Taking time to reflect…

Today I heard a story that really demonstrated the value of learning and reflection. Indeed, it can be the difference between poverty reduction or not.


The organization I interviewed had been working with poor rural women to help them get micro-credit through a village bank. A student later did a study on the impact of village banks in improving food security of its beneficiaries. They discovered that women were not benefiting because of high monthly interest rates (10%). Based on the study results, learning and reflection, the organization was able to convince the bank to progressively reduce interest rates to 2%. Everyone involved was shocked as they thought they were helping to improve the women’s incomes when in fact they had not been benefiting at all.

Why am I sharing this? Most of us live busy lives, work long hours and don’t have time to reflect on what we are doing and what we have learned.  Each day I am more convinced of the value of reflection.  So… what did you learn today?


Filed under knowledge management, West Africa

7 responses to “Taking time to reflect…

  1. Hi Michelle,

    thanks for sharing. It’s really a remarkable story, especially for someone with a banking background and an interest in microfinance.

    2% loans in subsaharan Africa is not a loan, it’s aid money through a peculiar channel.

    The cost of the money for the village bank (and its headquarters) is bound to be higher than 2%. As you know, it will usually be a bit above the local central bank’s interest rate, which usually will be quite a bit higher even in these days of generally abating inflation. 2% is less than the operating cost of any financial network. It’s less than the cost of money in the first world (except Japan).

    In other words, getting it to 2% is not an issue of “convincing the bank” but of convincing its donors to subsidise the loan even further. A real bank can’t set it that low.

    Further, I’d say that a microbusiness that does not allow for a 10% cost of capital is hardly a sustainable business. If the loan is being used as “bridge money” then the situation makes some sense, but if it was being invested… I really don’t understand it.

    Please note I’m not criticising the loan or the people, just noting that setting the interest rate at those levels is not economics, it’s politics.

    Best regards,


  2. Michelle

    Thanks for your comments, your points are well made. Indeed, upon a visit to a local village bank that reduced interest to 2%, they agreed this is not enough to have further investment and they are seeking ways to obtain investment from the outside. They will have to increase the rate in this case.

    However, note the money they started with was their own money, not from any bank or donor. The loans are limited to 8 months maximum time and 100,000 CFA (approx 100USD). Payments are phased according to the production calendar of the income generating activity.

    Also, they started with 400,000 CFA and now have 9, 000, 000 in their accounts plus a motorcycle. Thus, something appears to be working.

    Thanks again for your comments, it is nice to create conversation on the Blog. That was definitely my point in starting it!

  3. Hello again (that was fast :-)),

    if I understand correctly it was a sort of mutual fund, then :-).

    They can elect to pay the village bank whatever they see fit, then… but I’d guess Ghanaian inflation is above 2%, so they would be losing purchasing power if that was the whole story, however much business they did and however much money they gathered.

    Unless we’re not talking 2% of yearly interest, of course, or they are using some sort of fees. Any clues 🙂 ?

    Best regards,


  4. Michelle

    Hi again,

    The village bank is completely disassociated with the banking system. It is the villagers who put their money into it, and they decide the rules. At the end of each year, they revisit the accounts and see what works and doesn’t work.

    The payback rate is 95% and maximum limit 8 months. Thus, the bank always has money. In order to truly have enough capital to go beyond small individual projects to larger community level ones, which require investment, they are going to need to start seeking funds from the outside. At the moment, this funds helps provide capital to sustain their small businesses.

    Hopefully that sheds some insight 🙂

  5. It does (although I’m still curious about how they manage the financial side :-)).

    Thanks again. And let’s hope they do find backers.

    Best regards,


  6. Pingback: Feedback….yes? no? good? bad? « Michelle Laurie rants and raves

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