SPBD Business Woman of the Year Awards 2014

The SPBD Business Woman of the Year Awards was a rather special occasion this year, marking 5 years of SPBD in Tonga. It was held over three days with a Saturday evening cocktail party, Sunday church service, and the main parade and award ceremony on Monday. The whole event was a fantastic showcase and celebration of the spirit and efforts of the thousands of women-entrepreneurs here in Tonga.

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Previous winners leading the parade

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Having been here for 7 months, it was something I could really appreciate and enjoy. I even did a traditional Tongan ‘haka’ dance with the staff at the award ceremony that we’d be practicing for weeks. Of course I was put right up the front and had the cameras on me, while I tried my best to remember the hand movements. I was far from good but it was lots of fun!

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Getting bear hugged by an excited Tongan woman

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SPBD CFO Polly and I with the previous award winners

There was one part during the three days that really summed up the incredible experience I have had here working with SPBD. On the Sunday after church a number of us, including Greg the CEO were invited by Siunipa Nimo and her center to enjoy a feast in their village, where we were spoiled with food, singing, and laughter. Siunipa is a previous Business Woman of the Year who leads her centre so well, proud yet humble she just sat back and enjoyed herself.

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Greg and I

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One of the women stood up to talk to Greg and the rest of the staff. She bought all of us to tears, “we may not have much to give, but we are proud” she said. She told the story of how just that week she had the opportunity to go online, visit the SPBD website and read Greg’s story, which got big Greg teary.

The celebrations were a good reminder of why I am here in Tonga and made me proud to be a part of it.

The beauty and vulnerability Ha’apai, Tonga

I got the chance to visit the stunning island group of Ha’apai that was hit earlier in the year by a category 5 cyclone, Ian. Although mainly for leisure, the trip underscored my belief in the work that I am doing in Tonga. Ha’apai is a small, isolated island group that is very exposed and vulnerable to the elements, and its inhabitants are consequently some of the most vulnerable in Tonga.

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Cyclones like this can destroy crops and rip homes apart, and are a regular occurrence for these islands. Given this fact, it is not hard to understand why saving for the future is a foreign concept in Tonga and most people consume what they have in the moment, as the future is uncertain. It is this same fact that makes an understanding of savings so important. Acquiring assets and building safe and quality households is so important for the future of the people that live here.

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Microfinance in Tonga has provided women with the opportunity to build a better future for themselves and their families. By firstly building sustainable micro-enterprises through access to unsecured credit, and being able to save for investments in those business and their families, there is an opportunity for these communities to be less vulnerable. However, simply providing these services is not enough to prevent shortsightedness and make a significant impact; attitude and behavioural change is needed.

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Financial education provides the women here with a greater understanding and control over their finances. When they understand and appreciate the benefits of planning and saving for the future through practical training and coaching, we can observe attitude and behavioural change, such as reduced unnecessary expenses and increases in savings.

It is important for people to be in charge of their own destiny, to feel a sense of accomplishment and improve self-esteem. This is where I feel microfinance differs from Aid. Although sometimes necessary, aid can breed dependency and reduce empowerment; to feel indebted is not a good feeling. Microfinance aims to empower individuals to help themselves through improving their income generating businesses and make choices with control over assets.

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Over the long term, building and empowering women and their communities through microfinance and financial skills development can have a lasting positive impact. For the inhabitants of Ha’apai, having the ability to save securely might enable them to generate lump sums of cash which could be used to build more securing housing for protection and to reduce losses in cyclones; or smooth adverse events such as health emergencies and crop failure. Through financial services and education, SPBD hopes that it can encourage regular and long term savings for investments in the future.

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People: the key to microfinance

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In my previous blog post about the difference between banks and microfinance institutions (MFIs) I cited ‘people’ as this fundamental difference. MFIs use people to be able to provide financial services for the poor or those who lack access to traditional banking services.

There are a number of reasons why individuals lack access to traditional banking services, which can vary across countries according to geography, banking rules and procedures, and government legislation. It is important to understand these restrictions to understand how MFIs use people to overcome them.

Firstly, physical access to traditional banking services has been a restriction for the poor, particularly in rural areas. Bank branches are often located in wealthy, urban areas and out of reach for the poor. MFIs provide access for the poor by going to them. Group meetings are held regularly (once a week here!) where loan applications, loan payments and savings are collected.

