Microfinance Practice: Re: [MFP] FaceBook and Microfinance

Thank you so much for sharing

Best Regards

Tabrani Yunis

Sent from Yahoo Mail for iPhone

On Thursday, July 2, 2020, 5:59 AM, jaashe@aol.com [MicrofinancePractice] <MicrofinancePractice@yahoogroups.com> wrote:

Srinivasan,

Thanks for this. In 2018 I studied Nawa Prativa, a credit union in on the Terai (flatlands) of Nepal. Nawa Prativa started as an NGO that trained 50 Women Empowerment Program savings groups in 1999. When Achyut Hari Aryal and I visited Nawa Prativa 20 years later we found that most of the WEP groups were still functioning but they were now part of a credit union... The credit union had trained another 2,000 or so groups and the group members had access to larger loans, short term and retirement savings and additional training. The entire operation - including the new groups - was profitable with the profits invested in training groups in more remote areas that were not profitable for Nawa Pratriva and other community based projects including scholarships.

Nawa Prativa accomplished all this by charging 18% per annum on a declining basis.

We administered the PPI to 210 members who were ultra poor when they joined their groups an average of nine earlier and were still members today.... While all were ultra poor when they joined, today virtually none were even poor.

Why? Being part of a group (and choosing to join the group when others of similar status did not) was part of the answer along with staying the course for nine years and not dropping out. Then there were other factors, an increased number of generally husbands working in the Middle East and sending remittances, the spread of services and the improvement of infrastructure, the general growing level of prosperity, the spread of electricity, the available of government pay for work schemes, etc. With all that said being part of these groups for all these years was likely one factor in improving their standard of living.

Nice to be able to also tell a more positive story,

Jeff

-----Original Message-----
From: 'N. Srinivasan' shrin54@yahoo.co.in [MicrofinancePractice] <MicrofinancePractice@yahoogroups.com>
To: MicrofinancePractice@yahoogroups.com <MicrofinancePractice@yahoogroups.com>
Sent: Wed, Jul 1, 2020 11:14 am
Subject: Re: [MFP] FaceBook and Microfinance - the parallels

Dear Chuck and all

I started in MFP with the raging discussion on 'compartamos' and was party to the MFT's work that Chuck piloted so well (wish we had more support to continue the work it started). But MFT's work, which was in the best interests of all stakeholders of the sector, did not receive all round support - there is more support and recognition for MFT, I feel, after it ceased to exist in its earlier form!

Considering the fact that there are few providers of suitable, good and adequate financial services to the vulnerable people and these few cannot meet all requirements , we have to reexamine how we deal with 'good and bad' in financial institutions. As I see it, there are very good and very bad institutions and several shades in between. Even the very bad have a demand and serve a population that no one else serves. Each perch above the very bad is an improvement; as practitioners one can work at improving the institutions with badgering, opinion leading,capacity building,customer education and regulator education and many other aspects. Organisations such as MFT dealt with many of these aspects...

Condemning an entire sector as bad and dysfunctional is rather sweeping (and perhaps judgmental)- If we can find good examples among MFIs (yes, there are several) and hold them out for others, it might be a better way of addressing issues. The local resource led, saving only models have a long wait period for people who want to improve their livelihoods. No doubt they have done a power of good in several geographies and without any formal financial linkages, as Hugh and Jeff will point out. But there are also alternative models that have helped people improve their livelihoods - Bangladesh, India, Pakistan, Ethiopia offer good examples (certainly there are many more countries that I am not familiar with have such institutions). Millions of people participating in financial services and accessing loans that improve their livelihoods is not just by accident - there is a design and there are institutions that make money for their investors and employees out of such operations. The continued business interest sustains the financial services and facilitates scaling up without grant support. Comparisons between different models does not lead us anywhere. Each one has its customers, investors and supporters. Customers have the least bond with any ideology of what best microfinance is about and will transit between one model and another and one institution and another - and at times be a participant in every model and institution to maximise access to resources.

The best is something that we should aspire for and work towards. But the best should not be an enemy of the 'good enough', as it may take some time to achieve the best for all the vulnerable excluded people In posting this I do not intend any offence to any one or any idea. Let us have a good exchange and evidence based insights.

