Lendwithcare is a microloan platform that enables individuals to make small loans via local Microfinance Institutions (MFIs) to people in low-income countries to help start or expand a small business. Providing affordable and appropriate financial services can help the poorest earn a living, make investments in their homes, make them less vulnerable in emergencies, grow their businesses and create new jobs. Lendwithcare is based on the Kiva model, and has been developed by CARE International to reflect more than 20 years' experience in developing and implementing microfinance programmes across the developing world.
Our recent Lendwithcare workshop was the first time all eight of our microfinance partners had been together to share ideas on best practice, discuss challenges and make plans for a more innovative and impact-driven partnership. And in light of the recent peer-to-peer/microcredit debate, allow us to share three key observations:
1. Dismissing microcredit as ineffective is old news
Like any good development model microfinance has evolved and transformed to better meet needs. The majority of those still working in microfinance agree the traditional narrative of microcredit being the silver bullet for poverty alleviation is hugely oversimplified and not based on evidence. Over the years the model has evolved from microcredit, to microfinance and now Financial Inclusion, following the sector's conscious move away from a limited and limiting poverty alleviation tool to a broader and more appropriate intervention.
The MFIs that Lendwithcare partners with reflect this changing tide in the provision of financial services to the poor. The diverse financial and non-financial products they offer demonstrate a commitment to designing and delivering appropriate products for the specific communities they serve. These products range from interest free "liberation loans" to people who are struggling to repay debt owed to local moneylenders in Pakistan, to health insurance for groups of women in Benin, to training on reproductive health and domestic violence in Ecuador.
While our partners' operations do still centre around the provision of small loans and in many cases savings, even these are starting to look less 'standard' as MFIs move to make their products more appropriate for their clients, now covering, for example, home improvement, education and sanitation loans.
2. Peer-to-peer lending platforms can help MFIs meet their social aims
A worrying criticism levelled at peer-to-peer microloan platforms is that they are not an efficient way for MFIs to access capital. The sole programmatic aim of Lendwithcare is to relieve some of the financial pressure felt by socially-driven MFIs by providing them with a source of interest free capital, thus helping them to avoid any mission drift. Mission drift can occur when the pressure to cover costs and attain financial self-sufficiency results in an organisational bias towards financial aims often at the expense of its social goals.
Of course there are some additional costs involved for an MFI working with a peer-to-peer platform like Lendwithcare and we recognise this by providing a small annual administrative grant to all of our partners. Feedback from our MFI partners at the workshop was that although initial implementation of the Lendwithcare partnership required a bit of work and training, once this initial stage is complete it did not add significantly to their operational costs. In fact the requirements of the Lendwithcare programme should not differ from normal loan provision practices (i.e. collection of loan applications, business and borrower appraisals, repayment collection), the only exception being the required photograph of each borrower.
Interestingly, apart from the benefits of accessing interest free capital through Lendwithcare, which all of our partners identified as more desirable than trying to access interest-bearing commercial loans, they identified additional advantages to the partnership. These included access to technical assistance via CARE's vast networks, help in developing more innovative products (including the facility to support social businesses) and providing linkages with formal markets, and the opportunity to promote their work and mission to people around the world through the Lendwithcare website.
Significantly, some partners mentioned that since Lendwithcare provided capital without interest they were able to pass this benefit on to borrowers by reducing their interest rates.
3. Effective Social Performance Management (SPM) is challenging but possible
As part of CARE's commitment to tracking the social impact of our work, we must have some way of gauging that our partners (all of whom have a social mission) are really doing what they say they are doing. In addition to the work we do at CARE to monitor each of our partners and track the money we raise through our platform, the workshop revealed a fairly wide variety of social impact monitoring practices from our partners. These practices ranged from fully operationalised poverty alleviation tools like the PPI, to academic impact studies, to collecting social performance data for objective information providers such as MIX.
Most of our partners admitted that achieving the correct balance between financial and social objectives was challenging and they identified the key challenges as:
- Cost of implementing an effective poverty assessment tool and resourcing continued evaluation.
- Lack of incentive for staff to incorporate social objectives into their day-to-day activities.
- Inadequate regulation due to a lack of differentiation by financial regulators between social and commercial MFIs.
Over the next year, CARE will be working closely with our partners to help roll out appropriate impact assessment tools.
Like the entire Financial Inclusion sector, the peer-to-peer model is evolving and we fully intend on evolving with it. Opportunities like our recent workshop allow us to improve what we do, learn from our mistakes and focus our minds on what we are really trying to achieve – providing poor people with access to a full range of suitable and affordable financial services.
And good peer-to-peer microloan models - in partnership with good MFIs - can help to achieve this.