Dear all --
I share your concerns about the dark side of today's microfinance sector. But neither am I willing to concede that the answer is simply to replicate practices invented 150 years ago. Surely we can do better. Let's recognize that money can be powerful -- for good and ill -- and then harness the best of today's knowledge and technology to bring quality financial services to those who don't have them.
Savings groups will take you only so far. Their natural limitation is in the very sums involved -- once those get too large, the temptation to cheat becomes too great. Likewise, it's limited to too small a circle of individuals, which inevitably limits the value of intermediation. Let's also not forget that the 19th century was replete with scandals of all sorts due to fraud involving small community savings institutions (not quite banks, but not quite savings groups either). The creation of the British Post Bank was largely in response to this very problem. Savings groups are a powerful hammer, but not all financial inclusion problems are nails...
As for debt -- yes, one can surely have too much. But imagine what sort of a house you'd be living in if you had to buy/build one without access to debt?
Let's not get all black & white here...
Best,
Daniel
Daniel Rozas | Brussels, Belgium | tel 1 202 436 9864 | mob 32 489 677 056 | skype: danrozas | danrozas@yahoo.com
On Saturday, March 12, 2016 10:36 AM, "MicrofinancePractice@yahoogroups.com" <MicrofinancePractice@yahoogroups.com> wrote:
2 Messages
Digest #3913
Messages
Fri Mar 11, 2016 5:45 am (PST) . Posted by:
"Chuck Waterfield" cwaterfield
I agree with Jeff… an important discussion. Here are my (skeptical) views….
The examples of what financial inclusion could do for the poor make for exciting theory. But, these are services to be sold by the same people who shifted their terminology away from "microfinance" to "financial inclusion" because of the ugliness that has taken over large parts of microfinance.
How can the positive potential of these financial services be implemented in positive ways? We can dream of how wonderful this will be for people to have security and easy access and easy transferabilty of their cash, but there will inevitably be this continual drip, drip, drip as their cash steadily enters the pockets of the Top One Percent. Now, if they were paying fair prices for a valuable service, that would be arguably acceptable, but that's not how financial systems have ever treated the poor. Jeff has 35+ years in microfinance. I've been in this field for 30 years. From those longer timeframes, this is the view one has:
* Microfinance was created as a means to help people and displace profiteering
* Things seemed to work, the industry grew, and we set goal of reaching 100 million people in the world
* We invited the for-profit world in to help us scale up
* Because of the pressures (and temptations) of profit, we did mostly debt-only (microcredit) because that is what brings the income in
* And the income did come in. We've been stunned for 8 years now about growing profit levels, since the April 2007 Compartamos IPO. Most of us in the microfinance industry don't have a real grasp of just how much profit is being made. I've been looking at the figures, and the figures are stunning.
* As the feeding frenzy spread, some of the early crowd (like Jeff) shifted to Savings Groups
* But as microfinance grows, lots of new people enter the industry. The majority now working in microfinance now came in only when it was a business looking at profitability that comes from a new market. Their motivations are not at all shared with the early crowd. Lots of the financial businesses now don't talk about empowerment or impact. They only talk about risk, return, growth rates, and cash out timeframes
* Digital and mobile options are now here, accelerating abandonment of the human touch side that microfinance was proud about. Just treat people as profit centers. Ideally have zero human contact with them (to lower costs), just let computers do everything
* Instead of measly targets of 100 million, they're going for the more-than-a-billion target
* Pricing will be so opaque nobody will have a clue what they're paying, or what the "market price" is. There will be zero price competition, and zero motivation for the businesses to lower prices. Costs come down, prices stay high-and-hidden, and the profits roll in. Murray's assessment matches what I see in the real world data.
* Oh, and the consequences of over-indbebtedness that we see now in the US with credit card debt and payday loans will mushroom around the world.
That's what the articles Milford sends are talking about. It's more than naive to trust the marketing materials developed by businesses planning to make billions of dollars. Those materials only tell us only the positive potential angle, but they don't demonstrate how their operations will be responsibly implemented. Some will act responsible, most won't. It likely will be a replay of negative trajectory of microfinance of the past ten years, but mutlipled ten-fold in scale.
