Thursday, August 20, 2020

Re: [MFP] Businesses Behaving Badly: The Troubling Parallels Between Microfinance and Facebook

 

Hi Christopher,

I had the privilege of working with Sir Abed when BRAC was considering setting up BRAC Bank in the 1990s. Every BRAC undertaking is carried out with consummate skill and a commitment to  relevancy and simplicity and learning and building every undertaking to scale. I was particularly impressed with the rural schools, and, like you, the health programs. I was also impressed with the chicken raising and marketing operations with each phase of the process broken out into linked businesses at a scale that made sense for illiterate or barely literate women. 

I'd be curious to learn what you have come up in your work with BRAC. Yunus has accomplished a lot, but I'm more impressed with BRAC and its efforts. With that said, as far as I could determine, BRAC copied the Grameen microfinance model which, to me at least, is top down and paternalistic. The saving group movement largely developed in Africa has much to offer to BRAC and Grameen with its focus on local control and savings. 

Jeff 



-----Original Message-----
From: christopher macrae chris.macrae@yahoo.co.uk [MicrofinancePractice] <MicrofinancePractice@yahoogroups.com>
To: microfinancepractice@yahoogroups.com <microfinancepractice@yahoogroups.com>
Sent: Wed, Aug 19, 2020 11:18 am
Subject: [MFP] Businesses Behaving Badly: The Troubling Parallels Between Microfinance and Facebook

 
i visited bangladesh 15 times between 2007 and 2019 to interview 2 people muhammad yunus and sir fazle abed

a lot of things happened- one day i was locked in to grameen bank as thousands of trouble makers surrounded the complex- all part of the prime ministers forfeiture from yunus of the bank

if i have an expertise it is the branding of partnerships which i have published on since 1990- greenwashing is the sworn enemy of the few media experts my family, friends and  i aim to linkin

over time i concluded fazle abed took very great care in choosing and sustaining partnerships -- whereas yunus had become the person american do gooders- including its media both mass and huh-social-  nominated for nobel prizes, congressional and presidential models; 

i see yunus as someone who these days generates hundreds of concepts but i cant find any way of learning what i want to know about community grounded lives matter from them; as you likely all know sir fazle died december 2019- so the last 3 years since his 80th birthday party which i was privileged to be at - have become a study of which his partners took his legacy wish to heart- uniting university curriculum which start round goals achieved eg  raising village life expectancy from low 40s to mid 60s- for fazle abed linking in superb microhealth programs came before there was ever a need to design financial services for villagers running microfranchises- take one case for example- a quarter of kids used to die of diarrhea both in bangladesh and south china villages - the east pakistan cholera lab invented oral rehydration but did not know how to share this knowhow with illiterate villagers- together fazle and barefoot chinese medics worked out how to visit and train every village mother; it was one of those exponential accelerating programs; while it took almost a decade 78-88 to complete, once jim grant from a medical family and himself born in china saw it, he made it the main topic unicef briefed national leaders on - later grant asked fazle abed is there anything i can do for you; fazle said would you go ask my country's president to immunise the country's children; so grant not only did that but challenged the president - if you get 70% inoculation done we will celebrate your achievement in new york; the president then said the government will take on immunizing half of children if you will fundraise brac to do the other half- in this way fazle made sure enough people in government always had his back even though the difference needed in bottom up transparency and top-down navigation of the global aid market is night and day- after all before he turned to ceo of poverty alleviation sir fazle was regional ceo for royal dutch shell - he was the continuous fabric of nation development but never claimed any such thing- 50 years of sustaining a nation brand id is something american's next generations needed too but sadly didnt get, yet

20 years after james grant and fazle abed first partnered, when sir fazle opened brac university the main r&d college was branded james grant public school of health- by this time both soros and jim kim wanted to understand brac's tuberculosis program; they found out that brac selected people who had survived the disease to do the last mile service work of serving tb patients; by 2005 gates had heard of this from kim 

this is just an example- fazle was relentless but modest; he used to say its the women who do the hard work; i try to find people whose life mission has a solution i can help them sustainably educate as well as finance and the women can build livelihoods and our rural nation around

when it comes to the value chain of brac finance there are about 8 brac pioneered models that fit together from the poorest woman villager to economical remittance banking coordinated out of brac international in netherlands- please note by bangladeshi law a bangladesh organisation cant fundraise to help end poverty intrernationally, so it took every royal dutch shell ang global accounting friendship to design a fit international partnership office out of the hague

