APPLYING FINANCIAL INCLUSION 

Forward

There is a movement of re-thinking on development finance issues in the context of new orientations provided by the recent international financial establishment’s Documents and Papers; in particular, the focus of attention is on financial inclusion.

To properly apply financial inclusion, the first step is to investigate on micro finance trend, on the grounds that Grassroots organizations and retail banks are the main vehicles to implement in the related field activities, their network being closer to the potential beneficiaries.  In so doing, we have to provide an answer to two basic questions: * Microfinance has been proposed as a new idea, but it was genuinely a new idea?  • When, how and why was micro finance recommended as a tool to fight poverty? What’s your position?

Since 06/2011 with the publication of” Suggestions for designing a credit model” http://www.microfinancegateway.org/p/site/m/template.rc/1.9.51017/ (Rated among the first five most read documents in 2011) we spelled out our position and then, with articles and Papers; recently, we have released a Post https://www.linkedin.com/pulse/methodological-approach-ground-work-achieving-sggs-ascanio-graziosi?trk=v-feed, inspired by our research book “FINANCIAL INCLUSION, Give people a job, not a loan”.

Re-thinking on micro finance began after the industry’s implosions in Bangladesh, Bosnia, Cambodia, India, Morocco, Pakistan and Nicaragua, where some micro financial institutions (MFI) have been beset with financial problems. The microfinance’s collapse in the southern Indian state of Andhra Pradesh led to mass suicides and had a worldwide echo. The poignancy of the moment created by this dark side of microfinance has been the origin of review and revision of the whole industry. Before this tragedy, few commentators argued about the fundamentals of this appealing way of doing credit and everybody jumped on the bandwagon playing an unreliable piano score “everybody deserves a loan”. Currently, in our insight position of the financial inclusion business, we came to the conclusion that there is the risk that history could repeat itself: everybody is rushing to provide people with a WhatsApp. Why? Because it is a lucrative business, but it could be short-sighted; moreover, the imitation factor: everybody does it; again, the misunderstanding between means and objectives: financial inclusion isn’t the objective to achieve but a means to get countries’ inclusive growth within UN 2030 Agenda for SDGs. And much more.

Continue). We have provided a comprehensive answer to above basic questions and actually contributed with three specific pages to the matter (https://itunes.apple.com/us/book/id1116912686 ), besides the § “Microfinance as a product of the capitalism” in a wider picture of MICROFINANCE AND CAPITALISM. And much more, as thousands of the iBook’s readers are aware: What is the meaning of the terms finance and credit’?
What are the features of the credit market?
Are all human beings innately entrepreneurs?
Have microcredit basic notions been missed out?
Does demand have to be met at any cost?
Do human rights mean equal credit opportunity?

Microfinance re-thinking can be seen in the picture of the most recent revisions of capitalism like Creating Shared Value (Michael E. Porter, Mark R. Kramer, Harvard Business Review – CSV) and Mass Capitalism.

Porter and M. Kramer (Harvard Business School) have proposed (a couple of decades ago) the concept of Creating Shared Value (CSV). The authors have criticized capitalism as a major cause of social, environmental, and economic problems. Companies are widely thought to be prospering at the expense of their communities.http://hbr.org/2011/01/the-big-idea-creating-shared-value/

Harper analysed Grameen and Self Help Group systems and, among other things, concluded, “there is little direct evidence as to whether SHG or Grameen system is more effective at reaching the poorest people”. This was written down beginning year 2000; currently above statement can be supported by more facts and figures.

As a matter of statement, a re-thinking on financial inclusion as a new approach to development finance started between end 2015 and beginning 2016.

There are four basic Documents/Papers to  catch what has been going on development finance issues : Basel III Committee (http://www.bis.org,), CGAP (http://www.cgap.org/publications/new-funder-guidelines-market-systems-approach-financial-inclusion), UN 2030 Agenda on SDGs ( www.un.org.) and Financial Services for all , known as CSFI Banana Skins (http://www.aboutmicrofinance.com/wp-content/uploads/2016/07/Banana+Skins_07-16_v8.pdf).

With particular reference to Africa, it is worthwhile to note the activities carried out by Financial Sector Development Africa- FSDA ( http://www.fsdafrica.org/about-fsd-africa/), which aims to reduce poverty across sub-Saharan Africa by building financial markets that are efficient, robust and inclusive. In 2013 the US President Barak Obama while visiting Africa, announced a US $ 2.5 billion Programme, which renewed the interest for the Continent.

In line with the President Obama Initiative, a year later, Mr.Elumelu – Nigerian tycoon and banker – in an interview spelled out his vision on what to do to promote African entrepreneurial spirit: “There are some areas — flood disasters, for instance — where you must give charity. But I think the charity approach to solving other issues must be reassessed. It’s all about sustainability; it’s all about self-reliance. It’s catalytic philanthropy”.

