As I sit here, wracking my brains trying to think of a suitable parable to contrast the personal finance situation in developing countries with that of our own, I came to a realization. Sometimes we become blind to the truth in the world and it takes stepping back a bit to see it.
I’m typing this post on a laptop, and you are likely reading it on a similar laptop, tablet, or phone. These modern conveniences come at a price, one which can be quite higher than that of the solar ovens or improved cookstoves we want to bring to Latin America. Yet we generally have no problem affording them. If we don’t have money for a new tablet, we just wait and save up a bit or use a credit card and (hopefully) pay it off quickly. The very notion of going to a bank, waiting in lines, filling out forms, and dealing with the general hassle of it all just to get a couple hundred dollars is foreign to most of us.
Until not very long ago, if you lived in the developing world, your options for borrowing a few hundred bucks were quite limited. Like us, the notion of going to a bank for a loan was right out the window, they probably wouldn’t even give you the time of day. Most underdeveloped regions have informal savings clubs, where people contribute a defined amount every day or every week and get a defined amount back when it’s their turn. These are the most prevalent type of savings systems in these regions, and they serve a population that, until lately, had little options.
The last several decades have seen a rise in microfinance, basically small institutions that bridge the gap between large banks and these small informal savings groups. They are not a magic bullet, but they do provide a service that can help raise people out of poverty if managed well.
As you saw in the video, microfinance is usually used to help build small business enterprises, or for education and housing. Using it for equity building instead of consumption is vital to staying ahead of the debt curve, you wouldn’t want to take out a loan for something like food or clothes for personal use because it would just make these items even more expensive (adding the cost of debt).
Looking at our Cooks, the best way for her to afford one of our clean cooking solutions would be saving. With savings there is no debt cost, and our Cook’s money goes further. If this isn’t an option, making microfinance available to her would help her afford a solar oven or improved cookstove, and with wise use she can save on her fuel bills and be more productive with her time, making it an investment. Our goal is to work with these institutions, and to bring unique finance solutions to our cooks so that they can break free of the poverty cycle.
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