Asset Building

Applying Counterpressure to the Microfinance Backlash: FP Op-ED

Jamie Zimmerman — Wed, 28 Oct 2009 17:43:00 -0400

I've been arguing for awhile now that microcredit has been overly hyped, even dangerously so (i.e., credit will end poverty). But now media (see The Times, The Boston Globe, Foreign Policy, articles, for examples) are beginning a backlash against microcredit (likely caused in large part by failed expectations caused by said hype) that I nonetheless find equally, if not more, disturbing (i.e., microfinance isn't working). I've never thought of credit as a panacea, but I do believe financial inclusion and access to an array of asset building financial services are essential if the poor are ever to move out of poverty.

So, I'm pleased that my colleague, Shweta Banerjee, just published an piece in Foreign Policy magazine - How Microfinance Can Change the Lives of Millions - that applies some much need counter pressure to the new naysayers of microfinance, by focusing on what is working, what might work, and why we should continue our efforts to innovate before falling back into old (and bad) development policies and practices.

In particular, the piece highlights specific programs and experiments aimed at providing the very poor with effective financial services, including WOCCUs matchsavings.org, Oxfam's Savings for Change and the Center for Social Development's AssetsAfrica pilot study, among others.

I'm interested in hearing others' opinions on which microfinance programs and services are most innovative and also worthy of a spotlight as this debate livens up. Send along your thoughts!

*******PS. I received this note from a colleague at WOCCU, with a slight correction to the description of matchsavings.org in the FP article:

"There isn't actually a physical credit union in these people's villages (a field officer from a nearby branch office travels to outlying communities 1x/month), and the reason they didn't join wasn't so much because of the membership fee. They can actually save over time to achieve full membership, and MatchSavings.org participants become full members after 2 months of saving. Some participants I spoke with didn't join existing credit union groups in their communities because they felt the savings requirement (set by the group itself) was too high for them or they didn't feel ready to join. The MatchSavings.org program, though it required a higher monthly deposit, incentivized people with the 100% match. And when they receive their match after 6 months, the group members then set their own savings goal (the same for all members) and continue on the monthly deposit schedule in their community, with access to the full range of credit union services."

To learn more about WOCCUs matchsavings.org and other matched savings programs in developing countries: http://www.newamerica.net/publications/policy/promoting_savings_tool_international_development

Now is the Time to Focus on Combating Growing Poverty

Hosai Ehsan — Thu, 10 Sep 2009 21:50:00 -0400

The much-anticipated official poverty rates for 2008 are out and they are not pleasant. According to the US Census Bureau, the percent of Americans living in poverty increased to 13.2. Nearly nine percent of Whites, 12% of Asians, 23% of Hispanics and 25% of Blacks make up the 40 million people who were living in poverty last year.

Almost one out of every five children living in this country fell into that category. Not only 19% of Americans 18 or younger but 12% of adults aged 18 to 64 and 10% of seniors aged 65 and over were identified as poor. The Brookings Institution expects poverty to rapidly rise through 2011 and 2012.

As depressing as these statistics are, this is not the time to lose hope. They lend timely perspective to current efforts to advance policies that provide low income Americans with the tools and incentives to build their personal savings.

We need to be forward-looking and focus on expanding economic opportunities to combat growing poverty. Asset building proposals at the national level and in California address retirement savings for all workers, college savings for all children, banking the unbanked, reforming TANF/CalWORKs asset limits, EITC awareness and other automatic savings opportunities. These are some of the ways America can ensure that people have the financial tools to be self-sufficient. With appropriate savings and better planning for the future, fewer Americans will suffer from poverty and more will move up the economic ladder.

Expanding Savings Opportunities for California’s Welfare-to-Work Families

Hosai Ehsan — Thu, 25 Jun 2009 17:23:00 -0400

In California's tough economic times, even small savings can go a long way for a low-income family. Assemblymembers Jim Beall and Felipe Fuentes are working hard to make sure that CalWORKs families have the opportunity to set aside savings that can help them cushion financial emergencies and become financially self-sufficient.

On Tuesday, the California Senate Human Services Committee passed Assembly Bill 1058 (Beall & Fuentes). The California Workforce Mobility Initiative (AB 1058) repeals the $4,650 vehicle asset limit for recipients and applicants and eliminates the $2,000 cash asset limit for recipients. Also, it allows applicants to have $2,000 in savings adjusted to the California Necessities Index.

