A successful story makes it easier to sell microcredit

RNW archive

This article is part of the RNW archive. RNW is the former Radio Netherlands Worldwide or Wereldomroep, which was founded as the Dutch international public broadcaster in 1947. In 2011, the Dutch government decided to cut funding and shift RNW from the ministry of Education, Culture and Science to the ministry of Foreign Affairs. More information about RNW Media’s current activities can be found at https://www.rnw.org/about-rnw-media.

A cheesemaker poses proudly with an enormous cheese in his hands in the advertising brochure of a microcredit organisation. He’s grinning from ear to ear. Next to him there’s a photo of a smiling Indian woman, wearing a sari and making leather shoes. Her success story is intended to convince potential donors: “Microcredit helps fight poverty.” But what marketing strategy works best to interest western donors? And how do credit organisations pull customers over the line to close a loan deal?

As a donor, it isn’t easy to choose who you want to give your money to, because organisations involved in microfinancing try to profile themselves broadly. If we go by the commercials, all the money goes directly to entrepeneurs in developing countries - for example, to a woman who uses the money to buy a sewing machine.

Roos Kowalec, a researcher in microfinance and the development of small companies at the INHolland University of Applied Sciences, says: “The successes of those who receive microcredit are measured broadly by the relief organisations. That’s good for us; it’s fine to know that you can help someone with just 50 dollars.”

No honest picture
But private donations usually don’t go directly to small entrepreneurs. The money donated goes to the microfinance institution, which offers loans to individuals. But these institutions can just as easily use that money for IT or to train their own personnel.

“The money is spent wisely,” says Hedwig Siewertsen, Deputy Director of consultancy company Triodos Facet. But she admits that some advertisements about microcredit don’t give the true picture. “Dutch people are a bit quicker to open their wallets for pitiful children with swollen stomachs,” she says.

Not for poor street people
According to Ms Siewertsen, microfinance isn’t an instrument to fight poverty, even if there are credit suppliers who claim this on their websites. “Not only are donors misled. Also, people who could make use of microcredit are not reached. In Madagascar, for example, credit institutions gave microcredit to the wrong people, such as the poor who think that microcredit can offer a way out for them. Meanwhile potential entrepreneurs, the people who don’t belong to the very poorest, don'’t want to get into debt. So we started a campaign in which the word ‘debt’ wasn’t used, and we spoke of investment. You shouldn’t burden the extremely poor, who don’t have a roof over their head, with microcredit. You can do more for them by giving them food and offering them employment,” says Hedwig Siewertsen.

Sometimes small entrepreneurs find their own way to a bank or credit institution. Word-of-mouth is an effective promotional tool in far-flung locations. Or maybe a representative from a credit organisation comes to visit a village and holds a recruiting drive via a local radio station.

Church service
“In Kenya, I experienced an information meeting about microcredit that was held after a church service. The people heard that with a loan they could pay the school fees for their children.” Says Roos Kolawec. Sometimes the competition between the credit suppliers is great, she says. “Representatives sometimes give extra bonuses to entrepreneurs who have already received a loan, in exchange for new customers.”

In Kenya, Ms Kolawec has also done research into miscommunication by microcredit institutions. She says that “There are organisations that claim to only charge 5 percent interest, while others ask as much as 26 percent. But the low interest rate can be based on one week, while the higher one is calculated on an annual basis. For people with limited education, that isn’t always clear.”

Transparency
Hedwig Siewertsen shares this vision: “Organisations must explain clearly what the repayment terms are for their loans, how high the interest rate is, and what administrative costs have to be factored in. The conditions have become more transparent through new rules and the ‘microfinancing transparency initiative’, but there’s still a lot of work to do.”

Triodos Facet has developed a calendar with drawings for entrepreneurs in developing countries. For the illiterate, this is a convenient way of displaying their income and expenditure. As long as entrepreneurs have an overview, they won’t have to agree any new loans until the interest on the first one has been paid off. “With your marketing, you mustn’t focus only on the positive side of microfinance. Microcredit organisations also have a duty to supply good information so that people don’t get in debt up to their necks,” concludes Roos Kowalec.

 

[RNW translation: as]