Dear Colleagues,
Great to see this website used again. It was the center of creative thinking for those in our field years ago. The problems Chuck mentioned early on in this exchange were right on target. When we were carrying out Saving for Change (Oxfam America's Saving Group Initiative) in a decade ago we found villages where ten MFIs were poaching customers from each other as the villagers themselves became mired in debt as they took out loans from one MFI to pay off another. We had SfC groups made up entirely of those who had lost their land to the MFIs).
No big surprise. As I was carrying out an evaluation on innovations in finance in the late 90s we saw the same in Bolivia. All the MFIs were perched like vultures around the major markets in La Paz. As we interviewed market stall holders we found that most had at loans from three different MFIs..
The same was true when I was visiting villages on the Terai (lowlands) of Nepal in 2018 when we found one village where 18 MFIs were competing for customers with all the usual problems. Of course, once you got beyond the markets and the cities, and into the villages (for better or worse) access to financial services dried up. In no case whatever the country (also for better or worse) were the poorest included. When I was with Accion in the early 1980s we were sometimes in the position of being the first MFI in a country. In those early days we were using the solidarity group methodology that a credit union FEDECREDITO developed in El Salvador back in the 1960s, decades before Grameen.
Faced with these endemic issues of microfinance that focused on profits rather than service pushed by investors who wanted the maximum return on their investments, it became ever more clear that going into debt to get out of poverty was backwards. The starting point should have been savings and savings groups proved to be a reliable way of serving village women that microfinance never reached (or if they did reach them they did so with catastrophic negative results.) Savings groups showed that the entire credit giving infrastructure and all its costs and paternalism was not needed at all and that village women, could, with a little training run their own groups that self-replicated and proved to be durable under the most difficult conditions. (A recent evaluation of Saving for Change groups in Mali found that 85% were intact and still meeting and saving nine years after they were trained and that with viral replication (the good kind of virus) the net number of group members had increased.)
It turns out that with investment of about $1,500 for a village of 1,000 or so it was possible to train two to seven or eight groups that would continue to function with little to no outside training after a couple of years. Savings groups - based as they were on ROSCAS and ASCAS avoided the problems of credit unions, SACCOS and other models that were too complicated, often corrupt and poorly managed and all to easily ended up serving the elite.
Based on research my grad students and I carried (along with Kim Wilson) out on ROSCAS in immigrant communities in the USA we found that these ROSCAS based on traditions brought from their home villages had evolved into powerful mechanisms for starting businesses and purchasing homes. They accomplished all this without any outside help whatsoever. Immigrant ROSCAS represent a vast invisible financial system that is thriving across America with no interface with formal finance or any idealistic costly (and generally misguided) effort to link groups to finance or provide training. https://mangotree.org/Resource/How-to-Achieve-the-American-Dream-on-an-Immigrants-Income. Its rather humbling to find that we weren't all that important anyway but it has been a wondrful four decades plus ride to figure this out.
So we have concluded after all these years that what we should have done is either nothing or encourage the spread of the best ideas developed by ROSCAS and ASCAs. This would be done by identifying "community geniuses" who could spread the "best practices" (remember those?) in their own and nearby villages and meet together face to face or on line to share their ideas on how to make their villages more prosperous.
A new initiative we are about the launch through the Grassroots Finance Action Team (the Mayan Women's Prosperity Initiative) will ask the community geniuses in each cluster of villages to not only upgrade savings groups but also improve cucubales (ROSCAS) and form committees to better channel remittances. (While Guatemalan immigrants send 10.5 billion back home every year the entire aid budget from all countries provided to Guatemala is less than 400 million and with none of the overhead and wrong headed paternalism of the NGOs.
Chuck, thanks for "breathing life" back into Microfinance Practice as once again we warhorses from the glory days of microfinance are still figuring out how to be of use.
