By Rebecca Harshbarger
Tuesday, January 19, 2010
Microfinance is on the rise and not only reaching women, but a growing number of female teens. One industry participant warns that lenders must step carefully with this age group to avoid causing unintended harm.
Partnering with a Kenyan microfinance institution called K-Rep, the Population Council's Tap and Reposition Youth, or TRY, program offered female teens loans at an interest rate of 15 percent.
To receive a loan, the teens were required to provide 4 percent of the loan to the program as collateral.
The program also encouraged the teens to apply peer pressure to ensure members of the borrowing group paid back the loan. In order to borrow, the teens formed watanos, or groups of five, who helped each other to keep up with payments.
Less than 20 percent of the participants lived with their parents or said they had friends they could turn to for support. Most lived transient lives, often staying with boyfriends or male friends.
The program started out well, but most of the teens were soon unable to pay back their loans and lost their collateral. Starting hairdressing salons, food salons and other small businesses was very challenging. An emergency would come up in their personal lives--losing their shelter or getting ill--that require more cash than they had and participants would fall behind on repayments.
The teens told TRY that they disliked the pressure they were under to both take out and pay back the loans.
But because of the pressure--which also took the form of social support--they kept borrowing even when they could not manage the repayments or were not that interested in starting businesses. Some girls, for instance, wanted to save money for school, rather than open a hairdressing salon.
Bruce said young women who are married, have children and have started their own businesses often benefit and fare well with microfinancing.
But teens with no business experience may not be able to tell the difference between a loan and a grant, which does not have to be paid back.
Caitlin Weaver, deputy managing director of the Financial Access Initiative, a New York-based consortium of development economists, agrees that there can be a big difference among teens' qualifications for lending programs.
"In a lot of developing countries, where you have more informal nongovernmental organizations and microfinance institutions, a lot of their clients are young women but they are not classified that way," said Weaver. "A 17-year-old running a family and married with a business [in Africa] is much different than a 17-year-old in the Dominican Republic who is still in high school."
TRY has since ended its teen loan program. Now it concentrates on savings programs, where participants deposit savings in a larger microfinance account from which they can withdraw money at any time.
The account is meant to give girls a safe place to keep their money and a cash cushion against emergencies. The program offers social support that ranges from livelihood trainings to nutrition seminars, without the pressure of loan repayment.
Local banks would require formal employment and-or significant savings to open an account, as well as opening fees.
Such savings programs for teens in developing countries are relatively new, partly because few people thought they had any money to save.
"Most teen girls have a livelihood, but it's not what people typically consider," said Karen Austrian, a staff associate at the Population Council's Nairobi office, in a phone interview. "A lot of them get pocket money that they save or they do chores like washing utensils and clothes, fetching water. Some help out at salons and make small amounts of money. A lot of girls like to save for emergencies."
Rebecca Harshbarger is a journalist based in New York. An entrepreneur as well, she has created a news site that connects East Africans in the diaspora with independent news from their homeland, at http://www.ugandansabroad.org. She also blogs at http://www.ugandabeat.wordpress.com.