A lack of understanding of the financial products available from banks can deter individuals from wanting to apply for them. It can also make it difficult for these individuals to assess the benefits and costs of obtaining the product. A lack of education may also make it difficult for individuals to complete the loan application process. MFIs overcome this by providing clients with simple products, assisting in the loan application process, and many MFIs (like SPBD) have a dual focus on microfinance and education, so provide financial education to clients. Before a client can borrow from SPBD they must attend introduction sessions to ensure they understand the terms of borrowing.

Other reasons for a lack of access to banking services include prejudice- banks may refuse entry to the poor. The small transactions that these individuals are likely to make may also make loan officers think it not worthwhile to assist them. MFIs employ people who share its mission and want to help the poor. Also, MFIs specialise in small transactions and aim to reach and provide opportunities to as many people as possible.

Eligibility is the primary barrier to traditional banking for the poor, and naturally the major way in which microfinance has distinguished itself from the traditional banking sector.

There is no way for a bank, with all its technology, to assess the ability of an individual to repay or likelihood of repayment other than to assume that those with more can afford to borrow more. There are many other factors that determine the likelihood of someone repaying their debt, including human characteristics such as trustworthiness. A computer cannot tell whether someone who says they are using a loan for a specific purpose is actually going to use it for this or whether they will be able to repay the loan.

Niall Ferguson in ‘The Ascent of Money’ discusses the idea of credit as a measure of trust. The very reason that banks are able to lend so much and grow is based on the idea that we trust the banks enough to hold our money. The truth is that they don’t actually have all our money, so if we all wanted to pull out our deposits at the same time, the banks couldn’t deliver. They trust that this won’t happen, so they create ‘money’ and lend it to individuals, with the trust that they will repay. With this type of relationship and millions of dollars in single loans, they cannot afford to just lend to ‘anyone’, nor can they afford to get to know each of the millions of individuals that they lend to, when profits are at stake. Consequently there is more incentive for banks to lend to already wealthy individuals with collateral. One generally cannot borrow from a bank without collateral or against future income without a steady job. So how do MFIs lend solely to individuals without either?

They use people of course!

Let me explain how it works here at SPBD Tonga, a modified Grameen Bank model, used by thousands of MFIs across the globe. Villages are broken up into centres, where meetings are conducted each week, and centres are broken into groups of women, all of who know each other reasonably well (a member must have lived in the village for at least 1 year). Each member of a group acts as a guarantor for the other members in that group, and beyond that, each woman in the centre is a guarantor for every other woman. What this means is that, as well as the obligation to pay their own loans, the women also have the obligation to cover others in their group, and centre, should others fail to meet their weekly payment obligation. If these payments are not met, then each member of the group faces a reduction in their next loan cycle, or in extreme cases may not be able to borrow again. Before applying for a loan each woman must explain exactly what they intend to use the loan for, and the centre as a group must agree to the loan. This clever incentive structure gives each woman a reason to make sure that each loan in their group and centre is being used productively, and essentially collect information that the MFI cannot.

Now, initially an MFI has about as much information as a bank might on each client. Over time, as relationships are built between centre managers and their clients, more information on the personal characteristics and circumstances of clients and their businesses will be obtained. Each client ceases to be a number on a computer screen and becomes human with a face, personality, story and reason for borrowing.

Let me finish by returning to Niall Ferguson and the idea of credit as a measure of trust. Where a banks’ ability to lend more and more hinges on our trust in something that isn’t real- the ‘money’ they create, an MFIs ability to lend is through the real relationships and trust that people build with one another. The technology that banks have replaced people with, as brilliant as it may be, cannot measure the very thing that they rely on to make millions: trust. Only people can create, measure and understand trust, and MFIs have used this trust to give opportunities to millions, through this thing we call ‘credit’.

Malo

Zac

The difference between banks and microfinance institutions

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The past couple of decades have been an era where the banks of the developed world have sought efficiency through technology such as mobile and Internet banking. We are in an age where we rarely have to step into a physical bank to make payments and transactions; we can shop at the push of a button. When we do visit the bank we often face long queues because the bank has one or two staff manning fifteen ‘service’ counters. Technology has replaced humans and consequently we have become numbers on a computer screen. These numbers; the numbers that represent ‘money’ in our bank accounts; along with some number that is our credit rating are essentially all that someone at a bank (aided by a computer calculation) will use to determine whether they will lend you money.

