Access to credit: banks and the poor

Limited access to financial services, high thresholds for formal credit, and lack of financial knowledge limit access to functional credit for residents of cities in the Global South, hindering their way out of poverty. Governments, NGOs, self-help groups, and financial institutions in Bogotá, Dar es Salaam, Chittagong, and Delhi are putting emphasis on micro-finance, financial education, and other financial initiatives to facilitate access to credit. Read on to learn about these approaches, and join the conversation below.

 

Bogotá
Dar es Salaam
Chittagong
Delhi

 

Jorge Bela

 
La Educación financiera: un prerrequisito indispensable para el acceso al crédito

Jorge Bela, Gestor Comunitario de Bogotá

Las micro finanzas han supuesto la apertura de una vía de financiación para un sector de la población sin acceso al sistema bancario tradicional. Aunque sus tasas de interés son más elevadas que las que ofrecen los bancos comerciales, son mucho más ventajosas que las que ofrece el "gota a gota," única vía de acceso al crédito que han tenido hasta tiempos relativamente recientes.

Aunque los microcréditos fueron en un principio canalizados principalmente a través de ONGs, con cada vez mayor frecuencia son ofrecidos por bancos, tanto especializados en este sector como incluso, recientemente, por bancos tradicionales. En ocasiones ONGs se han convertido con el tiempo en bancos de microcrédito. Tal es el caso de Bancamía, una entidad fundada en 2007 por dos ONGs que tenían más de 20 años de experiencia en la gestión de microcréditos, las Corporaciones Mundiales de la Mujer de Medellín y de Colombia, en asociación con la Fundación Microfinanzas BBVA.

El crecimiento del sector en Colombia ha sido muy acelerado, duplicándose la cartera desde el año 2012 al 2013. Bancamía, por ejemplo, cerró el 2013 con 567.000 clientes, con un incremento del 27 por ciento en la apertura del cuentas de ahorro frente al año anterior y un total de 187 oficinas por todo el país, y miles de corresponsales bancarios. El banco espera seguir creciendo, especialmente en el ámbito rural, donde ya tiene un 36 por ciento de su cartera.

Sin embargo, este crecimiento acelerado tiene asociados algunos riesgos. En primer lugar, la desvirtuación del microcrédito. Concebido como una forma de apoyar el desarrollo de actividades empresariales y de emprendimiento, la abundancia de oferta puede llevar a su utilización como créditos al consumo. Al tratarse de un sector de la población con inestabilidad en sus ingresos, el sobreendeudamiento resulta extremadamente peligroso. En la actualidad, las tasas de mora en el microcrédito, 7 por ciento, duplica la del crédito en general, 3 por ciento. Las elevadas tasas de interés generadas por los microcréditos agravan la situación (Bancamía cobra un 46 por ciento de interés). Por otro lado, existe el riesgo de que los bancos dedicados a los microcréditos empiecen a competir con los bancos convencionales por los sectores más bajos del crédito al consumo. Todo ello conlleva el abandono de los criterios de responsabilidad social a favor de las necesidades comerciales del momento.

Una forma efectiva de combatir estos problemas es la educación financiera: los propios bancos dedicados al microcrédito tienen programas de formación, pero no es suficiente. Las instituciones deben asegurarse de que los beneficiarios de posibles microcréditos conocen bien los riesgos y las dificultades que conllevan. En este sentido, la Cámara de Comercio de Bogotá ha lanzado el programa Soluciones Financieras, dedicado a pequeñas empresas y emprendedores, en el que se exploran las principales formas de encontrar financiación para la empresa, incluidos los microcréditos. Esta es la mejor forma de evitar que los micro créditos se conviertan en un problema generalizado en un futuro no muy lejano.

 

Comments

Nora Lindstrom's picture

I enjoyed your articles! As some of you note, however, there's a lot of thought that needs to go into how the micro finance sector is regulated. Many MFIs unfortunately prey upon the poor, and I have known households who have taken one loan to pay for another to pay for another, and ended up in deep financial trouble. In many cases so-called business plans are little more than ideas without much solid business sense in them, yet they get approved. So there's definitely a need for regulation (and maybe some kind of sharing of information regarding credit worthiness, however problematic), and I think that needs to be the next step in the debate.

On a slightly different note, I recently read this piece in in Foreign Policy - http://www.foreignpolicy.com/articles/2014/06/09/please_do_not_teach_thi.... It's basically talking about how most existing micro-finance initiatives don't offer loans large enough for serious investment, like starting a factory, and how, ultimately, it's factories, not SMEs that are going to make the difference in terms of poverty alleviation. There are a lot "yeah, but"s associated with the piece, but it's good food for thought, particularly in urban settings.

