Reflecting on microloan season

By Sakina Shibuya

Sakina oversees the warehouse as
farmers come to pick up their fertilizer.

Last Friday marked the official ending of this year’s first round of microloans, which lasted for about two weeks. During this time, we distribute the agricultural input microloans to farmers in our program. In this post, I would like to share what, in my humble opinion as an intern, I find fascinating about UMF’s microfinance operation.

But, before I get into details, I would like to quickly explain what microfinance as a concept means in general, for some who may not be familiar with the term.

Microfinance generally refers to various financial services provided to a client population which is traditionally not served by conventional financial institutions. It includes anything from savings accounts to micro-insurance. Some may recall the 2006 Nobel Peace Prize winner, Mohammed Yunus. He is the founder of Grameen Bank in Bangladesh, which is internationally famous its ultra small loans for small businesses, mostly owned by females. How ‘micro’ are Grameen Bank’s loans? It may be as small as a couple hundred US dollars.

Within the realm of microfinance, UMF provides microloans that are quite different from those of Grameen Bank. And I, as a graduate student who studies microfinance, am absolutely intrigued by UMF’s loans (I hope you are too, after this blog post.) So, let me be a bit arrogant and teacher-like for just a little, and explain why that is the case.

One may wonder how UMF implements loans and delivers cash to each farmer in a town where roads are unpaved, and water and electricity stop frequently. (La Unión doesn't have a bank branch – the closest branch is about an hour and half away by car.) It is quite risky for a bank to store loan funds in cash at its office. Additionally, having no bank in town indicates that farmers themselves are not going to be able to withdraw cash easily from their accounts (if they have any). Hence, conventional loan implementation through fund transfer between bank accounts doesn't make sense in the context of La Unión.

Given these obstacles, UMF implements loans by distributing fertilizers, rather than by allocating cash to farmers. Lending through the distribution of fertilizer has several implications. Firstly, it means that UMF can replace risk of keeping cash with one of storing fertilizer in a secure warehouse. Obviously, the latter has much lower risk.

Secondly, by distributing a specific commodity (fertilizer), UMF can restrict the use of loans. While cash can be used for purposes other than agricultural, fertilizer can only be applied to soil. Though it may be sold to attain cash, fertilizer is far less flexible than cash. Using fertilizer helps UMF reduce the necessity of fund tracing after loan implementation.

Brilliant, isnt’ it?

I very much enjoyed being part of UMF’s microloan operation. My responsibility during microloan time was to be in charge of the fertilizer storage and inventory control. It was my job to assure the right type and quantity of fertilizer that remained in physical inventory at the end of each business day.

Although my Spanish ability is limited, I thoroughly enjoyed interacting with our coffee producers. One day, two producers from the same village came to pick up their fertilizer, but their truck broke down as soon as they parked it in front of the storage. A moment later, I was pushing the truck with them in order to kick-start it so it could go get fixed. After seeing the car leave, I went back to the office. Then, the daughters of one of the producers brought me a bottle of orange juice and crackers. It was their thank-you present for pushing their truck.

My Spanish is horrible, and I honestly doubted that my wimpy push was much help for them. But they shared with me a small part of their daily experience, and let me be part of their group just for a moment. The orange juice, crackers, and the smile they gave me were indescribable. Maybe I’m being too sentimental. But this has been my favorite moment in La Unión so far.