A bank’s main objective when providing a loan is to get its money back (with interest), so has more incentive to serve the rich, whose bulging bank balances and assets serve as security for the bank against non-repayment. After all, the person approving the loan wouldn’t want to lose their well paying job by approving a ‘risky’ loan! The numbers that the bank uses to define a person, provide no insight into their trustworthiness and exactly what they will use the loan for.

Imagine if you will:

Two loan applications come across the desk of a bank officer. They are for the same amount. He is relatively new to the job, recently out of University and looking to impress his seniors. He wants to work quickly, but not make any big mistakes, his bonus at the end of the year depends on it. Especially since the credit crisis, the bank has tightened its credit standards.

One application is for a Mr. Big, who owns 4 investment properties and works for an investment bank. Mr. Big wants to expand his empire with an investment that, if it pays off, could make him a very rich man indeed. The other is for Ms. Small, a young woman who, since university 3 years ago has had a variety of different jobs but has recently landed a well paying job that she enjoys. Ms. Small’s dream is to own her own home and has found the perfect one! She has worked hard and saved enough for the deposit.

The bank officer knows relatively little about what the two will use the money for and how they are going to repay. He knows Mr. Big has a large amount of assets and the bank could recover the amount of the loan. He picks up a stamp and marks Mr. Big’s application: ACCEPTED, in big red letters. “He’s is an investment banker after all”, thinks the bank officer, “he knows how to manage his money!”

After looking at Ms. Small’s application all the bank officer can deduce is an unstable job history and no collateral. He wouldn’t want to make a bad decision now would he? It might cost him his job! He picks up a stamp and marks Ms. Small’s application: REJECTED.

Ms. Small is heartbroken and confused; she has been saving hard. Her dream home has been snapped up by an investor and demolished to make way for new apartments. She will save and eventually get a mortgage, but no house will be the same. Mr. Big makes some risky investments and loses the loan amount. “You win some you lose some he thinks”. He has to sell one of his 4 investment properties to pay for the loan, but he is really no worse off, he’ll make it back on another investment.

The bank officer in this scenario acted fairly rationally given the information he had. The bank got the loan amount back from Mr. Big and he received a bonus at the end of the year. Given all the information we have about the two individuals, we probably would have liked to see Ms. Small receive the loan over Mr. Big so that she had the opportunity to buy her dream home. However most people in the position of the bank officer, with little information and their own incentives would act in the same way. How can we justify a loan with no collateral?

During this same period, an increasing number of Microfinance Institutions (MFIs) have provided millions of people with such loans, and with this the opportunity to improve their own lives. These are people who begin with little money, no collateral and no credit rating. MFIs generally have a much higher repayment rate than banks and most have done all this with relatively little technology. How has this been possible? How did they know these loans would be repaid? How did these MFIs not become bankrupt with so many unsecured loans?

People. MFIs rely on people and human relationships to build sustainable businesses that are able to serve the poor. So, while MFIs have served millions by using the power of people, banks have made millions by replacing people, to serve shareholders and make a few people wealthier. To me, this is the fundamental difference between MFIs and banks. People. MFIs use the interactions between lots of people to help lots of people; banks are using less people to serve a few people.

It is interesting what we can achieve when people come together! How exactly do interactions between people and this information help MFIs? Stay tuned for more posts. I’ll explain a bit more about how it works here in Tonga and introduce you to some of the people at SPBD that make the difference.

Malo

Zac

Vava’u Data Collection: 1 week down

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SPBD Tonga has sent me to Vava’u to accompany Paula, the social performance manager, to assist in rolling out its Financial Education Program. Most of the borrower centres in Vava’u have yet to receive any financial training, or receive financial booklets and I thought it might be the perfect opportunity to do some data collection and analysis.

The idea would be to take a random sample (using an online randomising tool) of clients in Vava’u that have yet to be exposed to SPBD’s financial training, and assess their understanding of their own finances. This would then be compared with results from after those clients receive training and financial booklets to analyse their impact on financial literacy and financial decision-making. The results could then be used to improve future training and make any updates to the financial booklets to make them more informative, if needed.

The week leading up to the trip was hectic. Aside from my normal fieldwork I was busy constructing a survey using Open Data Kit (ODK), which I became familiar with at Good Return’s induction training. The software allows the user to build a survey using excel, sync it with an online account and download to a mobile device that can be taken to the field to conduct surveys. The results can then be uploaded to the online account, then downloaded to review and analyse.

