Sun Oct 20, 2013 11:49 am (PDT) . Posted by:
Hello Hugh,
I appreciate that you would feel uneasy to think your moral compass has a 'truer north' than any other. But bear in mind I am speaking about a community not an individual. Communities by their nature will define common values. Communities generally offer open and voluntary membership; a choice to opt-out, or to option opt-in to accept the values, or perhaps conditionally opt-in and try to change some aspect of the values through persuasion. Debate about credit purpose and institutional identity is important for any community and this discussion is healthy for international microfinance community.
Does the average consumer have enough information, financial literacy, and economic wherewithal to make well informed decisions about borrowing? Quick and easy credit 'no matter your credit history' against your car title, the kind of credit that is pushed in USA ads on day-time TV at low income demographics; cash loans against a priority pay-day debit order; social demographic credit scoring models to calculate debt capacity; is this microfinance? Is it not the responsibility of any lender calling itself a microfinance institution, which implies membership in an industry which has objectives aligned with a social good, to make some policy regarding credit rationing and declare it?
I prefer to participate in a discussion about 'true north' because I think that it is healthy for us to debate the purpose of microfinance and the purpose of the financial products being offered under the rubric of 'progressive microfinance&# 39;. If an institution wishes to be identified as a microfinance institution and participate in the community discussion it should be able to articulate its policies with regard to lending. Otherwise any financial product in any financial institution at any price for any purpose is microfinance. Really? Are pay-day lenders 'microfinance&# 39; institutions? Does the broader discussion about financial inclusion imply a 'laissez- faire' or libertarian philosophy which might abrogate the microfinance community from any responsibility to discuss values and principles?
I believe that the microfinance community has a responsibility to facilitate a discussion about the purpose of a loan (fully cognizant of the concept of the extended economic family and fungibility) for the purpose of deciding where our best collective effort should be applied in microfinance to achieve an articulated social good. I also think that the discussion about transparency is fundamental. Full disclosure of credit policy and institutional values, as well as profits, should be required and made in a media that is accessible to the mass market consumer of 'microfinance&# 39; products and services. Consumer credit companies and pay-day lenders should not be concern about disclosure, because their business model presumes demand irrespective of price. But they should also not be able to identify themselves with the social microfinance community. And why would they?
Membership in the microfinance community should require a willingness and ability to articulate credit policy, a statement of values, and a willingness to disclose pricing and profitability. If we are to call ourselves microfinance let's declare what we believe to be 'true north'. Member based institutions have no difficulty with this. But to deal with the distinction between microfinance and any other from of mass-market retail financial services full disclosure, pricing transparency, and validation of practice verses policy, should a prerequisite to inform social investors and public as to who is and who is not a microfinance institution.
Sincerely,
Murray Gardiner
From: Hugh Allen <hugh@vsla.net<mailto:hugh@vsla.net>>
Reply-To: "MicrofinancePractic e@yahoogroups. com<mailto:MicrofinancePractic e@yahoogroups. com>" <MicrofinancePractic e@yahoogroups. com<mailto:MicrofinancePractic e@yahoogroups. com>>
Date: Friday, 18 October, 2013 8:31 PM
To: "MicrofinancePractic e@yahoogroups. com<mailto:MicrofinancePractic e@yahoogroups. com>" <MicrofinancePractic e@yahoogroups. com<mailto:MicrofinancePractic e@yahoogroups. com>>
Subject: RE: [MFP] RE: South Africa
Well argued Murray, but it makes me uneasy to believe that my moral compass is pointing to a truer north than the people who benefit from microfinance. It seems to me that people can, in the main, be trusted to use debt in ways that are generally wise, unless an industry obsessed with sustainability begins to thrust it in their face: which, as most will acknowledge, is the dilemma that the industry increasingly faces as it struggles to raise capital in the marketplace and offer attractive shareholder returns. The alignment of mutually reinforcing, positive incentives needs to depend more on the nature of the institution than its declared policies and procedures (and particularly not its mission statement) – and that member ownership is far more likely to deliver a positive client experience than pretty much any other.
