If you asked poverty experts to name the single most significant new concept in the field in the last few decades, chances are they would say microcredit. Microcredit is the lending of very small amounts of money to very poor people to help them invest in things that have the potential to bring income later on — a loan of $50 to buy a sewing machine to make clothes, for instance, or piglets to raise and sell. It reaches nearly 100 million clients in more than 100 countries.
One of the reasons that microcredit is so exciting is that its benefits can go beyond the women (and they are almost all women) who borrow money. Not only does their increase in income add to the economy of the whole village, they can start businesses that sell needed goods and services to their neighbors. After all, much of rural development involves bringing to villages the same things that city dwellers take for granted. For example, a borrower can use her loan to buy a cell phone and charge her neighbors for calls and messages. She has a new business and her neighbors have a link to the outside world.
But microcredit isn’t a panacea. It has always been vulnerable to abuse. The most recent example is a scandal in India, where banks have been luring microborrowers into excessive debt, just as predatory lenders lured millions of Americans into unsustainable mortgages. Loans can be malignant. Some people shouldn’t take on debt. Some businesses are too risky. And the temptation is always present to spend the loan on food for the family or shoes for the children.
In the hills of rural Guatemala, a different kind of microfinance, one that doesn’t involve loans, is doing something microcredit can’t. A company called Soluciones Comunitarias (“community solutions”) is selling products that improve the health and prosperity of villagers, and doing it in a sustainable way while providing rural people — the vast majority of them women — with new business opportunities that do not require risk or debt.
Soluciones Comunitarias uses the same model employed by second-hand clothing and furniture shops in the United States and elsewhere: consignment. It’s an old idea. What’s new is using it to improve the lives of the rural poor.
Take reading glasses. Imagine you are a rural Guatemalan in your forties. You make a living as a tailor, weaver, carpenter or mechanic, but to your horror, your close vision is getting more blurry each day. It seems like the end of your livelihood. If you were middle-class and lived in a city this wouldn’t be a big deal — you’d just get reading glasses. But not only were these not available in villages, few rural Guatemalans even knew about them. Their progressive blurriness seemed, to them, incurable.
Microcredit cannot help get reading glasses to Guatemalans in mountain villages. With microcredit, an entrepreneur would first take out a loan, then buy an assortment of glasses, sell them to her neighbors and repay the loan. But there’s no existing market for reading glasses. A good sales force can create one, by teaching people that their vision problems are curable — and that this is the cure. And while it’s not hard for an ambitious entrepreneur to learn to test eyes and find the right glasses, someone has to teach her. She has to be confident in her ability to sell people a product they don’t realize they need. She has to acquire the credibility to sell a health product. It’s one thing to take on debt to buy a cell phone or baby chicks to sell — she knows there will be a market for phone calls and chickens. Reading glasses are too much of an unknown. “Lots of women are afraid of debt,” said Clara Luz de Montezuma, a Guatemalan who trains women entrepreneurs for Soluciones. “When you borrow money, you fear you won’t be successful, and it will be very difficult to pay it back.”
Greg Van Kirk was a Peace Corps volunteer in Nebaj, Guatemala, a town of about 10,000 people in a mountainous Mayan region, when he thought of consignment as the solution. He was an unusual Peace Corps volunteer, having already had one career as an investment banker. He had worked in structured finance for UBS, helping companies do complex deals to buy, sell or lease airplanes and power plants.
Van Kirk’s adventures in less-structured finance didn’t start with reading glasses, but with cookstoves. He saw that families in the region cooked on open fires on the dirt floors inside their houses. Their ceilings were black from smoke. People coughed all the time and children were always sick. (Respiratory illnesses are a leading cause of death in poor countries, and indoor cooking is a significant cause.) Open-pit fires, moreover, were inefficient. The heat dispersed, and only one pot could be heated at a time. That meant the family had to collect or buy a lot of firewood. Moreover, fires were unsafe, especially for children, and cooking on the floor was unhealthy, luring ants and the family’s chickens into the house.
Van Kirk worked with a local mason named Augustín Corrio to try to find something better. Corrio took a standard stove design and rejiggered it in various ways. The best model had cement block legs, a brick chamber surrounding the fire on three sides, a metal sheet over the fire so several pots could be heated at once, and a chimney to take the smoke outside the house. This stove used 60 to 70 percent less wood than an open fire — so even though it costs about $100 it could pay for itself quickly. Buyers could pay in installments. It could be locally produced from basic construction materials.
