Microfinance Practice: Re: [MFP] Microfinance's position

Thank you Jeff!

Honestly and in line with your recommendation, what is needed is to empower savings groups thoroughly from the start so that they are able to improve their economic, social as well as political well being. They need to know their client rights and hold service providers accountable - even refuse to be exploited. So are we doing enough as capacity builders to enable them know their client rights and act in an organized manner? With the large scale currently achieved and still going on, is it time to think of the next steps for VSLAs? I believe it is beyond proof that innovative linkages with formal MFIs are needed. Only those linkages should happen in a way that addresses needs on both the client and supplier side. If adequate training is the key to protecting clients, how about in conflict and unstable communities where communities can be displaced any time? How can we design programs to ensure that people's savings are protected from the start? An informal micro finance sector may continue being at risk of exploitation if there are no innovative measures for curbing the risk that is staring at us right now. We have a challenge to facilitate sustainable solutions that address these clients' needs and demands.

Jeff, do you have Hugh's report on current VSLA numbers to share with me? Thanks for the links to your book too!

Hey Hugh, greetings!

Sophie

On Friday, September 19, 2014 2:02 AM, "jaashe@aol.com [MicrofinancePractice]" <MicrofinancePractice@yahoogroups.com> wrote:

Sophiechitedze,

Thank you for your report back from Malawi. You are correct. Savings groups are springing up in a great number of Malawian villages, there are 554,706 savings group members according to the latest statistics collected by Hugh Allen and VSLA Associates. There are over a million savings group members in Kenya, Tanzania and Uganda and 772 thousand in Mali with many other countries with more than 200 thousand savings group members. Savings group outreach has outpaced microfinance in many countries in terms of numbers served which is at it should be since microfinance is better adapted to urban areas and the entrepreneurial poor where it often provides a valuable service. The priority for most of Africa (and much of the rest of the world) is a safe convenient place to save and easy access to small loans which to quote from from "In Their Own Hands: How Savings Groups are Revolutionizing Development" is "as convenient as meeting under a tree in a village and as flexible as the rules members design for themselves." Savings group membership worldwide has grown from 1 million to 10 million in just seven years probably a speed record for the expansion of any development initiative.

With that said you raise two questions in your posting that I would like to address. The first is the treasurer running off with the group fund just before it is to be divided among the members. I am sure there must be examples of this but I can't say that I have ever heard of this happening. If this is the case I believe the response is better training not regulation or incorporating members into the formal financial sector (with this no guarantee as banks have often failed in developing countries) As for the sustainability of these groups, according to a study carried out by Hugh Allen after four years 89% of the groups are still saving and lending, as on average the assets of groups have doubled, 85% of the group fund is on loan and upon dividing the group fund members received back $1.38 for each dollar they saved. But then there is the 11% of the groups that disbanded - a subject for further study. Of the cases I have heard it is often because there is conflict within the group with the two factions forming their own groups and sometimes there is opposition from community and religious leaders.

The other problem you mention - the groups being targeting by unscrupulous MFIs - is a more immediate threat. Paul Rippey carried out a study of savings groups in Niger where taking a loan from an MFI was correlated with groups shrinking in membership while those that did not take out these loans grew in membership. The process which I have observed in Guatemala (and heard about for Niger from Paul) is distressingly similar. The MFI hires away staff from the NGOs that trained the groups and building on the trust the NGO staff has with the groups pays them substantially more to convince the group to take out a high interest MFI loan. The proper relationship with banks and MFIs is that members of groups take out loans from MFIs individually without putting the group at risk and also use banks for long term savings, insurance and as a place to store the excess cash a group has accumulated. CARE is promoting this kind of relationship with banks in Africa and it often occurs spontaneously.

I would be interested in hearing from others on reading this posting of examples of group leaders running off with the group's fund and if so what has been done to deal with this issue. It must happen. As the is said in Indonesia "were there is sugar there are ants."

Check out www.intheirownhands.com for a preview of the first two chapters of "In Their Own Hands" that tells the story of what we are calling the "savings group revolution." Also check out savings-revolution.org for a comprehensive posting on everything related to savings groups.