If enacted, AB 1058 would help CalWORKs families build the savings necessary to become financially self-sufficient through work. It will also save the state $3 million dollars in administrative staff time, according to the Assembly Appropriations Committee. This money is otherwise spent conducting quarterly tests to verify that the families are indeed asset poor. States that have eliminated the asset test report a savings and no fraud cases.

The goal of the CalWORKs program is to provide temporary assistance as families transition from government support to work. CalWORKs recipients can achieve this goal by owning a reliable car that helps them get to work, and savings that helps them move ahead.

The California Legislature and many community organizations have recognized the significance of asset building and are working hard to ensure that CalWORKs families who aspire to build their own financial safety-net are encouraged and not penalized.

Retirement Savings for all California Workers

Hosai Ehsan — Wed, 24 Jun 2009 00:15:00 -0400

Imagine a California where every employee has the option to participate in a work based retirement savings plan.

Imagine a California where all workers retire with enough savings to sustain them through old age, so they do not have to depend on the government for assistance.

Well, this may not be too far-fetched of an idea, because California is taking strong steps in this direction.

Yesterday, the California State Senate Public Employment and Retirement Committee passed Assembly Bill 125, the California Employee Savings Program. Authored by Assemblyman De Leon, AB 125 aims to create a voluntary, universal, portable retirement account for California workers who do not have access to a retirement savings plan. Furthermore, AB 125 would enable thousands of small businesses to offer low-cost retirement savings to their employees.

The truth is that California's economy is built on its dedicated workforce, so it is important to nurture their enthusiasm and reward their hard work by giving them the tools to secure a financially stable future. Currently, 43% of California's workforce does not have the option to save through payroll deduction. That means that despite their years of hard work and economic contributions to the state, they will most likely end up depending on government aid when they retire. Also, 78% of today's seniors did not build sufficient assets to sustain their standard of living, reports the Institute on Assets and Social Policy.

In a recent AARP survey, 63% of respondents whose current employers do not offer a retirement plan said they would be likely to use it if their employers offered one. In other words, a majority of the employees are interested in building retirement savings if they are given the adequate tools to do so on the job.

At the national level, President Barack Obama has endorsed the idea of creating automatic workplace retirement savings plans. After all, a California where every worker has the option to secure retirement savings is not an imaginary scenario. It is a realistic possibility, favored by California workers and small businesses and supported by the California Legislature.

Policy Innovation toward Financial Inclusion: Colombian Government Links CCTs to Savings

Jamie Zimmerman — Mon, 20 Apr 2009 16:54:00 -0400

Just days before the New America Foundation released its Global Assets Project policy brief, "Savings-Linked Conditional Cash Transfers: A New Approach to Global Poverty Reduction," the Colombian announces a major effort to do just that - link the beneficiaries of its nationwide CCT program with savings accounts. This major policy development in Colombia has emerged in part as a result of the efforts of the policy brief's co-author Yves Moury (Executive Director of Fundación Capital), and his project, Proyecto Capital. Our brief, released today, advocates using the (typically) massive CCT infrastructure to formally bank the largely unbanked poor populations in developing countries. But we also advocate going one step further: use the power of CCTs to encourage saving and asset accumulation of the poor. This approach can be viewed as a two-pronged poverty reduction strategy of building income and assets while increasing the effective financial inclusion of an entire poor population.

Back in September 2008, the Proyecto Capital signed a cooperation agreement with the Government of Colombia to mobilize, in bank accounts, the savings of millions of beneficiary families of Familias en Acción (Families in Action), promoting their financial inclusion and facilitate their socioeconomic graduation from the program. Proyecto Capital's role in the agreement includes assessing possibilities (and possible bottlenecks) for these families to participate in a program that would encourage them to save part of the conditional cash transfers they receive from the CCT programs in a savings account.

Late last week, the administrators of the Familias en Accion, announced the official launch of this massive financial inclusion effort. The plan is to open no-minimum balance savings accounts for up to 3 million beneficiary families in a partnership with Colombia Bank, Banco Agrario. Beneficiaries will also receive debit cards for the accounts.

The administrators are calling it "the largest financial inclusion plan in the history of Colombia." Not only will all beneficiaries of the CCT program have access to savings accounts and debit cards, but those who comply with the requirement of the program (based on proper education and nutrition of poor families, in particular children), will receive their conditional nutrition and education subsidies on their debit cards, without the use of intermediaries. The Colombian government stated that it believes this effort will reduce the vulnerability of the poor to costly informal financial services, such as payday lenders and other informal loans to help them smoother consumption.