 -there is no point eg in studying brac microfinance without seeing integration of the solution microfranchises it redesigns food security around- nor without the ultra graduation program nor without people who initially brought village phones to yunus all gravitating over a 15 year period to the partnerships which now form http://www.bkash.com cashless banking for the unbanked

mathematically, the microeconomics system interfacing truth: if you want sdgs to progress - dont limit yourself to advocating or studying replicable cases separately or at points in time- if sdgs are real coalitions are needed to leap ahead of each new tech advance not to get ipo'd when a previously manual network cant separately afford to lead the technology

can 30 university colleges around the world do justice to what could be learnt from 50 years of sir fazle abed's service ; the question is in my mind the same for anyone with 50 years worth learning from - as a smithian scot i am biassed i like david attenborough as the only person i can see who has kept tv honest; if you have a nomination of someone whose purpose has relentlessly gravitated 50 years of deep progress that's a sub-curriculum vitae -todays parents and youth - need one global university of poverty -now in these 2020s to zoom around the younger half of the world uniting the dreamers and the doers 

there is in my 15 visits to dhaka of notetaking no such thing as trustworthy microfinance without microhealth and microeducation- when my father norman macrae the end poverty east-west sub-editor of the economist died, japan who had awarded dad their highest international honor asked its embassy in dhaka to stage 2 roundtables chaired by fazle abed inviting 50 of bangladesh's servant leaders to listen to the last 7 year challenge he felt well enough to see happen http://www.bkash.com and his legacy hope that somehow more and more colleges would unite in a coalition of girls sdg university integrated around economics designed from the bottom up 

thats a struggle with covid starting almost the day sir fazle died but it is also why i personally have no interest in being bullied by politicians or financiers unless they can pass an iq test on bottom up health services- america needs whatever you choose to call fazle abed knowhow more than ever - just my 5 cents worth- do any of you know the vice chancellor sir fazle headhunted as the last leadership choice he personally made

chris.macrae@yahoo.co.uk
 http://www..fazleabed.com coming soon 5 one-hour transcripts - a life in an hour with fazle abed



On Wednesday, 19 August 2020, 01:53:00 GMT-4, hugh@vsla...net [MicrofinancePractice] <microfinancepractice@yahoogroups.com> wrote:


 
Chuck.
 
When I first got in to microfinance, under your leadership in the early 1990s, it was a big surprise to learn that 45% of economically active Americans (103.99 million) bank through credit unions, where they are de facto shareholders and benefit from profit sharing.  While not universal, he drift of many MFIs to a profit-maximising model, benefitting a closed group of insiders, is a corrupt outcome to which regulators have been slow to react. The last page of Animal Farm comes to mind. Thanks for your persistence.
 
Hugh
 
From: MicrofinancePractice@yahoogroups.com <MicrofinancePractice@yahoogroups.com>
Sent: 18 August 2020 13:02
To: MFP <microfinancepractice@yahoogroups.com>
Subject: [MFP] Businesses Behaving Badly: The Troubling Parallels Between Microfinance and Facebook
 
 
Six weeks ago, I posted some thoughts on MFP about how microfinance and Facebook both became vehicles for activity that violated their original intents. Nextbillion has now posted an edited version of my post. Here is their intro paragraph and a link to the article:
 
Chuck Waterfield left microfinance five years ago, after working in the sector for three decades. He stopped using Facebook three years ago, after using the platform for about 10 years. As he explains, the troubling parallels between the two drove his decision to leave both. He explores how their business models have grown increasingly problematic over time – and why, without external intervention, things are likely to get worse.
 
 
Regards,
 
Chuck Waterfield
 

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Wednesday, August 19, 2020

Re: [MFP] Businesses Behaving Badly: The Troubling Parallels Between Microfinance and Facebook

 

Hugh, Jeff --

Consider an example. You have a long-time microfinance client who typically takes a 6-month loan, and renews at the end of each cycle, typically in the summer. Her neighbor is a susu client who saves in 6-month increments. The cashflows are the same -- except that the MF client is having to pay an additional 30% interest. And also not only that -- there is the question of risk. If the neighbor runs into difficulty, she is not at risk of defaulting on her susu payments -- those she can defer or even skip. The MF client can't do that.

Now, there are differences, including in terms of behavior incentives. The fact that the neighbor CAN defer her payments makes her a bit less disciplined. She often skips payments and rarely makes the big sacrifices that the MF client does. Ultimately that often means that she can't raise quite the same sums as the MF client. BTW, this isn't something I'm making up -- I've heard clients tell me exactly this very thing when explaining why they preferred to take loans instead of commitment savings for a large need (in that case it was for a home improvement). She knew the differences and the added cost of interest and all, but also she said that she wouldn't be able to save such a large amount, whereas with a loan "she knew she'd pay." (see p.6 of my study on Habitat for Humanity's housing savings pilot).

