Adam Torres and Tom Eggert discuss microfinance.
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Show Notes:
How is microfinance different from international aid in the developing world? In this episode, Adam Torres and Tom Eggert, Founder and President at Wisconsin Microfinance, explore the Wisconsin Microfinance model and how small loans are actually making a difference in the lives of the loan recipients.
About Tom Eggert
Founder and President of the Board of WI Microfinance. Emeritus status with UW Madison – taught classes in “business and sustainability” and “systems thinking” in both the WI School of Business and the Nelson Institute for Environmental Studies. Board treasurer for Cool Choices, Advisory Board member with Midwest Environmental Advocates, and board member for B Corps state board (B Local WI). Original adviser to the UW Office of Sustainability, and elected delegate to the UW Academic Staff Assembly. Fulbright scholar teaching classes in Latvia in 2014.
About Wisconsin Microfinance
Wisconsin Microfinance was created to provide seed funding for small businesses in the developing world. By providing very small loans to very poor individuals, they seek to improve the quality of life of families and the economic potential of communities. Micro-loans empower individuals to take responsibility for improving their lives and break the cycle of dependency which is often created by short-term aid. All loans are made to individuals who are members of a lending group, and no member of a lending group can receive a subsequent loan until everyone has paid back their first loan. In addition, the majority of their loans go to women, as women are statistically more likely to invest the money into an endeavor that will improve the economic condition of her family. They have already seen the impact of micro-loans in communities in Haiti and the Philippines and hope to spread this impact of micro-loans to other communities.
Full Unedited Transcript
Hey, I’d like to welcome you to another episode of Mission Matters. My name is Adam Torres, and if you’d like to apply to be a guest on the show, just head on over to missionmatters. com and click on Be Our Guest to Apply. All right, so today, Tom Eggert is the guest on the show, and he is founder and president over at Wisconsin Microfinance.
Tom, welcome to the show. Thanks so much. I’m really looking forward to the discussion today. All right, Tom. So today’s topic role of microfinance and economic development, I guess, just to get us kicked off here. Like, what got you interested in microfinance originally? So I was originally a professor at the University of Wisconsin and had a student from Haiti that went home for winter break.
And this was 2010. He was on the last flight out of Port au Prince before the earthquake in 2010, which was probably one of the largest earthquakes in our hemisphere. 350, 000 people were killed millions and millions of dollars of damage. And so he was a student in my class again in spring semester.
That was the 1st of the natural disasters that the Red Cross. Allowed us to donate directly to help people through our phones. And so this idea of helping was a big deal. Juergens was in class, the students raised 3, 000 from parents, grandparents, aunts and uncles. And we were just looking to donate it to a group that was helping people sort of get back on their feet.
The food, the water, the shelter healthcare medicines were being taken care of, but. You know, the people that live that the buildings that they worked in no longer existed, their jobs no longer existed. So how did we help them become something other than aids of the state? So we couldn’t find a group.
And from looking from our side Juergen’s parents were down there. They couldn’t identify a group looking from the Haiti side. And so we talked with his former pastor who had started an economic development nonprofit, explain the ideas of microfinance and ask him if he would be interested in piloting a program.
And out of that Wisconsin microfinance began and has grown significantly over the last. Now, almost 14 years this summer. Wow. That’s an amazing story. When it’s 14 years, you know, most businesses don’t go you know, past 10 and so like, see what you’re doing there.
What do you attribute some of that success to? Well, so when we started down this road, I had been teaching about the Grameen Bank and about Mohammed Yunus and sort of the brilliance of his model. And really his model is simplified to say, make loans to women. They’re going to be more responsible. Charge low interest rates.
them short term loans, so no more than six months, and always put them in groups, groups of six, groups of eight, and tell them no one in that group is going to be able to take out another loan until everyone has paid back the first loan. That creates both peer support and peer pressure, and it takes, You know, the partners that we work with off the hook of enforcing the collection of loans, the loans get paid back because they’re the community wants to continue to take out loans and, and it works amazingly now.