Chuck Waterfield
> On Mar 9, 2016, at 9:04 AM, jaashe@aol.com [MicrofinancePractice] <MicrofinancePractice@yahoogroups.com> wrote:
>
>
> Dear Colleagues,
>
> Fascinating discussion Murray. Plummeting costs yet the poorest are not served or financial institutions extract usurious profits from those at the bottom of the economic pile. In the USA Payday lenders are funded through big banks. There is an alternative, of course, the immigrant poor bring their traditions of collective savings and mutual support with them to this country. They deal with income volatility with their payouts from their ROSCAS. Not a perfect solution but it helps. As I have interviewed immigrants in focus groups I have been amazed and humbled about how well these groups work. Savings Groups build on what is already in place. They are organized like the first credit unions in the 1850s in Germany. The principles are solid, the simpler the better, less is more, no giveaways, local control, peer to peer replication, The cost to train and support a group is absurdly small. Factoring in peer to peer replication about $10 per person. The groups track all the transactions themselves. Who better to trust than the members themselves. It is clear where their interests lie. I put people in debt for 20 years with microfinance. Now I'm 15 years with savings groups. Only 5 more years to even the score. See "In their own hands: how savings groups are revolutionizing development. www.intheirownhands.com <http://www.intheirownhands.com/>.
>
> Great discussion,
>
> Jeff
>
> Jeffrey Ashe
> jaashe@aol.com <mailto:jaashe@aol.com>
>
>
> -----Original Message-----
> From: Murray Gardiner mgardiner@temenos.com <mailto:mgardiner@temenos.com> [MicrofinancePractice] <MicrofinancePractice@yahoogroups.com <mailto:MicrofinancePractice@yahoogroups.com>>
> To: MicrofinancePractice <MicrofinancePractice@yahoogroups.com <mailto:MicrofinancePractice@yahoogroups.com>>
> Sent: Tue, Mar 8, 2016 7:43 am
> Subject: RE: [MFP] Re: Is financial inclusion really good for the poor?
>
>
> Oswell you make a very compelling case. I have been in the Fintec industry serving the mass market retail in emerging markets for 20 years. Before that I was a practitioner in the credit union and micro banking industries. I have seen the effect of technology on reducing the basic costs of every kind of financial transaction. Costs for the consumer (as in your example) are very real and technology has crushed costs for the consumer and the financial intermediary alike. What perhaps deserves some scrutiny is the argument that some FIs make that markets are self-correcting and that competitive forces through the use of technology will drive down price; profits then being maintained by scale. What seems more often than not to be happening is the technology is used to reduce the cost of intermediation and the transaction cost for the consumer, but not proportional to the savings on both sides of the transaction. Inefficient intermediation, or cross subsidy within a multi-purpose intermediary means that prices in the market remain high. Transactional savings gained by efficient use of technology in single purpose financial institutions that target the working poor are protected from passing on the savings through dysfunctional markets and a lack of consumer awareness. Prices of financial products remain high while for some focused commercial microfinance costs plummet. Except in the case of cooperatives this translates to profit for the equity holders. This formula has created a window for professional retail banking to exact very high profits from serving the poor, without the effect of a force of competition adjusting price. <>
>
> Regards,
>
> Murray Gardiner
>
>
> From: MicrofinancePractice@yahoogroups.com <mailto:MicrofinancePractice@yahoogroups.com> [mailto:MicrofinancePractice@yahoogroups.com <mailto:MicrofinancePractice@yahoogroups.com?>]
> Sent: Monday, March 7, 2016 4:10 PM
> To: MicrofinancePractice@yahoogroups.com <mailto:MicrofinancePractice@yahoogroups.com>
> Subject: [MFP] Re: Is financial inclusion really good for the poor?
>
>
> Quite interesting views on financial inclusion. I guess its easier to critic and proffer an academic view based on analysis of other academic papers with little effort to establish the real impact on the ground. I also think its not correct to generalise financial inclusion with credit. Financial Inclusion looks at a whole range of financial services including local money transfer, savings, micro insurance etc. Drawing a conclusion based on a single part of the financial inclusion agenda is in my view, surely missing the real issue at hand.
> Today I and other millions of citizens of the developing world, where the real poor are, have witnessed the real benefits of some of the changes financial inclusion has brought to the poor. I don't need a researcher to convince me that the benefits enunciated by those on the ground are a fallacy.
>
> I am a development finance practitioner who has lived among the so called poor not as a visitor but as one of them. The benefits of financial inclusion are so evident to see that one may not even have to rely on some studies or research to see the impact.
>
> Today I am able to send my mother inlaw in some remote village her monthly support through my phone, and she also access it through her phone, without traveling to the next post office or town, (saving on productive time and transport cost) but from the nearest agent, less than 3km away from her home. Before the 'fintech revolution&# 39;, it would take days for her to get the much needed money for her daily use and upkeep. She had no access to a bank, as no bank would want to open a branch in some remote villages. Today she still doesnt need to open a bank account but thanks to some microfinance that linked with MNOs, she enrolled on the mobile money platform. Her money is kept on her phone, no risk of theft or rats destroying her savings, its all on the phone. She withdraws when she wants to. The local shop owner who used to give her goods on credit plus interest no longer charges an interest as she now buys on cash. The good shop owner is also now liquid and can stock relevant goods in that remote shop by simply calling the wholesaler, pay through mobile money and wholesaler delivers. I believe my mother in-law represents millions of beneficiaries of financial inclusion world over. She doesn't borrow from the microfinance because she has no business, if she had one, m pretty sire she would borrow, now that more people are liquid in the village, thanks to inflows through transfers, and significant savings brought about by the microfinance company in partnership. This is not a cooked up case but is exactly what is on the ground.
