Why Kiva Lenders Should Fund Consumer Microloans in Jordan

29 November 2012 at 07:00 2 comments

This week, I met a Jordanian widow who is supporting four children and her elderly mother on less than 200 JD ($283) per month. Her income comes from her deceased spouse’s pension. She is applying for a microloan to make ends meet. Do you think this non-entrepreuneur should be granted a microloan?

While you and I may be able to automatically reach for a credit card or withdraw money from a savings account in case of emergencies or unexpected expenses, such luxuries are not available for the majority of the low-income population in Jordan. What is the solution, then, for marginalized communities?

One of the many low-income neighborhoods in Jordan

One possible piece to the puzzle? Microfinance.

Microloans are not only about funding income generating projects; they can also help low-income communities meet their  financial obligations and improve their living conditions. Tamweelcom, a Kiva partner, as well as many MFIs in Jordan are increasing access to funds through “Housing Loans” for communities that may otherwise have no alternative sources of money when hit by a hardship.

What, exactly, are Jordanian MFIs doing?

  • Providing their clients with small loans that they are otherwise unable to obtain from family, friends, or traditional banking institutions;
  • Creating loan products such as “Home Improvement” to separate consumer loans from entrepreneurial loans and maintain transparency within their own portfolio;
  • Using a shared system among MFIs to evaluate the client’s ability to repay the consumer loan and ensure clients are not over indebted;
  • Increasing their clients’ purchasing power to overcome unexpected circumstances and to improve their living conditions.

According to the World Bank, 13.3% of Jordan’s population is living under the poverty line. Compared to more developing countries, that percentage may seem low. But let’s look at the actual number: 800,000 people under poverty line. That’s 800,00 people living on less than $365 per month and attempting to overcome a multitude of challenges.

What are Jordanian low-income communities struggling with?

  • High Unemployment Rates: 18.3% for Females compared with 10.7% for Males. 27.2% of Youth between age 20-24 are unemployed. It is important to note that more than 70% of the population is under age 30.
  • High Cost of Living: In 2008, the Jordanian government increased its minimum wage to 150JD ($211). However, Jordan remains the 4th poorest country among the Arab states and one of the most expensive to live in. Low-income communities are making tough choices about whether to pay rent and electricity or keep their families fed.
  • High Inflation Rates: In the first eight months of 2012, the average inflation rate has been 4.1%, a sharp increase from previous years according to a report by Jordan’s Department of Statistics, with transportation up 6.1%, dairy products 15.0%, meats 5.6%, and rents 3.8%. This has been further fueled by a recent removal of fuel subsidies which has affected commodity prices across the board.
  • Water Shortage: Jordanian homes receive water refills for their tanks only once a week. However, pumping interruptions are common, leaving low-income neighborhoods without water for indefinite periods of time.
  • Unsatisfactory solid waste management due to an increasing population, lack of funding at the local government level and insufficient community awareness.

Solid waste problem in the neighborhood of a Tamweelcom microfinance client

  • Improper insulation and water damage causing health problems: the following picture was actually taken inside the home of a Kiva client. She had to admit her twin children into the hospital after they developed respiratory problems caused by the water damage. She is using her “home improvement” microloan to repair her home and give her children better living conditions.

Water damage in the home of a Kiva borrower.

Why should Kiva lenders fund housing or consumer micoloans?

  • Because low-income communities deserve a chance to improve their living conditions.
  • Because the psychological alleviation of poverty is just as important as the physical alleviation of poverty.
  • Because everyone deserves to live a dignified life.
  • Because all borrowers – without exception – that I have met who have taken out a consumer microloan have been thankful for their blessings and optimistic about their future, regardless of all struggles and challenges facing them.

As of today, Tamweelcom has 88 housing loans expiring within the next 2-7 days on Kiva. True, these are not income generating projects, but they are loans that keep a family fed, sheltered, healthy, and able sustain itself.

So now I ask the question, again. Do you think these borrowers should be granted a microloan?

Entry filed under: Family and Community Empowerment, Jordan. Tags: , , .

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  • 1. Antoine S. Terjanian  |  29 November 2012 at 07:19

    While I sympathize with the plight of consumers who have difficulty making ends meet, and believe they have an equal right to enjoy life, as do others, I am afraid, we would only be pushing them further into debt, by allowing them consumer credit.
    In any case, priority must be given to those entrepreneurs who will a) produce something, or add real value to something and can pay-back their loanl and then b) to entrepreneurs who trade (instead of producing); the last on my totem pole is consumer loans and then only if they are used to buy Jordanian-produced goods or services.
    My two cents worth

    • 2. Taline  |  29 November 2012 at 07:37

      Hi Antoine. Thanks for the comment.

      While I realize that this post will not completely change lenders’ opinions, I wanted readers to see what I am seeing in the field. I had a hard time understanding the high percentage of consumer microloans in this region as well, but now I understand that without them, many people’s poverty levels will actually worsen.

      The default rate on housing loans is actually very low, and the MFIs here do their best to ensure they are not worsening their clients’ conditions. I’ve definitely seen loans rejected because of concern that the monthly payment would further add a burden to the borrower.

      Just wanted to clarify in case I missed those two points in the post.

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