The Government of Colombia should be congratulated for their bold effort to provide their poorest and most vulnerable citizens with formal financial access, in particular access to savings account that will help them smooth consumption, prepare for their futures, invest in themselves and (hopefully) move out of poverty. I hope the financial inclusion field watches this effort with keen interest to observe if and how it achieves its ambitious goals.

*Please Note: We will discuss this innovation along with a number of other policy ideas for linking CCTs and Savings at an upcoming event at the New America Foundation on April 29^th. For more information, click here.*

Weighing in on Microfinance and the Financial Crisis

Jamie Zimmerman — Mon, 23 Mar 2009 20:24:00 -0400

Signs point to toughening times for the microfinance industry. A recent article from the Economist has echoed my concerns that selling microcredit (as a concept or a product) will grow increasingly difficult as the global economy stumbles (or crashes and burns) on the heels of a debt-led recession in the United States. Not only in the concept politically less appetizing than it was back when Muhammad Yunus won the Nobel Peace Prize in 2006, the capital fueling the industry is drying up. The similarities and differences between subprime lending that fueled the US recession and the "sub, sub, subprime" lending happening in developing countries through microfinance institutions have been debated and analyzed for over a year now. But only recently has the engine of seemingly-endless capital to MFIs around the world starting slowing, sputtering to slow chug in some instances.

The Economist article argues that the microfinance industry is more insulated from the crisis than many of my colleagues working in the sector would currently state. Just because the Grameen Bank has not faltered in this financial crisis doesn't equate to an entirely healthy sector. Moreover, the decrease in capital, and the resulting liquidity constraints and challenges institutions will face, does not represent the variety of challenges that MFIs, or the microfinance sector, could and will likely face as a result of this crisis. While I commend the Economist for putting on spotlight on this particular problem, the article fails to provide readers with the bigger picture.

Fortunately, CGAP just released last week a more thorough analysis of the potential impacts of the crisis on microfinance. The Focus Note reviews not only the challenges of the institutions, but also those of the clients that frequent these institutions to gain capital for their micro-business or, in many cases, borrow to smooth consumption over time. Essentially, the Note paints a relatively more nuanced picture of the crisis on the microfinance industry and tempers its optimism that the industry is "insulated from the problems of the global economy" (as is speculated in the Economist). On the other hand, CGAP does share my view that this crisis will bring opportunities that could result in a better functioning industry, with potentially better outcomes for the poor.

In my opening remarks at the March 16 USAID panel on Microfinance and the Financial Crisis, I also outlined a number of challenges I either currently see or envision for the industry as the global crisis unfolds, many of which are reflected to some extent in the articles mentioned above, including decreased capital, weakening consumer confidence, increased pressure for tougher regulation, etc.. However, I foresee as serious opportunities for the industry. (Call me hopelessly optimistic, but I prefer to concentrate on opportunities whenever possible, particularly in troubling times.)

First, a debt-led global recession is indeed spurring some to cast a critical eye on debt-led poverty reduction like micro-credit. While this may be understandably worrisome for particular institutions, it's a huge opportunity for the microfinance field in general. The backlash against credit and subprime lending could very well lend itself to a microfinance industry whose health is dependent on a more diverse and balanced portfolio, particularly with an emphasis on savings. In fact, deposit-taking MFIs (who are less dependent on capital investments) are indeed the very institutions most insulated from the crisis so far. Next, the spotlight on savings is not limited to acknowledging the need for deposit-taking for an institutions fiscal health. The microfinance field as a whole is now paying long overdue attention to the other critical financial needs of the poor, namely access to effective and safe savings services. Finally, there is a growing recognition that all people, chief among them the poor and the vulnerable, need to save and create a safety net against economic shocks, rather than relying on credit alone. This is a lesson the US learned too late, but for the microfinance field, it's a very real opportunity to look at economic opportunity and resiliency in a whole new way.

(Transcripts and materials from the March 16 event, including perspectives from other panelists on this issue, can be found on the Microlinks site.)

