Microfinance, a financial service targeting low-income individuals, has emerged as a potent tool against poverty. By providing small loans, savings, and insurance to those traditionally excluded from formal banking, microfinance empowers individuals to launch businesses, invest in education, and improve living conditions. This access to capital fosters entrepreneurship, ignites local economies, and creates a ripple effect that uplifts communities.
Great loan to make to to to enable somebody to buy a solar panel, especially in Africa, you know, if it's gonna deliver electricity and then whatever they can do with that electricity.
Yeah. When they get that electricity, Paul, One of the first things I see is that, the performance in school goes up because the kids can read at night.
They also see fewer respiratory problems because people aren't breathing kerosene fumes.
Hello and welcome to rethink what matters the podcast dedicated to aligning the economy with the ecology and everyone for improved business performance, stronger families, and a greener cooler climate.
And today, I'm joined by John Bishop, CEO at Envest in Madison, Wisconsin, US of A. Are we going to be discussing Micro Finance and Poverty.
Good afternoon, Paul. To be with you. And, yeah, it's a great podcast to be doing, micro finance and poverty because I think micro finance can probably help with nearly all of the United Nations seventeenth sustainable development goals. Not just SDG one, poverty.
Certainly, the first six are may have a very strong case and even the next two or three.
And then all the others are impossible with, widespread object poverty. So I I think you're right. It really does influence about half of them directly and all of them in some way or another.
Right. Yep. So if you could if we could please start off with, how you became interested in microfinance, and your journey to creating Envest.
My educational background is in evolution and ecology, and I was a and remain a very strong environmentalist.
And after I, I left, the the biology world, I I became very, very interested in, in, sustainable development.
And I came to realize by living in rural Panama that that poverty was a major threat to to the environment, especially to an environmentally sustainable economy.
And so I realized that that social issues and environmental issues were not separated as they often are. That they they're one and the same thing that that if you don't take care of people, you they can't take care of the planet, because they're the incentives are just all wrong. So I became interested in micro finance, really, because I was an environmentalist, and I was looking at a sustainable way of addressing poverty.
And so I, I read I went back to business school and got an MBA, and microfinance was among the things that I was interested in.
The others could can be summarized pretty nicely by looking at your podcast page. You've interviewed folks who are doing a lot of the other things I was really interested in. So that's I came to microfinance through my, my environmental, aspirations and and hopes.
Would you like to talk a little bit more about setting up and invest in that in that journey?
Absolutely. I after completing an MBA, I have mine as a master's in international management from Thunderbird in Arizona.
My fortunately, my first job out of business school was managing Micro Finance fund, here in Madison, Wisconsin, which is why I moved to Wisconsin, and it's been here ever since.
It was a it was a wonderful opportunity. I was working at that point with a fund in Nicaragua.
And, I loved what we were doing. We were a nonprofit. And the one thing that that I thought was missing was a more market based approach.
We ran on on some revenue, but also there was a a fair donative element to it. And, we were raising donations.
And it seemed to me that to be truly sustainable, it had to be a true business endeavour. And I thought that was absolutely possible in micro finance.
And so I eventually, set off to to establish my own fund, which I I wanted be very market based. I wanted it to be a for profit, but with the the mission and the the values of a nonprofit.
Because I think for profits, and and all this resonates with you. For profits can be every bit as moral as any other mission based organization.
And that's what we seek to create at at Envest. That we are a for profit market based business that is as concerned with the well-being, people on the planet as any nonprofit ever would be.
Could you explain what microfinance is.
Of course. Microfinance at the very simplest level is small loans and other financial services, savings and and insurance generally to very low income residents who who have needs for credit that back ass as access to to credit.
In many countries, especially outside of the the West. Banking simply isn't available to, lot of low income, very credit worthy people. That situation is improving, but not fast enough.
In microfinance, a typical microfinance institution, they could be either a nonprofit or a for profit.
They tend to lend to very low income folks who the local banks won't serve, and they have figured out that these are are excellent credit risks.
It's often, but not exclusively for entrepreneurial ventures.