>
> It is my opinion that researchers looking for evidence should go on the ground, and talk to the beneficiaries than rely on other financial inclusionists who also could be biased in their approach.
>
> The information in this e-mail and any attachments is confidential and may be legally privileged. It is intended solely for the addressee or addressees. Any use or disclosure of the contents of this e-mail/attachments by a not intended recipient is unauthorized and may be unlawful. If you have received this e-mail in error please notify the sender. Please note that any views or opinions presented in this e-mail are solely those of the author and do not necessarily represent those of TEMENOS. We recommend that you check this e-mail and any attachments against viruses. TEMENOS accepts no liability for any damage caused by any malicious code or virus transmitted by this e-mail.
>
>
The examples of what financial inclusion could do for the poor make for exciting theory. But, these are services to be sold by the same people who shifted their terminology away from "microfinance" to "financial inclusion" because of the ugliness that has taken over large parts of microfinance.
How can the positive potential of these financial services be implemented in positive ways? We can dream of how wonderful this will be for people to have security and easy access and easy transferabilty of their cash, but there will inevitably be this continual drip, drip, drip as their cash steadily enters the pockets of the Top One Percent. Now, if they were paying fair prices for a valuable service, that would be arguably acceptable, but that's not how financial systems have ever treated the poor. Jeff has 35+ years in microfinance. I've been in this field for 30 years. From those longer timeframes, this is the view one has:
* Microfinance was created as a means to help people and displace profiteering
* Things seemed to work, the industry grew, and we set goal of reaching 100 million people in the world
* We invited the for-profit world in to help us scale up
* Because of the pressures (and temptations) of profit, we did mostly debt-only (microcredit) because that is what brings the income in
* And the income did come in. We've been stunned for 8 years now about growing profit levels, since the April 2007 Compartamos IPO. Most of us in the microfinance industry don't have a real grasp of just how much profit is being made. I've been looking at the figures, and the figures are stunning.
* As the feeding frenzy spread, some of the early crowd (like Jeff) shifted to Savings Groups
* But as microfinance grows, lots of new people enter the industry. The majority now working in microfinance now came in only when it was a business looking at profitability that comes from a new market. Their motivations are not at all shared with the early crowd. Lots of the financial businesses now don't talk about empowerment or impact. They only talk about risk, return, growth rates, and cash out timeframes
* Digital and mobile options are now here, accelerating abandonment of the human touch side that microfinance was proud about. Just treat people as profit centers. Ideally have zero human contact with them (to lower costs), just let computers do everything
* Instead of measly targets of 100 million, they're going for the more-than-a-billion target
* Pricing will be so opaque nobody will have a clue what they're paying, or what the "market price" is. There will be zero price competition, and zero motivation for the businesses to lower prices. Costs come down, prices stay high-and-hidden, and the profits roll in. Murray's assessment matches what I see in the real world data.
* Oh, and the consequences of over-indbebtedness that we see now in the US with credit card debt and payday loans will mushroom around the world.
That's what the articles Milford sends are talking about. It's more than naive to trust the marketing materials developed by businesses planning to make billions of dollars. Those materials only tell us only the positive potential angle, but they don't demonstrate how their operations will be responsibly implemented. Some will act responsible, most won't. It likely will be a replay of negative trajectory of microfinance of the past ten years, but mutlipled ten-fold in scale.
Chuck Waterfield
> On Mar 9, 2016, at 9:04 AM, jaashe@aol.com [MicrofinancePractice] <MicrofinancePractice@yahoogroups.com> wrote:
>
>
> Dear Colleagues,
>
> Fascinating discussion Murray. Plummeting costs yet the poorest are not served or financial institutions extract usurious profits from those at the bottom of the economic pile. In the USA Payday lenders are funded through big banks. There is an alternative, of course, the immigrant poor bring their traditions of collective savings and mutual support with them to this country. They deal with income volatility with their payouts from their ROSCAS. Not a perfect solution but it helps. As I have interviewed immigrants in focus groups I have been amazed and humbled about how well these groups work. Savings Groups build on what is already in place. They are organized like the first credit unions in the 1850s in Germany. The principles are solid, the simpler the better, less is more, no giveaways, local control, peer to peer replication, The cost to train and support a group is absurdly small. Factoring in peer to peer replication about $10 per person. The groups track all the transactions themselves. Who better to trust than the members themselves. It is clear where their interests lie. I put people in debt for 20 years with microfinance. Now I'm 15 years with savings groups. Only 5 more years to even the score. See "In their own hands: how savings groups are revolutionizing development. www.intheirownhands.com <http://www.intheirownhands.com/>.
