Monday, June 20, 2011

Walking the talk: When a low-income borrower comes to your doorstep

By Rob Katz // This post first appeared on Rob Katz's personal blog. Rob is a Portfolio Manager with Acumen Fund and has been lending on Kiva since 2007.

I’m a Kiva lender; I go to their web site, browse entrepreneur profiles and loan small amounts of money to worthy borrowers. In my case, I’ve lent in Peru, Nicaragua and Kenya. Like many others, I like Kiva because it gives me a personal, tactical way to act on my values. I believe that market-based anti-poverty interventions – including microfinance – are important in the overall fight against poverty. Underlying this is my belief that the poor should not be victimized by high-interest moneylenders or banks’ insistence on collateral that the poor don’t have.

Today, Kiva came home – literally. The doorbell rang as I was making breakfast; outside, our building watchman waited. Saab, (sir) he began, wringing his hands at his waist. He continued in Hindi; I struggled to keep up with him. I need to borrow 5000 rupees (about USD $110). For my daughter. She needs to go to the hospital for treatment.

He looked at the ground, nervously; I quietly asked him to confirm the amount and who needed to go to the hospital. (Because I still get confused between thousands vs. hundreds and daughter vs. son when it comes to my rudimentary Hindi skills.)

Bhai, (brother) I’m sorry your daughter is sick. Come back tomorrow morning at 9:30.

Now what?

I’ve been going over this in my head all day. Unexpected health expenses can lead to what Duke University professor Anirudh Krishna calls the "health poverty trap". To quote Dr. Krishna’s study, as reported by IFPRI:

There is never an ideal moment to get sick. People do not plan for illness and injury when they are formulating their schedules, budgets, or goals for the future. But health shocks, which arise suddenly and can linger indefinitely, can have devastating results. For many people, the personal and financial burden of severe health shocks (like chronic illness, serious injury, or the death of a family member) can be overwhelming. For the world’s poor, however, these shocks are nothing short of catastrophic.

In short: this is serious. The watchman asked me for a loan, to pay for his daughter’s healthcare costs. He is in a no-win situation: borrow the money somewhere, or have his daughter forgo treatment. I’ve no doubt he’ll come up with the money – if I refuse, he’ll borrow from friends, family or – last resort – an informal moneylender. And if he can’t pay back the loan, he will join millions of others in the downward spiral of a health poverty trap.

There’s no guarantee he’ll pay me back; I can’t (and won’t) ask for collateral. He’s already borrowed from me twice – to pay for food while on duty – and has paid me back within 48 hours. Those were much smaller loans – 200 rupees ($4.50) each time – but he does have a history of on-time repayment, so to speak. And no, I wouldn’t charge interest.

At a more abstract level, I’m not fit to be a lender to the watchman. I don’t speak enough Hindi. I can’t assess his creditworthiness, unless I’m willing to ask him for his salary information and speak to people who know him (which I don’t have the time or willingness to do). I don’t know where he lives. And this may sound harsh/crazy, but I don’t even know if he has a daughter – let alone if she’s sick! In short, I have limited information and neither the skills (language) nor the time to get what I would need to make a fully informed lending decision.

Aside: High net worth donors often talk about investing directly in businesses that serve the poor. At Acumen Fund, we believe that our ability to source, diligence and manage a portfolio of companies serving low-income customers is efficient – more efficient (and therefore more impactful) than if the donor were to invest directly. It’s not a one to one analogy, but I feel today a little like the (unwitting) donor, about to inefficiently enter into a transaction I’m not prepared to properly manage.

So back to the issue at hand: what to do about the watchman’s loan request?

My thought process:

1. Yes, 5000 rupees is a lot of money. But I can afford it, even if the watchman defaults.

2. I am in a unique position to help someone; is it ethical to refuse? Peter Singer – a philosopher whose views I respect – argues that it is a moral imperative to say yes to the watchman:

If we can prevent something bad without sacrificing anything of comparable significance, we ought to do it; absolute poverty is bad; there is some poverty we can prevent without sacrificing anything of comparable moral significance; therefore we ought to prevent some absolute poverty.

3. I will treat the watchman with dignity and respect. I know he does not want to ask for a loan, especially one to pay for health expenses. I refuse to think of the what-ifs – what if he doesn’t have a daughter? What if his daughter isn’t sick? What if he uses the money to buy food, or cigarettes? No, I’m not going to play high-minded games here. I will take this man at his word.

4. I want to be paid back, without interest, in a time frame to be agreed upon (relying here on my Hindi skills) with the watchman.

5. In case of default, I will ask the watchman do some work for me around the house to repay me in-kind.

I don’t pretend to be the first person who has been asked by someone less fortunate for a loan. I’m certainly not unique. But I’m also trying hard to live my values, to walk the talk. And I’m more grateful than ever for what I have.

So, in a sense, my very disintermediated Kiva experience came – in the form of the watchman – to my doorstep in very human form this morning. I’m not sure I’m doing the most efficient thing, but I am going to try and do the right thing.

When the watchman comes back tomorrow, I’ll have the 5000 rupees, and will have looked up enough Hindi words – thank you, Google Translate – to try and make it clear what the terms are.

What do you think? Am I missing something? What would you do?