With technology being at the forefront of all financial services being made available, which lending platform is really pro-poor, and inclusive?
The days of “5-6” (a usurious lending scheme of yesteryears) seem to be numbered if technology makes borrowing money simpler and less cumbersome. These days, all you need to do is apply online and an app rates your credit worthiness (we don’t know how they do it) and gives you P6,000 off the bat. You give three personal references and you get the money.
Is this financial inclusion for the unbanked? If millions of people download this app, borrow P6,000 in the first round, how many of the borrowers will be able to pay back the money?
I was at a Financial Literacy training for farmers just recently and realized that a lot of these food producers have already been victims of “get rich quick” schemes, scams, and other tricks. Though they thanked us for what we thought to be a timely seminar and training, it appears many of them had already been victims of fraud, investment scams, and loans with high interest. So where do we really get the real deal?
Many years ago, we would hear of Micro-Finance Institutions (MFIs) serving the “unbanked” population or people who have no access to credit because they have no credit scores or history. These MFIs would charge higher interest rates because they also took more risk in lending to first-time borrowers, possible pole vaulters and their cost of collection was high. Technology changed all of this now. Today, you need not send collectors for daily payments, as apps and technology make it possible for a borrower to pay through e-wallets and the like. It is efficient but it also charges a service fee for every transaction, which makes it effectively part of the cost of borrowing. For example, even if you are borrowing the minimum, the service fee is the same as if you borrowed more. Ergo, this service fee is clear profit for the operators or lenders. Whether they get paid or not, they have already recovered a “service fee.” One can do the numbers of how “service fees” assure profits to the lender.
Now the MFIs are eclipsed by these fintech lenders. What about cooperatives? Are not cooperatives the first “go-to” of its members who need bridge financing or emergency funds? Cooperatives are able to charge interest which thankfully goes back into the coffers of the organization to benefit all its members in the form of a dividend share. So I don’t feel bad about cooperatives lending to their members. They make money and the coop members are able to borrow while expecting a share of that interest income somehow after all the reports of the cooperative’s financial performance are made.
What if we powered and enabled cooperatives with financial technology, or the much-abused term fintech? Would cooperatives be the perfect example of real Financial Inclusion?
With the many horror stories of loans gone wrong and blackmail collection schemes exposing borrowers to social media shaming, I have no love for fintech companies who take advantage of the poor and the unbanked. What makes them different from the traditional lender who threatens punishment when you cannot pay back a loan?
I think all of these need to be regulated. Maybe what our authorities can do is to moderate the greed of these fintech companies and startups who take advantage of the unbanked. These fintech companies, in the guise of financial inclusion, actually make victims of their borrowers. There is a lot of greenwashing and covering-up of their real intentions — which is to make tons of money from service fees taken from the uninitiated and unenlightened.
What then is the real solution to financial access for the unbanked? Is it fintech? Or is it traditional institutions, like banks, who can allocate a certain percentage of their portfolio to make a fintech-enabled lending platform?
If banks will not do it, how can we make cooperatives do it?
The solutions are many: the fintech revolution, monetary policies, and the heart to help the unbanked are all important in lending to the poor. But this effort must include teaching the unbanked poor citizen how to borrow, how to repay, and how to manage their budgets.
So, to those who think they are helping the poor, think again. Maybe you are helping yourselves at the expense of the unbanked, the ignorant, and the helpless.
I do not claim to be a finance expert, but I can see through the holes. I can see an evil scheme because the victims do not have much choice. The unbanked may as well go back to the usual “5-6” or a traditional rural bank. It can be MFIs that actually are cooperatives or associations that give back to their members or beneficiaries. Something tells me that may be better than these newfangled ways of making money in the guise of financial inclusion at the click of a button.
What can we do to help the people we know? The lessons will have to start at budgets and not spending more than you can earn. The basic lessons in saving for a rainy day will have to be shared again and again. The frugal lifestyle will have to be taught to many, if not all, who borrow incessantly and get caught in a vicious cycle.
How responsible is the ordinary citizen in managing money?
What really is financial inclusion?
Chit U. Juan is the co-vice chair of the MAP Environment Committee. She is also the president of the Philippine Coffee Board, Inc. and Slow Food Manila (www.slowfood.com).