>
> Great discussion,
>
> Jeff
>
> Jeffrey Ashe
> jaashe@aol.com <mailto:jaashe@aol.com>
>
>
> -----Original Message-----
> From: Murray Gardiner mgardiner@temenos.com <mailto:mgardiner@temenos.com> [MicrofinancePractice] <MicrofinancePractice@yahoogroups.com <mailto:MicrofinancePractice@yahoogroups.com>>
> To: MicrofinancePractice <MicrofinancePractice@yahoogroups.com <mailto:MicrofinancePractice@yahoogroups.com>>
> Sent: Tue, Mar 8, 2016 7:43 am
> Subject: RE: [MFP] Re: Is financial inclusion really good for the poor?
>
>
> Oswell you make a very compelling case. I have been in the Fintec industry serving the mass market retail in emerging markets for 20 years. Before that I was a practitioner in the credit union and micro banking industries. I have seen the effect of technology on reducing the basic costs of every kind of financial transaction. Costs for the consumer (as in your example) are very real and technology has crushed costs for the consumer and the financial intermediary alike. What perhaps deserves some scrutiny is the argument that some FIs make that markets are self-correcting and that competitive forces through the use of technology will drive down price; profits then being maintained by scale. What seems more often than not to be happening is the technology is used to reduce the cost of intermediation and the transaction cost for the consumer, but not proportional to the savings on both sides of the transaction. Inefficient intermediation, or cross subsidy within a multi-purpose intermediary means that prices in the market remain high. Transactional savings gained by efficient use of technology in single purpose financial institutions that target the working poor are protected from passing on the savings through dysfunctional markets and a lack of consumer awareness. Prices of financial products remain high while for some focused commercial microfinance costs plummet. Except in the case of cooperatives this translates to profit for the equity holders. This formula has created a window for professional retail banking to exact very high profits from serving the poor, without the effect of a force of competition adjusting price. <>
>
> Regards,
>
> Murray Gardiner
>
>
> From: MicrofinancePractice@yahoogroups.com <mailto:MicrofinancePractice@yahoogroups.com> [mailto:MicrofinancePractice@yahoogroups.com <mailto:MicrofinancePractice@yahoogroups.com?>]
> Sent: Monday, March 7, 2016 4:10 PM
> To: MicrofinancePractice@yahoogroups.com <mailto:MicrofinancePractice@yahoogroups.com>
> Subject: [MFP] Re: Is financial inclusion really good for the poor?
>
>
> Quite interesting views on financial inclusion. I guess its easier to critic and proffer an academic view based on analysis of other academic papers with little effort to establish the real impact on the ground. I also think its not correct to generalise financial inclusion with credit. Financial Inclusion looks at a whole range of financial services including local money transfer, savings, micro insurance etc. Drawing a conclusion based on a single part of the financial inclusion agenda is in my view, surely missing the real issue at hand.
> Today I and other millions of citizens of the developing world, where the real poor are, have witnessed the real benefits of some of the changes financial inclusion has brought to the poor. I don't need a researcher to convince me that the benefits enunciated by those on the ground are a fallacy.
>
> I am a development finance practitioner who has lived among the so called poor not as a visitor but as one of them. The benefits of financial inclusion are so evident to see that one may not even have to rely on some studies or research to see the impact.
>
> Today I am able to send my mother inlaw in some remote village her monthly support through my phone, and she also access it through her phone, without traveling to the next post office or town, (saving on productive time and transport cost) but from the nearest agent, less than 3km away from her home. Before the 'fintech revolution&# 39;, it would take days for her to get the much needed money for her daily use and upkeep. She had no access to a bank, as no bank would want to open a branch in some remote villages. Today she still doesnt need to open a bank account but thanks to some microfinance that linked with MNOs, she enrolled on the mobile money platform. Her money is kept on her phone, no risk of theft or rats destroying her savings, its all on the phone. She withdraws when she wants to. The local shop owner who used to give her goods on credit plus interest no longer charges an interest as she now buys on cash. The good shop owner is also now liquid and can stock relevant goods in that remote shop by simply calling the wholesaler, pay through mobile money and wholesaler delivers. I believe my mother in-law represents millions of beneficiaries of financial inclusion world over. She doesn't borrow from the microfinance because she has no business, if she had one, m pretty sire she would borrow, now that more people are liquid in the village, thanks to inflows through transfers, and significant savings brought about by the microfinance company in partnership. This is not a cooked up case but is exactly what is on the ground.
>
> It is my opinion that researchers looking for evidence should go on the ground, and talk to the beneficiaries than rely on other financial inclusionists who also could be biased in their approach.