But there are behavioral forces at play on the provider side too. An MFI knows it has to lend to survive. It will devote extensive resources to loan collections -- far greater than savings collections. And when push comes to shove and it's facing a shortfall, it will always prioritize the revenue-generating side, at the expense of savings -- regardless of whether it's a for-profit or a non-profit.

So we set up an unequal system -- a system where the behavioral and financial incentives of both clients and providers preference credit over savings. But what if you had a provider that simply charged a monthly fee -- maybe at different levels, depending on your income bracket (or on your monthly turnover, or average transaction or whatever). You're a client, you pay the same fee whether you save or borrow. Sometimes you're net positive, sometimes net negative. The institution has no preference either way - the fees are the same. You start as a saver with a small credit line, but as you built trust, you get access to larger amounts. The bank also monitors cashflows and has triggers to limit the outstanding balance to manage risk. But in any case, we're talking modest net balances here -- this isn't a means to make large capital investments, but simply to smooth cashflows.

Think about it. Imagine how this might work. It can, but it has to be based on a very different set of financial notions that what we've built over the past 200 years.



Daniel Rozas  |  Brussels, Belgium  |  tel 1 202 436 9864  |  mob 32 489 677 056  |  skype: danrozas  |  danrozas@yahoo.com


On Wednesday, August 19, 2020, 7:51:03 PM GMT+2, hugh@vsla.net [MicrofinancePractice] <microfinancepractice@yahoogroups.com> wrote:


 

Good observations Jeff. 

 

In my experience, however, the cost of borrowing is of secondary importance relative to its cash-flow benefit.  When the costs of borrowing are small, relative to fairly predictable net benefits the price is not important.  Which is why small loans invested in rapid turnover, large-margin petty trade can absorb nominally usurious interest rates (whatever usurious means) .  If I borrow $10 for one hour in a local market in Maputo to finance a quick 10-minute turnover of some product I can find 200 metres down the road and can make 50% on the trade, the fact that I pay $1 for the loan for 10 minutes is a marginal cost of doing business, with negligible effect on my outgoings – but is a spectacular annualised cost

 

Where this breaks down is when I don't need $10 for 1 hour but $5,000 for a year.  Then my 10% for 1 hour is totally unsupportable.  This is where there is no way your local ROSCA or VSLA can meet your needs.  You need an institution that prices its loans in ways that your long-term cash-flow can support, which is where regulated financial institutions come in and whether you charge interest or fees and who owns the equity is of secondary importance to the net returns of your debt-based investment and its cashflow, when making the decision to borrow.  Whether or not the costs are driven by interest or user fees is unlikely to be influential.

 

The question about the ethics of donor-financed institutions that calibrate their interest rates to maximise their personal returns in an uncompetitive market is another question entirely, and one that should probably be addressed to the donors.

 

Hugh

From: MicrofinancePractice@yahoogroups.com <MicrofinancePractice@yahoogroups..com>
Sent: 19 August 2020 18:10
To: MicrofinancePractice@yahoogroups.com; microfinancepractice@yahoogroups.com
Subject: Re: [MFP] Businesses Behaving Badly: The Troubling Parallels Between Microfinance and Facebook

 

 

Daniel,

 

Useful observation. Check cashing businesses are popular among the poor because the fees are posted and perceived to be fair, the cashiers deal with you as a person and in your language and the money is available immediately without waiting days for the check to clear. My students and I studied immigrant ROSCAS. I've been bowled over by their flexibility and (by in large) commitment to their members and their communities. While we strategist and ponder and worry about our institutions, untold millions of ROSCA organizers are going about their work with little payment (a tip when the money is distributed) without us. Disciplined savings, mutual support and accountability seem to be the keys.  Then there are remittances - and least three times greater than all the development assistance put together and a lot better focused. Let's start by learning more about ROSCAS and remittances. 

 

Yes we "graybeards" are creaking in our joints but the mind still still works and we have the luxury at our vast age of being able to think without the constraints and underlying agenda of the agencies we work for.

 

Jeff

-----Original Message-----
From: Daniel Rozas danrozas@yahoo.com [MicrofinancePractice] <MicrofinancePractice@yahoogroups.com>
To: microfinancepractice@yahoogroups.com <microfinancepractice@yahoogroups.com>
Sent: Wed, Aug 19, 2020 7:01 am
Subject: Re: [MFP] Businesses Behaving Badly: The Troubling Parallels Between Microfinance and Facebook

 

Ok, at the risk of bringing in ageism, there is a bit of a No Country For Old Men Here (and yeah, I'm quite aware I'm at best only a few decades behind some of the greybeards here).  But there is also experience over time and what we used to call wisdom that arises from that venerable combination. I'm not one to ignore it.