Conditional Cash Transfers: Generating Buzz, But Let's Think Outside the Box

Leila Seradj — Wed, 11 Feb 2009 15:56:00 -0500

At yesterday's launch of the World Bank Policy Research Report, Conditional Cash Transfers: Reducing Present and Future Poverty, New York Times contributing writer Tina Rosenberg recounted her article pitch to her editors at the Times. Asking her why she was so intent on going to Mexico to cover Oportunidades, the conditional cash transfer program that started it all, she answered: Because it's a social policy program that actually works.

From Latin America, to Africa, to even the United States, conditional cash transfer (CCT) programs are sprouting everywhere and garnering an increasing amount of attention. As the packed auditorium demonstrated yesterday, the buzz has long since reached Washington. And as Justin Lin, Chief Economist for Development Economics, noted, the World Bank will be extending CCT projects to six additional countries this year.

In the scramble of eager participants that shot their hands up breathlessly to seize their chance to ask their multi-part queries to the pre-eminent experts on CCTs, I didn't have the chance to ask the question in the back of my mind: How can CCTs be used to incentivize and change savings and asset-building behavior?

CCT programs aren't a magic bullet, the panelists reiterated. Santiago Levy-- the brainchild behind Oportunidades-- emphasized that CCT programs don't work everywhere, and certainly, they must function within a larger network of social safety net programs provided by the government.

But I wonder how much more powerful they could be if they were used as instruments to help the poor increase savings and build assets, and served as a gateway into formal financial inclusion of the unbanked.

Rosenberg mentioned that, in the course of her time researching the impact of Oportunidades in several villages in Mexico for her New York Times Magazine article, that many women invested parts of their transfer in small businesses. These businesses were sustainable, and added to family income.

If that's the case, then certainly there's room to explore the role of CCT programs to help the poor save, accumulate assets, and increase financial inclusion.

In the U.S. and Latin America, pilot projects and formal government programs are beginning to test these waters. Proyecto Capital in Peru is working to connect, combine, and adjust CCT policies with those that encourage savings, asset building, financial inclusion, and access to financial and entrepreneurial "know-how" for the poor. New York City's Opportunity NYC program links payments to bank accounts so as to encourage savings and reduce services associated with high transaction costs. And evidence from Latin America demonstrates that households participating in CCT programs increase their savings rates and investment in productive assets. Participants of Paraguay's Tekporã program saved 20% more due to their participation in the program; evidence from Mexico likewise affirms that families invested 12% of transfers in income-generating activities, and saved more when payments were made through banks.

So on the day of the launch of this seminal study, it seems timely to start thinking about CCTs in more innovative ways that increases financial inclusion, and helps people save and build assets. This is only the beginning of the conversation-- the Global Assets Project is beginning to ask these questions, and will release a report exploring the potential between CCTs and savings in the coming weeks. In the meanwhile, let's hope that the lively discussion that was sparked at yesterday's event continues in ways that think about CCTs outside the proverbial box.

CGI Closes: Amidst Glitz and Pomp, Substance

Jamie Zimmerman — Fri, 26 Sep 2008 18:32:00 -0400

The Clinton Global Initiative is coming to a close and as I sit here listening to Gordon Brown talk about the importance of the global economy and the gap between the rich and poor, I find myself also thinking about the images of Drew Barrymore, Matt Damon, Muhammad Yunus, Bono, Bill Gates, Wylclef Jean and Bill Clinton on my camera, and last nights performances of James Taylor and Yousoo Ndour's. Waking up from my day dream, I realize that this conference could have easily succumbed to three days of a star-studded, papparazzi-riddled social affair. And perhaps in some ways it is.

But as I go through the notes I've taken over the last three days, I am quite pleasantly surprised by the amount of substance and the breadth of issues and innovations covered over the last three days. Indeed, I'm so impressed that I find myself at the end of this conference in 30 minutes unwilling to end my blogging on its sessions and commitments. Over the next week, I plan to continue providing commentary on CGI sessions, issue areas and commitments. Here is a sampling of topics I plan to cover:

Asset Building Beyond Microfinance? The Forgotten Bottom and the Missing Middle
Rural Finance: a New Frontier for Global Asset Building?
Technology, Information and the New Age of Access
Energy, Climate Change and Sustainable Development: An Opportunity for Microfinance?
Food Prices Shifting Microfinance Focus?
CGI Commitments: My Top 10 List

Send questions, comments, and stay tuned!

CGI's Call for Integrated Solutions I: How About a Broader Perspective on Poverty?