>
> The information in this e-mail and any attachments is confidential and may be legally privileged. It is intended solely for the addressee or addressees. Any use or disclosure of the contents of this e-mail/attachments by a not intended recipient is unauthorized and may be unlawful. If you have received this e-mail in error please notify the sender. Please note that any views or opinions presented in this e-mail are solely those of the author and do not necessarily represent those of TEMENOS. We recommend that you check this e-mail and any attachments against viruses. TEMENOS accepts no liability for any damage caused by any malicious code or virus transmitted by this e-mail.
>
>
Fri Mar 11, 2016 7:21 am (PST) . Posted by:
"Hugh Allen" hughvslanet
Good summary Chuck.
I got in to savings groups because even the earlier forms of microfinance didn't seem to reach the poor with the service (savings) that they appeared to need most. Over time, as the financial systems crowd persuaded us to 'grow up and smell the investment coffee' I've seen the industry mutate into almost exactly the beast that it originally sought to replace, with the added twist that it has hijacked the caring façade of the earlier practitioners while increasingly offering not much more than another way (as someone in a savings group once told me) of drilling a hole in the box. Read the last page of Animal Farm to recognise the parallels. At least the banks don't pretend to be anything more than businesses that maximise shareholder return.
From: MicrofinancePractice@yahoogroups.com [mailto:MicrofinancePractice@yahoogroups.com]
Sent: 11 March 2016 16:46
To: MFP
Subject: Re: [MFP] Is financial inclusion really good for the poor?
I agree with Jeff… an important discussion. Here are my (skeptical) views….
The examples of what financial inclusion could do for the poor make for exciting theory. But, these are services to be sold by the same people who shifted their terminology away from "microfinance" to "financial inclusion" because of the ugliness that has taken over large parts of microfinance.
How can the positive potential of these financial services be implemented in positive ways? We can dream of how wonderful this will be for people to have security and easy access and easy transferabilty of their cash, but there will inevitably be this continual drip, drip, drip as their cash steadily enters the pockets of the Top One Percent. Now, if they were paying fair prices for a valuable service, that would be arguably acceptable, but that's not how financial systems have ever treated the poor. Jeff has 35+ years in microfinance. I've been in this field for 30 years. From those longer timeframes, this is the view one has:
* Microfinance was created as a means to help people and displace profiteering
* Things seemed to work, the industry grew, and we set goal of reaching 100 million people in the world
* We invited the for-profit world in to help us scale up
* Because of the pressures (and temptations) of profit, we did mostly debt-only (microcredit) because that is what brings the income in
* And the income did come in. We've been stunned for 8 years now about growing profit levels, since the April 2007 Compartamos IPO. Most of us in the microfinance industry don't have a real grasp of just how much profit is being made. I've been looking at the figures, and the figures are stunning.
* As the feeding frenzy spread, some of the early crowd (like Jeff) shifted to Savings Groups
* But as microfinance grows, lots of new people enter the industry. The majority now working in microfinance now came in only when it was a business looking at profitability that comes from a new market. Their motivations are not at all shared with the early crowd. Lots of the financial businesses now don't talk about empowerment or impact. They only talk about risk, return, growth rates, and cash out timeframes
* Digital and mobile options are now here, accelerating abandonment of the human touch side that microfinance was proud about. Just treat people as profit centers. Ideally have zero human contact with them (to lower costs), just let computers do everything
* Instead of measly targets of 100 million, they're going for the more-than-a-billion target
* Pricing will be so opaque nobody will have a clue what they're paying, or what the "market price" is. There will be zero price competition, and zero motivation for the businesses to lower prices. Costs come down, prices stay high-and-hidden, and the profits roll in. Murray's assessment matches what I see in the real world data.
* Oh, and the consequences of over-indbebtedness that we see now in the US with credit card debt and payday loans will mushroom around the world.
That's what the articles Milford sends are talking about. It's more than naive to trust the marketing materials developed by businesses planning to make billions of dollars. Those materials only tell us only the positive potential angle, but they don't demonstrate how their operations will be responsibly implemented. Some will act responsible, most won't. It likely will be a replay of negative trajectory of microfinance of the past ten years, but mutlipled ten-fold in scale.