 

Howard (it's nice to see another name from old times!) -- reading the musings from Chuck, Jeff, and Hugh, I don't just see the lament of profits here. There is also something else at work, I think. And this has been percolating in my head for a few years now.

 

The trouble with financial institutions driven by profits aren't the profits themselves, but the inexorable reliance on credit to generate those profits. You see this highlighted now, during covid -- MFIs forced to stop lending for a period of time are facing liquidity pressures, and if they don't start lending soon and at sufficient scale, they will face solvency issues too. It's the nature of an institution facing a repayment crisis -- financial distress is magnified when you stop lending. But I digress.

 

The point is, when it comes to generating revenue, financial products aren't equal. The easiest and fastest way to make money is through lending. Far harder to do it from savings or insurance. It's simply the nature of things, a lot of it very evident from behavioral economics. And that formula means that almost inevitably, institutions that are commercial will lean towards credit. And even nonprofit ones have to ensure that they do enough lending to generate the revenues needed to cover the savings and other services they provide. Imagine -- you're trying to encourage a client to save, but at the same time have to make sure that client also borrows enough to support the whole operation? What kind of a message does that send to the client? Saving is already hard enough. Instead, we wind up communicating another message -- we have easy money here, available for you when you need it. All the efforts at commitment savings demonstrate this -- yes, the commitments work, but the savings are tiny, paling in comparison to the types of cashflows that support credit operations.

 

Which raises the question -- what if we flip the thing on its head? What if we change finance and stop charging "interest", and instead focus on providing fee-based services? Savings, credit, insurance -- all fee-based? This is much closer to the mechanics of many informal finance relationships, including ROSCAs. If what you're after is providing facilities for cashflow smoothing, there should be little reason to prefer money advances (credit) over money collections (savings) -- as Stuart Rutherford pointed out over 2 decades ago, the cashflows from a cyclical borrower are no different than cashflows from a cyclical saver -- money goes out in small increments and comes in in larger ones. If you were to lose track of time and look only at cashflows, you wouldn't even know which product you're seeing.

 

Indeed, to a large extent I'm describing SafeSave's model here. But I think this could be scaled -- and not just in poor countries, but in rich ones too, where banks have shown themselves to be quite incapable and entirely uninterested in really serving the needs of low-income customers.

 

Forget credit, forget savings -- call it cashflow banking, on which you can build a rich tapestry of behavior-oriented services, based on the client's profile, needs, etc.

 

Open to ideas here.

 

Cheers.

Daniel

 

Daniel Rozas  |  Brussels, Belgium  |  tel 1 202 436 9864  |  mob 32 489 677 056  |  skype: danrozas  |  danrozas@yahoo.com

 

 

On Wednesday, August 19, 2020, 2:47:57 PM GMT+2, howardjfinkelstein@gmail.com [MicrofinancePractice] <microfinancepractice@yahoogroups.com> wrote:

 

 

 

You know this used to be a useful group, but now it has turned into a whining session for frustrated socialists. Profits are evil. Ownership is dangerous. Means of production should be in the hands of those who don't know what to do with them. Feel like I am reading about 1920 not 2020. So unlike all of you complainers, I'm not going to complain. Just leave. Bye all.

 

From: MicrofinancePractice@yahoogroups.com <MicrofinancePractice@yahoogroups.com>
Sent: Tuesday, August 18, 2020 11:57 PM
To: MicrofinancePractice@yahoogroups.com; microfinancepractice@yahoogroups.com
Subject: Re: [MFP] Businesses Behaving Badly: The Troubling Parallels Between Microfinance and Facebook

 

 

Chuck,

 

Thanks for the piece you wrote for Bottom Billion. You and I were there from the start of microfinance  and it is distressing to see how such a wonderful idea became corrupted by greed. After two decades in the microfinance (more accurately the micro credit) trenches)I jumped ship once I found savings groups in Nepal and later India and Zimbabwe. Savings groups showed that it was possible to jettison the MFI infrastructure and train groups to save and lend. Today there are around a million groups plus millions of self-help groups in India. 