Gemma Todd's picture

Thank you for the comments! Nora, thank you for the link to the article - it's very interesting. I think it raises an interesting point on questioning what the poor can actually do with the credit - can it be used for a serious investment, if so how efficient is it, how sustainable is it, and is it something desired? Across Tanzania it is becoming easier and quicker to set up your own business, informally or formally, if one can access start-up credit. However, the likelihood of that business succeeding is variable. I think there does need to be more focus on what the credit does - this is one way I think of understanding why the poor may wish to by-pass formal credit and use alternative means of credit. New methodologies are required to assess credit, what it means, and what it achieves. Even if micro-finance, MPESA, and formal banks are enabling access to credit for the poor, is it enabling change and what does this change look like, how can it be conceptualised?

Jorge Bela's picture

As Priyanka points out, scandals related to micro financing institutions have been a sobering warning of what can go wrong. Some analysts are concerned that the high, and growing, rate of default reported in Colombia might be an indicator that the problems already seen in Asia can happen again here.

Gemma question at the end of her piece also caught my attention. Here in Colombia the poor are often suspicious of financial institutions. High fees and unexpected costs are the main reason. Measures taken to increase bancarization of the poor are often unsuccessful because they take out all the money as soon as they can. Such is the case of subsidies paid only through bank accounts.

Regulation and better information sharing are key to stop over indebtness, as all of this week's articles point out. Specially as the initial NGO based initiatives are being replaced by larger, for profit financial institutions, as is already the case in Asia and Latin America.

Priyanka Jain's picture

The discussion has got off to a lively start, with engaging ideas from our contributors and from those who have posted comments. All articles point towards accelerated growth of the microfinance sector in the last few years and at the same time express the need for regulations.

In the case of Delhi and Chittagong, microfinance organizations have targeted women. As Kumari states the reason is that in a conservative society, women in low income households are often more marginalized than the men due to lack of decision making power. While on one hand these loans empower the women, it is also claimed that a higher share of their earnings passes on to their families. This leads to an increase in the households spending on food and education for their children.

In all three cases - Delhi, Chittagong and Dar Es Salaam - we see self help initiatives and savings within a large group for hedging and resiliency. Jorge, I am curious to know if Bogota also has self help groups or loans taken at a community level other than organized cooperatives?

Gemma introduces us to another microfinance instrument apart from banks and NGOs. M-Pesa, a mobile-phone based money transfer and microfinancing service. The M-Pesa service has expanded from Kenya and Tanzania to India as well. Vodafone India has launched a nationwide ad campaign for its mobile payment service and we wait to see if it can attain critical mass.

The market potential for microfinance is much bigger as population using microfinancing services is still low. However, it is clear that one who invests in educating the people about the advantage of using the services (money and others) will move ahead.

In Tanzania many people use a variety of products from both formal and informal sectors to meet their needs. Most adults are using non-bank formal products and services exclusively, while others use a combination of non bank formal mostly mobile and informal mechanisms. The use of banks exclusively remains minimal. Most of people relay on VSLA's groups, VIKOBA and other types of informal groups.

Gemma Todd's picture

Thank you Abubakar, you're right people often don't really on just formal credit and strategise by moving between the formal-informal products and services to meet needs. A previous issue has been how to connect the two, so that the informal and formal markets can coincide. In Tanzania attempts are being made such as the partnership between CRDB bank and micro finance services. However, the World Bank carried out a study last year on 'Doing Business': (http://www.doingbusiness.org/data/exploreeconomies/tanzania/getting-credit), the results show the lack of data and information shared, which limits peoples ability to get credit. Therefore if we are thinking of building partnerships and linkages between formal/non-formal services new data is required from informal businesses, services, and assets. To make it easier for people to switch between the 'best of both worlds' (the formal and informal credit services) we need to make sure businesses run in the informal sector and assets secured 'informally' are recognised as collateral. Gaining and returning credit from micro finance groups such as VICOBA require recognition in the formal credit and banking systems. The two systems should not be seen as separate; new links and information is required.

I also wonder what the different roles are that the informal/formal services play to those who strategically use it; and whether they are different?

Hi Zoe,

Thanks for the information. We (ASMET) will closely keep following your success stories and practices. We go beyond "credit". We start with "savings" as we have proved that all human beings - are potentially "rich" so long as they have perfect "minds", that is not "mentally incapacitated" but physically "incapacitated" - missing limps (hands, legs, etc) if you empower them they will "escape poverty" forever! We start with those earning 1/4 USD a day and in 9 to 12 months period they start earning 1 USD or above a day. In three years, we link them with formal financial institutions (banks). Credit alone for the poor of the poorest does not help them! It kills them.

Regards,
RA

Nora Lindstrom's picture

Came across this article in the papers today - http://mwnation.com/microfinance-supervision-minimises-risks-rbm/. It's about regulation of the micro-finance sector in Malawi, interestingly it notes that there seems to have been a slight decline in the number of microfinance institutions and financial cooperatives between 2013 and 2014. The article doesn't elaborate why this is the case, but I suspect it's related to the depreciation of the Malawi kwacha.

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