Chuck Waterfield
On Mar 9, 2016, at 9:04 AM, jaashe@aol.com [MicrofinancePractice] <MicrofinancePractice@yahoogroups.com> wrote:
Dear Colleagues,
Fascinating discussion Murray. Plummeting costs yet the poorest are not served or financial institutions extract usurious profits from those at the bottom of the economic pile. In the USA Payday lenders are funded through big banks. There is an alternative, of course, the immigrant poor bring their traditions of collective savings and mutual support with them to this country. They deal with income volatility with their payouts from their ROSCAS. Not a perfect solution but it helps. As I have interviewed immigrants in focus groups I have been amazed and humbled about how well these groups work. Savings Groups build on what is already in place. They are organized like the first credit unions in the 1850s in Germany. The principles are solid, the simpler the better, less is more, no giveaways, local control, peer to peer replication, The cost to train and support a group is absurdly small. Factoring in peer to peer replication about $10 per person. The groups track all the transactions themselves. Who better to trust than the members themselves. It is clear where their interests lie. I put people in debt for 20 years with microfinance. Now I'm 15 years with savings groups. Only 5 more years to even the score. See "In their own hands: how savings groups are revolutionizing development. www.intheirownhands.com <http://www.intheirownhands.com/> .
Great discussion,
Jeff
Jeffrey Ashe
jaashe@aol.com
-----Original Message-----
From: Murray Gardiner mgardiner@temenos.com [MicrofinancePractice] <MicrofinancePractice@yahoogroups.com>
To: MicrofinancePractice <MicrofinancePractice@yahoogroups.com>
Sent: Tue, Mar 8, 2016 7:43 am
Subject: RE: [MFP] Re: Is financial inclusion really good for the poor?
Oswell you make a very compelling case. I have been in the Fintec industry serving the mass market retail in emerging markets for 20 years. Before that I was a practitioner in the credit union and micro banking industries. I have seen the effect of technology on reducing the basic costs of every kind of financial transaction. Costs for the consumer (as in your example) are very real and technology has crushed costs for the consumer and the financial intermediary alike. What perhaps deserves some scrutiny is the argument that some FIs make that markets are self-correcting and that competitive forces through the use of technology will drive down price; profits then being maintained by scale. What seems more often than not to be happening is the technology is used to reduce the cost of intermediation and the transaction cost for the consumer, but not proportional to the savings on both sides of the transaction. Inefficient intermediation, or cross subsidy within a multi-purpose intermediary means that prices in the market remain high. Transactional savings gained by efficient use of technology in single purpose financial institutions that target the working poor are protected from passing on the savings through dysfunctional markets and a lack of consumer awareness. Prices of financial products remain high while for some focused commercial microfinance costs plummet. Except in the case of cooperatives this translates to profit for the equity holders. This formula has created a window for professional retail banking to exact very high profits from serving the poor, without the effect of a force of competition adjusting price.
Regards,
Murray Gardiner
From: MicrofinancePractice@yahoogroups.com [mailto:MicrofinancePractice@yahoogroups.com <mailto:MicrofinancePractice@yahoogroups.com?> ]
Sent: Monday, March 7, 2016 4:10 PM
To: MicrofinancePractice@yahoogroups.com
Subject: [MFP] Re: Is financial inclusion really good for the poor?
Quite interesting views on financial inclusion. I guess its easier to critic and proffer an academic view based on analysis of other academic papers with little effort to establish the real impact on the ground. I also think its not correct to generalise financial inclusion with credit. Financial Inclusion looks at a whole range of financial services including local money transfer, savings, micro insurance etc. Drawing a conclusion based on a single part of the financial inclusion agenda is in my view, surely missing the real issue at hand.
Today I and other millions of citizens of the developing world, where the real poor are, have witnessed the real benefits of some of the changes financial inclusion has brought to the poor. I don't need a researcher to convince me that the benefits enunciated by those on the ground are a fallacy.
I am a development finance practitioner who has lived among the so called poor not as a visitor but as one of them. The benefits of financial inclusion are so evident to see that one may not even have to rely on some studies or research to see the impact.
Today I am able to send my mother inlaw in some remote village her monthly support through my phone, and she also access it through her phone, without traveling to the next post office or town, (saving on productive time and transport cost) but from the nearest agent, less than 3km away from her home. Before the 'fintech revolution&# 39;, it would take days for her to get the much needed money for her daily use and upkeep. She had no access to a bank, as no bank would want to open a branch in some remote villages. Today she still doesnt need to open a bank account but thanks to some microfinance that linked with MNOs, she enrolled on the mobile money platform. Her money is kept on her phone, no risk of theft or rats destroying her savings, its all on the phone. She withdraws when she wants to. The local shop owner who used to give her goods on credit plus interest no longer charges an interest as she now buys on cash. The good shop owner is also now liquid and can stock relevant goods in that remote shop by simply calling the wholesaler, pay through mobile money and wholesaler delivers. I believe my mother in-law represents millions of beneficiaries of financial inclusion world over. She doesn't borrow from the microfinance because she has no business, if she had one, m pretty sire she would borrow, now that more people are liquid in the village, thanks to inflows through transfers, and significant savings brought about by the microfinance company in partnership. This is not a cooked up case but is exactly what is on the ground.