 

My recent trip to Nepal (2018) showed me that microfinance was still relevant. It  was possible to serve the poor (but not the poorest) using a quasi Grameen model while charging 18% per year on a declining basis. The one credit union I looked at was able to achieve all this while generating sufficient profits to push into more distant regions and providing training.  With that said most of the easily accessible villages had ten or MFIs looking for customers and then there was the issue 1% interest the issues of an over saturated market and too much debt are the same as is true with microfinance around the world

 

During this same study in Nepal I interviewed a Dalit (untouchable caste) woman. She organized other Dalit women in her village into a dhikuti (ROSCA). No outside training or support and the amount they saved was substantial. It occurred that with a tiny bit of support (perhaps $30 per month, this woman could organize similar dhikutis in nearby villages. Hundreds of such women networked virtually and through face to face meetings could bring basic financial services to the very poorest women in Nepal. We call them "community geniuses" with a nod to the MacArthur Foundation's geniuses awards. A pilot project starting with 100 of these women would cost only $50,000 and reach 10,000 women at a cost of $5 each.  

 

It's tune to try something new,

 

Thanks Chuck,

 

Jeff

-----Original Message-----
From: Chuck Waterfield chuck.waterfield@gmail.com [MicrofinancePractice] <MicrofinancePractice@yahoogroups.com>
To: MFP <microfinancepractice@yahoogroups.com>
Sent: Tue, Aug 18, 2020 4:02 am
Subject: [MFP] Businesses Behaving Badly: The Troubling Parallels Between Microfinance and Facebook

 

Six weeks ago, I posted some thoughts on MFP about how microfinance and Facebook both became vehicles for activity that violated their original intents. Nextbillion has now posted an edited version of my post. Here is their intro paragraph and a link to the article:

 

Chuck Waterfield left microfinance five years ago, after working in the sector for three decades. He stopped using Facebook three years ago, after using the platform for about 10 years. As he explains, the troubling parallels between the two drove his decision to leave both. He explores how their business models have grown increasingly problematic over time – and why, without external intervention, things are likely to get worse.

 

 

Regards,

 

Chuck Waterfield

 

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Reply via web post • Reply to sender • Reply to group • Start a New Topic • Messages in this topic (10)
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No comments:

[MFP] Businesses Behaving Badly: The Troubling Parallels Between Microfinance and Facebook

 

i visited bangladesh 15 times between 2007 and 2019 to interview 2 people muhammad yunus and sir fazle abed

a lot of things happened- one day i was locked in to grameen bank as thousands of trouble makers surrounded the complex- all part of the prime ministers forfeiture from yunus of the bank

if i have an expertise it is the branding of partnerships which i have published on since 1990- greenwashing is the sworn enemy of the few media experts my family, friends and  i aim to linkin

over time i concluded fazle abed took very great care in choosing and sustaining partnerships -- whereas yunus had become the person american do gooders- including its media both mass and huh-social-  nominated for nobel prizes, congressional and presidential models; 

i see yunus as someone who these days generates hundreds of concepts but i cant find any way of learning what i want to know about community grounded lives matter from them; as you likely all know sir fazle died december 2019- so the last 3 years since his 80th birthday party which i was privileged to be at - have become a study of which his partners took his legacy wish to heart- uniting university curriculum which start round goals achieved eg  raising village life expectancy from low 40s to mid 60s- for fazle abed linking in superb microhealth programs came before there was ever a need to design financial services for villagers running microfranchises- take one case for example- a quarter of kids used to die of diarrhea both in bangladesh and south china villages - the east pakistan cholera lab invented oral rehydration but did not know how to share this knowhow with illiterate villagers- together fazle and barefoot chinese medics worked out how to visit and train every village mother; it was one of those exponential accelerating programs; while it took almost a decade 78-88 to complete, once jim grant from a medical family and himself born in china saw it, he made it the main topic unicef briefed national leaders on - later grant asked fazle abed is there anything i can do for you; fazle said would you go ask my country's president to immunise the country's children; so grant not only did that but challenged the president - if you get 70% inoculation done we will celebrate your achievement in new york; the president then said the government will take on immunizing half of children if you will fundraise brac to do the other half- in this way fazle made sure enough people in government always had his back even though the difference needed in bottom up transparency and top-down navigation of the global aid market is night and day- after all before he turned to ceo of poverty alleviation sir fazle was regional ceo for royal dutch shell - he was the continuous fabric of nation development but never claimed any such thing- 50 years of sustaining a nation brand id is something american's next generations needed too but sadly didnt get, yet

20 years after james grant and fazle abed first partnered, when sir fazle opened brac university the main r&d college was branded james grant public school of health- by this time both soros and jim kim wanted to understand brac's tuberculosis program; they found out that brac selected people who had survived the disease to do the last mile service work of serving tb patients; by 2005 gates had heard of this from kim 

this is just an example- fazle was relentless but modest; he used to say its the women who do the hard work; i try to find people whose life mission has a solution i can help them sustainably educate as well as finance and the women can build livelihoods and our rural nation around

when it comes to the value chain of brac finance there are about 8 brac pioneered models that fit together from the poorest woman villager to economical remittance banking coordinated out of brac international in netherlands- please note by bangladeshi law a bangladesh organisation cant fundraise to help end poverty intrernationally, so it took every royal dutch shell ang global accounting friendship to design a fit international partnership office out of the hague

