By Nadia Anggraini, KF10, Indonesia

Last night I lay in bed for almost an hour, unable to sleep. It wasn’t because I was getting eaten alive by the mosquito colony that seems to have taken up camp my room, nor was it because I wanted to follow in Bryan Goldfinger’s example and starting an insomniac-Kiva-Fellows tradition. I had visited a borrower today, and unlike past journal visits, I did not leave this one feeling inspired by the diligence and conscientiousness of the entrepreneur, or even introspective after witnessing the slow pace at which microfinance helping borrowers. Instead, the visit left me feeling somewhat troubled.

Unlike many of Koperasi Mitra Usaha Kecil (MUK)’s clients, who can be considered microfinance success stories, this particular client – let’s call her Jane to protect her identity – had ended up sinking deep into debt after taking up a loan. Jane was a long-time MUK client, and in past loan cycles she had always repaid her loans on time. This past year, however, she decided to start a new venture shipping dried fish from the nearby island of Nusa Tenggara Timur to sell at a local fish factory on her island of Bali. She expected to be able to purchase the dried fish at 3,000 Rupiah/kg, and sell it for 5,000 Rupiah/kg. As she could carry several tons of fish on her rental ship on each trip, she could have turned a decent profit, even after accounting for transportation costs.

Alas, things did not go as planned after the first shipment. The fish factory in Bali told her that the fish she had purchased were oily and hence not of good quality, and was only willing to pay 3,000 Rupiah/kg for the goods. Having no other choice, Jane sold the fish at cost price, in turn incurring several million Rupiahs in losses due to transportation and other business costs. Saddled with debt that she was unable to repay, both from MUK and other lending organizations, Jane was forced to pawn off some of her family’s jewelry to raise cash, while her son became a motorcycle cab-driver to earn money to feed the family and repay the loan. While she promised to repay her debt eventually, she was forced to turn delinquent as she was unable to pay back her installments according to schedule.

Jane’s story replayed in my mind the entire day, and as I thought more about it I started having more questions about microfinance, though no conclusive answers yet.

  1. Does microfinance reward low-risk, low-return businesses and penalize high-risk, high-return ones?

Over my two months as a Kiva Fellow here in Bali, I’ve met dozens and dozens of pig farmers. I love pigs as much as the next person, but I’ve definitely wondered why not more of these entrepreneurs engage in different ventures, instead of working on something that all their neighbors are doing. Pig farming is hardly a silver bullet that will make one’s fortune, but it is true that it is also a low-risk activity, and therefore suitable for borrowers who are concerned about not being able to repay their loans and in turn not being able to take up new ones in the future.

Jane’s fish business, on the other hand, is one of the more innovative ventures I’ve come across so far, though also one that carries with it higher risk. In countries with more developed capital markets, Jane might have been a suitable candidate for venture capital funding, with its higher risk tolerance. In places with stronger bankruptcy laws, Jane might have been able to apply for bankruptcy and hence be protected from selling off all her assets.

These options are obviously not available to Jane, ex-fish shipper in a Balinese village. Does that mean she should have opted for the fail-safe pig farming venture instead?

  1. Should microfinance organizations take a hard-line stance towards delinquent borrowers?

Isaac wrote last week about the strict stance his MFI has taken towards delinquent borrowers, threatening these borrowers and even repossessing their assets. MUK, on the other hand, takes on a softer stance. The field officer in charge of the borrower starts making more frequent visits and collects whatever amount the borrower is able to pay each time until the loan is fully repaid, even if it might be a few months after.

This had shocked me initially, and I worried about MUK’s financial sustainability if it continued to be so soft on delinquent borrowers. More frequent visits also meant more of the field officers’ time taken up when it could have been used more productively. Microfinance is business, not charity, so how could we be doing this at MUK?

After listening to Jane’s story yesterday though, I’m not sure if I should revise my position. If MUK had chosen to take a no-nonsense stance for Jane’s case, they could have confiscated all of her family’s valuable assets, including their house and motorcycle. Jane and her family might have been forced to live on the streets, with no means of paying for her grandchildren’s schooling. If this happened, wouldn’t microfinance have achieved the exact opposite of what it was meant to achieve, pushing people into deeper poverty instead of lifting them up?

Nadia Anggraini is a member of the 10th class of Kiva Fellows. She is on her 9th week at Koperasi Mitra Usaha Kecil (MUK) in Bali, Indonesia, and is loving this beautiful island and its wonderful people. Support MUK by joining our lending team, or watch out for MUK’s new April loans, coming up in the next couple of days!


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