Developing world introduced to full range of banking services and financial tools.

Dateline: Tuesday, September 14, 2010
by Penney Kome

Move over, microcredit! Like the rest of us, poor people need more than loans. As big banks move into the microloan market, social change groups and charities such as the Gates Foundation are moving into funding or providing a whole range of financial services in remote poverty-stricken parts of the world — using sophisticated tools like mobile banks, debit cards and cell phones.

"Poor people are not dumb people," said Joyce Lehman, program officer for the Bill & Melinda Gates Foundation. "There is no connection between intelligence and wealth." Arguably, there is a greater connection between wealth and access to appropriate tools.

The arrival of instant banking liberates the more than the 340 million Africans who have cell phones.

Lehman was speaking at the Calgary Microcredit Conference in Calgary last weekend, organized by the Rotarian Action Group for Microcredit and the Uend Foundation. All of the presenters and many of the participants seemed to have expertise in fostering entrepreneurs (that is, grassroots capitalism) in the developing world, where full time employment is relatively rare and most people have to work for themselves.

A quick review: the term "microcredit" refers to services offering "microloans" as small as $20. Typically, microcredit organizations organize (mostly women) clients into "borrowing circles" of eight to ten souls who vow to support one another in lending, saving and borrowing — building community as well as borrowing capacity. Borrowers help one another through lean months.

In practical terms, microcredit involves expensive and labour intensive work to nurture borrowing groups and bring along beginning borrowers. Especially among the programs that Rotarians sponsor, business training is as much part of the program as the loan itself.

A single crop failure or "health shock" can bring people's lives crashing down around them, said Keith Weaver, Chief Financial Officer of MicroEnsure, a new department of Opportunity International. MicroEnsure offers affordable crop and health insurance to the poorest of the poor. For a family in India, where all family members together might earn 32 cents a day, he said, a $200 hospital bill might mean bankruptcy — but not if they have health insurance.

Microcredit programs help poor people in Canada too. In Alberta, the Immigrant Access Fund provides loans to professionals who need to re-qualify in their new country. And the Mennonite Central Committee (MCC) has long offered loans to poor people for purposes such as buying a taxi license.

Microcredit helped launch the painting career of the next speaker, a 70-year-old woman introduced as Pat Donaldson, who began by saying, "My real name is Nokomis." Raised in the Ojibway tradition in the bush by devoted parents, and christened "Pat" by a teacher at a white children's school, Nokomis reclaimed her name and her heritage when she was 50, and decided to become a painter rather than return to office work.

Although she quickly discovered she had a gift for painting, and stories of her childhood to share, Nokomis decided that selling one painting at a time was "inefficient". She wanted to produce limited-edition prints too — a goal she achieved with the help of a $1000 microloan from the MCC, along with business training. Twenty years later, she earns a good income from selling her originals and prints.

Nokomis has seen the world leap from wood stoves to solar panels. Microcredit has made a similar leap in the four short years since Muhammed Yunus won the 2006 Nobel Peace Prize for inventing microcredit — 27 years after he founded the Grameen Bank. Since then, volunteers and NGOs have greatly expanded the financial literacy and tools they bring to the farthest parts of the world.

Joyce Lehman talked about "Big Red", the double decker bus/mobile bank that visits Malawi villages regularly for cash transactions. She talked too about the success of the three-year-old M-Pesa cell phone system — already adopted by ten million Kenyans — that allows them to transfer money electronically, up to $440 to any cell phone number in Kenya, for minimal fees.

In a strictly cash economy that prevails in most of Africa, people often have to travel days to settle accounts. The arrival of instant banking liberates the more than the 340 million Africans who have cell phones — in several ways, including increased security.

Developing nations are usually plagued by economic hazards such as bandits, loan sharks who charge 1000 percent a year, or speculators who front workers scanty materials and give them even scantier returns. Now, instead of carrying cash, people buy and sell cell phone time at their local general stores. Banditry is decreasing, as cell phone cash is useless without the PIN.

Government corruption is decreasing too. "M-Pesa was a huge efficiency boost for the Kenyan government," said Lehman. "... when the government paid workers through their cell phones, there was a near riot because workers realized how much they were supposed to receive as salaries. That's when they learned that previous pay-outs had been decreased by 10 or 20 percent by the people who were disbursing cash."

Most important to Lehman and other microcredit experts, is that people are using the cell phones to save their money. Poor people lose an average of 25 percent of their savings, Lehman said, for lack of security. But M-Peza customers are saving an average of $3 a month — securely — through their phones.

Willy-nilly, the magic of e-communications is bringing banking to remote areas of Africa and South America. Last February, Opportunity International announced a new $16 million project, funded by the Gates and Mastercard Foundations, to extend banking services to 1.4 million farmers in sub-Saharan Africa, using "... satellite branches, kiosks, mobile vans, ATMs and point-of-sale devices."

Similarly, the Internet now permits people in the developed world to provide loans to people overseas, in real time if not instantly. Sites like Uend.org and Kiva.org now partner with community groups in developing nations; together, they post stories online and invite individuals to lend small amounts directly to local entrepreneurs. When Kiva accepts a posting, the local group provides the loan and waits for Kiva's contributors to reimburse it.

From 1998 to 2008, Rotarians partnered with the RESULTS organization to provide microloans to more than 100 million of the world's poorest households – a feat as amazing as Rotary's drive to stamp out polio altogether. Microcredit is a good fit for an organization that brings together business and professional leaders.

Although Rotary is a secular organization, many of the conference speakers implicitly acknowledged they were motivated by their Christian faith. Some worked through or with CAUSE (Christian Aid for Under Assisted Societies Everywhere) or industry leader Opportunity International.

Perhaps more troubling to some people is the explicit goal of teaching developing nations the rules of capitalism. Even if we agree that poor entrepreneurs are at a disadvantage when they don't understand the tools and the current rules of the game, are we really doing them a favour bringing into a system that crashed catastrophically in 2008?

Fortunately, speaker after speaker emphasized the importance of really listening to clients and letting them choose their own goals — and of encouraging their members to work together in groups, so that individuals can support one another. Compared to the fierce individualism of true free-marketeers, forming groups is almost, well, co-operative.

As Joyce Lehman said, "Poor people are not dumb people." True grassroots capitalism might turn out to be the strongest adversary that globalization ever faced.

http://www.straightgoods.ca/2010/ViewArticle.cfm?Ref=784&Cookies=yes