Jeff
-----Original Message-----
From: MALCOLM HARPER malcolm.harper@btinternet.com [MicrofinancePractice] <MicrofinancePractice@yahoogroups.com>
To: MFP <microfinancepractice@yahoogroups.com>; microfinancepractice@yahoogroups.com
Sent: Mon, Jun 29, 2020 1:00 pm
Subject: Re: [MFP] Debt relief for Cambodians & why legal aid matters
To: MFP <microfinancepractice@yahoogroups.com>; microfinancepractice@yahoogroups.com
Sent: Mon, Jun 29, 2020 1:00 pm
Subject: Re: [MFP] Debt relief for Cambodians & why legal aid matters
Dear Colleagues,
With reference to Chuck Waterfield's and Jami Solli's notes about microfinance in Cambodia, I am attaching a brief note from M-Cril which may be of interest.
The two earlier reports on the same topic can be found in the publication section of the M-Cril website, http://www.m-cril.com
Malcolm Harper
On Monday, 29 June 2020, 13:42:26 BST, Chuck Waterfield chuck.waterfield@gmail.com [MicrofinancePractice] <microfinancepractice@yahoogroups.com> wrote:
Srini,
The words in my earlier blanket email were directed at general trends, trends which over the past 15 years have gone heavily in one direction. The vast majority of banks lending to the poor have moved away from double-bottom line and are heavily focused on ROE figures. There are some countries with a slower shift in this direction, such as India.. If the global industry were still behaving, on average, like India, I'd still be active in the industry. India's difference, I believe, has much to do with the strong role of the RBI in leveling the playing field so much, through strict rules about how MFIs could hide their true pricing and rules about over-indenting clients. If we had strong regulators making (and enforcing!) rules like this in most of the other countries, the industry would be in a different position.
Instead, we have a constellation of stakeholders that have driven the GLOBAL industry in the direction it went (again, this means a quite large percentage of the market, but not 100% of the industry):
Soft funders: Many of them pressured for business-behavior in order to get the soft money. They got far more than what they asked for. The soft money has now disappeared from the sector.
"Social" investors: The investor community is entirely opaque and without certification. They can label themselves social or whatever they feel will paint a nice image for them. Some of them are actually social (or at least of small pots of money that are tolerant of lower returns), but many of them are pushing for huge returns. A few years ago, the general expectation was 25% ROI, while having a website that shows pictures of smiling happy women paying interest rates that nobody knows, because the prices are hidden.
Industry data: We used to have impressive transparency, setting an example for other NGOs and businesses to emulate. That is no longer the case. The industry used to be able to mobilize the majority of MFIs willing to be transparent to pressure those reluctant to do so. We used to have ratings reports, MIX data, true pricing data (mftransparency.org) and social performance data as well. That is no longer the case. Where there is no transparency, nobody knows what is going on in the market - and then a few banks exploit that advantage. SMART Campaign certification refused to set any boundaries for prices charged or for profit extracted, two criteria that are fundamental to the decline of the industry.
Owners and Management: The industry used to be composed of double-bottom line professionals. That is no longer the case. Now we have situations like Opportunity running a group of their for-profit banks into bankruptcy and then trying (and thankfully mostly failing) to hand those banks over to a payday lender company charging 300% APR. (https://nextbillion.net/opportunity-international-and-mybucks-a-dangerous-partnership-decision/)
Regulators: Regulation is extremely spotty. Some countries (like India and Cambodia) have systems with strong, independent regulators. The vast majority do not. In most countries, regulators focus only on safety-and-soundness and are not given a role in consumer protection. In many cases, regulations are made and are not at all enforced (like in the West Africa Monetary Union). MFTransparency documented regulation several years ago and summarized it here: https://www.mftransparency.org/regulation/
I've made a lot of claims here with few footnotes. But all of this is detailed in the final report I wrote for MFTransparency when we ceased operations: https://www.mftransparency.org/resources/advocating-transparent-pricing-mftransparencys-7-year-history/
Chuck Waterfield
On Jun 29, 2020, at 7:35 AM, 'N. Srinivasan' shrin54@yahoo.co.in [MicrofinancePractice] <MicrofinancePractice@yahoogroups.com> wrote:
Chuck, Hugh,
Financial inclusion is not too bad in some countries, where they have focused on savings and payments. Inclusion also lays a pipeline to channel benefit payments from government to people without leakages. In the Indian context microfinance - whether through MFIs or Self help groups - has been kept out of the definition financial inclusion. RBI says that linkage to a banking institution (MFIs are not banks in India and prohibited from taking deposits) alone counts as financial inclusion.May be we should focus on what financial inclusion is supposed to deliver rather than dismissing it as profiteering.Best regardssrinivasan
On 29-Jun-2020, at 1:00 PM, hugh@vsla.net [MicrofinancePractice] <MicrofinancePractice@yahoogroups.com> wrote:
Spot on, Chuck, that you excoriate the term 'financial inclusion' which has come, solely, to mean that poor people get shoehorned onto a voracious debt-based MF conveyor belt as a definition of success. The day that shareholder return got prioritised these outcomes were inevitable.