Thank you for your interest,

Jeff

Jeffrey Ashe
jaashe@aol.com

-----Original Message-----
From: sophiechitedze sophiechitedze@yahoo.com [MicrofinancePractice] <MicrofinancePractice@yahoogroups.com>
To: MicrofinancePractice <MicrofinancePractice@yahoogroups.com>
Sent: Thu, Sep 18, 2014 6:58 pm
Subject: Re: [MFP] Microfinance's position - Greed is good!

Hi all friends!

I am delighted to rejoin this group after a long while.

Thanks Jeff for your great input.

Recently having come back home to Malawi, I realise that the spread of savings groups in almost every village may be resulting in their fame and increased risk to exploitation. It is a pain such risk can go unattended for long and I see the answer lying in innovative solutions by new MFI entrants that can create safe saving products affordably and conveniently for the poor. Imagine a savings group treasurer collecting millions back from members just before a share out following a lot of sweat from members to ensure they have an annual lumpsum to fulfill their financial obligations....then the morning of the share out, members realise that the treasurer and his family have escaped to a neighboring country where he has relatives and cannot be held accountable . A 12 month investment belonging to 25 households lost in a day. Then you hear about several groups having formed recently in a certain community and as soon as a lending institution hears about them, comes to convince them to borrow a huge loan before the group even matures and undertakes the full curriculum. And the lending rates are prohibitive! What is the long term survival of those groups going to be?

How can we facilitate a safe saving place for these groups while allowing members to safeguard against exploitation autonomously from the start? Are we doing enough financial education for VSLAs? Is it not possible to more aggressively advocate for financial inclusion for all globally towards new MFI entrants focussed on last mile outreach with cost effective approaches plus capacity building processes on access to formal financial services and investments into viable innovative enterprises for the poor; their integration into the mainstrea m economy? How can we ensure scale up combined with quality and graduation into the formal and mainstream financial and business economy for informal VSLAs?

I love the discussions and hope I am not off topic. Just throwing in what I can....

By the way, if you hear of any job openings, let me know

Sent from Samsung Mobile

-------- Original message --------
From: "Narasimhan srinivasan shrin54@yahoo.co.in [MicrofinancePractice]" <MicrofinancePractice@yahoogroups.com>
Date: 18/09/2014 17:48 (GMT+02:00)
To: MicrofinancePractice@yahoogroups.com
Subject: Re: [MFP] Microfinance's position - Greed is good!

Dear Jeff,

Thanks for this nice post on a brand of microfinance that was not part of Chuck's map in his first post in the thread. The point on the impact MF on hunger is especially worth highlighting.

It is remarkable that the 'scholarly' discussion so far has mixed up several different versions of microfinance - the for profit, non-profit, commercial, non- commercial, community based and institution based and all. Each one (I too) pronounces the verdict on everything called microfinance without bothering to check their assumptions. This thread which started with Chuck's legitimate reaction to exploitative interest rates, has seen several old-timers trotting out tired arguments that have not changed very much. Instead of trying to convince others, let us proceed with what our conscience dictates - and do the ethically right thing that benefits vulnerable people. Unless we have viable alternatives let us not kill what exists - but seek to improve the existing ones in favour of the poor.

Regards

Srinivasan

On 18-Sep-2014, at 8:22 PM, jaashe@aol.com [MicrofinancePractice] wrote:

Dear Colleagues,

As one of those who has been involved in microfinance since the very beginning, I have seen that most MFIs make a major effort to reach their clients and few try to gouge them. It's a tough complicated business to reach those that banks have never served. We need to give thanks to the idealistic NGOs who began this business back in the 1980s (and even before) and blazed the trail for the commercial ventures that followed. Microfinance has become one more tool for the poor to manage their money - as is clearly described in "Portfolios of the Poor". The Grameen clients profiled in Chapter 6 of "Portfolios" say they appreciate the quality and consistency of the services they receive . Roodman's "Due Diligence: An impertinent inquiry into microfinance" concludes that one of the major outcomes has been to create the microfinance industry. Borrowing from an MFI leads to income smoothing and modest positive benefits with some using (but certainly not all) using their loans to a dvance their businesses.

