Business section editor Drew Bassini sat down with Tim Bontempi (Class of 2017) and Jeff Mosco (Class of 2017), co-founders of the Sellinger Microfinance Club to get a better idea of what they are involved in both on and off campus. The mission statement of the club is as follows.
“This club aims to merge students’ business knowledge with service by allowing them to learn about microfinance and manage a portfolio of microloans to struggling entrepreneurs in developing countries and their own community. The goal is to spur a passion for social responsibility in students that will be reflected in their future careers, while also helping to build a better world”
Before Reading this interview, here is some background information on microfinance:
Microfinance is the provision of financial services to low-income people. It refers to a movement that envisions a world where low-income households have permanent access to high-quality and affordable financial services to finance income-producing activities, build assets, stabilize consumption, and protect against risks.
For more information, follow this link: http://www.microfinancegateway.org/what-is-microfinance
The Greyhound: Microfinance is critical to providing financial aid to low-income households, and further produces a second chance for the individuals receiving these loans. What led you and Tim to create the Loyola Microfinance Club?
Tim Bontempi: The way we define microfinance is slightly different than the definition above. We don’t believe microfinance is necessarily giving financial aid to people with low income. Instead, we are providing low-income entrepreneurs with the financial services needed to create or grow their businesses. This way, we are providing the means for sustainable economic growth in areas where the health of the economy, more specifically the financial sector, is not able to help people reach their potential. We are not providing loans for consumption, which could actually leave people worse off than they were. We want to provide entrepreneurs with the financing and education to make their business ideas a reality. This way we give men, women, and their families a chance to contribute to their local economies and provide for themselves. We don’t want to simply “give a man a fish,” we want to “teach a man to fish” and also make sure they have the means to do so.
At the end of our freshman year, Jeff Mosco and I noticed how there were not many student-run clubs or organizations that really tied together the Jesuit ideals of service and action with the education we were receiving in the Sellinger School of Business and Management. We began to meet with various professors in the business school to share the ideas we had come up with to create a club that does this and get feed back on those ideas. Eventually, we stumbled upon microfinance and thought that it held a lot of potential for Loyola students to change the world with the knowledge and skills they have from their Sellinger education. We thought it was time that Loyola created a microfinance club similar to those at other prestigious business schools. The Wharton School of the University of Pennsylvania and Bentley University are examples of schools with student-run microfinance organizations that have a large presence on campus.
The Greyhound: Often lenders issuing risky loans are considered predatory lenders. What is the difference between a microloan and a high-risk bond?
Tim Bontempi: The reason banks do not service the impoverished and don’t really have a presence in developing countries is because making loans in these areas often carry high risk of default. People who manage to receive loans often get them at extraordinarily high interest rates. Predatory lenders or “loan sharks” often give these loans. They charge high interest for the same reason a high-risk or junk bond demands a higher interest rate than an investment grade bond; when there is more perceived risk, there is a higher required rate of return for investors. The difference between the type of microloans we will be making and a high-risk bond is that type of microloan we will make is given to a person to grow their business with no or low interest. High-risk bonds are issued by less credit worthy corporations to bond holders in order to finance the business. Bondholders expect high returns to compensate for the default risk associated with the company’s credit.
Unlike a bondholder, we expect to have negative gains on our portfolio of microloans. Though we have a team with the purpose of hedging against default risk, the fact that our loans do not have interest attached to them means that we will inevitably take a loss when some of our loans default; though the default rate for loans through Kiva is just a little over 1%. We will make up for our losses through fundraising instead of interest.
The Greyhound: What is your method, or the institutional method, to evaluating whether to provide a family or individual with a microloan? What are the characteristics most valuable to determining?
Tim Bontempi Our approach to deciding whether or not to issue a loan follows a process that involves everyone in our club. First, the leadership team informs the club what type of loan we would like to make.
There are many different types of loans we can give. One type is the “crowd funding” technique, which we will use through a website called Kiva. Another type is essentially a domestic wire transfer through another Kiva website called Kiva Zip. However, we think that there are more options for us to do good in our community and around the world. This year we will look into collaborations with The World Relief Program, Global Brigades (The University of Maryland and Johns Hopkins University already have microfinance organizations established with this program), The York Road Initiative, the Govanstowne Farmers Market and the Haiti Program.