Jamie Zimmerman — Thu, 25 Sep 2008 17:34:00 -0400

All day yesterday, I capitalized on the opportunity to unabashedly promote the asset building framework by putting a spotlight on its prominence in poverty alleviation discussions and commitments here at CGI. And I actually barely skimmed the surface of some of the specific asset-focused activities coming out of these sessions (Habitat, others). As much as I relished it, I also want to acknowledge that asset building and financial services for the poor are one piece of poverty alleviation in a complex global environment. The specific commitments are great, but what about the larger perspective?

Yesterday's afternoon CGI held a plenary on profits, jobs and equitable growth. The stifling of poverty alleviation around the world is not simply due to lack of access to effective financial services, but also to lack of access to property, to opportunity, to education and to healthcare. Exclusion from any combination of these often results market inefficiencies, slack productivity, an inability for an individual to live to their full human potential. Hernando de Soto called for property rights and legal empowerment of the poor to give them the tools they need to achieve their version of the American Dream.

Still wearing me asset-building hat, I applauded when members were reminded of the threat and persistence of poverty traps, but were instead described as inequality traps. But the panel didn't go far enough: the term "inequality" was largely used in the context of income. In fact, President Clinton remarked that income inequality has increased every year in the United States since 1973. This seems a dramatic statement, but imagine how much more impact it would have had if he had instead stated the rise of wealth inequality, much starker (by some estimates 50 times more) than income inequality.

If we are going to develop any successful, integrated solutions to poverty alleviation (the subject of this morning's plenary too, and more to come on that), then the very least we could do is stop describing poverty so very narrowly as a lack of income. Instead, why not describe it as a lack of assets (financial, human, social) that the enterprising poor can leverage in any number of ways to improve their lives?

Savings and Asset Building at CGI Part II: Working Group Session II – Financial Services for the Poor

Jamie Zimmerman — Wed, 24 Sep 2008 20:09:00 -0400

There is still much to learn about the financial tools needed to help the world's poor mitigate risks and build assets in order to build an economic base and contribute to long-term economic development. This session primarily focused on "building assets in the developing world."

Sylvia Matthews , director of Global Development at the Bill and Melinda Gates Foundation opened the second working group session stating that 2.3 billion with no access to financial services for the poor, even though evidence suggests they would make perfect customers. She asked her panelists: "What do people need, what works, what are some solutions and how do we reach scale?" Again, asset building and asset protection products reigned supreme:

Bob Rubin, the first Director of National Economic Council, then Secretary of the Treasury, and now a Director at Citigroup, Inc remarked on the health of the financial system and impact on financial services for the poor. "We need to stem the crisis of confidence in the US now, but we also need to put into place effective responses to longer-term problems the country faces, like healthcare, education and economic opportunities for the poor."

Fazle Abed, the Founder and Chairman of BRAC, spoke about BRAC's ability to reach the poor at scale. Abed described a simple model of success for BRAC, which now reaches millions of clients and has collected 200 million in savings deposits of the poor: "We started small, then tried to make it effective, then efficient, then expanded." Savings coupled with lending is a critical part of their model, which he says "happens like clock-work." It gives clients discipline and regularity, and loans repaid weekly in small sums. In his view, the biggest challenge faced to provide financial services in most countries, is that MFIs cannot mobilize savings -- a huge regulatory hurdle to reaching the poor with savings and other financial services. When financial institutions can't take savings, they lose out on that access to capital and have to borrow equity from capital markets, stifling the growth of some institutions. Abed called for a structure permits these organizations to take deposits so that they can expand programs in un-reached areas quickly.

James Mwangi, CEO of Equity Bank, Africa's largest microfinance institution and now large regulated bank, described the sweeping success of the bank's pro-poor model. Equity holds 52% of all bank accounts in Kenya. Equity's client base also doubled since their last CGI visit, from 1.4 million depositors to 2.8 million. Equity has been able to scale (7 of 10 accounts opened in Kenya today are opened at Equity) because they tried to remodel the bank to meet the needs of the poor. For instance, they structured a low-cost, simple savings product to be more competitive than otherwise available to population (typically under than mattress). Getting the product right, as well as the system to deliver it, has helped Equity become one of the most innovative, fastest growing, pro-poor financial institutions in the world, none of which would be possible, he says, if the bank were unable to collect savings in Kenya.

At the end of the panel, the Working Group was asked: Given the challenges and needs of the poor, what do you believe are two to three actions that different sectore should take in order to meet the financial needs of the poor?

To the global asset building community, I ask: What do you think?