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: MicrofinancePractice@yahoogroups.com [mailto:MicrofinancePractice@yahoogroups.com] On Behalf Of Kim Wilson
Sent: 17 October 2013 22:23
To: MicrofinancePractice@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 use loans. (http://www.crsprogramquality.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
From: Malcolm Harper <malcolm.harper@btinternet.com>
To: MicrofinancePractice@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
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
-----Original Message-----
From: milford bateman <milfordbateman@yahoo.com>
To: MicrofinancePractice <MicrofinancePractice@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 -
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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