SUMMARY. The possibilities to achieve countries’ inclusive growth could move to a probability to never it happens, because of the finance matter; indeed, the mission could be possible on condition to change the finance’s rules of the game. We aren’t sure that the actual players will change the system.
This week, ten years ago, people around the world learned about Lehman Brothers bankruptcy: have you noticed any changes in global finance? Well, besides the employees going out with their packed stuff from the bank’s main door we don’t recall any significant and tangible revision. In a very recent interview, Christine Lagarde, MD of International Monetary Fund said: “After ten years from Lehman Brothers default the finance system changed a little bit” This isn’t a lonely voice: if the financial establishment said that, we must believe them.
Let’s have a look at the global finance status of affairs. In 2010 a Document issued under the Basel III (Bank International Settlements) flagship“Core Principles for Effective Banking Supervision”, http://www.bis.org/publ/bcbs175.pdfissued recommendations on financial market regulations, supervision and risks, but very little changed.
Two years ago, Basel III http://www.bis.org)and CGAP (the house organ of the World Bank) (http://www.cgap.org/publications/new-funder-guidelines-market-systems-approach-financial-inclusion), phased out microfinance idea proposed by the Populists from Asia Sub-Continent, but very few words have been spent on how to make it happen Inclusive Growth that is the ultimate goal of UN 2030 Agenda for SDGs.
A global evidence of the finance’s continuing business, as usual, is given by the digitalisation of the financial services. Sensibly, the above-mentioned Documents made recommendations to national market supervisors to regulate the market of financial institutions working with people who do not have an account (Unserved) with a formal financial institution or need (Underserved) to integrate it. However, in some Countries, like Kenya and Ghana, just to mention a couple of hem, the risks caused by the a credit via mobile phone’s way of doing business arisen alarming comments till making parallelism with the easy going to credit promoted by the Populists last century, which caused financial implosions in Bangladesh, Bosnia, Cambodia, India, Morocco, Pakistan, Nicaragua with mass’s suicides in Andhra Pradesh – India, which had international echo.
Here we aren’t going to propose a new finance game’s rules, but suggesting how to deal with matter, quoting what Mr Menichella a former Governor of Bank of Italy said four decades ago “These are the cards and we have to play with them”; so, let’s play with the cards distributed by the big players. Accordingly, we worked out an Algorithm that has been inspired by the financial establishment recommendations. So, we didn’t design a new umbrella, but just an elaboration of what has been recommended by the financial establishment.
Taking from above-mentioned sources we have detected, among others, a recurring and a dominant message, as we perceived it, at least: To move from the Credit-based economy to Community-based economy and focusing on jobs creation and people empowerment.
MOVING FROM CREDIT-BASED ECONOMY to COMMUNITY-BASED ECONOMY: what does it mean? It does mean to provide people with either a job or opportunities in view to upgrade the life’s conditions. This can’t be achieved using the financial leverage alone, but conjugating together both economic policy and financial and economic inclusion, countries’ inclusive growth is the ultimate goal of the 2030 Agenda for SDGs. We don’t say to restore the Keynesian theory.
We do say:
- To phase out the financial way to development based on the supply side of the financial services to detriment of the demand for, namely from the bottom to the top.
- To re-design 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 the over-indebted economy at a micro and macro level to a real people’s empowerment through jobs creation and opportunities’ promotion.
- To have private investors really involved in the development process.
- To use the financial leverage for sustainable interventions, which is as easy to say as complicated to achieve, because asking for a revision of the decision-making process and fulfil the credit eligibility criteria.
- To digitalise the services with a product that is sustainable for the providers, affordable for the clients and market transparent: this can be reached via an appropriate market segmentation: https://www.linkedin.com/pulse/open-letter-fintech-ascanio-graziosi/.
- To conjugate together two main Goals of the UN 2030 Agenda for SDGs, namely Goal 1 (End of poverty) and Goal 8 (Promote inclusive and sustainable growth).
We have elaborated on above reasoning and worked out a conceptual framework that has been visualized in the above Figure, which has been the reference in point to design a new Model to promote growth via business approach.
The fundamental question is how to approach the market and manage interventions when dealing with both individual persons and businesses. Under the circumstances and referring to the thousands of people that grassroots organizations aim at having in their portfolio, we may distinguish four big market segments:
Box 2 – Market segmentation
|Empowering people in four big market segments:
- (a) People in need of basic services
- (b) People who aim at improving family budget
- (c) People who aim at a start-up business
- (d) People who aim at growth-up business
In the first segment, the financial provider is in the presence of food aid while in the second one we have income generating activities; in the third and fourth segment, the finance provider deals with promotion & enterprise development. In the Basel III’s terminology we may say that the point (a) and (b) – (c) and (d) refer, respectively, to unserved and underserved customers.
For financial inclusion purpose, the segmentation is the core of the business, which deserves a correct and detailed investigation of the landscape, to understand which kind of service may be added to the product and makes also the difference among lenders, developers and philanthropists. In this perception, to make it a successful approach, the experience and expertise of the Team in charge to run the field operations will make the difference and here the competence and behaviour will play a very important role: https://ascaniograziosi.net/2018/08/13/the-factors-affecting-the-projects-performance/.
Inclusive growth is a relatively recent concept dealing with objectives, means and strategy to empower either people or segment of the market via economic and social development. A comprehensive understanding may be taken from the above-mentioned-documents
In this context, the real question is: how much social objective is compatible with a sustainable intervention? The answer may be expressed with a mathematical function where social performance is a function of the below variables:
Box – Social performance’s function
Social performance= F (enterprise development; family income; food security)
In the above scenario the expected performance of whatsoever intervention in any of the three segments (Enterprise Development, Generating Activities, Food aid) shall vary in relation of the relative importance (weight) of the interests, objectives, position, expectation of the players and, as a result, the search of a welding point shall be found out in a continuing negotiations: “The factors affecting the Projects performance” https://ascaniograziosi.net/2018/08/13/the-factors-affecting-the-projects-performance/
The financial leverage to business is important, sometimes vital 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 without pressure and independence; 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 an electronic device 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 source of capital. The Figure of the Post https://ascaniograziosi.net/2017/06/15/investment-proposal-fundraising/ highlights the logic of the approach and the avenues to achieve inclusive growth.