Andrew Golis

My good friend Jack has been in India for about a month now working for SKS, “one of the fastest growing microfinance organizations in the world,” and he’s blogging about it.

As someone who knows very little about development, I’m finding his writing absolutely riveting.  And, frankly, the pictures are even better.

Jack explains what SKS is helping this woman to do:

After speaking with her, my concerns (perhaps you could call them paternalistic concerns) about our members being able to price the full cost of our loans declined. She shared this thinking with me, though I have added a few additional calculations and clarifications. Her figures were not this precise, but her train of thought and explanations were.

She had decided to purchase a water buffalo, which cost ~30,000 rupees. She had Rs 10,000 in savings that she was willing to put towards the purchase of the buffalo. She would match this with a loan from us to complete the purchase. To determine if our 20,000 rupee (425 USD) loan, paid over a one-year term, was worth it, she calculated the following:

1) The cow would produce 4-6 liters of milk per day, which she could sell at Rs 15 – 18. Let’s call this Rs 75 more in daily income or Rs 500 per week, for simplicity’s sake.

2) In six months time, the cow would become pregnant. During this period, she would only be able to get 2-3 liters of milk per day. Or Rs 40 per day over the gestation and calf rearing period.

3) If the pregnancy was successful, she would be able to raise the calf for a year and then sell the calf for up to Rs 20,000.

4) She hoped to repeat the successful pregnancy at least twice more over the next four to six years.

The interest on her loan came out to Rs 5,000 on a principal of Rs 20,000. So, on a weekly basis, she was expected to pay back Rs 500 (Rs 60 in principal and Rs 15 in interest per day) per week. Consequently, for six months, if everything went okay, she would just be making her interest payments with the additional income from the milk sales. But, from then until the end of the loan repayment period, she would need to find money from somewhere to service the loan. She and her husband had decided that he would take on extra work to cover this shortfall.

She explained that she was confident that they would be able to pay the loan back over the course of the year and that, after this time, the cow would earn for the family more than the cost (interest) of the loan every four months or so.

You should read his blog, it’s fantastic.

This entry was posted on Tuesday, September 16th, 2008 at 8:59 am and is filed under media, the world. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.