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Small-scale loans can make a big difference

Lehigh students developed technologies to speed up microfinance loans.

Like dozens of small villages in the northwest corner of Honduras, Pueblo Nuevo rests in the shadows of San Pedro Sula, a city of 900,000. The two communities share little in common; one is an unpaved village while the other remains the economic engine of the small Central American country.

In the mere 60 kilometers that separates them, however, there is one constant: poverty. With a 55 percent unemployment rate according to the latest census, Honduras is the second-poorest country in the Western Hemisphere, ahead of only Haiti. The impoverished country served as a classroom for seven Lehigh students for 10 days last June as a "Lehigh in Honduras" venue provided an intimate, realistic, and optimistic portrait of microfinance.

Microfinance is a relatively simple concept that involves giving loans of $50 to $500 to the working poor, who use the money to establish or grow their businesses. They have a payback rate to the order of 98 percent. But aside from its economic commitment in aiding the poor, there's a cultural dynamic in play as well: Women are the primary recipients of these loans and, in the majority of instances, they are the only recipients. It's become one of the world's most successful vehicles for social equality and empowerment.

Recognizing its importance in the world of international business, Lehigh's Martindale Center for the Study of Private Enterprise, under the guidance of director Rich Aronson, launched a microfinance program a few years ago, and classes focusing on microfinance are being taught by Todd Watkins, associate professor of economics, and Andrea Wuerth, a program coordinator with the Martindale Center.

The center also became a delegate to the Microcredit Summit Campaign, an international think tank of microfinance officials.

The widespread institutional interest in microfinance was the catalyst for what was to become a rather unconventional student-led microfinance project, the result of which has unlimited possibilities.

Led by three computer science and business (CSB) students, the project involved designing two new technologies to help expedite the microfinance loan transaction process. Both prototypes, the technologies are now being piloted by microfinance institutions and their loan officers throughout Honduras.

In one, the students developed an application to run on mobile devices like a Pocket PC that would allow loan officers to enter and digitally record data on site. The information they collected could then be synchronized with data already stored on SQL server databases found at regional bank locations.

The other pilot technology included the development of a database management system that allows banks to efficiently enter loan repayment data and to share crucial information like client and credit histories.

"We wanted to work with Honduran technology specialists to design an automated system, one that doesn't rely so heavily on paperwork and which consolidates the loan approval process from three days to about 15 or 20 minutes," says Scott Menzer '07, a computer science and business major.

The prototypes resulted from conversations the cohort held with household entrepreneurs and loan recipients, as well as leading banking officials and banking technology specialists. It's up to loan officers in the field to determine how to adapt the technology the students developed. But while future plans may hinge on how well the technology performs, the students had an incredible experience.

"You realize that so many poor people are so eager to take advantage of any opportunity to improve their lives and their children's lives," Wuerth says. "We were so impressed with their motivation, their hospitality, their pride in their businesses, and their commitment to family and community. We left Honduras with the impression that microfinance really does work."

--Tom Yencho

Lehigh Alumni Bulletin
Spring 2007


Photo courtesy of Martindale Center/b>

Posted on Tuesday, March 27, 2007

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