Fourteen years ago I took a different path seeing that financial institutions could not reach the rural poor at any significant scale and embraced savings groups as one more tool the poor could use to manage their money. Savings groups are an improvement on traditional RoSCAS (savings clubs - tontines, tandas, etc). Unlike microfinance savings groups focus on savings not credit and the creation of self-managed groups not building financial institutions. The profits from lending the growing pool of savings among members return to them. Promotion costs are exceedingly low - a ratio of 1 staff to 2,000 group members is common during the promotion stage and increases to 1 to 7,000 or much more as the groups operate on their own and self-replicate. Recent research in Uganda shows that two new groups spring up spontaneously for every group trained by paid staff.

Additional advantages are that savings groups are reach those that microfinance has scarcely touched (except in densely populated Bangladesh, India and Indonesia) and that groups can be trained by local NGOs since the task is only to train groups not manage finances. Membership in savings groups has grown to 10 million members with groups already in place in 100,000 to 150,000 villages in 65 countries. With modest external support (less than 1% of what the 54 poorest countries receive in external assistance) this number could be increased to 100 million with groups in place in more than 1,000,000 villages. The methodology and institutional capacity are are in place to achieve this.

The short term impact, according to several RCTs, is a community wide decrease in chronic hunger, building assets and increased social capital along with viral replication within and between villages. Over time as more in each village join groups, and the amount saved and lent increases impact will also expected to increase and more of the poorest will join groups, although this is yet to be documented.

Microfinance opened the dialogue in the 1980s that led to savings groups in the 1990s and mobile banking over the past few years with all three having a role in improving how the poor manage their money. See my new book "In Their Own Hands: How Savings Groups are Revolutionizing Development." The book website in www.intheirownhands.com.

Let's continue the dialogue,

Jeff

Jeffrey Ashe
jaashe@aol.com

-----Original Message-----
From: Chale Espinosa A chalespinosa@yahoo.com [MicrofinancePractice] <MicrofinancePractice@yahoogroups.com>
To: MicrofinancePractice <MicrofinancePractice@yahoogroups.com>
Sent: Thu, Sep 18, 2014 9:19 am
Subject: Re: SV: [MFP] Microfinance's position - Greed is good!

Microfinance was sold as a way to reduce poverty. See how much money was given as a grant, low interest loan from IADB, WB, USAID, and Europeans and how much capital was invested by original shareholders. And, when user is charged in addition to high interest rates, commission for all sort of training that never took place and you added up, rates go throughout the roof and the poor clients get creamed. That is no innovation or wealth creation for the consumer. Yes. It is for the owners who probably never put up a dime and made lots of money when they sold their investments a return on capital almost infinite.

My point is not that making a profit by MF to be a bad, if they are competitive, and there are regulations and price transparency fine. But Microfinance is not what it was intended to be another Money lender.

Chale Espinosa A

E-Mail: chalespinosa@yahoo.com

chalespinosa@gmail.com

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USA : 251-219-4808251-219-4808

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From: "clementwan@yahoo.com [MicrofinancePractice]" <MicrofinancePractice@yahoogroups.com>
To: MicrofinancePractice@yahoogroups.com
Sent: Wednesday, September 17, 2014 10:31 PM
Subject: Re: SV: [MFP] Microfinance's position - Greed is good!

When financial products aren't being created to avoid regulatory constraints, financial services are development tools. Being profit seeking is not incompatible with poverty reduction. Financial services are catalysts for wealth creation.

Clement

---In MicrofinancePractice@yahoogroups.com, <chalespinosa@...> wrote :

Microfinance is not a development tool, it was originally sold as a way to reduce poverty and is not. The MF sector is another financial intermediary, profit driven, that competes with moneylenders in providing liquidity to its clients at interest rates that are higher than the regulated financial intermediaries and lower that moneylenders and are commensurate with risk taken.

Its a financial business.

Chale Espinosa A

E-Mail: chalespinosa@...

chalespinosa@...

BienesRaicesNicaragua@...

USA : 251-219-4808251-219-4808

Nic : 505-8-851-3355

Skype: chalespinosa

twitter: @chalespinosa

http://www.facebook.com/BienesRaicesNicaragua