The problem was how to sell it on a wide scale. No micro-borrower would take out the enormous loan necessary to buy a number of stoves to resell.
Van Kirk thought that consignment was the answer. With consignment, a supplier gives a product to a retailer, who then sells it. After the sale is completed, the retailer reimburses the seller, keeping a commission. The risk is taken not by the retailer, but by the supplier. Van Kirk made a deal with Corrio: Corrio went around to groups of people in Nebaj and surrounding villages to talk about the stove and show pictures. When a family ordered one, Corrio built it right in their house with materials Van Kirk had bought for him. Families paid in installments about equal to the money they saved by buying less wood. As payments came in, he repaid Van Kirk and kept a commission.
The stoves and the consignment model were both successful. Soon Van Kirk and a fellow Peace Corps volunteer, George Glickley, began to train local women to sell the stoves and protective glasses, eye drops and reading glasses supplied by VisionSpring, a nonprofit organization that sells eye glasses to poor people all over the world. (My co-author, David Bornstein, is a member of VisionSpring’s board.)
VisionSpring had started out using microcredit for part of its sales — its retailers took out loans to buy glasses to sell. But it didn’t work very well. “We needed a financing arm — but we weren’t a microfinance institution,” said Malini Krishna, the company’s vice president of development. At Van Kirk’s urging, in 2004 the organization switched from microcredit to a consignment model. “Why put all that risk on somebody up front?” said Krishna. “Why not help them put the glasses out there and then get repaid when glasses sell?”
One of the first entrepreneurs Glickley and Van Kirk trained was Yolanda García. She was a primary school gra duate and housewife — she knew the men because Glickley had lived in her family’s house when he was in the Peace Corps. Consignment was key for her, she said. “If I had had to take out a loan I wouldn’t have done it. I always felt I wanted to do something, but we didn’t have the economic resources beyond what we needed for the day.”
Van Kirk and Glickley trained her in how to test eyes and fit glasses, but more important was boosting her confidence to sell a mystery product. “No one knew about reading glasses,” she said. “People thought I was crazy.” That wasn’t the only obstacle. Her first customer was eager — she wanted to be able to read her Bible again. “But who will do the examination?” she said, looking around. Clearly, there was no doctor there.
“I will,” said García. García nervously took out her charts and instruments. A few minutes later, the customer was reading small print and grinning from ear to ear. “Luckily, “the ‘aha!’ moment comes quickly,” says VisionSpring’s Krishna.
Still, García said, it was not a very successful campaign. She sold five pair of glasses and netted 65 quetzales — about $8. But García was thrilled to be earning anything. She spent the money on school supplies for her kids.
In 2006, Van Kirk and Glickley founded Soluciones. Its entrepreneurs — the vast majority of them women — now travel from village to village selling glasses, water-purifying buckets, solar flashlights, a solar panel that powers a lamp and cell phone charger, eye drops, sunglasses, energy-efficient light bulbs and vegetable seed packets. (The stoves are mainly sold around Nebaj.) A campaign in a village takes two days — one for publicity and one for sales — and usually nets each entrepreneurs some 200 quetzales, although once in a while a lucky salesperson can triple that. Van Kirk said that a new salesman started just two weeks ago and has already earned $100 — more than he would make in two or three months in a different job.
Soluciones is still very small. In the last two years, it has sold fewer than 7,000 pairs of glasses. The solar lamps are the most popular big-ticket item, with 3,000 sold since their debut. Soluciones today is owned and run by eight Guatemalans who were its original entrepreneurs, including Yolanda García and Clara Luz de Montezuma. By the end of the year, it will be running a consistent profit.
Soluciones is an incubator, testing new strategies and new products that may some day sell all over the world. (Van Kirk and Glickley have more information about their non-profit efforts at cesolutions.org.) Improved cookstoves, reading glasses, water purifiers, solar lamps — these are all products that can provide equity, in the form of ability to work and better health, to villagers who before only had access to microcredit debt. Yet the real news here isn’t the cookstove or the lamp. Dozens, perhaps hundreds, of such practical and ingenious products exist. Yet they do little good if the rural poor can’t use them. A constant drumbeat of the Fixes column is that the more important innovation is the delivery mechanism.