I am one week into the two-week Vava’u trip and the ODK data collection is going well. It was surprisingly easy to construct a survey, and even easier to use in the field, where time is often limited. Doing a simple survey like this has hugely increased my understanding of the women here. Some have never had the opportunity to go to school, and many have little awareness of financial concepts or a complete understanding of their financial situation in the way that ‘we’ might. Many live week to week on income from their businesses, as I mentioned previously- spending what they have, the amount left just enough to cover the loan repayment that week.

Many have dreams such as sending their children to school, to give them opportunities they never had, but without understanding the importance of saving, or how they might reduce expenses to improve saving in order to achieve these goals. Others have never taken the time to dream of a better future, as they are constantly living day to day. SPBD’s financial education program starts with a vision exercise, (as I have written about previously) and ultimately aims to help its clients achieve them by improving their financial awareness and decision-making.

Conducting this data collection exercise has reaffirmed my belief in the importance of financial education and also demonstrated the value of data collection and analysis in understanding and evaluating the effectiveness of programs.

Malo

Zac

Vava’u trip: week 1

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So, I’m up in the Vava’u for a very packed 2 weeks of work with SPBD Tonga. The Vava’u island group consists of some 50 islands, and attracts tourists from June to around October with the arrival of humpback whales. I have been excited about this trip for many weeks, taking the Financial Education Program (FEP) and Financial Education Facilitator (FEF) training on the road with Paula, the social performance manager for SPBD.

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Cat and I flew up on ANZAC day, and what a flight it was! We had some good weather for the flight heading up. I had the window seat and the sights were, well, breathtaking…

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We arrived at our hotel in the afternoon, Puataukanave Hotel, a huge establishment, right on the water in Neiafu, and only 5 minutes walk from the SPBD office. Cat and I soon learnt that we were 2 of only 3 people staying in the hotel. Taking a brief walk around the town, we also found the rest of Vava’u pretty deserted. There is one restaurant open for dinner (and it’s not the one at our hotel), and on Sunday we have to ask that the hotel specially open its kitchen for us so that we don’t starve, as nothing else is open.

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 The view from our hotel room is amazing, and something special to wake up to every morning. In the evenings we get the sunset over the mountain across the lagoon.

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It is the end of my first week in Vava’u and am very tired. I have been kept busy with long days in the field, training the centre managers, monitoring client training sessions, data collection via a survey on my mobile that I created with Open Data Kit (the Good Return induction training came in useful there) and the FEF training. It has been a very productive, interesting and exciting week of work, which I shall shed some light on later. For now, being Friday, I’m just happy it’s almost the weekend.

Malo

Zac

Easter in Tonga 2014

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For this Easter this year in Tonga we decided to hire a car over the four day long weekend and do a bit of exploring. This is what we saw:

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Coastal road along the east coast.

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Stopping at some beaches along the way.

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Then our car decided to break on day two…

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The blowholes are absolutely amazing! We went twice.

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Then we went to some more beaches and did some snorkelling.

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Hope you all had a good Easter.

Malo

Zac

The Perfect Day

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Finally!! A weekend in Tonga with not one drop of rain. Instead we basked in beautiful sunshine on a desert island, gazing upon sea and sky that seemed as one. We had made the trip to Pangaimotu island once before and had an amazing time. This time it was something else.

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The ferry ride over felt like we were slicing through glass, the water was still and clear. I already knew it was going to be a perfect day. The sun baked down on us as we hopped off the boat. There was only one thing to do, we grabbed our snorkels and waded into the clear turquoise water. We swam around the whole shipwreck this time. It is quite eerie around the other side where the sand suddenly drops off, and the vast blue opens up beneath you. Colourful fish lurk in and around the ship, which is something quite amazing itself, lying only 30 or so metres from shore.

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 After the brief swim we walked down the beach and round the corner, to our own private patch of sand and water. We sat for a while gazing at other small islands dotted in the distance and small waves breaking on the reef. We were in paradise, and only a 15-minute ride from town!

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 Soon enough we were back in the water and snorkeling. This time the seabed didn’t drop off and we could cruise around the shallows for a hundred metres from shore. No waterproof camera means I can only describe what we saw. There were starfish the size of basketballs and families of fish swimming through living corals that hide among them as you swim past. We saw a hermit crab with a shell bigger than my fist and corals that had an ultraviolet tinge. I was blown away.

