NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Wednesday, October 21, 2015

Microfinance loans are small, do not require an extensive credit history, and are just enough to build something basic, like launching a grocery business or buying a taxi. In recent years, they have come to represent a source of salvation for the economically disadvantaged.

In some instances, however, microfinance has proved to be controversial. In 2012, between March 1 and November 19, over 70 people committed suicide in Andhra Pradesh, India because they could not pay back their loans. SKS Microfinance, at the time India’s largest microloan company, was soon kicked out of the state of Andhra Pradesh and its collection levels dropped to less than five percent.

The company’s rich IPO was also heavily analyzed. Critics explained that, by attempting to make a profit off of microloans, SKS and other organizations were implementing high interest rates without establishing a proper framework upon which to borrow and return loans. As one critic explained, “selling debt is like selling drugs.”

A new target for microloans

“It’s not that microfinance loans are wrong,” explains Ferdinand Kjærulff, co-founder and ideator behind Coders Trust. “It’s just that they’re betting on the wrong things.” Coders Trust provides small loans to freelance coders to help them improve their skills. Although it has recently launched initiatives in India and parts of Africa, most of its work is in Bangladesh. Of the 14 million coders on the freelance market, Ferdinand explains that 500,000 are from Bangladesh.

Loans only need to be repaid after a coder sees a significant improvement in their income. “We help people focus on their education,” explains Ferdinand. “We place all our bets on the fact that this coder will find a more stable and lucrative income after our program, and we only ask for our returns once they come in.” And, if those loans don’t come in, Coders Trust is alright with footing the bill. “We’re pretty confident about the outcomes of our coding classes,” Ferdinand explains.