Next, the club, which is split into two teams, will do independent research and return with their recommendations at the following meeting. Members will look at potential options and evaluate the loan requests using SWOT analysis. The team leaders will meet with their teams before the general meeting in order to debate which investments they believe would help entrepreneurs and not carry too much risk for our portfolio. They narrow down their choices and present them at the meeting. The head investment officer and the president and vice president will then open up a discussion with the whole club to make a final decision on what investments everyone thinks would be most beneficial with the least risk. After investments are made, our investment relation’s officer will follow up with the recipients of the loans to ensure they are using the money correctly and to manage our relationships with those people.
The Greyhound: What is the path often taken for people to enter the microfinance field? Are there any skills people interested in entering should know or learn before entering the field?
Tim Bontempi: There are many ways for Loyola students to pursue microfinance after college. One path that could be taken is towards working for a microfinance institution. Many microfinance institutes these days are created with an emphasis on social responsibility and sustainability. However for large firms, sustainability means that they are able to turn a profit. Without being profitable, these entities can’t exist. These types of organizations have been under fire recently due to the lack of regulation in the industry and for corruption and predatory lending. By building a passion for ethical microfinance in students with Jesuit values, we are building the leaders of microfinance for tomorrow. The skills for entering the field can vary greatly. The most important skills to have are the abilities to detect talent and properly value business ideas and models. Essentially, the skills you need are the same skills we are already getting from our Sellinger education.
Students can go down a much different path that still contributes to the microfinance cause. No matter what a student’s profession be after college, continuing to issue microcredit through websites like Kiva is something people can do on there own. At the very least, we hope to spur a passion in our members to continue using websites like Kiva on their own after they graduate.
The Greyhound: What are some examples of companies in the microfinance field?
Tim Bontempi: There are a large variety of companies that are involved in microfinance. Organizations like Kiva are one type, but they do not operate by themselves. For example, Kiva uses many third party entities known as microlenders, which are placed in developing countries to issue the actual loan, collect payments and manage education and community relationships.
Muhammad Yunus, the inventor of microfinance, created the microfinance institution named Grameen Bank. The bank operates in India and it functions similarly to a traditional bank, but they have an emphasis on lending uncollateralized microloans to impoverished Indians and also allowing those with little money or assets to save. Yunus’ bank is the 17th largest microfinance organization in the world according to Forbes and it reported revenue of about $12.5 billion last year.
The Greyhound: What are the club’s intentions for the year? What do you have planned for the future of the club?
Jeff Mosco: This year, our club hopes to grow a dynamic portfolio of microloans through fundraising. We also would like to spread awareness of our club through the business school and across Loyola’s campus. We are also aiming to incorporate the Sellinger Scholars program with our club, which will provide sustainability for the future of our club. Our club is designed to provide real life experience to students of any year, which will help further Loyola students’ careers after college.
The Greyhound: When and where does the club meet?
Tim Bontempi: The club will routinely meet bi-weekly on Monday at 7:30pm in room 133 in Cohn Hall.
Photo courtesy of Fr. Lawrence Lew on Flickr: https://www.flickr.com/photos/paullew/2928243599/in/photolist-5sL1NB-s3oavY-9adrFg-rQ6DZX-5GD1i9-rwgSJK-ir7AfR-dD4mAW-6tsg4L-jpSa3o-oky26q-bgfH5g-jpQo32-jpNKWZ-85zZG7-ijdPPU-8UCHVr-cPCVZW-f2rY5G-dm3VKA-e5wYQP-8jqsXv-iPH37v-qRHPGj-gozLf8-keRd8H-dDBfUP-8wjeK3-jpQHZC-9QSrRv-8wjeUS-dihz6V-jpQmHt-jpQFf9-atnpjS-fkX8ii-85JMs1-jpNJFT-9n3zt7-mHXvdN-ecQSB9-pubbvR-guyJHY-pnUgrd-ajCdYe-oxyQr6-j1T6DW-nKfsD7-bhodyD-85etbu
