The Financial Donut Hole

The other day I took a shared taxi home from work in Freetown, which costs about US$0.20. The driver asked me what I was doing here in Sierra Leone. When I replied “Microcredit,” he said, “Ah, that is for women.”

He’s right – the microfinance industry has focused most of its resources on poor women because they are especially affected by poverty, and empowering women can bring about positive changes in their families and communities. At one of the organizations I’m working with over 99% of their loans are to women.

I told the taxi driver that in spite of this focus on women, some men get microloans as well. So he asked me if he could get a loan to purchase his own taxi. This presented another problem – Kiva has a limit of US$1200 for individual loans, which might buy a motorcycle, but not a car. Kiva and other microfinance organizations have limits like this to help target their efforts to the poorest of the poor.

I explained this limit to him and suggested that he might get a loan from a traditional bank. “Banks are only for rich people,” he said. In addition, he wouldn’t have the required collateral for a bank loan.

So this taxi driver is stuck in a financial donut hole – too poor for a loan from a bank, and yet too wealthy for microcredit. Clearly there are still opportunities to better serve the broader financial landscape.

By David McNeill, KF14 Sierra Leone