Thanks to a chance meeting between an ambitious Peruvian woman and an ISU student, Ekkekko will soon be providing microcredit to entrepreneurs who would otherwise have no chance of receiving financial services from the formal banking sector.
Microfinance can be a very intimidating word. Back up for a minute and think microloan: micro meaning “small,” and thus, “small loan.” Microfinance, by extension, includes the banks and institutions that administer these services, much like the traditional banking sector. Microloans are typically somewhere between $50 and $1,000, though they can vary drastically with the national context, considering factors like gross domestic product and currency exchange rate. When the average daily—or even weekly—income is just two dollars, two hundred dollars can be enough to expand or even start a profitable business.
The major departure from traditional banking stems from the fact that most loan applicants in developing or third world countries are so poor they are property-less. In other words, they have no collateral against which to mortgage—no land, no house, and no vehicles. It is not as it is in most American cities, where one can simply go to a place like TitleMax and borrow against an owned asset; most people in these areas own nothing. In many countries, particularly in third world countries, there is very little or no access to business credit, much less general consumer credit. There are no such things as credit cards or payday loans. Many of the people in these countries work informally or “under the table,” making proof of income impossible.
To deal with the lack of collateral by loan applicants when microfinance originated, it was primarily conducted through group lending, not individual lending as we know it. The way group lending ultimately works is that loans are given to individuals within a social group, where the others are also in need of credit. The first loan has to be partially paid off before a second loan would be administered to an individual of that group. The peer pressure to be timely and current on loan repayment is ultimately a primary reason against default. This form of lending proved to be very successful, and soon expanded beyond Asia, adapting and taking on new variations as necessary or appropriate. Within a few years, microlending and microfinance had become a global phenomenon.
With its rapid expansion, the private sector has begun to show interest in microfinance, perhaps not just for the noble reason of alleviating poverty, but for private interests and profits. Microfinance initially welcomed privatization, as it certainly gives microlenders access to far more credit. Critics also argue that microfinance can be a form of outsourcing debt. American consumers obviously have a problem with their own mortgages, consumer debt and predatory lending. Critics point to those cases where loan recipients borrow money from other places just to repay the loan. Soon, they can have two loans to pay off the first, and so the cycle of debt—“living outside your means”—begins. Not only do many microfinance organizations provide loans to poor entrepreneurs, they also provide business and vocational training. The organizations that provide these educational components teach loan recipients how to start or expand a business, helping recipients with everything from business models to marketing skills, and even English.
The proverb of teaching a man how to fish rather than simply giving him a fish is certainly applicable here. This distinction is what can make one microfinance organization better or more desirable than another. Consider the organization Ekkekko, started right here in central Illinois.
The ISU-Peru Connection
A group of Illinois State University students is in the process of taking what they are learning about microfinance and applying it in the real world. Students enrolled in a Politics and Government course called Topics in Global Studies, taught by ISU graduate student Adrian Marquez and overseen by Dr. Carlos Parodi, are striving to place ISU in an elite group of schools that operate student-run microfinance organizations, including Harvard, Columbia University and The London School of Economics.
In 2007, ISU graduate student Mark Tallman returned from a summer study abroad trip to Lima, Peru, where he met Maria Romero, a poor Peruvian woman who was seeking a small loan to start her own bakery. Mark, now a PhD candidate at the University of Denver, founded the Ekkekko Microfinance Association (EMA), a registered student organization dedicated to promoting microfinance as a tool of development and human rights, educating students and the community on microfinance, and giving students hands-on experience in establishing and operating a non-profit organization. The goal of the EMA is to operate as a non-profit, non-political organization providing financial services to prospective entrepreneurs beginning in the Lima area of Peru, with the hopes of later expanding.
The idea for the name of the organization was inspired by the mythological Incan God of Wealth and Plenty. According to legend, by placing an item that symbolizes your wish on an Ekkekko doll, you will receive it within a year. If you remove the item from the doll, you will lose your wish. An analogy can be made between this legend and the workings of microfinance. Providing something small has the potential to turn into something much larger, and not making loan payments can result in the loss of what one desires. It’s a cycle of give and take, the reciprocity of microfinance.
EMA has applied to the IRS for 501(c)(3) tax exemption status. Once this is granted, EMA will begin providing financial services to entrepreneurs through FINCA Peru, a microfinance institution based in Lima. Working with an already established microfinance institution is the most efficient way for EMA to get into the business of providing financial services, but will also allow EMA to become a microfinance institution capable of operating on its own.
Thanks to a chance meeting between an ambitious Peruvian woman and an ISU student, the Ekkekko organization will soon be providing financial services in the form of microcredit to people who would otherwise have no chance of receiving financial services of any type from the formal banking sector. Maybe what this group of ISU students need is a little help from the God of Wealth and Plenty. Change is possible, but is never easy. A little can go a long way.
If you are interested in becoming involved with the Ekkekko Microfinance Association or would like more information, please email
[email protected] iBi