If you believe some other barrier or principle should be included in the mosaic, please describe it and how it would affect the positioning of your initiative in the mosaic
In my proposal, we have recognized the problems of micro-finance and general conditions of finance availability and seek to address them in a manner that is supplementary to microfinance:
1. Microfinance is democratic, well known for high rates of loan repayment. But repayment is often guaranteed by coercion: property may need to be sold to honour this obligation. Peer pressure in replacement of collateral, proves that a physical collateral is not exclusive.
2. Micro-finance has other problems, too: As 'everyone' in the society can access it. At least we learnt in Tanzania, relatively wealthy people who really do not need it, take the loan anyhow. 'Unnecessary' borrowing is somewhat demoralising, particularly if the money goes to welldoing individuals. But micro-finance upgraded, the real needs are for MESO-level financing, to develop and expand small enterprises!
3. A general problem of lending (in Tanzania) is that the guarantors seem to disappear somewhere. This is because there are no proper credit rating records kept, i.e. referencing agencies and related systems are lacking. Our approach makes disappearance more difficult. Yet in rural societies, both people and their properties are well known (but unregistered) 'to everyone' .
4. 'Cold' external funds topping up local micro-funds seem to dilute repayment rates.
Other issues but microfinance:
5. A general problem in borrowing with (typically) a house/land as a collateral is that very likely it is of much more / multiple in value than the loan required by a potential beneficiary (borrower). Contrarily, at a personal guarantee, a limit of responsibilities can be set. The house needs not be registered (no title book).
6. A general problem of lending and repaying (in Africa) is that both are affected by overall timely needs as well as availability of money: one who has (a windfall of) money, needs to give to those who do not have - whether they need or not. In reality, repayment is not tied to the schedule agreed.
7. In Tanzania (perhaps Africa in general) less than ten % of people have bank accounts. Accordingly the family is the bank and intra-family money transfers are very important. A loan (procedure) is two transfers! We need to recognise that in a typical extended family, there are those who have and those who do not have. That means there are those who are able to act as guarantors of loans.
8. Mobile phones are now used in Kenya/Tanzania. Anything that promotes "family banking" is more important than normal banking. People in Africa are quite familair in using mobile phone in innovative ways. This proposal is another way of using mobile phone and existing hardware (camcorder phone) and the inherent charactrersitics of GSM networks.
9. We may assume from the above (7) that rather than giving money, people may wish to guarantee as no immediate transfer is required! Personal guarantees will be encouraged in our proposal as 'short of cash' problem is thus overcome.
10. In Africa, many social projects are funded by grants. Grants is absolutely free money, sometimes associated with projects of poor managment. Demand for grants is unlimited while supply is obvioulsy limited. We propose more lending vs. grants.
11. Seemingly easy availability of grants nevertheless, deprives funds from many targets as the governments/ central banks do not allow external loan financing to targets that do not generate forex. But as a matter of principle, borrowing under transparent terms (see 'Afrodad' for better borrowing terms) also from abroad should be encouraged to improve discipline and to fill the current financial gap (Including the gap between industrially advanced and poor countries).
12. Institutions do not have access to borrowed funds for purposes that are considered neither investment nor operations (like building toilets to schools) as they cannot issue guarantees that anyone respects.