 -there is no point eg in studying brac microfinance without seeing integration of the solution microfranchises it redesigns food security around- nor without the ultra graduation program nor without people who initially brought village phones to yunus all gravitating over a 15 year period to the partnerships which now form http://www.bkash.com cashless banking for the unbanked

mathematically, the microeconomics system interfacing truth: if you want sdgs to progress - dont limit yourself to advocating or studying replicable cases separately or at points in time- if sdgs are real coalitions are needed to leap ahead of each new tech advance not to get ipo'd when a previously manual network cant separately afford to lead the technology

can 30 university colleges around the world do justice to what could be learnt from 50 years of sir fazle abed's service ; the question is in my mind the same for anyone with 50 years worth learning from - as a smithian scot i am biassed i like david attenborough as the only person i can see who has kept tv honest; if you have a nomination of someone whose purpose has relentlessly gravitated 50 years of deep progress that's a sub-curriculum vitae -todays parents and youth - need one global university of poverty -now in these 2020s to zoom around the younger half of the world uniting the dreamers and the doers 

there is in my 15 visits to dhaka of notetaking no such thing as trustworthy microfinance without microhealth and microeducation- when my father norman macrae the end poverty east-west sub-editor of the economist died, japan who had awarded dad their highest international honor asked its embassy in dhaka to stage 2 roundtables chaired by fazle abed inviting 50 of bangladesh's servant leaders to listen to the last 7 year challenge he felt well enough to see happen http://www.bkash.com and his legacy hope that somehow more and more colleges would unite in a coalition of girls sdg university integrated around economics designed from the bottom up 

thats a struggle with covid starting almost the day sir fazle died but it is also why i personally have no interest in being bullied by politicians or financiers unless they can pass an iq test on bottom up health services- america needs whatever you choose to call fazle abed knowhow more than ever - just my 5 cents worth- do any of you know the vice chancellor sir fazle headhunted as the last leadership choice he personally made

chris.macrae@yahoo.co.uk
 http://www..fazleabed.com coming soon 5 one-hour transcripts - a life in an hour with fazle abed



On Wednesday, 19 August 2020, 01:53:00 GMT-4, hugh@vsla..net [MicrofinancePractice] <microfinancepractice@yahoogroups.com> wrote:


 

Chuck.

 

When I first got in to microfinance, under your leadership in the early 1990s, it was a big surprise to learn that 45% of economically active Americans (103.99 million) bank through credit unions, where they are de facto shareholders and benefit from profit sharing.  While not universal, he drift of many MFIs to a profit-maximising model, benefitting a closed group of insiders, is a corrupt outcome to which regulators have been slow to react. The last page of Animal Farm comes to mind. Thanks for your persistence.

 

Hugh

 

From: MicrofinancePractice@yahoogroups.com <MicrofinancePractice@yahoogroups.com>
Sent: 18 August 2020 13:02
To: MFP <microfinancepractice@yahoogroups.com>
Subject: [MFP] Businesses Behaving Badly: The Troubling Parallels Between Microfinance and Facebook

 

 

Six weeks ago, I posted some thoughts on MFP about how microfinance and Facebook both became vehicles for activity that violated their original intents. Nextbillion has now posted an edited version of my post. Here is their intro paragraph and a link to the article:

 

Chuck Waterfield left microfinance five years ago, after working in the sector for three decades. He stopped using Facebook three years ago, after using the platform for about 10 years. As he explains, the troubling parallels between the two drove his decision to leave both. He explores how their business models have grown increasingly problematic over time – and why, without external intervention, things are likely to get worse.

 

 

Regards,

 

Chuck Waterfield

 

__._,_.___
Posted by: christopher macrae <chris.macrae@yahoo.co.uk>
Reply via web post • Reply to sender • Reply to group • Start a New Topic • Messages in this topic (9)
WARNING! If you hit REPLY, your message will go to the entire listserve, not just the original author!

.

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No comments:

RE: [MFP] Businesses Behaving Badly: The Troubling Parallels Between Microfinance and Facebook

 

Good observations Jeff. 