Best regards

Srinivasan

On 01-Jul-2020, at 5:17 AM, Daniel Rozas danrozas@yahoo.com [MicrofinancePractice] <MicrofinancePractice@yahoogroups.com> wrote:

Dear Chuck and other current and former colleagues --

this is a healthy and important discussion. Normally I would dive right in, especially since I have been working quite closely with Cambodian MFIs for the past several years. But I also prefer to speak about specifics, referencing real data rather than general observations. I hope that data will come soon..

For now, I would just like to suggest that things are rarely so simple or clear. There are bad apples and good ones and others in between. Some aren't even apples at all, but oranges in disguise. Not all foreign investors act the same, included commercial ones. Some are out for a quick buck, others for a slow one (and hence more keen to look out for long-term sustainability -- which tends to fit well with healthy client relationships). Some take clients relationships and client protection seriously. Others only say they do. Cambodia is full of different actors driven by different goals and doing different things. They influence each other and shape the market in complex ways. The regulator steps in sometimes, but not enough. Self-regulation is a patch, but can bring some useful things - especially if it can foster transparency (as Chuck knows well). Some clients struggle - a lot. Some (too many!) even make unconscionable sacrifices. Still others may do things that seem like dreadful sacrifices from a distance, but aren't all when seen up close.

Cambodia features some of the best client practices anywhere, and also some rather poor ones too. I urge all of you to recognize the complexity and not be led astray by the siren song of simplicity. And if that process of simplification happens to mold especially well onto your favorite philosophical predisposition, I would urge you to question whether your conclusion is guided by the evidence or your evidence by the conclusion...

Don't take this the wrong way... I love and respect you all. Well, nearly all - you know which list you are on!

Cheers.

Daniel

On Wednesday, July 1, 2020, 12:17:20 AM GMT+2, hugh@vsla.net [MicrofinancePractice] <microfinancepractice@yahoogroups.com> wrote:

Thanks Chuck. No caveats.

Hugh

From: MicrofinancePractice@yahoogroups.com <MicrofinancePractice@yahoogroups.com>
Sent: 30 June 2020 17:32
To: MFP <microfinancepractice@yahoogroups.com>
Subject: [MFP] FaceBook and Microfinance - the parallels



I left microfinance 5 years ago, I stopped using Facebook 3 years ago. The parallels between the two led me to the same decision with both.

These are the thoughts I had this morning as I was milking my goats, my new occupation, during which I usually enjoy the beautiful morning light and sounds and spend time with my animals. But the discussions of the past few days now force microfinance to percolate in my head even during milking time.

Here is my main point: I don't believe microfinance is rotton to the core; I don't believe FaceBook is an entirely evil conspiracy. But business pressures pushed both in the same directions and have created situations in which a large number of people who were formerly enthusiastic supporters have now left and forecast warnings that without external intervention things will do nothing but get worse.

The beginnings

At their inception, both were envisioned as innovative ways to reach the masses and provide them with services they would value; both told us that the services were very affordable compared to the alternatives, both told us that their mission was to create a path to viability, but they didn't say anything about plans to get ridiculous rich. The creation of FaceBook may have been motivated primarily by greed, but microfinance was absolutely never envisioned as something that would be lucrative. There was little hope of even covering expenses. We didn't measure ROE, we measured what percentage of our expenses were actually paid by income and were proud when we would be over 50%.

In their early days, both attracted smart, dedicated people who were drawn by the exciting idea of helping create something that had never been done and that could "change the world." Most chose to take salaries below what their market potential was, because they considered this a noble pursuit.

The transition

Both ended up reaching much higher scale than imagined. They both drew more public attention and they both drew in more professionals. The new wave of people came for a blend of motivations, and the clarity of the original vision began to blur.

With growth, management in both had to figure out how to make the numbers work. Scale was increasing, but expenses were increasing faster than income. Both went out in search of MBA-types to bring in and create solutions. Microfinance also invested in developing business skills internally, such as was done with my Microfin software and the 3,200 microfinance professionals that attended my 126 Business Planning courses from 1997 until 2013.

