A female ruby throated hummingbird has become a regular visitor to the flower pot on my deck. She looks at me, annoyed (much like Lorraine when I disturb her in the middle of something) as if to say “What? You gotta problem?”, and then flits off. But I hadn’t realized they made a chirping sound.
I got another five star review on Amazon yesterday; the reviewer liked my description of some banking software as “buggier than nightfall over a Bangladeshi rice paddy”. The reference came from a trip I made to that country in the late 80s as a consultant to the UN Capital Development Fund to look at some agricultural credit schemes they had funded. I was in a guest house, and had boarded myself in for the night, when the air conditioning went off. Gradually, the temperature in the room rose: 90, 95, 100, 105… When it reached 120, I couldn’t take it any longer and flung open the unscreened windows.
To paraphrase D.H.Lawrence, describing what it was like to bed down with camel fleas each night in the Saudi desert: “And the mosquitoes rejoiced in the fresh meats served to them.”
Another week of high drama in our fair city with the Republican debate and Obama’s delivery of his job creation package. I enjoyed the debate; the candidates actually went at each other instead of taking the tiresome route of Obama bashing. I liked Huntsman the best, as the only one who seemed to understand that America lives in a new world dominated by the rising giants of China, Brazil and India and it would be competitive suicide to drop biology from our high school curriculae and replace it with Bible studies as Bachmann and Perry will do if elected. Rush Limbaugh cast a big, fat shadow over the debate and those two were careful not to say anything that might upset him and provide fodder for his talk show the following day. Obama’s stimulus, even in the unlikely event it passes, is not going to create enough jobs in time to save him. His fate is in the hands of larger global economic forces at this point.
The world seems on hold right now, with all our tyrants treading water in Libya, Ivory Coast, Yemen, Iran……and, yes, let’s not omit China which wants to make certain that dangerous artists like Ai Weiwei don’t get any traction similar to the protesters in the Middle East. Stick to designing Olympic Stadiums, dude, is the government’s message.
Speaking of China, I learned in the preface to Part II of “Don Quijote” that Cervantes was invited by the Emperor of China back in early 1600s to establish a Spanish college there, and to serve as its rector. The problem was, the Emperor wanted Cervantes to self-finance the venture, which was clearly not on. At the time, Cervantes was relying on the patronage of his prinicipal benefactor, the Count of Lemos. Interesting to reflect on what might have been had Cervantes accepted. Bull fights in Beijing, pitting samurais against water buffalos? Unknowable.
As Part II opens, DQ is convalescing in his home when his faithful escudero, Sancho Panza shows up, banging on the door, demanding to know what has become of the feifdom DQ promised him at the outset of their first “salida”. This encounter is greatly upsetting to DQ’s landlady, who accuses Sancho of being an “enabler” to her tenant’s madness. The Priest and the Barber are on hand as well, and bring news that “the Turk” is once again threatening to invade Spain. DQ tells them he has a great idea as to how to meet this threat, which he intends to share with the King. Share, the Barber implores him.
“If I tell you, how do I know you won’t steal my idea?” Don Quixote wants to know.
“I will keep him honest,” the Priest volunteers.
“And who will keep you honest?” DQ asks.
“Well, the Catholic Church,” the Priest responds.
Turning from tyrants and crusaders to real heros, I met an inspiring social entrepreneur from India yesterday, P.N. Vasudevan, who runs Equitas Microfinance Company. Vasudevan and his team manage to reach 1.5 million clients with the lowest priced loans — 26% — of any MFI in India, while delivering an ROE of 25% to their investors. In addition, Equitas is piloting programs to deliver other benefits to their clients in the areas of health care and making their microenterprises more profitable, which is a direction I want to take FINCA in in the future. Note to self: go to India and check it out.
For the past several weeks, the microfinance movement has been buffeted in the media by events unfolding in India. The stories are shocking: poor people in India allegedly driven to suicide by thuggish collection agents working on behalf of profit-maximizing Microfinance Institutions (MFIs). In reaction, local politicians are urging borrowers not to repay their loans. Others are calling out for excessive, punitive regulation. This has thrown the Indian microfinance industry into crisis. The media is asking: will the conflagration spread to other countries and bring the entire industry to its knees?
First, as a movement, let’s look in the mirror. Aggressive, imprudent lending practices on the part of rapidly-scaling, profit-maximizing MFIs contributed to the India crisis. This same failure to understand the limited capacity of the poor to repay loans, even small ones, played a large part in the high default rates many MFIs in other parts of the world experienced during the recent global financial crisis.
Why has this occurred? It is an unwanted byproduct of the microfinance industry’s enormous success in making credit easily accessible to poor people. When I made my first micro loans to small farmers in the highlands of Guatemala back in 1972, access to capital was unheard of for poor people. The few who obtained our 50 dollar loans realized dramatic returns, just with a small investment in fertilizer and pesticide. A decade later, when FINCA, the microfinance network I lead, began to lend to market women in other developing countries, they were able to move away from loan shark loans offered at 10% interest, per day, and access FINCA loans at 3% interest, per month, realizing windfall profits.
The advent of abundant credit for poor people has changed the landscape in two ways. First, millions more micro entrepreneurs have entered the sector, causing the margins on their microenterprises to fall dramatically, reducing their capacity to repay. Second, poor people with no businesses at all have entered the sector, using their loans for consumption.
Does this mean that microfinance as a tool to fight poverty has exhausted its potential? As one who has labored in this vineyard for almost 40 years, I doubt that. But it does mean that, going forward, we need to work in a different way.
First, in the short run, MFIs need to conduct more rigorous analysis of their client’s repayment capacity, which includes information on their existing level of indebtedness. Second, we should do more research into the impact of our loans on our clients’ wellbeing to address, what our detractors claim, is a reversal of the Hippocratic Oath – rather than doing good, we are actually doing harm. Third, we need to offer more than just loans, and include savings accounts, remittances and micro insurance in the product mix. Fourth, we need to more actively promote Client Protection and Financial Education, and censure those engaging in abusive or irresponsible lending practices. Many of the major MFI networks are involved in the SMART campaign, an initiative organized and funded by Deutsche Bank and the Center for Financial Inclusion which strives to enlist more MFIs to that effort.
Finally, because microfinance in highly saturated markets can be susceptible to diminishing returns for clients and MFIs alike, we need a plan to make microfinance more effective by marrying it to other interventions that help the poor diversify into more value added microenterprises.
Increasingly, entrepreneurs and even large corporations working in other sectors of the economy are looking for ways to export their ideas, technical innovations and expertise to developing countries in an effort both to open new markets, and lift up the poor. George Economy, food sector entrepreneur who serves as mentor to the Global Social Benefit Incubator (GSBI™) Enterprise-Building Program at Santa Clara University told me: “Young, up-and-coming entrepreneurs see the next wave of opportunity and excitement in developing countries, where their innovations will have a social impact.”
There could be a second entrepreneurial wave in the making that will not only involve giving small producers access to financial services, but opening the door to small-scale, affordable technology that will make them more productive and bring improvements in their welfare. The timing couldn’t be better. Linking the poor in developing countries to global markets in a more profitable, sustainable way will combat a host of social ills, from malaria, to AIDS to terrorism.
Let’s not do something stupid and kill the movement that could make it all possible.