It is my opinion that researchers looking for evidence should go on the ground, and talk to the beneficiaries than rely on other financial inclusionists who also could be biased in their approach.
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I got in to savings groups because even the earlier forms of microfinance didn't seem to reach the poor with the service (savings) that they appeared to need most. Over time, as the financial systems crowd persuaded us to 'grow up and smell the investment coffee' I've seen the industry mutate into almost exactly the beast that it originally sought to replace, with the added twist that it has hijacked the caring façade of the earlier practitioners while increasingly offering not much more than another way (as someone in a savings group once told me) of drilling a hole in the box. Read the last page of Animal Farm to recognise the parallels. At least the banks don't pretend to be anything more than businesses that maximise shareholder return.
From: MicrofinancePractice@yahoogroups.com [mailto:MicrofinancePractice@yahoogroups.com]
Sent: 11 March 2016 16:46
To: MFP
Subject: Re: [MFP] Is financial inclusion really good for the poor?
I agree with Jeff… an important discussion. Here are my (skeptical) views….
The examples of what financial inclusion could do for the poor make for exciting theory. But, these are services to be sold by the same people who shifted their terminology away from "microfinance" to "financial inclusion" because of the ugliness that has taken over large parts of microfinance.
How can the positive potential of these financial services be implemented in positive ways? We can dream of how wonderful this will be for people to have security and easy access and easy transferabilty of their cash, but there will inevitably be this continual drip, drip, drip as their cash steadily enters the pockets of the Top One Percent. Now, if they were paying fair prices for a valuable service, that would be arguably acceptable, but that's not how financial systems have ever treated the poor. Jeff has 35+ years in microfinance. I've been in this field for 30 years. From those longer timeframes, this is the view one has:
* Microfinance was created as a means to help people and displace profiteering
* Things seemed to work, the industry grew, and we set goal of reaching 100 million people in the world
* We invited the for-profit world in to help us scale up
* Because of the pressures (and temptations) of profit, we did mostly debt-only (microcredit) because that is what brings the income in
* And the income did come in. We've been stunned for 8 years now about growing profit levels, since the April 2007 Compartamos IPO. Most of us in the microfinance industry don't have a real grasp of just how much profit is being made. I've been looking at the figures, and the figures are stunning.
* As the feeding frenzy spread, some of the early crowd (like Jeff) shifted to Savings Groups
* But as microfinance grows, lots of new people enter the industry. The majority now working in microfinance now came in only when it was a business looking at profitability that comes from a new market. Their motivations are not at all shared with the early crowd. Lots of the financial businesses now don't talk about empowerment or impact. They only talk about risk, return, growth rates, and cash out timeframes
* Digital and mobile options are now here, accelerating abandonment of the human touch side that microfinance was proud about. Just treat people as profit centers. Ideally have zero human contact with them (to lower costs), just let computers do everything
* Instead of measly targets of 100 million, they're going for the more-than-a-billion target
* Pricing will be so opaque nobody will have a clue what they're paying, or what the "market price" is. There will be zero price competition, and zero motivation for the businesses to lower prices. Costs come down, prices stay high-and-hidden, and the profits roll in. Murray's assessment matches what I see in the real world data.
* Oh, and the consequences of over-indbebtedness that we see now in the US with credit card debt and payday loans will mushroom around the world.
That's what the articles Milford sends are talking about. It's more than naive to trust the marketing materials developed by businesses planning to make billions of dollars. Those materials only tell us only the positive potential angle, but they don't demonstrate how their operations will be responsibly implemented. Some will act responsible, most won't. It likely will be a replay of negative trajectory of microfinance of the past ten years, but mutlipled ten-fold in scale.
Chuck Waterfield
On Mar 9, 2016, at 9:04 AM, jaashe@aol.com [MicrofinancePractice] <MicrofinancePractice@yahoogroups.com> wrote:
Dear Colleagues,
Fascinating discussion Murray. Plummeting costs yet the poorest are not served or financial institutions extract usurious profits from those at the bottom of the economic pile. In the USA Payday lenders are funded through big banks. There is an alternative, of course, the immigrant poor bring their traditions of collective savings and mutual support with them to this country. They deal with income volatility with their payouts from their ROSCAS. Not a perfect solution but it helps. As I have interviewed immigrants in focus groups I have been amazed and humbled about how well these groups work. Savings Groups build on what is already in place. They are organized like the first credit unions in the 1850s in Germany. The principles are solid, the simpler the better, less is more, no giveaways, local control, peer to peer replication, The cost to train and support a group is absurdly small. Factoring in peer to peer replication about $10 per person. The groups track all the transactions themselves. Who better to trust than the members themselves. It is clear where their interests lie. I put people in debt for 20 years with microfinance. Now I'm 15 years with savings groups. Only 5 more years to even the score. See "In their own hands: how savings groups are revolutionizing development. www.intheirownhands.com <http://www.intheirownhands.com/> .