Do you still teach her? I did retire. No, I’m retired now. Oh, wow. How’s that treating you? Now you’re a retired, you’re an entrepreneur, you’re not retired. That is correct. Right. I am busier now that I’m retired than I was when I was working. But I’m betting you’ve heard that from many retirees before. Oh, no, that’s a, that’s a great story.
And I, and I love it that you found also the second, you know, another act. That’s what I, that’s what my favorite thing is. I, when I think about how many acts we have in life, I mean, it’s amazing. And then, and then, you know, obviously the platform mission matters. That’s what we’re all about is making sure that we’re highlighting stories that we feel are out there making a difference.
So it’s it’s interesting. Yeah. So, and so in this act, I mean, prior to this, were you in, were you kind of an entrepreneur before? Or is this like one of your, your, your big entrepreneurial ventures? I’m just curious if you always had it in you or if it was something that you’re like, ah, you know. No, I, I fall into the category that I think I have, I was born, I was born an entrepreneur.
And so, you know, through, I ended up teaching the first class on campus on sustainability back in 1994 at a time that no one else was doing it. And so I had to sort of build the whole momentum around it. There was student interest, of course, but not institutional interest yet. There we go. And you know, I mean, I happen to be in the right place at the right time for 25 years of, you know, continuing to grow a program, grow an idea, grow, you know, the interest of the business community.
Businesses became leaders in sustainability and, you know, being among students that have so much energy and so much optimism is. You know, it’s, it’s fantastic and that’s probably what I miss the most. So talk to, let’s go a little bit further into, into microfinance and how it works. You gave us the model, so thank you for that.
But what are, what are, what are the individuals who are the communities that take out these loans? Like what are the types of things that they use them for maybe in like kind of the geographies? Right. So we are active still in Haiti. We opened in the Philippines in 2014. We opened in the Dominican Republic, the other side of the island of Haiti in 2021.
And last year opened in Pakistan in Islamabad. So we’re sort of scattered across the, the world. We go because of the fear of corruption. we want to make sure we want to maximize the opportunity that the money that we’re providing actually gets to gets to borrowers. And so we need connection.
Can you explain that? Can you explain that? I just want to. What do you mean? So, right. So, we we raised the money in the U. S. We have a partner in each of the countries that we are working with. It’s an agri it’s an agricultural co op in Haiti. It’s a credit union in the Philippines. It’s a foundation in the DR.
And it’s another non profit in Pakistan. So the, the model is very different. It’s very flexible as to who we work with. But in all of those cases we have a connection to one of my board members. And so somebody can get on the phone or get on zoom or get on WhatsApp and say, what’s going on? We didn’t get the report last month.
You know, what’s happening with these borrowers, they’re not paying money back, whatever. And so, we have a one on one contact that, you know, maximizes the chances that that money that we’re sending over is used for what we’re designing it to be used for, and that is loans for the very poor. And so those connections have been critical and also explain sort of the haphazard nature of which countries we’re in and which countries we’re not in.
Yeah. We would like to be in more places. We just, we don’t go out searching for a partner in a country without, They’re already being a relationship that we can. So, and that was, you know, we learned that just through time that otherwise money just disappears. I mean, it is the developing world and corruption is a real problem.
And, you know, if you’re going to try and manage that. You have to kind of be strategic about that. Oh, yeah. So, so getting back to what the money is used for tell me a little about that. So our loans are 100, 200 in that range for the 1st round loan. They double then each succession, each successive round.
So these are, you know, small businesses that people are starting a small Marianne does small, little grocery store in their house. Buying some little animals and growing them into big animals buying material and sewing it into something that would be useful in the community. So cottage industry, kinds of things.
We don’t want any of the. The borrowers to be producing something that isn’t sold in the community. So we’re not, you know, trying to build some sort of export business that economic development at the community level really needs to be, you know, meeting the needs of the community and then helping that community.
