2021 Whole Planet Foundation Prosperity Campaign: USA

Answering Questions As Whole Planet Foundation (WPF) has grown, so has Team Member and shopper knowledge about microfinance. Here are answers to some of the most frequently asked questions.

What is microcredit? Microfinance encapsulates a wide array of products and services from credit to savings that are designed to meet the needs of the world’s un- and underbanked. Whole Planet Foundation focuses on the credit component of microfinance and seeks partners that have a mission to and a methodology that is able to reach the most marginalized groups of micro-entrepreneurs. Some of the key characteristics of microcredit supported by Whole Planet Foundation are: • Focus on the poorest microentrepreneurs possible, especially women • No formal collateral or guarantees will be required • The banking services will be provided to the people as close to their doorstep as possible • Loan transactions are transparent at all levels • Loan sizes will grow with each loan cycle • The borrowers will be free to choose to participate • Repayments will be designed in a way that meets the needs of the borrower • There will be the fewest barriers to entry as possible for people with little to no assets

Does microcredit really work? In a word, yes, microcredit is a tool to alleviate poverty but it is not a silver bullet. An impoverished woman and her family do not escape poverty after receiving a single loan. Without jobs, people living in poverty are left to their own devices to provide for their families and credit is a way for microentrepreneurs to start or grow their businesses. For those that choose to borrow, they are investing in their own potential to change their family’s lives. Whole Planet Foundation believes in the power of impoverished people to change their own lives, and is committed to supporting new, more, and better methodologies to alleviate poverty.

Why give credit to people living in poverty? In communities void of jobs and based on the informal economy, credit is a a direct means for impoverished people to improve their families’ lives. Whole Planet Foundation focuses on supporting access to more opportunities in the form of microcredit with world-class organizations that deliver much more than a loan. Our partners provide a multitude of services from literacy workshops, to business training, to critical health services, all of which are not possible without first investing in their own personal capacity with microcredit.

Why is the focus of microlending on women? Women have the least access to any kind of financial services or opportunity and tend to invest their profits in nutrition and education for their children, lifting up the entire community.

How does Whole Planet Foundation select microfinance partners to support? Whole Planet Foundation has developed our own quality standards for our microfinance partners (MFIs) which are based on industry best practices. We proactively search for like-minded MFIs that are able to grow and serve more microentrepreneurs. Our Field Team first conducts due diligence to identify potential partners. After reviewing relevant information, a short list of potential partners is visited in person by our Regional Directors. The field visit is done to see first-hand the approach and practices of a MFI. The field team reviews the nuances of how the program works to ensure a potential partner aligns with our view on pro-poor microfinance. We are looking for organizations that have as few barriers to entry as possible while operating on a financially self-sufficient basis.

Does Whole Planet Foundation set the interest rates? No, Whole Planet Foundation does not set interest rates. Interest Rates charged by Whole Planet Foundation’s microfinance partners in the field are impacted by a number of factors and vary by country. We work with MFIs that have agreed to keep the interest as low as possible while covering inflation, cost of capital, MFI overhead and other associated health, savings, insurance, and education services (when these service are offered), and profit.

But the interest rates seem high. Sometimes interest rates seem very high by Western standards, but the highest rates inevitably come from moneylenders who are traditionally the only ones willing to lend to poor people. Risks can be substantial, but the microentrepreneurs are usually good at repaying loans that are appropriately sized for their capacity. Whole Planet Foundation partners are committed to pricing transparency that clearly informs clients of the cost of the loan. The borrowers make informed decisions to invest capital and grow their businesses.

What are the factors in determining interest rates? Interest rates are determined locally by five main factors:

• Rate of inflation in the country o Double digit inflation is not uncommon in developing countries. o Interest rates have to cover inflation.

• Cost of capital o This refers to cash in the capital market (banks, etc) that microfinance institutions use to relend to poor

borrowers. Hundreds of billions of dollars will be needed to fund the billions of potential poor borrowers. o Cost of capital (COC) is often well into double digits 15-20% in developing countries. o Interest rates now must cover inflation + cost of capital (COC usually does cover some of the inflation, but often

not all.) • Cost of providing the loan (MFI’s overhead) is very high

o This is due to the fact that the most successful operations usually visit borrowers 25-50 times a year at locations near the borrowers’ homes and this takes an army of field loan officers, motorcycles and other support.

o Traditional banks can’t do this. Interest rates now must cover inflation + cost of capital + MFI overhead • Other associated services, such as health, savings, insurance and education services.

o Some MFIs believe it is imperative that they extend other crucial services to people living in poverty along with the loan. These can include:

§ Health exams and other medical services such as family planning and reproductive and parenting education

§ Business advice and financial literacy education/training § Marketing advice § Farming techniques to increase yields § Savings products (often cited as necessary to escape poverty) § Health and/or life insurance

• Profits or excess capital at year end o Profit, or for a non-profit, “excess capital” is important to keep the MFI operating so that it can continue

working to help impoversihed people. Either way, the MFI must end the year in the black or face eventually going out of business.