 

In my experience, however, the cost of borrowing is of secondary importance relative to its cash-flow benefit.  When the costs of borrowing are small, relative to fairly predictable net benefits the price is not important.  Which is why small loans invested in rapid turnover, large-margin petty trade can absorb nominally usurious interest rates (whatever usurious means) .  If I borrow $10 for one hour in a local market in Maputo to finance a quick 10-minute turnover of some product I can find 200 metres down the road and can make 50% on the trade, the fact that I pay $1 for the loan for 10 minutes is a marginal cost of doing business, with negligible effect on my outgoings – but is a spectacular annualised cost

 

Where this breaks down is when I don't need $10 for 1 hour but $5,000 for a year.  Then my 10% for 1 hour is totally unsupportable.  This is where there is no way your local ROSCA or VSLA can meet your needs.  You need an institution that prices its loans in ways that your long-term cash-flow can support, which is where regulated financial institutions come in and whether you charge interest or fees and who owns the equity is of secondary importance to the net returns of your debt-based investment and its cashflow, when making the decision to borrow.  Whether or not the costs are driven by interest or user fees is unlikely to be influential.

 

The question about the ethics of donor-financed institutions that calibrate their interest rates to maximise their personal returns in an uncompetitive market is another question entirely, and one that should probably be addressed to the donors.

 

Hugh

From: MicrofinancePractice@yahoogroups.com <MicrofinancePractice@yahoogroups..com>
Sent: 19 August 2020 18:10
To: MicrofinancePractice@yahoogroups.com; microfinancepractice@yahoogroups.com
Subject: Re: [MFP] Businesses Behaving Badly: The Troubling Parallels Between Microfinance and Facebook

 

 

Daniel,

 

Useful observation. Check cashing businesses are popular among the poor because the fees are posted and perceived to be fair, the cashiers deal with you as a person and in your language and the money is available immediately without waiting days for the check to clear. My students and I studied immigrant ROSCAS. I've been bowled over by their flexibility and (by in large) commitment to their members and their communities. While we strategist and ponder and worry about our institutions, untold millions of ROSCA organizers are going about their work with little payment (a tip when the money is distributed) without us. Disciplined savings, mutual support and accountability seem to be the keys.  Then there are remittances - and least three times greater than all the development assistance put together and a lot better focused. Let's start by learning more about ROSCAS and remittances. 

 

Yes we "graybeards" are creaking in our joints but the mind still still works and we have the luxury at our vast age of being able to think without the constraints and underlying agenda of the agencies we work for.

 

Jeff

-----Original Message-----
From: Daniel Rozas danrozas@yahoo.com [MicrofinancePractice] <MicrofinancePractice@yahoogroups.com>
To: microfinancepractice@yahoogroups.com <microfinancepractice@yahoogroups.com>
Sent: Wed, Aug 19, 2020 7:01 am
Subject: Re: [MFP] Businesses Behaving Badly: The Troubling Parallels Between Microfinance and Facebook

 

Ok, at the risk of bringing in ageism, there is a bit of a No Country For Old Men Here (and yeah, I'm quite aware I'm at best only a few decades behind some of the greybeards here).  But there is also experience over time and what we used to call wisdom that arises from that venerable combination. I'm not one to ignore it.

 

Howard (it's nice to see another name from old times!) -- reading the musings from Chuck, Jeff, and Hugh, I don't just see the lament of profits here. There is also something else at work, I think. And this has been percolating in my head for a few years now.

 

The trouble with financial institutions driven by profits aren't the profits themselves, but the inexorable reliance on credit to generate those profits. You see this highlighted now, during covid -- MFIs forced to stop lending for a period of time are facing liquidity pressures, and if they don't start lending soon and at sufficient scale, they will face solvency issues too. It's the nature of an institution facing a repayment crisis -- financial distress is magnified when you stop lending. But I digress.

 

The point is, when it comes to generating revenue, financial products aren't equal. The easiest and fastest way to make money is through lending. Far harder to do it from savings or insurance. It's simply the nature of things, a lot of it very evident from behavioral economics. And that formula means that almost inevitably, institutions that are commercial will lean towards credit. And even nonprofit ones have to ensure that they do enough lending to generate the revenues needed to cover the savings and other services they provide. Imagine -- you're trying to encourage a client to save, but at the same time have to make sure that client also borrows enough to support the whole operation? What kind of a message does that send to the client? Saving is already hard enough. Instead, we wind up communicating another message -- we have easy money here, available for you when you need it. All the efforts at commitment savings demonstrate this -- yes, the commitments work, but the savings are tiny, paling in comparison to the types of cashflows that support credit operations.