Think somebody working in a, who has a stall in a marketplace, in a a large city or a a fairly small village anywhere in the developing world.
They they sell a few products. They need some working capital to buy those, products, buy the inventory that they sell. They need a stand. They need a little bit of equipment. If they're repairing anything, they need, the the tools and, a little bit of infrastructure.
If there are small scale farmers, they need the inputs. They may need the land.
So it's the need for for small amounts of money, just like a a business in in the West would need just with fewer zeros on dollar amount or euro amount depending on where the world is from, four pound.
And so the these institutions are very often founded by local folks, and so they understand the the business culture, the, the social environment in a way that that I never could.
I I will I will never understand the social, and business culture of Uganda, in a way that I would need to to lend there. But by lending to an institution in Uganda, I, I strengthen them and rely on their, their knowledge of the the areas. So it's folks who need access to to credit so that they can pave their own pathway out of poverty and to to create a, a dignified existence.
So you're lending to institutions. You're not actually lending to the, end user of the money.
That's exactly right. We lend at present, we lend to about twenty institutions in twelve countries, and that those institutions lend to the local folks who need it.
We do not lend to to end borrowers. That's just not our core competence.
And we don't want to get in there and compete with local folks who who are doing that. We want to to support their efforts, not compete with them.
And are those institutions set up specifically to work with you? I mean, do you create those institutions, or do they already exist?
They already exist. They they're sovereign independent institutions.
In most cases, they've been operating for years and years before, we come on the scene.
They're borrowing from several different lenders like us from both domestically and, all over the well, not all over the but for the most part, Europe, and maybe a few North American lenders.
So does the borrower need to have access to the internet to access to access these funds?
It depends on the institution.
For most of them, no, phone banking and and cell phone payments are becoming more and more common, especially as, cell phone ownership increases even at the very lowest end of the economic spectrum. And so we're seeing more and more payments by mobile money, and which usually requires an internet connection. But There are certainly a lot of end borrowers of these institutions who do not have, internet access.
Okay. But, but it is still they need to have some kind of technology to be able to use this, don't they? I mean, they're gonna need a phone. I suppose everybody has a phone now even in the poorest places of the world.
Yeah. Yeah. It's really and, again, some of our our partner institutions, do work with people who who have no phone, no nothing. And so it really is organization specific.
It it really depends on their products. But, yeah, even at the very lower end of the, economic people have phones. I remember, one time I was being taken to see some borrowers in Nicaragua, and we were crossing a bridge, and there were women down in the, the river washing their clothes on rocks. And I saw one of them, put her clothes down on a rock and pull a phone out and answer it.
And I thought, my god, the women washing clothes in the river are answering their cell phones.
This was quite a while ago. I didn't have a cell phone yet. So I that was kind of the this for you to buy a cell phone for me. Yeah.
What is a Grameen bank? Is that is that related to what you're doing?
It's very much what we're doing. Mohammed Yunas founded the the Grameen Bank back in nineteen seventy four in Bangladesh, and he was one of the early leaders in microfinance.
It sprouted up independently in quite a few places. And a lot of people, consider Mohammed Munas to be the father of microfinance. I think microfinance is one of those things that actually has quite a few fathers.
But, but, yeah, he so and he figured out the he, along with a lot of other figured out the group lending idea that people who didn't have, physical assets that could serve as collateral. Could cosign on each other's loan. And so if one person doesn't pay, the rest of the group has to pay it. And and so that there there were quite a few things in that that were really kind of brilliant.
One is that you you really reduced the the risk because one person doesn't pay, the loan still gets repaid.
But it's a it's a lot more profound than that, and that when they're forming up their groups, people have to choose their groups.
And if everybody wants to be in Rosa's lending group, that tells you a little something about Rosa, and she's probably a pretty good, lending risk. If nobody wants to be in Enrique's lending group, it tells you a little bit about enrique and maybe you don't want your money in his hands.
Lots of people know and review. That's a great idea. Just just wanna put that in But, it, it was a a way of doing due diligence on people. You didn't know, but you could tap into village knowledge, And and also when people are getting a little bit behind, the other people in the group will come over and say, Hey, you know, It'll be there'll be a bit of pressure. There'll be some help.
