
Diallo, who recently returned from Liberia, said that 22 percent of BRAC borrowers experienced “significant impact” directly as a result of Ebola. This meant, for instance, that they were forced to migrate, lost their business, got sick, died or suffered deaths in the family.
One borrower — a woman Diallo met in Kakata, Liberia — survived Ebola, but lost six members of her family because of the virus: Her husband, three daughters, a grandchild and a son-in-law all died from the disease. Her backyard poultry program, one she was able to start with the help of BRAC microloans and a high-yielding chicken, also perished.
An additional 33 percent of borrowers experienced other — more indirect — impacts, according to Diallo. Because of Ebola, she suggested, some food sellers have lost business because some people no longer wanted to buy food outside.
As Ebola continued its ruin across the countryside, towns and cities, BRAC ceased payment collections, sent foreign staff home and waited for the chance to reintervene in a region now devastated by disease.
Destruction of household economies
Sierra Leone, Liberia, and Guinea are countries defined by small business. Tight-knit communities make their living through agriculture, poultry farming, self-employed trading and the sale of goods at the market. Small enterprises and microbusinesses reign, while large corporations are few and far between. So it’s no surprise that the onslaught of Ebola had devastating effects on household economies across the region.
Beginning in October, the World Bank partnered with the Gallup Organization, Innovations for Poverty Action, the Liberian Institute of Statistics and Geo-Information Services and Statistics Sierra Leone to undertake “high-frequency mobile phone surveys” across Liberia and Sierra Leone. Their mission was to take the pulse of household economies as Ebola continued its rage.
Almost half of household breadwinners in Liberia were out of work, in large part due to job losses in the private and nongovernmental sectors. More than 80 percent of Liberian farming households reported smaller harvests, with many unable to work in groups due to the threat of the spreading virus.
In Sierra Leone, about 9,000 wage workers and approximately 170,000 self-employed workers in the nonagricultural sector lost their jobs since the summer time. This was due in large part to quarantines and other measures implemented by the government to prevent the spread of the disease.
“One of the things that we have seen is small business owners have been forced to consume their working capital for survival,” said Kristen Himelein, task team leader and senior economist and statistician in the World Bank’s poverty global practice.
Important role for microfinance
On-the-ground microfinance programs such as BRAC’s, the Sierra Leone-based Salone Microfinance Trust and Liberia-based Sjedi Green Energy, as well as microloan platforms like Kiva — a nonprofit organization that connects individual lenders with microfinance organizations and borrowers in need — have the potential to be critical forces in jumpstarting devastated West African household economies in the months and years ahead.
By providing much needed loans to small enterprise and microbusiness owners, microfinance programs offer families and communities in the worst-hit places with an economic crutch to lean on. With loans in hand, business owners can take the first steps toward rebuilding their lives — whether that involves buying chickens for poultry farms, hiring labor to work on family crops or purchasing a reliable vehicle to make business deliveries.
But before any of this can happen, microfinance programs working in the region have to recover and rebuild themselves.
BRAC has already started.
According to Diallo, employees have begun re-establishing contact with borrowers in the region. In Liberia, travel restrictions were lifted at the end of last year; in Sierra Leone, restrictions were lifted last month, allowing credit officers to move freely within communities.
BRAC’s goal, Diallo said, is to resume operations in both Liberia and Sierra Leone by March 1.
“The situation has changed vastly,” Diallo noted. “We are ready to resume operations. We want to resume operations because there’s a need.”
But microfinance programs still have to tread carefully.
Claire Markham, portfolio manager for Anglophone Africa Region at Kiva, told Devex that borrowers first have to be ready to receive loans. It would be a mistake, she explained, to move too quickly and introduce debt on a family before there is enough business for them to pay back their loans.
Kiva partners with BRAC as well as with local microfinance programs in West Africa such as Salone Microfinance Trust and Sjedi Green Energy.
Markham emphasized that it’s up to their partners on the ground to communicate when Kiva should support their growth by connecting them with lenders around the world.
“When they feel like it’s good to start really growing again, then we are fully supportive of that,” Markham said.
As for existing loans that can’t be paid back, BRAC is considering the need for write-offs. According to Markham, Kiva has not yet forgiven any loans but is supportive of the idea if their on-the-ground partners feel it is the right thing to do.
In addition to fully understanding the microeconomic outlook of a community, microfinance programs have to continue to think about health hazards that are still very much lingering from the Ebola outbreak.
“The big obstacle for us is the unknown,” Diallo said. “It only takes another round of infection for things to get a little bit in flux.”
One health precaution BRAC is considering is limiting the size of gatherings often associated with payment collections. Typically, credit officers will go into a community and meet with a group of about 20 or so borrowers in order to gather payments and receive updates. Gatherings of this size, however, could facilitate the spread of Ebola, a virus not fully stomped out in the region.
“We’re thinking, at least for now, perhaps changing how collection is done,” Diallo said, explaining that BRAC’s idea is to ask village group members to designate one individual to gather payments before handing them over to a credit officer.
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