Hugh
From: MicrofinancePractice@yahoogroups.com <MicrofinancePractice@yahoogroups.com>
Sent: 28 June 2020 17:03
To: MFP <MicrofinancePractice@yahoogroups.com>
Subject: Re: [MFP] Debt relief for Cambodians & why legal aid matters
Thanks for sharing this, Jami
This is such a tragedy. Cambodia was a poster-child of the "right way to do microfinance" 10-15 years ago. From what I saw in my visits and in the data was MFIs focused on reaching the poor and giving very reasonably price loans. The prices were among the lowest in the world when we collected them at mftransparency.org, especially considering the very small loan sizes.
Help came from the Cambodian regulators. Sleazy practices like flat interest were banned by the Cambodian government almost 20 years ago (in 2001), demonstrating tremendous foresight on how governments and lenders can work together to limit the temptation of self-interested lenders to hide their prices. It took industry actors like CGAP another 10 years to even begin to do anything cooperative with regulators and to respect them as useful and essential agents to help prevent the dismal decay of the industry we have since witnessed.
I originally saw the Cambodian MFI organizational cultures as balancing client and institution, as had been the case at AMK before they got bought out by a different group of private investors with a different set of goals. Then, while publicizing the previous balanced approach by paying authors to write an "independent" book about their ethical practices, they internally reprioritized toward profit making.
The messages sent by the international industry was for everyone to scale up (credit activity, not savings), to push loan agents super-hard to shovel loans out the door, all with the singular goal to maximize profit and allow international investors to cash out. When all this got put into practice. as is entirely predictable, debt saturation occurred. The bad seeds planted by the MFIs in the previous years become apparent, even if the economy is going well.
And then when there is a exogenous shock, the house of cards crumbles. And who has the centralized power in the catastrophic situation? The MFIs have built control of power into their systems. The poor, who weren't doing all that well *with* the vast amount of debt they were encouraged to take on (and shouldn't have), will now have life-altering consequences..
So, yes I'm still in the habit of using that term "microfinance" (and this listserve is MicroFinancePractice) that was in use for 25 years, until in the first wave of bad publicity, the industry dumped the term and replaced it with "financial inclusion" to try and confuse the public. So now when "financial inclusion" becomes an ugly word, what will we call ourselves next?
Chuck Waterfield
No longer associated with what has become the business of tapping the fortune at the bottom of the pyramid
On Jun 28, 2020, at 8:49 AM, Jami Solli jamisolli@gmail.com [MicrofinancePractice] <MicrofinancePractice@yahoogroups.com> wrote:
Dear Group,
I hope you are keeping well during the pandemic.
Sharing an article with you about the state of microcredit in Cambodia:
https://asia.nikkei.com/Politics/Hun-Sen-to-Cambodian-banks-Seize-property-if-borrowers-won-t-pay
I hope that any responsible investors in that market will instruct their investees to stop divesting the poor of their homes when they are in debt difficulty.