Both FaceBook and microfinance decided that increasing income was far easier than controlling expenses. FaceBook went big into advertisements and developed systems to spy on everything we did when inside FaceBook and even when not. And we users were for the most part unaware at the beginning. Microfinance decided hiding the true price was a no-brainer. In most countries, there were no rules against hiding the price, so true prices escalated while not appearing to do so. It got so confusing that even people inside the industry did not know what prices were truly being charged, or which MFIs in a market were less expensive.

FaceBook went from a being a financial puzzle - a nice idea with no viable future - to one of the most profitable businesses on the planet.. Microfinance went from being a nice idea with no viable future to a strategy where institutions subsidize the early start-up years with free grant money and then flip from NGO project to a for-profit business cash cow where a handful of insider investors get stunningly rich without having had to take any prior risk.

And the problems escalate

FaceBook never anticipated becoming a tool used for manipulation and profiteering by groups of racists, scammers, terrorists, and political idealogues. Microfinance never anticipated becoming a home and a nameplate for the very payday lenders and userers that the industry was created to displace..

For example, the 400 payday lending businesses in South Africa, many quite large and quite profitable, create Micro Finance South Africa association (MFSA). Their average price charged is 350%. The dozen very small, struggling "true MFIs" (who charge prices "only" in the low- 100% range, create their own separate associaton.

A group of those involved early in creating FaceBook start to make noise about the shifts, the damage already being done, and the potential greater damage that could happen in the future. Those involved early in microfinance do the same. The debates started in the early 2000's with the "poverty lending" group vs the "massification" group. All hell broke lose in April 2007 with the 100% cashout IPO of Compartamos creating a 350-to-1 ROI for the tiny group of insider investors.

The search for solutions

In both FaceBook and microfinance, early warning arguments attracted a lot of attention and initiated a small number of initiatives for mid-course adjustments.. But the power of money won hands-down in both cases, at least has won so far. Those making the money argued for "free speech" in the case of FaceBook and for "free markets" in the case of microfinance.

You can do an internet search (I refuse to say "google") and find hundreds of articles with proposed solutions for Facebook, ranging from:

               • having FaceBook leadership make internal decisions to create increased societal good with lower short-term profit levels, or

               • creating a social media industry self-regulation group to make rules that limit the damage the members are inflicting, or

               • creating government regulation to define what is allowed and what is prohibited.

You can do the same search for solutions for microfinance, and you will find options like:

               • expect leadership of each institution to continue to show self-restraint, even though a few of their friends decided to get rich

               • have the industry collect data and publish it and expect peer pressure to motivate self-restraint

               • have the industry self-regulate and create a boundary between the ethical and the profiteers

               • change our name to financial inclusion so we don't get lumped together with the bad guys the media has labeled microfinance

               • finally start educating the regulators that we have been intentionally keeping in the dark because powerful industry people thought they would just "cause trouble"

With prolonged damage that went uncorrected, many professionals who were drawn to work in FaceBook and microfinance for their original visions began to walk away. Others chose to stay because of the portions of FaceBook and microfinance that still had positive impact. In both sectors, the focus on financial returns took priority over dealing with the collateral damage. FaceBook is still more than problematic; microfinance still is a muddle. Both have decisionmaking structures driven heavily by profit targets. Both might consider reducing social damage if it wouldn't reduce their profit-taking quite so much. In "real life," whether you call yourself double, triple, or even quadruple bottom line (e.g., Compartamos), when profit is one of those bottom lines it carries about 90% of the weight in decision making.

So lots of talk, lots of hand wringing, lots of clear examples of ugly things happening in some corners of FaceBook and some actors in microfinance. In both, some examples of good progress, like companies this week pulling their ads from FaceBook until FaceBook gets its act together, and like Indian microfinance behaving better because the RBI forces them to behave better. When I think through thepositive changes, I see they are generally imposed by external stakeholders and threaten the profit margin of the business unless the business complies. Again, that is essential a lesson of "real life."

Until there is far more external pressue on both that resolves the large (and growing) pockets of bad consequences, I will continue my abstinence of both FaceBook and microfinance. And with the inevitable takeover by digital finance, I'm not holding out any hope for the microfinance side.

Chuck Waterfield

Active 30 years in Microfinance from 1985 until 2015