Microfinance Practice: Re: [MFP] Is financial inclusion really good for the poor?

Its all about distributions. and redistribution of resources, a simple trick of classical economics.The money should reach where less and needed. The saver has to become the investor.Saving group work wonders under common bond associations, creating thereby a natural mechanism of investment; negating exploitation. Credit Unions are the oldest models where rich and poor have the same right to vote,irrespective of saving quantum,a little sacrifice for the high quantum savers, and why not?. Lets be mindful, that absolute equality discourages the economic growth.I have seen saving and credit cooperatives rising form zero to 100 as self owned and governed NBFIs. A well managed clustered financial inclusion program with graduating saving mechanism is worth a try.

Regards,

Tahir, Pakistan.

From: "jaashe@aol.com [MicrofinancePractice]" <MicrofinancePractice@yahoogroups.com>
To: therobscar45@gmail.com
Cc: MicrofinancePractice@yahoogroups.com; jordan@philanthropiece.org; william.maddocks@unh.edu
Sent: Monday, 21 March 2016, 5:47
Subject: Re: [MFP] Is financial inclusion really good for the poor? [1 Attachment]

Robert,

I looked over the Smart Campaign report that interviewed clients and also the dialogue earlier debate between Yunus, Rich Rosenberg and Michael Chu. Chu argued for high interest rates to encourage the sector, Rosenberg and Yunus argued for modest profits. The Smart Campaign profile of microfinance showed in general a low level of understanding of the terms of their loans and harassment if loans were not repaid on time (the same happens with PayDay lenders and others serving the bottom of the economic pyramid in this country.

Savings Groups turn the financial inclusion paradigm upside down by creating what are effectively mini-banks with 20 members where members save, lend to each other and divvy up the profits each year. SG programs can achieve all this at a small fraction of the costs, staff and complexity of the institutional alternatives. In Mali Saving for Change (the program I directed when I worked at Oxfam America) served 450,000 women organized into 20,000 groups in some 5,000 villages. This was achieved with a staff of 20 the first two years that grew to 85 the third and fourth years and then 207 for three additional years. The groups now are operating largely on their own. Grameen, BRAC, ASA, SKS and Compartamos require about I staff person for each 150 borrowers. For any of these institutions to reach the same number of clients as Oxfam/Freedom from Hunger reached in Mali would have required about 3,000 permanent staff. Of course the groups reap the profits from lending rather than the institutions. A longitudinal study of these groups shows virtually no turnover in membership with more than 85% of the groups continuing to function with little and often no outside support four years after they graduate.

I remember speaking to the founder of SKS about the difference in the MFI model vs the Savings Group model using these statistics. He said I was right.

So why no support many more savings groups? No opportunities for investors (the groups mobilize their own funds)? A bias against what the poor can do on their own? It's a mystery to me. Do any of you have any insights?

Jeff

Jeffrey Ashe
jaashe@aol.com

-----Original Message-----
From: Robert Scarlett <therobscar45@gmail.com>
To: Jeffrey Ashe <jaashe@aol.com>
Cc: MicrofinancePractice <MicrofinancePractice@yahoogroups.com>; Jordan Bailey <jordan@philanthropiece.org>; William o. Maddocks <william.maddocks@unh.edu>
Sent: Sat, Mar 19, 2016 5:35 pm
Subject: Re: [MFP] Is financial inclusion really good for the poor?

Jeff - Thanks for sharing your discussion (with Tahir and Chuck) with me - about apparent abandonment of "mission" in favor of "profit" within the micro-finance field.

Maybe Yunus was right, after all (see old 2008 article attached) in the Chu-Yunus debate?

Is it terribly naive of me to ask if the Smart Campaign ... http://www.smartcampaign.org/ ... is doing any good out there?

In light of these disappointing micro-finance developments, are their lessons to be learned (about consumer abuses) as we set out to expand savings groups throughout the world.

It seems to me that savings groups should be "safer" and less prone to abuse. Is that the working consensus?

Is there a regulatory framework in place to protect savers?

As I recall, some international micro-finance institutions do offer savings programs; but they have to apply to formal banking authorities for permission to capture savings - at least for savings acquired within an institutional framework.

I would imagine that these are issues that continue to be debated, no?

Anyway, all the best,

Rob

Robert H. Scarlett

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On Sun, Mar 13, 2016 at 12:18 PM, <jaashe@aol.com> wrote:

Chuck and Tahir,

Thanks for your contributions to the dialogue. I have been traveling about Baja California Sur visiting savings groups and speaking with the staff of Philanthropiece that has been training SGs for the past few years. I had a long talk with Sandra about Compartamos. This is how it works. The group gets together and with a smooth sales talk everyone in the group gets a 10,000 peso loan - about $500, much more than most can handle. If one member of the group does not pay the rest are liable for the payment. If you are late even an hour the staff hounds you day and night by telephone or shows up on your doorstep. Every day that goes by another 100 pesos is added to your payment so you spiral deeper and deeper into debt. Many are taking out loans from their savings groups to pay Compartamos.

We had a great brainstorming session with the group leaders about how to clearly present to the members the differences between their savings groups and Compartamos. If Compartamos lacks any interest in transparency the groups can be educated about what the true the costs are. The siren song of Compartamos is, of course if immediate access to a lump of capital.

To add insult to injury in Guatemala where Compartamos is now working they are attempting to recruit savings group promoters pay them a lot more and give the ex-promotoras a bonus if they deliver their groups to Compartamos. Not a pretty picture. What can we do to present an alternative?

Chuck, I agree with you that the early days of microfinance were different. I fondly remember those times in the early 80s when we were first forming solidarity groups in Latin America and the work we did with Working Capital in the USA. Now with Saving Works we will be launching savings groups in the USA. Sometimes all this effort feels about as useful as spitting in a bucket but one can hope for a cultural shift that will tilt things back to human scale.

Jeff

Jeffrey Ashe
jaashe@aol.com

-----Original Message-----
From: tahir shah rahmeenus@yahoo.com [MicrofinancePractice] <MicrofinancePractice@yahoogroups.com>
To: MicrofinancePractice <MicrofinancePractice@yahoogroups.com>
Sent: Sun, Mar 13, 2016 5:06 am
Subject: Re: [MFP] Is financial inclusion really good for the poor?

Excellent historical recap, Chuck! Just to add in early 2003,saving services were emphasized to differentiate between money lenders (offering no saving services to their clients) and MFIs; re-sizing minimalist approach, essentially to raise saving base of MF beneficiaries and replace exploitative money lenders. Yes the money lenders are replaced with MFIs. In early 90s IFAD provided funds for interest free supervised micro-credit with prompt payment rebates, based on the saving accumulation ratio of the end-user.

Regards,

Tahir, Pakistan.

From: "Chuck Waterfield chuck.waterfield@gmail.com [MicrofinancePractice]" <MicrofinancePractice@yahoogroups.com>
To: MFP <MicrofinancePractice@yahoogroups.com>
Sent: Friday, 11 March 2016, 18:45
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.

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]
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', 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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