Grow as a whole. And so our approach to that is to use individuals to create businesses that then grow and hire more people, but are providing a good or a service that’s useful in the community. How do you know that the loans are like that? They’re actually making a difference. Great question. So you know, like all and there are a lot of microfinance institutions, both in this country and in the world.
We’re all really good at measuring percent repayment. We can tell you how much you’re an academic. So I had a feeling that the way you set this thing up, there’s more to the answer. Right? Sort of the, the output stuff. I knew, I knew you weren’t, you weren’t designing the system with the flaw there, Tom. Go ahead, please.
So the outcome stuff answers the question, are we really making a difference for these families that are taking out loans? And so before every loan is distributed, we have. We have them fill out a survey and we call it our progress out of poverty survey. This was designed by some students that I had working with me before I retired.
And so it asks things about when was, how many meals did they have during the last week? When was the last time that they had meat in a meal? Wow. What is the roof made out of? What, How many pots and pans do they have? How many days were their kids in school? What about health outcomes? And so, you know, as a, as an individual takes out a 1st loan, pays that loan back, takes out a 2nd loan, pays that loan back.
So now we’ve got 2 surveys, because before each of those loans, they filled out a survey, they take out a 3rd loan, pay that loan back. We’ve got a 3rd survey. So we can track changes over time. Amazingly it is consistent from country to country. People are eating more meals once they have taken out a loan.
More of those meals include a source of protein, generally meat. Their kids are in school more often and they have better health outcomes. And so we can confidently say that Yes, we are not putting loan recipients on a hamster wheel where they simply take out a loan, do some work, pay back that loan, take out another loan, and you know, and just, it’s like busy work.
No, this is actually making a difference in the quality of life of the family. That they’re eating better, their kids are getting a better education, health outcomes are better. So we answer the common criticism of microfinance that it really doesn’t make a difference. It’s just a way to generate, you know, sort of economic activity without making a difference in the lives of the, of the loan recipients.
it’s amazing and it seems like this would be like, I mean, obviously it helps and, but it’d be like, it’s, it’s self sustaining. So it’s like way different than something like international aid or something else you’re empowering. It’s, it’s completely different.
Right. Correct, because, I mean, as we haven’t even talked about this, but you figured it out, all of that money that’s paid back enters a revolving loan fund, is loaned out again, paid back, know, loaned out again. So, we get a hundred dollar donation from somebody, that hundred dollars can circulate. You know, for years and years and how, you know, dozens of people you know, take steps to, you know, sort of lift themselves out of poverty.
Yeah, that’s amazing. And, and looking at the implications of how something like that, like, how do you scale something like this? Like, how does that work? Yeah, so I mean, that’s a great question and it’s one that we’re constantly struggling with because every business is out there. Don’t worry whether it was microfinance or otherwise.
I probably would have asked you unless unless it was a product and it’s like, well, we do this, this, this. Okay. Well, they know how do you scale this? This is such an interesting idea. So we have to tie into the existing community because that as we get to the 3rd round and the 4th round loans, those loans are getting pretty big and, you know, we can’t that kind of thing.
So, 800 for a loan and so you’ve got a group of 6 people all of a sudden, you’re talking almost 5000 for and so we want. To make sure they get tied into the existing financial system, banking system, whether it’s a credit union, whatever. And so, for the first 3 or 4 rounds of loans, we’re essentially giving them a credit history.
I mean, they don’t have one, right? They, you know, aren’t. And they have no collateral, which was kind of one of the ideas with microfinance. So now they can go to the existing banking system and say, I’ve successfully taken out three loans or four loans, paid them back. Here’s how my business has grown. I’ve added some employees, we’ve expanded our lines.
Now I am deserving of a loan. That you know, would be available to a business in the country. So that’s been our answer. So how do we scale this on the high end? our role is really sort of building that credit history for individual. We’re going to get them started. Nobody’s making loans to them.
