The third meeting of the AHRC Research Network on Microfinance was held on November 11 at University of Birmingham. The topic for the day was ‘Microfinance and Financial Exclusion in the North’ and we were very pleased to have as speakers a number of very distinguished microfinance practitioners with experiences of working with financial exclusion both in the North and the South: Rosalind Copisarow, formerly of Accion International and founder of Street (UK), Maria Nowak, President of ADIE (France), Grzegorz Galusek, Executive Director of the Microfinance Centre for Central and Eastern Europe and the New Independent States (Poland), Neil Boss, Senior Underwriter for Accion USA, Mark Hannam and Faisel Rahman, Chair and Managing Director of Fair Finance (UK), and Steve Walker, Chief Executive of Aston Reinvestment Trust (UK).
Rosalind Copisarow opened the day by reflecting on the history of microfinance worldwide, putting special emphasis on what she perceives to be the central ethical issues in the field. Two widely troubling issues, she suggested, are (1) the risk of mission drift (excessive interest rates, not reaching the poorest) created by the trend towards commercialisation and upscaling in the industry, and (2) the inadequacy of just focusing on microcredit as opposed to a wider attack on financial exclusion also incorporating, e.g., savings and insurance. While these issues are causes for concern, Copisarow added that there also are positive trends in the industry: the use of new technologies (which may decrease administrative costs) and increased focus on value chain development and the involvement of retail outlets (which may bring microfinance closer to its customers).
Maria Nowak related the story of ADIE, the largest microfinance provider in France, and thereby gave examples of some of the problems attached to tackling financial exclusion in the North. ADIE would never have gotten off the ground hadn’t certain regulatory changes been enacted in France, e.g. changes to the unemployment benefits system and the eradication of interest rate caps. Furthermore, the already established banking system can cause problems for microfinance in the North, and Nowak explained how ADIE has worked in close collaboration with certain mainstream banks to avoid scuffles. While ADIE now has become hugely successful, the organisation is still active in discussions of how to improve the European legislative framework relevant for microfinance.
Grzegorz Galusek presented the latest figures on microfinance in Eastern Europe and Central Asia. Over 7000 microfinance organisations currently operate in this area, with over 6 million borrowers and $18.5 billion in outstanding loans. Interestingly, the credit crunch has not slowed down growth in this area as much as elsewhere, although some issues with increased cost of funds have arisen. Rather, one of the major problems seems to be increased overindebtedness among borrowers: In a recent survey, over 60% of the organisations in the region reported worries about overindebtedness, and most of this problem seems to stem from borrowers being clients to multiple microfinance providers.
Elsewhere in the North, the credit crunch is causing serious problems for microfinance organisations and the topic of two of the talks was how to handle this situation. Neil Boss explained some of the details of a new credit scoring system adopted by Accion USA. This system was necessary to decrease the organisation’s costs, but has not put an end to certaion serious worries: Repayment rates are at an all-time low, and Accion USA has unfortunately been unable to cater to all the clients applying; the disbursement rate has been especially low on internet lending. Overall, Boss suggested that American microfinance organisations currently find it very difficult to be self-sustaining.
Mark Hannam and Faisel Rahman presented some of their organisation’s reasons for having effectively doubled their interest rate in recent years. With decreasing revenues, a microfinance organisation may have to cut down on quality in order to be sustainable. But Hannam and Rahman suggested that product quality must be a central goal of microfinance; catering to the financially excluded requires branches in central locations, knowledgable and motivated members of staff, and effective advertising. While effectively having to double their interest rate didn’t feel all too great, Fair Finance has actually recruited a lot more clients in recent years and they have now managed to get much closer to being financially sustainable.
Finally, Steve Walker related some of his experiences from working with community development finance in the Midlands for over 12 years. The Aston Reinvestment Trust is still able to offer low interest rates because of its reliance on subsidies, but has had to tighten its lending conditions as a reaction to the credit crunch. The repayment rate isn’t great and this is probably partly due to difficulties with giving borrowers adequate training and business support – something which may be more difficult in the North than in the South. In the end, however, Walker suggested that a Reinvestment Act may be the way to go also in other northern countries.
Here are some of the presentations in full: Maria Nowak.ppt — Neil Boss.ppt — Mark Hannam and Faisel Rahman.pdf — Steve Walker.ppt
