The Working Poor vs The Unbanked.

30 July 2010 at 01:31 11 comments

By Drew Loizeaux, KF11, Uganda

When talking to people about microfinance, many times the poverty level of the clients is brought up as a big way to measure an organization’s success.  I felt this way for a long time and it makes sense. We have all heard stories of a poor farmer expanding his business or a “phone women” in a Bangladeshi village.  As I have spent more time at microfinance institutions however, I’ve realized that view is incomplete. Yes, empowering the poor is a very important part of microfinance, but they are only a subsection of the really important group that a successful MFI must target; the unbanked.

Many times, poor and unbanked are synonymous, but other times they are not and it is important to recognize the difference between the two and how each group can help a community.  To illustrate this point I want to introduce you to Fred.

Fred is does not fall into the category of “working poor”. He owns a fairly large carpentry shop and is currently running for mayor in his village (see picture for his campaign poster). Despite owning a very successful business, in the past, finding outside funding for his business had been difficult because his village is hours away from any major town. However, a Hofokam loan officer now serves his area and Fred has been receiving loans for about two years now.

Before he started receiving loans, Fred had one full-time employee and three apprentices. He now has three full-time employees and five apprentices. His most recent loan was used to pay for the raw materials to fulfill a large order submitted by several local schools. He told me that because he was able to take out the loan from Hofokam and complete the work on time, he now has new orders from other schools and will be able to further expand his business. In the near future, he hopes to move his business to another part of town that has electricity so that he can purchase modern tools and increase his productivity.

For me, a story like Fred’s was not what I used to think of when I pictured a successful microfinance loan. However, I now see that the unbanked is a much larger group than I had originally thought. In some ways, a loan to a person like Fred can have an even greater impact on a community than a few smaller loans. Fred’s business is bringing money into the town that otherwise, would have gone elsewhere. By providing capital, the Kiva lenders have enabled Fred to expand his business, hire more people and, very directly, help the overall economic condition of his entire village.

Entry filed under: HOFOKAM, KF11 (Kiva Fellows 11th Class), Uganda. Tags: , , , , , , , .

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  • 1. Milford Bateman  |  20 August 2010 at 01:18


    A friend associated with Kiva just pointed out to me your contribution here. You really are desperately clutching at straws if you think one single example of an MFI supporting a slightly larger-than-microenterprise business rebuts the arguments I made in my book. In fact, you are supporting one of my main arguments- that we urgently need to end microfinancing and step up to supporting genuine growth-oriented businesses if we really want to see poverty reduction. This example shows that it can be done, and MFIs can constructively move into SME lending if they have to.

    • 2. Fehmeen | MicrofinanceHub  |  10 November 2010 at 23:01

      In that case, everyone’s a winner since we see Micorfinance ‘can’ go on to help micro-enterprises graduate into small enterprises. I have changed my review, since it clearly had serious drawbacks.

  • […] MFIs are slowly expanding their customer base to include business owners who are more established than micro entrepreneurs, and have larger credit appetites, yet don’t have access to commercial finance (see relevant blog post by a Kiva Fellow), and […]

  • 4. Fehmeen | Microfinance Hub  |  10 August 2010 at 02:37

    Within this simple post is the rebuttal to one of the anti-microfinance arguments presented by Milford Bateman in his new book, ‘Why Doesn’t Microfinance Work?’ He believes microfinance leads to a misallocation of scarce financial resources because most of the money is channeled to micro enterprises (high risk, no long term plan, little employment generation, possibility of failure, etc.) instead of small enterprises (who need the money more, have greater economic and social impact, are more stable, etc.). You, Drew, have explained that MFIs target larger businesses as well…

  • 5. Drew Loizeaux  |  1 August 2010 at 12:10

    Hey John – thanks and good to hear from you. I’ll be going back to grad school in the fall in New York. Hope all is well.

  • 6. Good Dogg  |  1 August 2010 at 08:31

    Excellent post–Keep up the good work.

  • 7. David  |  31 July 2010 at 08:50

    Excellent post. The loans to Fred provided employment for four more people. That’s great!

  • […] The Working Poor vs The Unbanked This entry was posted in Uncategorized. Bookmark the permalink. ← Roof of the World indeed […]

  • 9. Sam  |  30 July 2010 at 13:33

    I am in love with this post… no seriously, like a big old man crush. Well done Drew, well done.

  • 10. Katie Davis  |  30 July 2010 at 07:23

    Well said Drew, great post!

  • 11. John Briggs  |  30 July 2010 at 05:02

    Right on target, Drew — it’s not only the poor and unbanked who need access to financial services. And for people like Fred, it may not be as “micro” a loan as most if it’s serving a small to medium enterprise (SME). I hope more unbanked SMEs get the kind of opportunity that Fred got from Hokofam.

    Congrats on being back out in the field! Uganada and then…?

    P.S. Love the photo of Fred.

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