And so it the the the group lending model it's getting less used, but it's still quite popular and especially in Africa.
And that that was one of the real breakthroughs and microfinance back in the early seventies was to figure out how to lend to very, very low income people who had nothing to offer as collateral.
But that's not the only type of microfinance that exist then. It's possible to lend, you know, differently, not just to groups.
Certainly as and especially as, as there's economic advancement once people do have some assets, then asset backed loans. In a lot of ways, they're really more efficient.
A lot of people start in group lending situations, and then they graduate to individual loans.
Once they have of something that will serve as collateral. A television set is off from the first piece of collateral.
Land can do it. Quite if, if you have a beauty salon, the mirrors and equipment for the beauty salon often can serve as the collateral.
So they can when you can match, what they use for their business to collateral.
They can get away from the group loans, but the group loans are still a wonderful place to start folks who are just too far down the economic spectrum to be able to do that. Many of our partners have both individual and group lending.
Thank you. Or not all, and some do only individuals, some do only group.
But a lot of them have a a mix of the the two products.
And if they fail to repay the loan, what what happens then?
So if it's in a group situation, the the rest of the group has to pay if it's in a, an individual.
What happens depends on the organization, also depends on the circumstances.
All of our partners, as they kind of think down our list, really, the, the first question they ask is, are they not repaying because they can't because they won't.
If they if they can, but they won't, then it it usually goes to a judicial action.
After it goes to collection and then to something judicial.
Right. What's more common is that people absolutely acknowledge they need to pay. They want to, but they can't.
And then there there's usually a workout. There's restructuring.
The loan may eventually get lost, but, but there there's it's a much more collaborative approach.
If something happens. Give me just a final cap on that question. What happens if they don't, repay? They don't get any more loans.
And and that's a huge incentive that if you repay your loans, you'll get additional loans and for a greater amount. And so you're actually in, in most situations, you're in better shape if you repay your loan than if you don't repay your loan. Yeah.
I'm thinking they I'd imagine they all want to repay, but they probably don't get a lot of support maybe in helping to run their businesses or And so I was just thinking the risk might be a lot higher and, you know, they're already they're already in a in a in a difficult position to then find themselves in a more difficult position, you know, could could make things worse for them.
That is one side of the coin. The other side of the coin is that if you're in a especially in a fairly small village, and you're selling some fairly basic product.
At least at a very small scale, you likely don't have much competition.
Right. And so while the the part of their business opportunity is precisely because of lack of infrastructure.
And so a what a lot of these loans are doing is they're going to finance the provision of this infrastructure that a lot of businesses business services become available because they get financing to provide them.
Before cell phones became so prevalent.
One of the major activities for for lending was for people to go around through villages with a phone and sell phone calls. That was that was the Grameen bank did a lot of that.
The late nineties and early two thousands.
That's been supplanted, but that gives you the kind of, an idea of the kind of thing that, was actually a business service that was, available. If there wasn't a pay phone, then in the village.
So the the lack of infrastructure often results in the business opportunity itself.
And can you share some stories, some success stories that you've seen through, through through the lending that you're doing?
Well, I'm glad this is a three hour, podcast because I Yeah. You know, just only one, one or two. Just, you know, good news stories because we need a lot of we need more good news stories on, you know, to share, don't we? Because, you know, that they the challenges that we have in the twenty first century, we wanna know that we're making progress as well.
I've got several.
I visited, a store in rural Nicaragua one time. They they sold clothing and food items and stuff. And, there a lot of people in the village could only come at night, and they didn't wanna buy clothes at night because they it was dark.
When they borrowed money to buy a solar panel, they had light. And their clothing, sales to skyrocketed as a result of getting this solar panel financed with a loan. The other thing is that that, that house now had a a workable television set in the evening. And so it was the only TV set working in the evening, and so everybody came and watched it. Would buy a a bag of chips while they were there. And so their their business just skyrocketed as a result of buying this, the solar panel.