From: MicrofinancePractic e@yahoogroups. com<mailto:MicrofinancePractic e@yahoogroups. com> [mailto:MicrofinancePractic e@yahoogroups. com] On Behalf Of murraygardiner@ me.com<mailto:murraygardiner@ me.com>
Sent: 18 October 2013 17:47
To: MicrofinancePractic e@yahoogroups. com<mailto:MicrofinancePractic e@yahoogroups. com>; MicrofinancePractic e@yahoogroups. com<mailto:MicrofinancePractic e@yahoogroups. com>
Subject: Re: [MFP] RE: South Africa
Hello Hugh, Malcom and Kin,
Regarding "productive&qu ot; credit. Credit Cooperatives have a cultural principle of providing for what they traditionally call 'provident and productive lending' . This is expressed (or should be) by credit committee priorities of providing credit for provident purposes such as education, housing, medical, funeral, wedding, and other expenses that contribute to building the safety, security and quality of life of individuals, families and the social fabric of community. Productive credit implies a loan for the purpose of improving or securing the economic or earning capacity of the individual, family or community. Financing consumption comes last and would first be rationed for things like holidays which are important for psychological well being or for appliances which ease the burden of household management. Consumption loans for superfluous wants that satisfy simple pleasures or status are discouraged and savings schemes are promoted to such wants to avoid financing instant gratification against tomorrow' s income. This does not help the individual and sets up a poor quality debt.
Credit policy and principles are coupled with member (customer) education by way of requisite counseling / training meetings as a requirement of membership which are facilitated by an 'education&# 39; committee. These policies and principles are all ratified in annual or periodic membership meetings to ensure community consensus on these principles. This is the way it was, and is intended to be, in traditional credit cooperatives and the reason I, like many other employees of these organizations left the philosophically hollow banking industry for the credit union (once called) "movement&# 39;.
Microfinance institutions searching for some guide posts for credit policy regarding consumption loans (should they be seeking more social intervention) could be well served by considering some of the credit cooperative experience. Of course the mechanisms have to be modernized, but the underlying thinking is sound.
Without some basic principles governing credit rationing the function of microfinance is simply to lubricate the wheels of consumption of financial products without a moral compass. With no moral compass microfinance is playing a functional economic role but has to acknowledge that any measurable impact will be incidental and governed by general patterns of economic activity of society and the ability of one individual to out score another individual on ability to replay and risk.
Some might argue for market forces to be the absolute arbitrator and no intervention is required or appropriate. But without a discussion and consensus of such matters and consideration of an action plan to 'direct&# 39; intervention towards an agreed community principle there is little need for a discussion about social indicators, price transparency, fairness and truth in lending, or any of the other concerns that most progressive people have regarding our role in the microfinance community. I for one make my voluntary contribution conditional upon such a discussion and a search for social relevance in microfinance.
Sincerely,
Murray Gardiner
Temenos
Sent from my BlackBerry 10 smartphone on the Rogers network.
From: Malcolm Harper
Sent: Friday, October 18, 2013 13:15
To: MicrofinancePractic e@yahoogroups. com<mailto:MicrofinancePractic e@yahoogroups. com>
Reply To: MicrofinancePractic e@yahoogroups. com<mailto:MicrofinancePractic e@yahoogroups. com>
Subject: Re: [MFP] RE: South Africa
Thank you Hugh, this distinction between 'consumption' and 'productive' uses of loans is arrogant and misplaced. The mirror is often the best place to look when we are asking basic questions about household finance; what do 'we' do ?
Many MF loans are used to pay school fees when the state has failed in its basic duty to provide education, or to pay for health care when the state has similarly failed. Are such uses in any way 'bad' ? Buying food too; if a decent meal, or some medicine, makes a sick person able to work, and earn, it is very productive indeed.
Malcolm
From:Hugh Allen<mailto:hugh@vsla.net>
Sent: Friday, October 18, 2013 4:27 AM
To: MicrofinancePractic e@yahoogroups. com<mailto:MicrofinancePractic e@yahoogroups. com>
Subject: RE: [MFP] RE: South Africa
Dear Kim,
Finscope studies have consistently shown that only a minority of poor borrowers use credit for business investment – preferring by a small margin to use savings instead. Instead of being disappointed about this I think that loans to manage household cash flow are probably a very good thing, even when they are nominally expensive. Calling them 'consumption' loans implies that this is somehow a Bad Thing. But I am very glad to have an overdraft facility at my bank and have never taken a loan for business purposes. And I'll lay long odds that the majority of those who post to MFP behave in much the same way.
