The action item this week was some light reading on the correlation between investment and development. If you’re interested, give the following articles a read:
Group Savings: The importance of increasing women’s access to investment capital
Leveraging Impact Investment for Global Development
This Week’s Conversation
Forum began this week with a presentation from Queen’s Student Investors Group on financial markets and how they can help in a development context. Sustainable/responsible investing was also discussed with particular regard to how this can mean different things to different people depending on what moral principles govern an individual or group’s actions. QSIG concluded their presentation with the takeaway: if your investment fails, no one gains, so when considering who or what to invest in, it is important to proceed with caution.
We then broke into a quick discussion of microfinance and its implications for development. Microfinance is defined as “An institutional innovation that has emerged in developing economies in response to the pervasiveness of credit constraints faced by small firms and poor households”. Some important features of microfinance we discussed were the fact that typically no collateral is required to take out a loan, typically lenders lend to groups of individuals who are all jointly responsible for the repayment of the loan, borrowers typically start out by receiving a very small loan then as their reliability is proven the loan is expanded, and lastly borrowers are typically held to a very strict repayment schedule. We also discussed some critiques of microfinance. Most notably, the fact that many institutions charge their borrowers extremely high interest rates and even then often require government subsidization in order to remain solvent, funds some believe would be better used at the government level by directly investing into aid programs.
Activity: Real-Time Investing
We then introduced our activity for the week, selecting a project on kiva.org in which QPID would invest $300. Kiva is a crowd funded microfinance institution whose goal is to alleviate poverty through lending. On its platform Kiva currently has 2.6 million borrowers, 1.6 million lenders, and since its conception in 2005 has facilitated over $1 billion in loans. We asked forum attendees to breakout into small groups and examine two potential borrowers each. The groups assessed the borrower’s risk, while keeping in mind such factors as their borrowing history, the industry in which they were operating in, whether the borrower was an individual or part of a credit union, etc. After everyone had decided on their preferred investment we reconvened as a large group and discussed which investment or investments we should ultimately invest QPID’s money in. After much discussion and debate our ultimate decision was to put the money towards two projects. The first loan went to a Kenyan woman named Juster. A hard working mother of one, Juster operates a farm where she grows bananas, maize, and beans. She has been involved in this business for three years. Her business is located in a good area and her primary customers are locals. Juster will use the loan to buy farm inputs to boost production. Her business goal is to have a large-scale farm within five years. The second loan we decided to give to a gentlemen named Luis. Luis is a dedicated businessman who has dramatically grown his business from zero in a village in Manica province, Mozambique. Currently, he operates two small grocery shops, an agro dealer shop and a warehouse. He aggregates the majority of the crops grown in his district for sale to large processors and export companies. Luis’ business has helped thousands of small poor farmers in the district to sell their product at a fair price. He recently acquired a second-hand four-ton truck, which will help his business but also had a negative impact on short-term capital needed to buy the crops. Luis dreams of owning an agriculture mechanization centre in the near future to offer services to the surrounding small farmers in the district. This Kiva loan will be used to provide farmers with needed goods or services in-kind, and agro dealers with access to financial credit to support their crop aggregation businesses. These loans would also enable the purchase of inputs by agro dealers which they can sell further down the supply chain.
We were extremely pleased with the decisions we came to as a group and look forward to seeing the community impacts of our investments.
The takeaway from forum this week was to focus on the impact that investing and other market based approaches to development can have. These approaches can be extremely effective and offer agency to those receiving loans. Many in remote regions around the world have very little access to financial institutions. Even when there is access, many institutions do not see borrowers as credit worthy. This being said, it is still important to consider what makes a good investment when investing in microfinance or other development investment platforms. If your investment fails, you aren’t helping anyone. Microfinance has been an excellent tool for the development of individuals’ financial independence but is not without its faults.
If you’re looking to get involved with investment initiatives on campus, check out Queen’s Student Investment Group (QSIG; applications due soon for committee members!) They will also be hosting weekly discussions on investment so stay tuned!
FORUM: TUESDAYS @ 5:30 / JOHN ORR, JDUC
“Our goal with forum is to provide a safe, informative, judgement free space to discuss a variety of issues within development. We want everyone who comes to forum to feel comfortable expressing themselves in whatever way they see most fit. No question is too simple or too complex and you will never be judged for trying to grow in your understanding. While it is important to recognize that words carry with them a certain weight, it is also crucial that we remember everyone here is coming from vastly different backgrounds with varying degrees of development knowledge but that we all share a common desire to learn, grow, and make a difference.”