What happens when a microcredit client cannot repay her loan? The strength of microcredit is avoiding repayment problems in the first place. The system is designed in such a way that risks are mitigated throughout the process. Key elements from some of the most effective organizations include:

• Selecting clients that are investing in a business, not using funds for personal consumption • Assessing the clients’ capacity to take on a loan • Assuring clients are committed to the program and understand the expectations of them as clients • Ensuring clients are repaying loans frequently, even weekly over a longer period of time, making payments small • Lending in peer groups that can act as a safety net in times of struggle, providing shared fate and support • Refinancing loans when microentrepreneurs continue to struggle

During our due diligence phase of selecting a new MFI partner, WPF will review these as well as all policies of a potential WPF grant recipient to make sure their policies are acceptable. However, we are not in the MFI incubator or improvement business; i.e. our mission is to get business development funds into the hands of the world’s very poor people. We look for MFIs who have a proven track record for doing just that. We have staff to monitor and evaluate how well our grants funds are spent, but no staff for MFI training development.

Are interest rates harmful to the poor? They can be sometimes, when an MFI is only profit driven. WPF works with MFI partners who are pro-poor. How does WPF define pro-poor? We focus our support on MFIs who provide accessibility, transparency, affordability, and supportiveness. Just like WFM doesn’t sell products from vendors who don’t meet the company’s quality standards, WPF only works with microfinance partners who are in business to help people succeed. We look for MFIs where:

• They make efforts to target clients who are poor/marginalized for a number of different factors. • The full cost of a loan is clear and product prices reflect operational realities and services offered. All loan products are

structured to be affordable to an entry level client. • The institution is giving credit responsibly; this relates to both policies and observed interactions of management & staff

AND staff & clients. That said, microcredit is not a hand out, it’s a hand up. Interest enables clients to become entrepreneurs. They are no longer recipients of charity. They are microentrepreneurs, businesswomen with a strong sense of pride in their businesses. Also, interest helps the MFI to be able to operate sustainably, reaching even more people living in poverty.

Do microcredit clients sell products in Whole Foods Market? In countries where Whole Foods Market sources product, WPF helps people lift themselves out of poverty, but Whole Foods Market does not source products from microloan recipients. Microcredit loans typically support very small, home-based businesses that serve the immediate community.

Does Whole Planet Foundation alleviate poverty in the United States? Yes! Whole Planet Foundation has funded microloans in 20 cities in the U.S. through four different microlending partners including Grameen America, International Rescue Committee, Solidarity Microfinance and LiftFund. We have funded microloans through these partners in Austin, Boston, Charlotte, Chicago, Des Moines, Fresno, Houston, Indianapolis, Long Beach, Los Angeles, Miami, New Orleans, Newark, New York (The Bronx, Brooklyn, Harlem, Jackson Heights, Manhattan and Queens), Oakland, Omaha, Phoenix, Salt Lake City, San Diego, and San Jose. Opportunities for potential clients living in Portland, Seattle/Tacoma, Vancouver and Walla Walla have recently been authorized and are soon to be funded.

What are other poverty alleviation models Whole Planet Foundation funds? 1. Savings and Loan Groups (SLG)

• SLG savings and credit are complemented by larger MFI funding • SLGs operate more autonomously than the Grameen group lending model • SLGs are typically more self-managed and contribute more to the administration, lending and savings of the

group • SLG groups are larger than Grameen groups with up to 100 members

2. Asset Finance • Offers business assets on credit rather than cash loans or establishes micro-franchise type business • Catalogue of products including clean cook stoves/ solar/ farming equipment • Ex: “Business in a box” i.e. creating new replicable businesses that clients can launch and profit from • Last-mile distribution of quality durable productive assets

3. Agriculture Finance • Combines the business models of an agribusiness and an MFI, providing inputs like seed and fertilizer on credit • Agriculture financial services include but are not limited to: seasonal cash loans, in-kind input credit, layaway

and post-harvest credit advance

What is the Ultra-Poor Graduation model? Whole Planet Foundation contributes to poverty alleviation by supporting access to business capital for entrepreneurs at the bottom of the pyramid. The majority of the Foundation’s investments to date have provided loan capital to help microfinance institutions scale accessible, non-collateralized business credit.

In 2017, the foundation launched a complementary strategy to support partners who implement the ultra-poor graduation model. This decision was grounded in extensive sector research which shows that a large portion of the world’s very poor people remain unable to access traditional microcredit focused methodologies, regardless of how socially directed a MFIs work may be. The ultra-poor graduation model is a holistic package of interventions which are designed to help those living in extreme poverty to build assets and launch a business as a means to graduate out of cyclical poverty. The common components across most implementers include: careful targeting, formation of savings groups and credit groups, training in life and business skills, hands on mentoring, and a transfer of a business asset or start-up capital.

For more information email genie.bolduc@wholefoods.com