Carl Pilgram in Kenya, summer 2008

Carl Pilgram is a senior in Arts & Sciences, majoring in political science and anthropology. As an intern with two microfinance organizations, he spent the summer working in impoverished rural and urban areas of Kenya.

This summer I was an intern in two different microfinance groups in Kenya. Both had very similar products, based on, but modified from, the Grameen model. The basic principle is loan backing by savings and group-based co-signing rather than true asset backing. This allows the sustainable and profitable extension of capital to low-income groups and distributes the supervising responsibility to other group members drawn from the same community. It is in the interest of these community members to ensure that the loans are reinvested in economically based activities so that they do not have to cover a defaulting member. This helps avoid the corruption and waste that frequently accompany aid projects in the developing world.

As I ended up explaining to a number of puzzled people, the relationship between microfinance and anthropology is in the system of incentives, meaning, and control mechanisms that are so effective in these communities. For the loans to be self-sustaining, the field officers must handle hundreds of clients, which makes careful individual screening extremely difficult. To counter this challenge and to improve the process as a whole, there is a strong focus on giving the group a sense of ownership of the loan process, changing the bank from a powerful adversarial authority one can in good conscience hoodwink to a useful resource to be used by clients who have a stake in the enterprise. This is reinforced by the idea of the “character loan.” As the field officers explain to the clients, the loans are really based on the institution’s sense of the client’s value and ability to pay back the loan rather than by holding threats above the client’s head as traditional banks are often perceived to do. Thus, the combination of concrete incentives in terms of savings and co-signing are supported by the idea of ownership in value that field officers attempt to associate with the loan.

The first group I worked with is based in Nyanza province, the westernmost province in Kenya situated on the shore of Lake Victoria. I spent the vast majority of my time in Kisumu, the central city of western Kenya. My main job was data compilation and organization at the head office, and I went to the field a few times for risk-analysis work. This was an area heavily affected by the post-election violence at the beginning of this year. The organization I worked for was experiencing many challenges in its attempts to cope with the fallout of the violence, especially in terms of determining the extent of debt forgiveness necessary and the viability of existing but incomplete groups. An unfortunate consequence of the widespread displacement and emigration of settlers from nonlocal tribes is that the co-signing group size was diminished. Not only was the group expected to cover the loan defaults, but in many cases it had its assets destroyed or damaged in the violence. The microfinance organization was going through a very arduous assessment process to determine which loans to forgive. Blanket debt forgiveness is not only financially impossible, but also destroys the clients’ sense of ownership and independence. At the same time, the economic woes created by the post-election violence created a greater demand for capital in an area that already had serious issues with unemployment. For example, a primarily western Kenyan phenomenon, which we gave many loans to support, is the Boda-Boda. This is a taxi that takes people around town for prices as low as 10-20 shillings. As I write, the exchange rate is 70 shillings to the dollar. That this and other last resort economic activities are not only common, but hotly sought after as opportunities illustrates the seriousness of the capital shortage in western Kenya.

My second internship was in Nairobi, which was far less directly affected by the post-election violence even though the entire national economy was heavily damaged. In Nairobi I worked with an organization that directed its efforts primarily toward the slums in Kibera, Wilson, and Southie. For the majority of my time, I was attached as a personal assistant to one of the field officers. I began by writing receipts and keeping register for him, but, as I got used to the system and my Swahili improved, I helped lead or led some of the meetings. The greater concentration of clients in Nairobi made client visits much easier for the field officers than they had been in the rural areas of western Kenya where travel was difficult. In Nairobi, the loans tended to be given to more stable businesses than in Nyanza, typically small stalls or even permanent shops. The organization had a specific mandate to work with women and youth groups to function as banking and personal finance training as much as a source of capital. The youngest groups were 16 to 22 years old, and the loans were very small with a strong focus on savings training.