It has been 3 months since my last auction, and so this post will be devoted to what happened between then and now, and the results of our second auction.
Background of the Idea:
Essentially, we are providing items to the community in exchange for debt. Think of a car loan, you don’t get cash in hand for the car, you get a car, and then you owe the bank for that car. We are doing the same, but we are providing things like goats, sugar, soft drinks etc. Another thing we are doing though, and the most innovative thing, is we are deciding the interest based on an auction system. So, whoever is willing to go into the most debt gets the item. That way, they choose the “winners and losers,” we don’t have to give them cash, the highest bidder is thus deciding his own interest rate, and we don’t overcharge or undercharge their interest compared to the local market. If they pay us back successfully, and in the right amount of time, then they are eligible for a phase 2 item, which is worth more (IE, phase 1 might be a goat, but phase 2 could be a power generator, and phase 3 would be a motorcycle). If they pay us back, but are late, then they get to borrow again, but only for phase 1. This way we don’t reward them for being late, but there is still an incentive to pay, even late.
The First Auction:
After the first auction, what we spent minus what we received was about a 20% loss, and then when all of the money was collected and done with at the end of the repayment period, we had received another 25% less than we were supposed to, making for a total loss of nearly 50%. A big reason for this was that the price of the items varied wildly. A $50 can of petrol, would auction off for $1, and a $50 box of soap would go for $120. If you asked them why they wouldn’t just buy the petrol and sell it for soap, they would say “oh, I’m not a merchant.” It was fascinating to see what many of us take for granted as just being rational thought, being so foreign to them. It also meant that many of the items we had just bought in the local market the day before were being sold off for much less. This was pretty disheartening, and if we aren’t sustainable the company will likely scrap the project, but thankfully they were willing to give it 3 tries regardless, and so we got to do our second auction.
The Second Auction:
For our second auction, we auctioned off 10 more goods in total, 5 phase 2 items, and nearly a third of all of our items were agriculturally related, meaning that they should create sustainable employment for whoever gets them. We had two auctioneers at once this time, about 6 volunteers who helped get the borrowers to fill out their lending agreements, and my assistant, Viktor, checked to make sure that the people bidding were eligible. It was a huge success! Nearly every item went for more than what we paid for it, but none of the items seemed to go for astronomical amounts, people had already started learning about the importance of value, and even people who had borrowed last time and successfully paid us back were content to just walk away from it and wait until next time, instead of bidding too much.
What this means:
Of course, we still need to be paid back, but our overall interest rate came out to about 60% on an annual return basis, which, while high by our standards, is actually quite average for micro-lending outfits around the world. This means that not only have we ensured that people get loans in exchange for productive items (not beer), but we are able to provide items to people without them getting mad at us for picking one person over another, and it’s completely transparent (which is essential in a country like the DRC). Now, if we can just get a higher repayment rate than last time, by getting people to pay us back so they can borrow a more expensive item, we could get rid of the group-lending model that other micro-financing outfits use. This would be a good thing because group-lending often means that the best borrowers don’t want to participate, because then they are stuck paying for someone who is not as responsible. By proving that it is possible to do micro-financing to individuals, we could open up a whole new avenue for credit to get to the poor, and subsequently revolutionize how micro-financing is done.
From my understanding, about 5% of the world’s poor (less than $1.25/day defines poor) have access to micro-finance, and if we could increase that number by even a percentage point, it means millions of people having access to resources that can make a profound difference in their lives. To start though, I need to convince the company I work for that it is a good idea to get behind, and if I can do that, then my next stop will be Mali and the Ivory Coast to implement programs there.
Our next auction will hopefully be June 28th, and so in 3 weeks we will see if anyone has paid us back in the meantime (which would be 6 weeks early), if there are even more people at this auction than the last one, and how our repayment rate compares to last time. Also, I will have some very good friends here teaching English to the local community, and so I will hopefully be able to have them around to witness the auction as well. It will be great having some friends here, and I’m glad I will be able to show them one of these auctions in person.
It’s very exciting to see this project taking shape, and to be a part of it is incredible. Everyone here is so supportive and they simply want to see it succeed. We created at least 20 jobs for people on Friday, next time I hope to create another 40, and it was all done for 60% interest, a rate that they chose, and one that is MUCH better than they pay in the community.
Here we are writing down the names of what items are up for auction. My friend Eric is in the vest, and my assistant Viktor is behind him with the name tag; those two, and my other co-workers, were amazing, and just really took this and ran with it. I’m so grateful to have them all helping me with this.
The items and the crowd, watching other people bidding on phase two items.
This is our list of items on the left (top left is phase 2), the price we paid in the market, for them to use as a reference, and on the right we have the people eligible for phase 2 (top right) and those who never paid us back and were not eligible for anything (bottom right).
One auctioneer at this end, and the other was on the other side. Both sides were packed, and there are many people you can’t see in-between, and on the sides.
Here, they are holding up their identity cards to show that they’re bidding. They call out the price they’re willing to pay over 10 weeks, and the person willing to pay the most gets the item.
Between this project and my other duties, I have been pulling 80-95 hour weeks and now I am leaving for vacation with some of the family in Europe. It’ll be so nice to get away and relax a bit, but man, this is an exciting time to be in the DRC.
I’m sure many of you don’t find this near as fascinating as I do, but if you do find it interesting, then feel free to come out and see it in person. I’d be happy to have you.
Thanks for reading.
- Auction Approach
- Preston Nix
- The Democratic Republic of the Congo
- Third World Development