Interview: Microfinance Movement Capable of Ending Severe Poverty: John Hatch, F...

May 2010
Madrid, Spain, May, 01 2010 - Dr. John Hatch, Founder of FINCA International and creator of the village banking model, while teaching class at the Master in Microcredits for Development program in Madrid, Spain takes some time out for an interview.

You have spoken about brokenness as a means to measure a viable family. What does this mean and how is this being used?

John Hatch: I consider it practical but not very scientific – it forces you to get their story. To me, a severely poor family is severely poor because of some factor, it wasn’t because they were just born into severe poverty necessarily, and it is usually some external shock to the family. I have about 7 or 8 indicators of these shocks: death of a child, death of a breadwinner, illiteracy, chronic illness… These destabilize a family to the point where they just can’t turn around. Basically they are broken and without some kind of exterior help, it will be a continuous poverty circle.

And this exterior help would come in the form of microfinance?

JH: Yes. I use the circle of poverty and a hypodermic needle; these are injections of external capital that take the place of savings. When you are extremely poor, you can’t save, and if you can’t save, you can’t invest, and if you can’t invest in new tools, equipment and so on, then you can’t increase your productivity, and if you can’t increase your productivity, you stay poor, and hence the circle of poverty. Savings breaks that cycle and creates capital, you invest the capital, and you begin to crawl out of the situation.

On the website it says FINCA has seen results among your earliest clients including improved earnings and family nutrition, high repayment rates, and increased empowerment. Where have you seen the greatest successes in transforming the lives of your clients?

JH: Number one I would say is the improvement in food security. The biggest thing they [clients] do when they generate extra income is they eat better, they purchase more, then another proxy indicator of poverty is percentage of income spent on food. In this case, their absolute expenditures on food will increase, but food as a percentage of total income will decrease. Number two is keeping their elementary school age children in school. It’s almost universal in our borrowers that their children are completing primary school. They don’t complete secondary because there is always a primary school in the village, no matter how small, but to get to a secondary school for most people it’s a half-hour to an hour bus ride. It’s also very dangerous for young girls, pre-teens, to be waiting for buses by themselves, coming back when it’s dark. Its logistics – some real costs occur and often the cost of just the bus back and forth wipes out all the savings of the business. There is a lot of fall-out after primary school. After food and education, something which is tough to measure but also important is personal empowerment.

Does FINCA carry out impact studies on clients?

JH: We do, but we are still creeping our way toward what we call panel studies of the same clients over time. Up to now we’ve been doing interviews of about 5,000 clients a year, all over our 20 country program. Half of these will be new clients, half of these will be current clients, and from this we can see what’s happening. That isn’t totally reliable data because it’s not measuring the same client over time, which is where we are getting to. We’re slowing building into our loan application forms a few critical questions that would be answered every four months. It’s so easy to do and it’s cost me 10 or 12 years.

FINCA is in Haiti. How has the devastation of the earthquake affected FINCA and your clients?

JH: Fortunately we did not lose any staff, but some of our staff lost homes. Among our borrowers, approximately 10% died and 60% of our borrowers lost their homes. When you lose your home you also lose your business, because that’s where you keep your supplies. It’s been pretty serious, it’s the biggest hit, not in absolute terms, but in terms of total number of clients affected, with up to 50-60% of our clients affected. Hurricane Mitch [1998] in Honduras was the biggest thing up to this time and it impacted about 25% of our clients. Over a decade later, we are still struggling in Honduras.

FINCA is also in conflict and ex-conflict zones, such as Kosovo and Afghanistan. How does FINCA begin lending in these areas and what special challenges do you face in these areas?

JH: It’s hard to say because the conditions between El Salvador, where I started and where there was an active shooting war going on and Kosovo, where we went into after the actual cessation of hostilities. In Afghanistan, we are still there, but it’s a very tough program. It’s very dangerous for personnel, and the results are poor in part because we don’t have the total oversight for our loan portfolio. We’ve got external field staffs living in Jordan who go in and out periodically, so it is a struggle.

The vision of FINCA International – strives to be a “banker with a soul” and create the best of both worlds: sustainable, financially-sound programs that serve the very poor. How does FINCA strive for this balance?

JH: Overall I think we are doing a fair job in the sense that without margin there is no mission. If you don’t at least break-even and generate a surplus, you are out of business. It then becomes irrelevant what your mission is if you are out of business. We call it “net operating margin”, and we’ve been very successful at generating net operating margin, which in a commercial world would be called profit. With net operating profit for non-profits, you can re-invest it in growing your loan portfolio. We’ve become very good at growing, managing and reaching sustainability. I would say that 90% of the Board of Directors energy and attention goes to financial issues. That gets distracting so that very important issues such as: social impact, what we need to measure, are we really achieving the mission, and if we are in mission drift, we haven’t done a good job of measuring, despite my finest efforts to get the Board to do that.

Three FINCA programs are already self-sufficient (Ecuador, Uganda and Kyrgyzstan) – are sustainable and should microfinance institutions strive for sustainability as their focus?

JH: About 80-85% of all our programs and all but three of our programs are self-sustainable. It’s easier to name the ones that aren’t: Afghanistan because it’s been too hard to supervise and get good repayment there, Haiti and Malawi.

How would you sum up your view of the future of FINCA in the world of microfinance?

JH: I would say that it’s the most astonishing, most successful human endeavor ever created in the world, and not only because I’m one of the co-founders, but because when you reach 150 million people worldwide, when you have 10,000 microfinance agencies around the world – no government has ever done that. Such coverage was never even reached by Alexander the Great, not even by the Roman Empire. In terms of sheer absolute numbers of people benefiting, it’s almost 1/5 of the population of the planet. Just with that track record up to now, and with the movement growing very solidly, you can just project out and realize that in the next quarter century, this movement is capable of ending severe poverty.


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