USAID and the US State Department fund a number of programs around the world that are focused on financial development. The administration of these programs is farmed out to a number of organizations, both for- and not-for-profit, who in turn find sub-grantors to actually deliver the programs around the world. The Financial Services Volunteer Corps (FSVC) is one of these sub-grantors. They are currently doing a lot of work in the Middle East, Africa, and Eastern Europe on micro-financing and supporting small businesses.
The FSVC relies on a network of over 9,000 volunteer experts from around the world who volunteer their time and professional expertise. FSVC programs are often with micro-finance institutions, as well as central banks and government treasuries and budget offices. As I learned more about the FSVC from Leah and Danyelle, the two FSCV employees who accompanied Amanda and I in Lebanon, I realized that FSVC really loves their volunteer experts and want us to have excellent experiences. I also learned that their average volunteer expert is much older than I am and has deep subject matter expertise. Danyelle even remarked that this was the first time that she was working with two volunteers who were both younger than she is. Amanda and I were a bit of an experiment for FSVC to see how things go with younger volunteers. I certainly hope that they are satisfied with our service and will be willing to work with knowledgeable young people again in the future.
Our project had a very specific goal: help one specific micro-finance institution create a new loan category for startups rather than pre-existing businesses. The name of the institution is Makhzoumi Foundation, which was founded by a Lebanese politician in his namesake. Its current president is the politician’s wife, May Makhzoumi. Our main contact at Makhzoumi was Vartkes (Vako for short), a very friendly and extremely knowledgeable and experienced loan program manager who wanted some help thinking through the implementation of the new type of loan.
Makhzoumi micro-finance is small, but it seems to be successful. By being small their loan officers seem to be able to develop strong relationships with potential borrowers, and then they continue to follow-up with borrowers within their portfolio throughout the duration of their loan repayment period. This reliance on relationship has earned them a good reputation in Lebanon and a low loan default rate. I was extremely impressed by the competence of Vako and his team.
That’s not to say that working with Makhzoumi was easy. Tuesday was a national holiday, so we had one fewer day than we originally thought we would from the outset. Many of the loan officers were on vacation throughout the week, and Vako was also managing an entrepreneurship event for young women in the middle of the week. Amanda and I had prepared for a full workshop with multiple participants. In the end, the most people from Makhzoumi that we ever worked with was four, and there was a lot of idle time over the four days that we had.
Another unexpected development throughout the week was Arabic. We thought that all participants were going to be English speakers, but it turned out that Vako was the only English speaker. The other three Makhzoumi representatives primarily spoke Arabic (maybe some French as well). Luckily Danyelle had prepared for this, and we had two professional translators with us the whole time. They were very nice and become part of our little team over the course of the week. Nevertheless, it was always a little awkward for me to have myself spoken over by someone who was repeating my speech into Arabic. I found myself speaking slower than usual, and like I do in Spanish, using multiple words with the same meaning to make sure that I got my message across.
At the conclusion of the week I can’t say that we made any “decisions,” per se. For instance, Makhzoumi did not decide that the maximum percent of a new business they would fund is 65%, nor did they set into stone the exact sessions and content of their revised entrepreneurship training program. We discussed all of these subjects at length and my hope is that Makhzoumi now has all of the knowledge that it needs to make these decisions for itself.
On the first day of the workshop, I was working very closely with Vako, and he told me that one of the main challenges about lending to early-stage startups had finally dawned on him. He also lamented that I had to come all the way from the United States for him to come to that realization. Obviously, I agreed to come from the US for that very purpose. The US government too, through its various grantors, contractors, and partners, felt that Vako coming to that realization was worth the expense of four people traveling to Lebanon for a week. However, it brings up a lot of questions about these sorts of workshops, short-term volunteerism, and micro-finance.
I’ve shared many of my thoughts before on these themes. Foreign aid, which this project certainly falls under the category of, can either have a positive impact, negative impact, or no impact at all. I see very little possibility for us having a negative impact. Makhzoumi wants to start offering start-up loans. I think it is very unlikely that out workshop will make them less effective. However, whether they will be more successful is difficult to discern because there is no way to compare what Makhzoumi does to the counterfactual. There is no parallel universe-Makhzoumi that may implement the new loan product differently or not at all.
That is why I have my doubts about short-term volunteerism. I’m skeptical about the effectiveness of these short interventions. If nothing else, the Peace Corps taught me about the need for being integrated in order to provide advice and the need for prolonged partnership to meaningfully make positive change. Two years in the Peace Corps was barely enough, if not insufficient. I’ve even heard 10 years thrown around as a minimum necessary amount of time to integrate and effect positive change in a foreign community.
This of course begs the question of why I went to Lebanon at all. To be honest, little of my motivation was altruistic. Part was seizing an opportunity to visit a new culture. I also wanted to challenge my own prejudices about the Middle East and make some connections that will hopefully pay off one day when the Middle East is at peace and not portrayed in the media as a world-wide problem child but instead a major contributor to global culture and commerce. Amanda, my partner for this project, was very interested in the project for her personal and career development, and I wanted to help her on this path.