From: MicrofinancePractic e@yahoogroups. com<mailto:MicrofinancePractic e@yahoogroups. com> [mailto:MicrofinancePractic e@yahoogroups. com] On Behalf Of Kim Wilson
Sent: 17 October 2013 22:23
To: MicrofinancePractic e@yahoogroups. com<mailto:MicrofinancePractic e@yahoogroups. com>
Subject: Re: [MFP] RE: South Africa
Dear Malcolm -
I don't think you are too negative. Finance is tricky whether it's done in a group or at a bank.
CRS just published a nice study (small sample but good questions) on how groups in Zambia<http://www.crsprogr amquality. org/publications /2013/10/ 17/how-silc- members-use- their-money- a-study-of- silc-fund- use-in.html> use loans. (http://www.crsprogr amquality. org/publications /2013/10/ 17/how-silc- members-use- their-money- a-study-of- silc-fund- use-in.html)
Though not the most typical way of recovering defaulting loans, 22% of respondents claim that they recovered delinquent loans by confiscating items from the defaulter' s house. Unpleasant.
The same study shows that only 12% of respondents use loans for consumption, a result that differs greatly from forthcoming research which shows that in some areas 65% of loan use is for consumption. I realize this is a bit comparing apples and oranges in terms of study locales, sample sizes, how questions were asked, but I think it's safe to say that many borrowers are not using loans for productive purposes, in which case the interest that makes for such a nice share-out is pricey interest for borrowers.
What do we actually know about individuals in a group? Do we know if poorer borrowers are using loans for consumption? Do we know whether good savers who don't borrow much are profiting off poorer ones? Is the return to poorer borrowers really a good deal?
Kim Wilson
Faculty, Fletcher School, Tufts University (617-763-2469)
Kimberley.Wilson@ Tufts.Edu<mailto:Kimberley.Wilson@ Tufts.Edu>
____________ _________ _________ __
From: Malcolm Harper <malcolm.harper@ btinternet. com<mailto:malcolm.harper@ btinternet. com>>
To: MicrofinancePractic e@yahoogroups. com<mailto:MicrofinancePractic e@yahoogroups. com>
Sent: Thursday, October 17, 2013 2:29 PM
Subject: Re: [MFP] RE: South Africa
Thank you Jeff, it's so much better to promote something positively than perpetually to be negative !
But (and I suppose I am being critical, or perhaps merely a little disillusioned) it's hard to beat the promotional skill and weight of the payday lenders and their ilk. You write, correctly, of the low cost of savings groups, but that's a donor cost, and promoting 'good' things is always tough. Was it General Booth of the Sally Alley (Salvation Army) who asked 'why should the devil have all the best tunes ?'
But it's not easy. I met a man who rents out dinner suits to students in Liverpool. The man hands out the dinner suit and eighty pounds on Friday to students whose cheques cannot be cashed till Monday. Then they have a good weekend and bring the suit and a hundred pounds back on Monday. They are pretty low grade suits, I bought one which was perhaps too old even to rent, but was he a loan shark, charging an outrageous 20% for a weekend, or doing a service ?
And, even Wonga have a case. I was talking the other day to a very bright and pleasant lady from India I know who works for them. What does 'APR' mean to the same student or anyone else who needs eighty pounds for three days, and does not need a suit ? He (she too) is told in large letters on the website that he'll have to repay eighty-eight pounds, that the APR is over 5000% and the flat rate is 365%, but it's not a bad deal. If he takes a month, he'll have to pay £111.15, about 37.5% a month, which sounds bad if we are trying to negotiate a mortgage at 8%.
But, viewed as an absolute amount, not a percentage, is £31 too outrageous a fee to cover the transaction charges, the risks and so on ? It's about fixed and variable costs. I'd prefer that, any day, to having to join a group, to sit around for half an hour or more every week and to tell my neighbours all about about my financial affairs !
It only gets bad, very bad, when you cannot repay for many months, and the costs really mount up. Wonga and others make good profits, very good, and the UK government is trying right now to put in some regulations which will protect defaulters from their consequences of their own folly but which will not (unlike the clumsy moves of the Andhra Pradesh government) stop the payday lenders from filling the very real niche they do fill.