Another, more recent one, one of my colleague, our our East Africa rep, was just visiting person in South Central Uganda, who took out loans because she's the same stress, and she can, she needed to buy a sewing machine and cloth and tools and And so she could she could buy more cloth and and just turn out projects more quickly.
She also trains local kids who don't who can't afford the school fees to be, tailors as well. And so at in addition to running her own business, she's a very civic minded person, and she is able to bring them in as a print and then they can, go off and set up a shop somewhere else. And so a lot of people would look at these kids as competition, but she just sees it as as giving back. And this is somebody who lives a very simple life, but she's still, is able to give back because she has access to, to credit. And so a lot of people are getting a useful skill because this one woman, their name is Naomi.
Has access to credit. And when when our representative, and that told me that story, it was when it is like, something I've seen so many times, but it it was just one of those things that reminds me why I do what I do.
Really like that story. So how often are you seeing that, through the lending that you're doing, that you're creating jobs?
It's it's constant. It's so we we What we're really providing is access to credit, which is obviously providing livelihoods, about fifteen thousand people are getting access to credit because of our activities.
I wish that I I would love to put three more zeros on that number, and then another couple of zeros after that. But, as we grow, that's really what we look at is access to credit. Because when you give access a credit, you're providing a livelihood to that person.
And very likely, a a job or two or three around that person, and they're becoming a, a part of the financial ecosystem in their, their community.
They they're now able to buy more products for their business, and that's supporting some other entrepreneur. And so you get a a a real financial ecosystem.
So you you're lending the money to sort of entrepreneurs people who already have some idea or they have an idea or a group of people have an idea.
So they're not they're not completely on their up as these people. They have got food. They've got, you know, they're not they're not in complete poverty by the sounds of it. The people that could help you helping here.
Could that be fair? I mean, how low down the spectrum of poverty. Are we able to go with microfinance to help poor people? Yeah.
Good point. It's getting pretty far down the the economic spectrum. It is to your point, the people have absolutely nothing and have no way of, putting together a business are going to be hard pressed to to, to take advantage of this. But even then, there are stories This isn't one of ours, but I I remember reading about a woman who bought a barrel of toothpaste and started selling toothpaste by the spoonful in the market.
And, she, you know, she had there was no skill other than being able to take a spoon and dip it in there.
But what she had was the intelligence and the foresight to realize that that people didn't have toothpaste and they couldn't afford tubes of toothpaste. And so even people pretty far down the economic spectrum, can very often figure out some financially lucrative activity that they could do if they could just buy the barrel of toothpaste.
And the institutions that you work they you work with, are they also delivering education awareness programs that there is this credit available? And if they have got a bright idea about toothpaste you know, here's here's a way of accessing it because oftentimes people just don't know this this sort of thing exists.
Yeah. So the one thing I that I think is, I I do wanna be clear about most, most microfinance institutions require six months to a year of experience with the the business in question. So this isn't startup capital. And it, it often gets presented in fact. And I just wanna make sure that we're clear that it usually is to people who have a going concern.
Very often, they don't have much of a going concern, but they are already doing whatever this is, and they could be doing more of it. If they could buy, you know, some tools, if if they just had a hammer something like that. Mhmm.
And and also, I wanna make it clear. We're we're generally not talking about twenty eight dollar loans. The our the average loan size in our portfolio is about eight hundred dollars.
Still, that's That that's, that's a fairly, fairly small amount of money in the that can keep a family going.
As to the kinds of educational, opportunities that the institutions give a lot of our partners have basic numeracy training programs. They have marketing.
They have they call it commercialization.
How to get your your product to market?
In a few cases, especially in the the agricultural dependent ones, they help them get their their product to market. And so the the institution often serves kind of as a cooperative, a receiving co op so that they can get better market prices and that they can get them bulk rates and things like that.
That's not the norm, but we do have a few partners who do that.
Gender rights, training programs are fairly common. These things are getting a little less prevalent as the competition gets greater, but they still do have those those kinds of things.
And so there usually are some sort of training opportunities, usually having to do with marketing and and basic numbers and basic accounting.