Is microconsignment a system that can deliver these products on a sustainable basis and large scale to people who need them? If so, how? Saturday’s column will respond to comments, and will explore answers to those questions.
One of the reasons that microcredit is so exciting is that its benefits can go beyond the women (and they are almost all women) who borrow money. Not only does their increase in income add to the economy of the whole village, they can start businesses that sell needed goods and services to their neighbors. After all, much of rural development involves bringing to villages the same things that city dwellers take for granted. For example, a borrower can use her loan to buy a cell phone and charge her neighbors for calls and messages. She has a new business and her neighbors have a link to the outside world.
But microcredit isn’t a panacea. It has always been vulnerable to abuse. The most recent example is a scandal in India, where banks have been luring microborrowers into excessive debt, just as predatory lenders lured millions of Americans into unsustainable mortgages. Loans can be malignant. Some people shouldn’t take on debt. Some businesses are too risky. And the temptation is always present to spend the loan on food for the family or shoes for the children.
In the hills of rural Guatemala, a different kind of microfinance, one that doesn’t involve loans, is doing something microcredit can’t. A company called Soluciones Comunitarias (“community solutions”) is selling products that improve the health and prosperity of villagers, and doing it in a sustainable way while providing rural people — the vast majority of them women — with new business opportunities that do not require risk or debt.
Soluciones Comunitarias uses the same model employed by second-hand clothing and furniture shops in the United States and elsewhere: consignment. It’s an old idea. What’s new is using it to improve the lives of the rural poor.
Take reading glasses. Imagine you are a rural Guatemalan in your forties. You make a living as a tailor, weaver, carpenter or mechanic, but to your horror, your close vision is getting more blurry each day. It seems like the end of your livelihood. If you were middle-class and lived in a city this wouldn’t be a big deal — you’d just get reading glasses. But not only were these not available in villages, few rural Guatemalans even knew about them. Their progressive blurriness seemed, to them, incurable.
Microcredit cannot help get reading glasses to Guatemalans in mountain villages. With microcredit, an entrepreneur would first take out a loan, then buy an assortment of glasses, sell them to her neighbors and repay the loan. But there’s no existing market for reading glasses. A good sales force can create one, by teaching people that their vision problems are curable — and that this is the cure. And while it’s not hard for an ambitious entrepreneur to learn to test eyes and find the right glasses, someone has to teach her. She has to be confident in her ability to sell people a product they don’t realize they need. She has to acquire the credibility to sell a health product. It’s one thing to take on debt to buy a cell phone or baby chicks to sell — she knows there will be a market for phone calls and chickens. Reading glasses are too much of an unknown. “Lots of women are afraid of debt,” said Clara Luz de Montezuma, a Guatemalan who trains women entrepreneurs for Soluciones. “When you borrow money, you fear you won’t be successful, and it will be very difficult to pay it back.”
Greg Van Kirk was a Peace Corps volunteer in Nebaj, Guatemala, a town of about 10,000 people in a mountainous Mayan region, when he thought of consignment as the solution. He was an unusual Peace Corps volunteer, having already had one career as an investment banker. He had worked in structured finance for UBS, helping companies do complex deals to buy, sell or lease airplanes and power plants.
Van Kirk’s adventures in less-structured finance didn’t start with reading glasses, but with cookstoves. He saw that families in the region cooked on open fires on the dirt floors inside their houses. Their ceilings were black from smoke. People coughed all the time and children were always sick. (Respiratory illnesses are a leading cause of death in poor countries, and indoor cooking is a significant cause.) Open-pit fires, moreover, were inefficient. The heat dispersed, and only one pot could be heated at a time. That meant the family had to collect or buy a lot of firewood. Moreover, fires were unsafe, especially for children, and cooking on the floor was unhealthy, luring ants and the family’s chickens into the house.
Van Kirk worked with a local mason named Augustín Corrio to try to find something better. Corrio took a standard stove design and rejiggered it in various ways. The best model had cement block legs, a brick chamber surrounding the fire on three sides, a metal sheet over the fire so several pots could be heated at once, and a chimney to take the smoke outside the house. This stove used 60 to 70 percent less wood than an open fire — so even though it costs about $100 it could pay for itself quickly. Buyers could pay in installments. It could be locally produced from basic construction materials.
The problem was how to sell it on a wide scale. No micro-borrower would take out the enormous loan necessary to buy a number of stoves to resell.