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 We made our way back toward the ferry and played with the kittens that roam the bar – ‘Big Mama’s Yacht Club’. We sat and had a drink, gazing on the sun-sparkled-sea, then caught the ferry back to Nuku’alofa.

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On the way back home we bought iced coconuts. The ground melted under my feet. If you’ve ever bought ‘miracle’ coconut water, for a ridiculous amount of money, that has been sitting in a tiny packaged carton, in a supermarket fridge, I urge you to go somewhere where you can get a real coconut, recently picked, for a fraction of the price. It is simply not the same.

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 We have a long weekend this weekend, with good weather forecast. We plan to hire a car and see all of Tongatapu. Watch this space!

Malo

Zac

My week: Visiting Ha’amonga and FEF training

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This week began in much the same fashion as any other, I was out in the field with the centre managers visiting borrower centres. This Tuesday however was something special. The sun was out all day, which has (perhaps surprisingly) become something of a rare moment in Tonga. We visited some centres in the North Eastern part of Tonga, driving right along the coast. The coastline is absolutely spectacular, the water sparkles turquoise and the horizon is dotted with smaller deserted islands. Powerful waves break on the reef, which contrasts with the calm still waters nearer the shore. It was slightly unfortunate that I was at work, yet it was still a feast for the eyes. Since I was in the car I was unable to take a worthy photo to upload, not that it would justify the beauty of the place. You just have to come here see it with your own eyes.

We did manage to have a quick break at the historical and equally impressive Ha’amonga. Most people have heard of, or been to Stonehenge, but who knew that Tonga had its own standing stones! I’ll let you read about it on your own through the photo below.

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Wednesday was our second day of Financial Education Facilitator training. It went very well, and was an improved training from last week. We were aided by some of the FEF’s we trained last week, who were there to assist with the practical component of the training.

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 The week was also spent delivering the new financial booklets to the centres. It was great to see the excitement it has generated among the women, who are keen to use the diary as a tool to improve financial decision making.

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In other news, I was in the paper last week here in Tonga, at the first centre to receive the financial booklets in Tongatapu. I am hoping this weekend is a nice one so I can explore Tonga a bit more and share the experience.

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Malo

Zac

 

The key to SPBD’s Financial Education Program: Financial Education Facilitators

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I have spent some time during the past couple of weeks developing a 2-3 hour training program for a number of special SPBD clients. These are members who have been specifically chosen by their borrower centres and centre managers to take a unique role within their centre. They are SPBD’s Financial Education Facilitators.

These women have demonstrated their ability and understanding in the Financial Education process thus far. They are members that are highly respected by others within their centre and embody the commitments that SPBD asks of its members. They are committed to their centre, their business and ultimately saving for future improvements to their household and livelihood.

 

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They will be responsible for collecting and checking financial booklets for their centres and acting in a mentoring and coaching role in order to increase the ability of members to complete their financial booklets. They will be able to assist members for the other 6 days and 23 hours of the week that a centre manager is not at the borrower centre.

This has huge benefits for SPBD as well as the individual centres. We hope that in providing special training to these Financial Education Facilitators, that the knowledge and benefits will more quickly filter to others in the centres. In doing this SPBD is providing a quality product offered by no other lending institution in Tonga.

The Financial Education Facilitator will also assist the Center Manager in recording the completeness and correctness of the financial diary. This will assist the centre manager and SPBD to analyse the outcomes of the Financial Education Program and monitor its impact.

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Ultimately if all of SPBD’s clients understand how to record and analyse cash flows; the importance of saving; debt management; and good spending habits these can be very powerful tools, when coupled with a loan, to pull themselves out of a less desirable situation.

At the centre of all of this is the new financial booklet, which has started being distributed across the borrower centres in Tongatapu (Tonga’s main island). It holds all current loan information (term, loan size, interest components, weekly repayments, time left on loan and amount owing), savings information, general information, and the weekly cash flow diaries.

We began training the Financial Education Facilitators last week, and will finish the first batch of training this week. I look forward to seeing how this program develops and travelling up to Vava’u (another island group) in the coming weeks to train the Financial Education Facilitators and staff there. I will keep you updated with these developments and some more photos.

Malo

Zac