You know, other than us in, in each of the communities that we’re in and we’re giving them the chance to take responsibility for their lives, as opposed to be dependent on the government, nonprofits, aid organizations. To take care of them. And we think it really makes a difference in sort of the dignity of people have confidence that people have and sort of the future of what kids think is the way that the world works and the role that they can play.
is this considered a financial institution, by the way, before I say that? We are not. We are not. Okay. We, and we decided when we organized, we decided not to be regulated by the SEC. We, we incorporated as a nonprofit, and so we operate by a different set of rules, but we are not holding anybody’s money with the expectation that they’re going to get it back.
And so. Okay. The doesn’t get involved and it makes our lives so much easier. Okay. Yeah. That makes sense then because I was going to my next question was going to be if this was, then you’re also getting rid of your best clients as those get bigger. But the goal here isn’t to keep them into our. Correct me if I’m off on the statement, but the goal isn’t to keep them you know, within your system of microfinance, it’s kind of to, to help them and to grow them.
So you’re almost like they’re, you know, you’re almost like they’re angel investor, if you will, to use some us terms. Right. And the aim is the aim is to get them, you know, onto that next level or that next round in this case, which may be traditional banking. Exactly. I mean, in the angel investor analogy, I think is perfect for this.
Yeah, I think it’s great. I think it’s it’s also interesting too, to see like what, what happens when, when, you know, are, do any of these default? Like is there another side of this story? So there is, I mean, it’s not a very high, I mean, I think we’re at a, a 2 percent or a 3 percent default rate over the life of the program.
So 14 years. That’s amazing. Over 15 years, or 14, 15? Yeah, 14 years. 2%. So, I got, hold on, Tom, I got to say this, but I can’t help myself. Is it because we’re loaning it only to responsible women? What? I, it does make a big difference. I had to do it. Big difference. Yep. Yep. Yeah, so we can talk about the difference between what women do with money that they make and what men do.
But that would take us in a whole different direction. Yeah, no, no, no, we’re not doing that. So the 2%, though, do you attribute that to the original model? Well, partly, or like, what, how does, or when you’re, is that what the big deal is? It is. It’s the model and it’s also the partners that we’re working with.
I mean, there is a lot of handholding. There’s a lot of interaction on a day to day basis with borrowers, helping them make pricing decisions, helping them manage inventory, helping them, you know, just learn how to run a business. And the partners that we’re working with are all, they’re trying to further economic development in these communities.
We’ve just given them another tool that they can add. And they’ve been very willing partners with us that mean the benefits are obvious to them as they’ve worked with us. It’s amazing. Well, Tom, that being said, it’s been great having you in the show. I mean, I learned a lot. I’m sure my audience did as well.
If somebody wants to learn more or to get involved, how do they connect? So we’re always looking for people to get involved in whatever way that they can. Our website is probably the best and it’s just wisconsinmicrofinance. com. Wisconsin microfinance being all one word. There’s opportunities to, to volunteer.
There’s opportunities to donate. Certainly there’s opportunities to put us in contact with other groups that we could talk with. So we welcome whatever kind of assistance somebody would be. Would you be interested in providing? And, you know, again, I’m happy to talk with, with anyone just to provide some additional information as they think about, well, who else could I introduce Tom to?
Yeah, that’s great. And and we’ll put all that information in the show notes so that our audience can just click on the links and head right on over and check out the website. And speaking of the audience, if this is your first time with Mission Matters or engaging in an episode, we’re all about bringing on business owners, entrepreneurs.
Entrepreneurs and executives and having them share their mission, the reason behind their mission. You know, why do they do what they do? What makes them tick? And if that’s the type of content that sounds interesting or exciting, you hit that subscribe button. I don’t know what you’re waiting for. This is a daily show.
We’re releasing episodes every day and you don’t want to miss any. So hit that subscribe button. And if you’re a long term listener, don’t forget, leave us a review. We sure do appreciate it. Tom, really appreciate you coming on the show today. And so much for the opportunity.