She was a very good partner for this project. She has worked in international small business incubation, traveled to the Middle East multiple times before, and now is a small business loan officer (which she really seems to be enjoying). These experiences were perfect for our project, and she also did the majority of the preparatory work and dutifully created additional material throughout the week. I appreciate this dedication very much. It was probably the key factor between us having a good week with Makhzoumi versus only a mediocre week.
Throughout the trip I kept seeing similarities between Lebanon and Nicaragua. For instance, the street side and mobile food vendors were very similar (I just loved seeing the different varieties of produce), businesses seem to organize and market themselves similarly, and people are always cooking up the same stale business ideas (for instance, crummy food preparation, convenience stores, and salons). Lebanon has a lot of scooters, whereas Nicaragua had many more motorcycles and bicycles, although the roads were better in Lebanon than they are in Nicaragua. Many people see these similarities and blame culture. They say that Nicaragua (or Lebanon) just has a culture that is vain, not hard working, and not innovative. The people are trying to get along by doing the least work possible. It is tempting to come to these conclusions, but of course they are a multitude of factors that influence the development of culture over time, and then the encultured people have to respond to present day circumstances. I think that similarities I have seen between the countries are most attributable to all humans responding in similar ways to the similar situations, rather than attributable to good or bad cultural attributes.
In a way, it was actually quite gratifying to come to this realization. It is extremely easy to come to the rather chauvinistic conclusion that certain cultures have “bad” attributes that lead to under-development and other social ills. At times when I was most frustrated during my Peace Corps service I had to remind myself that “bad” culture and people were most likely not to blame and instead I was probably naïve of something critical to the situations. To know that humans simply respond to adverse circumstances in predictable ways is to say that there is nothing wrong with the people! If we can only work together to change circumstances, then the problems in society can certainly be improved.
Some observations I had about the culture:
- Lots of cigarette smoking
- Hookah and backgammon is a very popular combination, or dinner and then cards (restaurants sell playing cards)
- Some Arabic countries, including the UAE and Jordan, have different weekends. Certain Moslems in Lebanon also adhere to a sabbath on Fridays (we found this out the hard way when we tried to go to a famous hummus restaurant for lunch)
- Lanes on roads, where they exist, are suggestions are best. I experienced many near-disaster merges.
- Lebanese people believes that their politicians are power hungry corrupt embezzlers (seems to be a universal theme of culture)
- Lebanese love Despacito (the crummy American version, not the acceptable Spanish version)
- It is appropriate to put your bar backs in fez hats (white shirt and red suspenders, if you were wondering about the rest of the costume)
- Following the theme of fashion and design, I noticed a nascent talent for this in Lebanon. There is a lot of home grown design talent (our hotel and a restaurant we went to are prime examples), and there were many bold fashion statements, other than the fez hat
- The Lebanese school year starts in September, and kids go to camp over the summer. One of our translators told me that her kids were loving day camp up in the mountains this summer.
- The nighttime public space hangout culture was alive and well. We walked down the waterfront on Sunday night and it was packed with young people, families, even amateur performers and crummy plastic toy vendors. There were also a number of locations along the waterfront where young boys were diving into the sea, adding to the liveliness of the area in the nighttime.
- Lebanese people sell fresh produce in stalls along the streets. I saw tons of stone fruits, fresh greens, and lots of varieties of cucumbers.
I’m more on the fence now than I was during my Peace Corps service about micro-financing. I did a lot of contemplation going into Lebanon about whether traditional credit, rather than equity, is appropriate for start-ups. Amanda firmly felt that the answer was yes, but only for certain types of start-ups. That had me concerned, since it meant that only more traditional, less innovative types of businesses would be supported. However, as we developed the idea further and worked on it with Makhzoumi, I decided that more traditional types of small businesses could be appropriate options for certain people and acceptable from an economic standpoint. We came up with the following list of business types that a micro-lender is more and less likely to lend to:
Good micro-credit candidate:
- Selling existing products via a new sales channel
- Light assets-based services
- Retail (possibly with a sales or marketing innovation), including inventory financing
- Non-asset based services if the entrepreneur has a lot of experience and/or the local market has low supply and high demand
Less desireable micro-credit candidates:
- Selling existing product with new branding/marketing
- Technology start-ups
- Arts and handicrafts
- Non-asset based services if the entrepreneur has less experience and/or the local market has high supply or not a lot of demand
- New products not currently on the market
However, I still have concerns. Makhzoumi wants start-up lending to only be a small portion of their portfolio. By so heavily funding other less productive types of businesses (the same old bakeries, convenience stores and hair salons in the same old neighborhoods), micro-finance may actually be restraining, rather than enabling, economic growth. Consider someone who wants to start a business. It may be best for the economy if they establish a more innovative business, but instead, seeing available financing, they opt for the more stale type of businesses. Otherwise, they think that they will not be able to get the financing to start the business. An economics PhD needs to investigate these questions, but until that research finds me, I will continue to have my doubts about micro-finance in general.