How Microfinance Works - A Ping Pong Story

During my first semester senior year at Penn, I had the privilege to work with a newly-formed microfinance institution (MFI) that has now begun working in Southern Sudan. The girl who is the executive director of this MFI has a favorite story that may give you a better idea of how microfinance works:

"The best microfinance story I’ve heard is about a little boy in the slums of Nairobi, Kenya. He asked for a $50 loan from a loan officer. The loan officer asked him what he was going to do with that money.

'Buy a ping pong table and wheels and paddles and ping pong balls,' the boy said. And that’s what he did… wheeled a ping pong table around town, charging a penny a game. Very quickly, he paid back the loan and asked for another bigger loan.

'What are you going to do with this one?'

He made a portable shower, wheeled it around town with a water tank and charged a nickel per shower.

With the money he earned and saved, he not only supported himself, but also paid for his brothers’ and sisters’ school fees.

And it only took $50 to start.

This is what microfinance is. The microfinance concept rests on the clear observation that the majority of the working poor do not lack the skills to move up the socio-economic ladder, but rather the capital to utilize these skills practically in the form of operating small businesses. With the lack of banking systems in developing countries, microfinance has become a substitute means for capital infusion for the poor."