From Elumelu’s interview we quote: “But we have come to realize that there are better ways of impacting a huge number of people through business practices, not necessarily philanthropy”.
 We do support the idea to have a demarcation line among food aid, income generating activities and enterprise development and apply a different approach while dealing with the credit matters, which seems to be quite in line with above reasoning (https://www.devex.com/news/tony-elumelu-s-new-africapitalism-82590).

We have found interesting parallelisms of above approach with Creating Shared Value (CSV) concept that M. Porter and M. Kramer (Harvard Business School) proposed a couple of decades ago. The authors have criticized capitalism as a major cause of social, environmental, and economic problems. “   Companies are widely thought to be prospering at the expense of their communities …(20) Above-mentioned authors have analyzed   Grameen and Self Help Group systems and, among other things, concluded, “there is little direct evidence as to whether SHG or Grameen system is more effective at reaching the poorest people”. This statement has been written twenty years ago; currently, it can be supported by more facts and figures, besides the “move” of the international financial establishment.

To widen the reasoning on microfinance market at the Continent level, there is a need to make the microfinance transparent, competitive and accessible, provided that the MFI will apply rules and procedures of the country legislative framework.
To make it happen is not easy, but central banks in Africa have issued regulations and supervisory systems following the recommendation of Basel III Committee.

What’s the microfinance market looks like? From a recent field research (http://nextbillion.net/yes-microcredit-requires-subsidies-and-thats-great-news/)  “only 20 percent of MFI are truly sustainable. The other 80 percent could not maintain their current operations without social investors providing the market-rate capital. And it’s not a question of subsidy flowing to new MFIs who are scaling up. Three-quarters of subsidy in the industry flow to MFIs which are 10 years old or older”.

We don’t share the idea that micro-credit requires subsidy because it could mean going back to three decades of past mistakes, besides being not in line with SDGs.

We do think that the segment of the market (70-80% MFIs poor performing) could be restructured via mergers & acquisition and another way of pooling resources, on the likely perspective that the near future microfinance market shall go through economy of scale. Hence, the need to assist the restructuration of the sector.

Our own data confirmed above field research results at Regional level: four out five MFI in Africa micro financial market is non-performing. Here the question is: what to do? In our opinion, MFI, NGO, Rural Banks, People Banks, SACCO, Retail Banks, which deserve attention and accept the challenges – namely ready to innovate way of doing business and style of management – should be assisted with advice and resources, the former without the latter doesn’t work.

On the matter, we have a field Project that we launched some time ago “COLLOQUIUM WITH DECISION MAKERS”(https://www.linkedin.com/pulse/project-decisions-makers-africa-ascanio-graziosi?trk=mp-reader-card , which is neither training nor course of lessons, but a Colloquium on strategic issues with micro-finance top Executives in their own hub; so they don’t need to travel to Rome, London and Paris. Upon request, they will receive the Document and the Budget. This is a very important Colloquium for those who like to step in the digitalisation of the financial services, based on informed decisions.

French version “COLLOQUE SUR L’INCLUSION FINANCIERE” https://www.linkedin.com/pulse/colloque-sur-linclusion-financiere-ascanio-graziosi?trk=mp-reader-card.

It has been argued (Milford Bateman) that changes produced by the above-mentioned documents have been made to change anything; worse, above author and Phil Mader, Maren Duvendack, Lamia Karim, Jessica Gordon Nembhard, Marcus Taylor and others argued that microfinance phenomenon is all about the politics, not the economics and financial inclusion “seduced and betrayed”.

In our opinion the problem isn’t whether or not believe the establishment, but to manage the field operations in a way to make it inclusive growth happens: sustainability, affordability, transparency and accessibility of the use of the financial leverage to the economy, which will continue to have a casting position, but mitigated by the community-based economy. Sustainable micro finance creates jobs. Moreover, it could be very important that the establishment disseminate and promote what they said.

What’s wrong with microfinance? One thing, only: it has been proposed by Populists and not Economists and then manipulated by low profile politicians, by purpose. Does microfinance alleviate poverty?

We do think that a basic mistake has been the lack of a paradigm; the Populists said: distribute credit, they will pay back, which is a dogma. At this point, the question could be: why the international financial establishment allowed them to promote it? We have shared with Members and Followers of our Group the answer (FINANCIAL AND ECONOMIC INCLUSION: https://www.linkedin.com/groups/4682884 .

To have a more comprehensive explanation we have dedicated many pages to the matters (two paragraphs and two chapters of our iBook) matter and here there isn’t enough room explain, the question being a little complicated and interconnected with the financial capitalism   :https://www.amazon.com/Financial-Inclusion-Give-people-loan-ebook/dp/B01ENJP37S/ref=sr_1_1?ie=UTF8&qid=1489340682&sr=8-1&keywords=financial+inclusion+ascanio.