And Wonga's customers are not fools, and most are not desperate. They are literate, certainly more financially literate too than a few African village people will be when they have been subjected to the latest donor craze, 'financial literacy training'; they just need some money, quickly. But now I am starting to carp, to be negative, so I'll stop. Thank you !
Malcolm
From:jaashe@aol.com<mailto:jaashe@aol.com>
Sent: Thursday, October 17, 2013 6:13 PM
To: MicrofinancePractic e@yahoogroups. com<mailto:MicrofinancePractic e@yahoogroups. com>
Subject: Re: [MFP] RE: South Africa
Milford and Colleagues:
To reiterate a point I have made several times on this list serve, there is an alternative. Savings Groups - VSLAs, Saving for Change, SILC - etc. have grown to about 6,000,000 members in Africa. Instead of usurious profits or indeed any profits going to institutions these groups of about twenty that mobilize their own savings, lend to each other and divvy up the profits earn a 30% return on their savings. Costs are extraordinarily low and impact is substantial. The Saving for Change Groups in Mali (which number about 20,000 with 420,000 members) collectively carry out about 30 million transactions every year between saving and borrowing every year without the involvement of a single staff person. When the groups were being trained the ratio of staff to members was about 1/2000 now in the monitoring stage it is 1/5,600 with most of the remaining staff engaged in agriculture and business training. The cost? About $1,000 to bring groups to a village of 1,000 over several years. The outcomes confirmed by a RCT funded by Gates in 500 villages - a 10% increase in food security, a 13% increase in the value of livestock (living ATM machines), social capital and viral replication into the "control" villages.
Think about it,
Jeff
Jeffrey Ashe
jaashe@aol.com<mailto:jaashe@aol.com>
-----Original Message-----
From: milford bateman <milfordbateman@ yahoo.com<mailto:milfordbateman@ yahoo.com>>
To: MicrofinancePractic e <MicrofinancePractic e@yahoogroups. com<mailto:MicrofinancePractic e@yahoogroups. com>>
Sent: Thu, Oct 17, 2013 12:26 pm
Subject: [MFP] RE: South Africa
Darius
This is a very strange point. If consumer lending is NOT to be classified as 'microfinance' , then I would think you will have to omit anything from 60-90% of microfinance institutions from the list of recognised 'microfinance institutions' because what they do is almost entirely consumer lending. This list would include the Grameen Bank, BRAC, ASA, Compartamos, SKS, Bancosol and many many more. Is this what you are saying?
Chuck
You are no doubt once more referring to the appalling Wonga and its horrendous equivalents in South Africa that charge up to 5,000% on their payday loans. But you and I know full well that that is not what I am talking about here: I am talking about microfinance institutions that have long been fully recognised as legitimate 'microfinance institutions' by leading microfinance specialists in South Africa (see various reports by Gerhard Coetzee for example) and by the global microfinance industry itself, but which have nevertheless combined to create a catastrophe for South Africa. I am talking about Capitec, ABSA (a subsidiary of Barclays, but which has now pulled out of microfinance) , Standard Bank, First National Bank and others. They offer microloans up to 84 months at interest rates of between 40-100% per year, and they have massively upped the amount of microcredit in circulation not to develop the local economy but simply to make profits. In other words, they are pretty mainstream microfinance institutions providing a pretty standard microcredit offer; in fact, probably a better one than many other microfinance institutions in South Africa and across Africa as a whole - check out some of the interest rates offered across Africa by Opportunity, a universally recognised microfinance provider – details here at Hugh Sinclair's excellent blog -
http://blog. microfinancetran sparency. com/exploitation -declines- a-bit/
So I'm at a loss as to why it is that for many years such institutions were unproblematically described by the microfinance industry as 'microfinance institutions' , but now you and others wish to say that they are NOT microfinance institutions at all and try to brazenly lump them in with the horrible payday lender crowd. If such harsh terms and conditions disqualify me from describing these institutions as 'microfinance' , how come microfinance institutions everywhere else in Africa get away with offering a product at much worse terms and conditions, as Hugh Sinclair showed just now, but yet they can still say they are offering 'microfinance' ?
Benoit
I am condemning the bad institutions in South Africa that are a very large part of the microfinance system in that country.
Thanks
Milford
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