 

Which raises the question -- what if we flip the thing on its head? What if we change finance and stop charging "interest", and instead focus on providing fee-based services? Savings, credit, insurance -- all fee-based? This is much closer to the mechanics of many informal finance relationships, including ROSCAs. If what you're after is providing facilities for cashflow smoothing, there should be little reason to prefer money advances (credit) over money collections (savings) -- as Stuart Rutherford pointed out over 2 decades ago, the cashflows from a cyclical borrower are no different than cashflows from a cyclical saver -- money goes out in small increments and comes in in larger ones. If you were to lose track of time and look only at cashflows, you wouldn't even know which product you're seeing.

 

Indeed, to a large extent I'm describing SafeSave's model here. But I think this could be scaled -- and not just in poor countries, but in rich ones too, where banks have shown themselves to be quite incapable and entirely uninterested in really serving the needs of low-income customers.

 

Forget credit, forget savings -- call it cashflow banking, on which you can build a rich tapestry of behavior-oriented services, based on the client's profile, needs, etc.

 

Open to ideas here.

 

Cheers.

Daniel

 

Daniel Rozas  |  Brussels, Belgium  |  tel 1 202 436 9864  |  mob 32 489 677 056  |  skype: danrozas  |  danrozas@yahoo.com

 

 

On Wednesday, August 19, 2020, 2:47:57 PM GMT+2, howardjfinkelstein@gmail.com [MicrofinancePractice] <microfinancepractice@yahoogroups.com> wrote:

 

 

 

You know this used to be a useful group, but now it has turned into a whining session for frustrated socialists. Profits are evil. Ownership is dangerous. Means of production should be in the hands of those who don't know what to do with them. Feel like I am reading about 1920 not 2020. So unlike all of you complainers, I'm not going to complain. Just leave. Bye all.

 

From: MicrofinancePractice@yahoogroups.com <MicrofinancePractice@yahoogroups.com>
Sent: Tuesday, August 18, 2020 11:57 PM
To: MicrofinancePractice@yahoogroups.com; microfinancepractice@yahoogroups.com
Subject: Re: [MFP] Businesses Behaving Badly: The Troubling Parallels Between Microfinance and Facebook

 

 

Chuck,

 

Thanks for the piece you wrote for Bottom Billion. You and I were there from the start of microfinance  and it is distressing to see how such a wonderful idea became corrupted by greed. After two decades in the microfinance (more accurately the micro credit) trenches)I jumped ship once I found savings groups in Nepal and later India and Zimbabwe. Savings groups showed that it was possible to jettison the MFI infrastructure and train groups to save and lend. Today there are around a million groups plus millions of self-help groups in India. 

 

My recent trip to Nepal (2018) showed me that microfinance was still relevant. It  was possible to serve the poor (but not the poorest) using a quasi Grameen model while charging 18% per year on a declining basis. The one credit union I looked at was able to achieve all this while generating sufficient profits to push into more distant regions and providing training.  With that said most of the easily accessible villages had ten or MFIs looking for customers and then there was the issue 1% interest the issues of an over saturated market and too much debt are the same as is true with microfinance around the world

 

During this same study in Nepal I interviewed a Dalit (untouchable caste) woman. She organized other Dalit women in her village into a dhikuti (ROSCA). No outside training or support and the amount they saved was substantial. It occurred that with a tiny bit of support (perhaps $30 per month, this woman could organize similar dhikutis in nearby villages. Hundreds of such women networked virtually and through face to face meetings could bring basic financial services to the very poorest women in Nepal. We call them "community geniuses" with a nod to the MacArthur Foundation's geniuses awards. A pilot project starting with 100 of these women would cost only $50,000 and reach 10,000 women at a cost of $5 each.  

 

It's tune to try something new,

 

Thanks Chuck,

 

Jeff

-----Original Message-----
From: Chuck Waterfield chuck.waterfield@gmail.com [MicrofinancePractice] <MicrofinancePractice@yahoogroups.com>
To: MFP <microfinancepractice@yahoogroups.com>
Sent: Tue, Aug 18, 2020 4:02 am
Subject: [MFP] Businesses Behaving Badly: The Troubling Parallels Between Microfinance and Facebook

 

Six weeks ago, I posted some thoughts on MFP about how microfinance and Facebook both became vehicles for activity that violated their original intents. Nextbillion has now posted an edited version of my post. Here is their intro paragraph and a link to the article:

 

Chuck Waterfield left microfinance five years ago, after working in the sector for three decades. He stopped using Facebook three years ago, after using the platform for about 10 years. As he explains, the troubling parallels between the two drove his decision to leave both. He explores how their business models have grown increasingly problematic over time – and why, without external intervention, things are likely to get worse.

 

 

Regards,

 

Chuck Waterfield

 

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