As we said over the past decades we started elaborating on how to design a credit model, taking from our field experience in leadership position in the emerging economies. Eventually, in 2010 Basel III Committee released a document on microfinance activities, which provided us with a reference to place the credit model in the picture of the countries’ institutional and organisation framework, central banks having adopted Basel III’s recommendations. A further step has been done a couple of years ago when above cited Basel III issued a document on financial inclusion, which we read in conjunction with UN 2030 Agenda for SDGs, CGAP Papers and others documents.

Taking from the desk research in aggregation with the consultancy activities, we published FINANCIAL INCLUSION, Give people a job, not a loan”  https://www.linkedin.com/pulse/methodological-approach-ground-work-achieving-sggs-ascanio-graziosi?trk=v-feed, which sub-title synthesized the proposed new approach to development finance interventions.

The main message we detected is to move from CREDIT-BASED ECONOMY to COMMUNITY-BASED ECONOMY, thus re-designing the entire architecture of the approach in favour of poor people and small business as well, and shift the paradigm of the financial interventions from over-indebted economy at micro and macro level to a real people’s empowerment via jobs creation and promote opportunities via Bottom-up.

We don’t say that there should be a restoration of the Keynesian theory, we do say that the role of finance in the economy has been dominant at macro and micro level, to detriment of the real economy, on the wrong assumption that poverty is a lender task instead of a government duty; moreover, we haven’t assumed interventions from the public sector, but the private sector taking the lead and get really involved.

The financial leverage to business is important and even vital, of course, and its sustainable use creates jobs and promotes opportunities, government providing an enabling environment and related services. With a salary people may or may not apply for a loan and buy a mobile phone; in so doing the meaning of credit – confidence – will be re-established. Regards to the digitalization of the financial services the real question isn’t to provide people with a WhatsApp but to have them eligible for its use.

In this understanding we have elaborated a model in a way to put finance providers in the picture of the guidelines provided by the international financial establishment, to find out a suitable solution and facilitate the access of the entrepreneurs to the capital. The Exhibit (https://ascaniograziosi.net/2017/06/15/investment-proposal-fundraising/ ) highlights the logic of the approach and the avenues to achieve inclusive growth via business at macro and micro level because sustainable finance is the backbone of the countries’ economies.

HOW TO DESIGN NEW CREDIT MODEL/SERVICE We proposed four steps to design a new Credit Model/Service:1)      Position the MFI/Organisation in the financial market (slide page 27)

1)      Position the MFI/Organisation in the financial market (slide page 27)

2)      Place the Business within the country institutional & organisational framework (87)

3)      Design a credit model/service within the regulatory framework, as per Basel III (93)

4)      Find out your market’s niche via the proposed market segmentation. (204).

We took the slides from the iBook “FINANCIAL INCLUSION, Give people a job, not a loan”. Although we would like to provide you with more, there isn’t room enough. Besides, the practical problem, we can’t do it because it will be unfair competition with our professional colleagues. However, you can download it (https://www.amazon.com/Financial-Inclusion-Give-people-loan-ebook/dp/B01ENJP37S/ref=sr_1_1?ie=UTF8&qid=1489340682&sr=8-1&keywords=financial+inclusion+ascanio ) for a very cheap price and benefit much more beyond and above the slides, in a comprehensive understanding.

(Continue) Last week we introduced the works and quoted M.E. Porter and M.R. Kramer (Harvard Business School), Mr Mr Elumelu, Milford Bateman, Kate Maclean, James K. Galbraith and others, who argued that microfinance phenomenon is all about the politics (“seduced and betrayed”). Here we would like to add: Does microfinance alleviate poverty? https://www.linkedin.com/pulse/does-microfinance-alleviate-poverty-frithjof-arp-phd-sfhea. And quote Graham Wright’s Posts, who urged for a revisit the design and delivery of digital credit: https://www.linkedin.com/pulse/digital-credit-have-we-been-here-before-microfinance-graham-wright. https://www.linkedin.com/pulse/we-really-financially-excluding-27-million-digital-credit-wright.

A very recent Paper released by CGAP on Consumer credit “raises serious consumer protection concerns”. http://www.cgap.org/publications/consumer-protection-digital-credit#.WaQ2MWN2voc.linkedinWith a particular reference to digitalisation we wrote the OPEN LETTER TO FINTECH https://www.linkedin.com/pulse/open-letter-fintech-ascanio-graziosi and suggested to review the approach to digitalisation in a way to shift from PRODUCT INNOVATION to PROCESS INNOVATION: https://www.linkedin.com/pulse/open-letter-fintech-ascanio-graziosi 

We do think that a thousand followers of the Conversation https://www.linkedin.com/in/ascanio-graziosi-968ba43/detail/recent-activity/shares/ deserve consideration and in our Moderator position, we have decided to make available the iBook “FINANCIAL INCLUSION – Give people a job, not a loan” at a very cheap price for the weekend only, starting Sept. 2 at 8h AM and ending Sept. 3 at 12h. https://www.amazon.com/kindle/dp/B01ENJP37S/ref=rdr_kindle_ext_eos_detail