Van Kirk thought that consignment was the answer. With consignment, a supplier gives a product to a retailer, who then sells it. After the sale is completed, the retailer reimburses the seller, keeping a commission. The risk is taken not by the retailer, but by the supplier. Van Kirk made a deal with Corrio: Corrio went around to groups of people in Nebaj and surrounding villages to talk about the stove and show pictures. When a family ordered one, Corrio built it right in their house with materials Van Kirk had bought for him. Families paid in installments about equal to the money they saved by buying less wood. As payments came in, he repaid Van Kirk and kept a commission.
The stoves and the consignment model were both successful. Soon Van Kirk and a fellow Peace Corps volunteer, George Glickley, began to train local women to sell the stoves and protective glasses, eye drops and reading glasses supplied by VisionSpring, a nonprofit organization that sells eye glasses to poor people all over the world. (My co-author, David Bornstein, is a member of VisionSpring’s board.)
VisionSpring had started out using microcredit for part of its sales — its retailers took out loans to buy glasses to sell. But it didn’t work very well. “We needed a financing arm — but we weren’t a microfinance institution,” said Malini Krishna, the company’s vice president of development. At Van Kirk’s urging, in 2004 the organization switched from microcredit to a consignment model. “Why put all that risk on somebody up front?” said Krishna. “Why not help them put the glasses out there and then get repaid when glasses sell?”
One of the first entrepreneurs Glickley and Van Kirk trained was Yolanda García. She was a primary school gra duate and housewife — she knew the men because Glickley had lived in her family’s house when he was in the Peace Corps. Consignment was key for her, she said. “If I had had to take out a loan I wouldn’t have done it. I always felt I wanted to do something, but we didn’t have the economic resources beyond what we needed for the day.”
Van Kirk and Glickley trained her in how to test eyes and fit glasses, but more important was boosting her confidence to sell a mystery product. “No one knew about reading glasses,” she said. “People thought I was crazy.” That wasn’t the only obstacle. Her first customer was eager — she wanted to be able to read her Bible again. “But who will do the examination?” she said, looking around. Clearly, there was no doctor there.
“I will,” said García. García nervously took out her charts and instruments. A few minutes later, the customer was reading small print and grinning from ear to ear. “Luckily, “the ‘aha!’ moment comes quickly,” says VisionSpring’s Krishna.
Still, García said, it was not a very successful campaign. She sold five pair of glasses and netted 65 quetzales — about $8. But García was thrilled to be earning anything. She spent the money on school supplies for her kids.
In 2006, Van Kirk and Glickley founded Soluciones. Its entrepreneurs — the vast majority of them women — now travel from village to village selling glasses, water-purifying buckets, solar flashlights, a solar panel that powers a lamp and cell phone charger, eye drops, sunglasses, energy-efficient light bulbs and vegetable seed packets. (The stoves are mainly sold around Nebaj.) A campaign in a village takes two days — one for publicity and one for sales — and usually nets each entrepreneurs some 200 quetzales, although once in a while a lucky salesperson can triple that. Van Kirk said that a new salesman started just two weeks ago and has already earned $100 — more than he would make in two or three months in a different job.
Soluciones is still very small. In the last two years, it has sold fewer than 7,000 pairs of glasses. The solar lamps are the most popular big-ticket item, with 3,000 sold since their debut. Soluciones today is owned and run by eight Guatemalans who were its original entrepreneurs, including Yolanda García and Clara Luz de Montezuma. By the end of the year, it will be running a consistent profit.
Soluciones is an incubator, testing new strategies and new products that may some day sell all over the world. (Van Kirk and Glickley have more information about their non-profit efforts at cesolutions.org.) Improved cookstoves, reading glasses, water purifiers, solar lamps — these are all products that can provide equity, in the form of ability to work and better health, to villagers who before only had access to microcredit debt. Yet the real news here isn’t the cookstove or the lamp. Dozens, perhaps hundreds, of such practical and ingenious products exist. Yet they do little good if the rural poor can’t use them. A constant drumbeat of the Fixes column is that the more important innovation is the delivery mechanism.
Is microconsignment a system that can deliver these products on a sustainable basis and large scale to people who need them? If so, how? Saturday’s column will respond to comments, and will explore answers to those questions.
Tina Rosenberg won a Pulitzer Prize for her book “The Haunted Land: Facing Europe’s Ghosts After Communism.”
Source: New York Times