On a positive note, there is a legal aid organization in Cambodia LICADHO which is assisting borrowers.
All the investors should be thankful too as were LICADHO not present, it is possible you would see either borrower suicides or civil unrest or both.
Best regards,
Jami
[Non-text portions of this message have been removed]
With reference to Chuck Waterfield's and Jami Solli's notes about microfinance in Cambodia, I am attaching a brief note from M-Cril which may be of interest.
The two earlier reports on the same topic can be found in the publication section of the M-Cril website, http://www.m-cril.com
Malcolm Harper
On Monday, 29 June 2020, 13:42:26 BST, Chuck Waterfield chuck.waterfield@gmail.com [MicrofinancePractice] <microfinancepractice@yahoogroups.com> wrote:
Srini,
The words in my earlier blanket email were directed at general trends, trends which over the past 15 years have gone heavily in one direction. The vast majority of banks lending to the poor have moved away from double-bottom line and are heavily focused on ROE figures. There are some countries with a slower shift in this direction, such as India.. If the global industry were still behaving, on average, like India, I'd still be active in the industry. India's difference, I believe, has much to do with the strong role of the RBI in leveling the playing field so much, through strict rules about how MFIs could hide their true pricing and rules about over-indenting clients. If we had strong regulators making (and enforcing!) rules like this in most of the other countries, the industry would be in a different position.
Instead, we have a constellation of stakeholders that have driven the GLOBAL industry in the direction it went (again, this means a quite large percentage of the market, but not 100% of the industry):
Soft funders: Many of them pressured for business-behavior in order to get the soft money. They got far more than what they asked for. The soft money has now disappeared from the sector.
"Social" investors: The investor community is entirely opaque and without certification. They can label themselves social or whatever they feel will paint a nice image for them. Some of them are actually social (or at least of small pots of money that are tolerant of lower returns), but many of them are pushing for huge returns. A few years ago, the general expectation was 25% ROI, while having a website that shows pictures of smiling happy women paying interest rates that nobody knows, because the prices are hidden.
Industry data: We used to have impressive transparency, setting an example for other NGOs and businesses to emulate. That is no longer the case. The industry used to be able to mobilize the majority of MFIs willing to be transparent to pressure those reluctant to do so. We used to have ratings reports, MIX data, true pricing data (mftransparency.org) and social performance data as well. That is no longer the case. Where there is no transparency, nobody knows what is going on in the market - and then a few banks exploit that advantage. SMART Campaign certification refused to set any boundaries for prices charged or for profit extracted, two criteria that are fundamental to the decline of the industry.
Owners and Management: The industry used to be composed of double-bottom line professionals. That is no longer the case. Now we have situations like Opportunity running a group of their for-profit banks into bankruptcy and then trying (and thankfully mostly failing) to hand those banks over to a payday lender company charging 300% APR. (https://nextbillion.net/opportunity-international-and-mybucks-a-dangerous-partnership-decision/)
Regulators: Regulation is extremely spotty. Some countries (like India and Cambodia) have systems with strong, independent regulators. The vast majority do not. In most countries, regulators focus only on safety-and-soundness and are not given a role in consumer protection. In many cases, regulations are made and are not at all enforced (like in the West Africa Monetary Union). MFTransparency documented regulation several years ago and summarized it here: https://www.mftransparency.org/regulation/
I've made a lot of claims here with few footnotes. But all of this is detailed in the final report I wrote for MFTransparency when we ceased operations: https://www.mftransparency.org/resources/advocating-transparent-pricing-mftransparencys-7-year-history/
Chuck Waterfield
On Jun 29, 2020, at 7:35 AM, 'N. Srinivasan' shrin54@yahoo.co.in [MicrofinancePractice] <MicrofinancePractice@yahoogroups.com> wrote:
Chuck, Hugh,
Financial inclusion is not too bad in some countries, where they have focused on savings and payments. Inclusion also lays a pipeline to channel benefit payments from government to people without leakages. In the Indian context microfinance - whether through MFIs or Self help groups - has been kept out of the definition financial inclusion. RBI says that linkage to a banking institution (MFIs are not banks in India and prohibited from taking deposits) alone counts as financial inclusion.May be we should focus on what financial inclusion is supposed to deliver rather than dismissing it as profiteering.Best regardssrinivasan
On 29-Jun-2020, at 1:00 PM, hugh@vsla.net [MicrofinancePractice] <MicrofinancePractice@yahoogroups.com> wrote:
Spot on, Chuck, that you excoriate the term 'financial inclusion' which has come, solely, to mean that poor people get shoehorned onto a voracious debt-based MF conveyor belt as a definition of success. The day that shareholder return got prioritised these outcomes were inevitable.
