Getting Deeper into a Microfinance Institution
I’ve been working with Hluvuku in Mozambique for a month now and had the chance to live for at least a week in 3 different branches (including the headquarters). I was lucky enough to live the day-to-day life of a small branch office with only one loan officer and to witness a transition of portfolio, as this loan officer, Paula, was moving back to a bigger branch and a recently promoted 1st year loan officer, Luciano, was taking over her portfolio. By than it was crystal clear the huge importance of a loan officer at the microfinance world: without their knowledge of local people and local culture, a microfinance cannot work. How would Luciano know what to write about the person’s character without the guidance of trusted people Paula appointed? And how would Hluvuku disburse a loan to someone they don’t know if they can trust and if it will pay back? Quite interesting the dynamics between a loan officer and a microfinance institution… It is almost as if each officer was an institution by itself…
However, I really got deeper into Hluvuku after Bernardo, the founder and general director, asked my help to review their 2007 annual report before it went to their board of directors. The first thing one would notice is how profitable Hluvuku was in 2007, even with substantial increase in expenses due to the opening of a new branch office (which is still not profitable). The obvious question to Bernardo, that in fact I didn’t have to make, he answered before I even started talking, was: if Hluvuku is a non-profit, had social projects and still had a lot of profits, what are the next steps to the organization? What to do with the money? How to think about financial projections and sustainable growth?
I had the most interesting 4-hour conversation with Bernardo ever. He shared all his knowledge of the microfinance world, all he learnt during seminars he attended all over the world and his views on Hluvuku’s future. Yet it was not clear to me he is prepared for a sustainable growth and to move forward without major risks. Bernardo does not count with a knowledgeable board of directors and he actually has reduced academic background (he never went to university). My basic knowledge of microfinance, yet reasonable knowledge of finance, let me to think that a significant reduction in the interest rates charged is possible. Today they charge between 35% and 55% annual interest rate (depending on the industry and loan use), calculated on a decreasing basis over the outstanding loan. After hearing a few complaints from clients I visited, I came to the conclusion Hluvuku does have margin to reduce it. On the other hand, Hluvuku could use this profit to increase their social efforts (such as the soccer team or the help to create water holes for communities that do not access water) and therefore reach more people than just their clients, and at the same time protect itself against any downturn and need of own capital.
I wonder how other MFIs around the world are dealing with this “good” dilemma. And I wonder what is the future of MFIs in Mozambique, Africa and in the world. Any comment or guidance is highly appreciated!
On a completely different subject, yesterday I met a client and while walking to her house to take her picture in front of the house she is building, she mentioned that her family was against her marriage in the beginning because her husband was poor. She was raised in the capital Maputo and her father was a carpenter, but gave all the 6 children access to school and basic needs. And that was enough for her to be richer than her husband. They have been married for 13 years and today her family loves him. Nothing like putting life into perspective, no?!