Great discussion,
Jeff
Jeffrey Ashe
jaashe@aol.com
-----Original Message-----
From: Murray Gardiner mgardiner@temenos.com [MicrofinancePractice] <MicrofinancePractice@yahoogroups.com>
To: MicrofinancePractice <MicrofinancePractice@yahoogroups.com>
Sent: Tue, Mar 8, 2016 7:43 am
Subject: RE: [MFP] Re: Is financial inclusion really good for the poor?
Oswell you make a very compelling case. I have been in the Fintec industry serving the mass market retail in emerging markets for 20 years. Before that I was a practitioner in the credit union and micro banking industries. I have seen the effect of technology on reducing the basic costs of every kind of financial transaction. Costs for the consumer (as in your example) are very real and technology has crushed costs for the consumer and the financial intermediary alike. What perhaps deserves some scrutiny is the argument that some FIs make that markets are self-correcting and that competitive forces through the use of technology will drive down price; profits then being maintained by scale. What seems more often than not to be happening is the technology is used to reduce the cost of intermediation and the transaction cost for the consumer, but not proportional to the savings on both sides of the transaction. Inefficient intermediation, or cross subsidy within a multi-purpose intermediary means that prices in the market remain high. Transactional savings gained by efficient use of technology in single purpose financial institutions that target the working poor are protected from passing on the savings through dysfunctional markets and a lack of consumer awareness. Prices of financial products remain high while for some focused commercial microfinance costs plummet. Except in the case of cooperatives this translates to profit for the equity holders. This formula has created a window for professional retail banking to exact very high profits from serving the poor, without the effect of a force of competition adjusting price.
Regards,
Murray Gardiner
From: MicrofinancePractice@yahoogroups.com [mailto:MicrofinancePractice@yahoogroups.com <mailto:MicrofinancePractice@yahoogroups.com?> ]
Sent: Monday, March 7, 2016 4:10 PM
To: MicrofinancePractice@yahoogroups.com
Subject: [MFP] Re: Is financial inclusion really good for the poor?
Quite interesting views on financial inclusion. I guess its easier to critic and proffer an academic view based on analysis of other academic papers with little effort to establish the real impact on the ground. I also think its not correct to generalise financial inclusion with credit. Financial Inclusion looks at a whole range of financial services including local money transfer, savings, micro insurance etc. Drawing a conclusion based on a single part of the financial inclusion agenda is in my view, surely missing the real issue at hand.
Today I and other millions of citizens of the developing world, where the real poor are, have witnessed the real benefits of some of the changes financial inclusion has brought to the poor. I don't need a researcher to convince me that the benefits enunciated by those on the ground are a fallacy.
I am a development finance practitioner who has lived among the so called poor not as a visitor but as one of them. The benefits of financial inclusion are so evident to see that one may not even have to rely on some studies or research to see the impact.
Today I am able to send my mother inlaw in some remote village her monthly support through my phone, and she also access it through her phone, without traveling to the next post office or town, (saving on productive time and transport cost) but from the nearest agent, less than 3km away from her home. Before the 'fintech revolution&# 39;, it would take days for her to get the much needed money for her daily use and upkeep. She had no access to a bank, as no bank would want to open a branch in some remote villages. Today she still doesnt need to open a bank account but thanks to some microfinance that linked with MNOs, she enrolled on the mobile money platform. Her money is kept on her phone, no risk of theft or rats destroying her savings, its all on the phone. She withdraws when she wants to. The local shop owner who used to give her goods on credit plus interest no longer charges an interest as she now buys on cash. The good shop owner is also now liquid and can stock relevant goods in that remote shop by simply calling the wholesaler, pay through mobile money and wholesaler delivers. I believe my mother in-law represents millions of beneficiaries of financial inclusion world over. She doesn't borrow from the microfinance because she has no business, if she had one, m pretty sire she would borrow, now that more people are liquid in the village, thanks to inflows through transfers, and significant savings brought about by the microfinance company in partnership. This is not a cooked up case but is exactly what is on the ground.
It is my opinion that researchers looking for evidence should go on the ground, and talk to the beneficiaries than rely on other financial inclusionists who also could be biased in their approach.
The information in this e-mail and any attachments is confidential and may be legally privileged. It is intended solely for the addressee or addressees. Any use or disclosure of the contents of this e-mail/attachments by a not intended recipient is unauthorized and may be unlawful. If you have received this e-mail in error please notify the sender. Please note that any views or opinions presented in this e-mail are solely those of the author and do not necessarily represent those of TEMENOS. We recommend that you check this e-mail and any attachments against viruses. TEMENOS accepts no liability for any damage caused by any malicious code or virus transmitted by this e-mail.
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