Hugh
From: MicrofinancePractice@yahoogroups.com <MicrofinancePractice@yahoogroups.com>
Sent: 28 June 2020 17:03
To: MFP <MicrofinancePractice@yahoogroups.com>
Subject: Re: [MFP] Debt relief for Cambodians & why legal aid matters
Thanks for sharing this, Jami
This is such a tragedy. Cambodia was a poster-child of the "right way to do microfinance" 10-15 years ago. From what I saw in my visits and in the data was MFIs focused on reaching the poor and giving very reasonably price loans. The prices were among the lowest in the world when we collected them at mftransparency.org, especially considering the very small loan sizes.
Help came from the Cambodian regulators. Sleazy practices like flat interest were banned by the Cambodian government almost 20 years ago (in 2001), demonstrating tremendous foresight on how governments and lenders can work together to limit the temptation of self-interested lenders to hide their prices. It took industry actors like CGAP another 10 years to even begin to do anything cooperative with regulators and to respect them as useful and essential agents to help prevent the dismal decay of the industry we have since witnessed.
I originally saw the Cambodian MFI organizational cultures as balancing client and institution, as had been the case at AMK before they got bought out by a different group of private investors with a different set of goals. Then, while publicizing the previous balanced approach by paying authors to write an "independent" book about their ethical practices, they internally reprioritized toward profit making.
The messages sent by the international industry was for everyone to scale up (credit activity, not savings), to push loan agents super-hard to shovel loans out the door, all with the singular goal to maximize profit and allow international investors to cash out. When all this got put into practice. as is entirely predictable, debt saturation occurred. The bad seeds planted by the MFIs in the previous years become apparent, even if the economy is going well.
And then when there is a exogenous shock, the house of cards crumbles. And who has the centralized power in the catastrophic situation? The MFIs have built control of power into their systems. The poor, who weren't doing all that well *with* the vast amount of debt they were encouraged to take on (and shouldn't have), will now have life-altering consequences..
So, yes I'm still in the habit of using that term "microfinance" (and this listserve is MicroFinancePractice) that was in use for 25 years, until in the first wave of bad publicity, the industry dumped the term and replaced it with "financial inclusion" to try and confuse the public. So now when "financial inclusion" becomes an ugly word, what will we call ourselves next?
Chuck Waterfield
No longer associated with what has become the business of tapping the fortune at the bottom of the pyramid
On Jun 28, 2020, at 8:49 AM, Jami Solli jamisolli@gmail.com [MicrofinancePractice] <MicrofinancePractice@yahoogroups.com> wrote:
Dear Group,
I hope you are keeping well during the pandemic.
Sharing an article with you about the state of microcredit in Cambodia:
https://asia.nikkei.com/Politics/Hun-Sen-to-Cambodian-banks-Seize-property-if-borrowers-won-t-pay
I hope that any responsible investors in that market will instruct their investees to stop divesting the poor of their homes when they are in debt difficulty.
On a positive note, there is a legal aid organization in Cambodia LICADHO which is assisting borrowers.
All the investors should be thankful too as were LICADHO not present, it is possible you would see either borrower suicides or civil unrest or both.
Best regards,
Jami
[Non-text portions of this message have been removed]
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