So it'd be great to see that, you know, that through this microfinance is being delivered, to these entrepreneurs that, you know, they are creating jobs, you know, they're increasing the the local economy.
And then that would filter through to improved, you know, health care. An education so that everybody benefits from it. I mean, are the investors there?
Are there sufficient numbers of investors, you know, who want to invest in these sorts of funds.
We have eighty seven investors right now.
We hope to improve that their their real challenges just to find ones that there are a lot of people who would love to invest, but they don't need the in that net worth requirements.
And do these do these investors have to be very, philanthropic and altruistic in in their investments in ideology or would they be getting somewhere else where they get a higher return?
Our our return is near market.
If you compared it to to something in the same level of perceived risk, it probably doesn't perform up to that. But it's not heavily concessional.
And that that's really part of the the the goal and division of investors to to deliver near market to market rates of return, because that's when it becomes sustainable.
As far as the the investors, some have a a fairway philanthropic mindset, but most need to make a a market rate of return, and they're willing to take a very slight haircut for the the mission, but they won't take, you know, they won't go for a zero percent or a one percent return.
They they need a a near market return. And so I I would say that.
Describes ninety percent of our investors.
And do you put any restrictions on the types of businesses, borrowers that you'll lend to?
We vet the institution.
We make sure that they're their values and what they're lending for is consistent or consistent with what we do.
One thing that I'm particularly interested in is, supporting renewable technology, solar panels efficient to stoves.
And so we're particularly interested in in lending to, micro finance institutions that have solar lending products.
That's a lot more prevalent in Africa than it is in other parts of the world. And Our main source of growth right now is Africa.
Seems like a great, a great loan to make to to to enable somebody to buy a solar panel. Especially in Africa, you know, if it's gonna deliver electricity and then whatever they can do with that electricity.
Yeah. Would they get that electricity, Paul?
One of the first things I see is that, the performance in school goes up because the kids can read at night.
One of the first things they see.
They also see if you're a respiratory problem because people aren't breathing kerosene fumes. That's brilliant.
And I heard, a little while back actually that there is a very tight correlation between power not going down every five minutes and GDP. And I think you just made a very good example that education improves because the the lights are
And then if we can get especially these developing countries to to get the lights on without producing the fossil fuel, the fossil fuel that we do.
That that's really my dream. To be use microfinance to, to build up economies, like, going a a more sustainable route. Than the one we took. To make a one point that I think is kinda interesting, we're getting access to a lot of people about fifteen thousand people.
We're also strengthening these institutions.
And when you strengthen institutions, they have more power to do things in their community, and they hire more people, and they can educate more people. So beyond the the micro entrepreneur level, you're also helping these micro finance institutions that are able to branch out into other financial products. And quite a few microfinance institutions have become banks over the years in many countries. You know, Grameen Bank didn't start out as a bank. It was, it was what they called it a bank, but it didn't have a banking license that very first. And a lot of institutions that start out as lending, as micro finance lending institutions, then become, financial institutions and then be get a bank license. So a lot of these these MFIs, you you could really consider it a breeding ground for banks.
And having banks that that have their their roots as, social and impact organization.
It's certainly not a bad thing. Having a lot of banks that that have impact and and social progress in their DNA is is a positive So that that's another aspect, of microfinance well beyond just the folks with the hires, but, the confidence that it it breeds within a country.
So SDG sixteen, you're supporting that as well. Peace justice and strong institutions.
Yes. Absolutely. John, it's been absolute pleasure having you on this podcast. Thanks very much for your time and in sharing your knowledge about microfinance and and your journey as well to setting up and Envest.
And, yeah, you know, thanks very much for the work you're doing and helping to address poverty in the areas where you are and create opportunity where perhaps, you know, it didn't exist before.
So again, thanks very much, John, for your time on this podcast.
Thank you so much. Thank you for the invitation.
And also thank you for highlighting the efforts of so many others. I looked at your podcast page, and there are a lot of people doing a lot of good work. And I think what I do is important, but so is what they do. And thank you for highlighting them.