How did I get here? And where have I been? Questions I’ve asked myself a few times of late. After seven months in Lima, the last one and a half of which I spent separately traveling with parents and friends from London, I decided the time had come to move on. But move on to what? I had looked into a few jobs which would make some use of my combined experience in the finance and non-profit arenas. I had even had a telephonic interview between Lima and my interlocutor in Nairobi (where she was visiting on business) for a job based in Washington DC. The line was bad and my interview sharpness not much better. The outcome was as expected.
Around the same time I pursued a connection I had made shortly before leaving London. During the whirlwind few weeks between leaving Goldman Sachs and leaving on a jet plane in June 2007 I had breakfast with the lovely Cassia who I’d been put in contact with by a colleague. Cassia worked at the Clinton Foundation, regularly commuting between London and various places in Africa, working in a division of the Foundation called CHAI. It sounded like tea, it sounded like fun. We spoke for about an hour at the conclusion of which she told me to give her a call when I was done in Peru because they were always looking for “people like you”. At the time my thoughts were more focused on microfinance than health system strengthening as I felt my finance background was more suited to the former. However a few months’ reflection led me to realise that my passion lay in international development generally not microfinance specifically. So come December 2007 I did what Cassia suggested. Unfortunately she didn’t answer my emails and I had no contact number for her. I did find out through our mutual friend the Goldman Sachs colleague that Cassia had gone on maternity leave but that she didn’t know much more than that as they hadn’t been in touch for a while. As practitioners of the espionage trade would say, the lead went cold.
As my pre-planned departure date of mid February slipped to late February, I did at last book my flight out believing that my future lay in the States, leaving behind some great friends and a wonderful Peruvian family who had taken me in as their sixth (and eldest) child. My grandmother in California was in failing health and I decided to move in with my uncle there to spend some time with her, a grandmother who had been a major influence in my life. This turned out to be fortuitous timing as just eighteen days later I watched as she breathed her final breath, thankful that I’d been able to spend a couple weeks with her. Her passing was to foretell further sadness in the family as both my French grandparents succumbed to old age just three months later and within a week of each other. My French grandfather had similarly loomed large in my formative years and I was fortunate to be able to spend some time with him just prior to his passing when I visited France in June.
From early March, when I arrived in California, until exam day in early June I had been studying for the second level of the CFA, the first level of which I had passed in 2003, since when I had concertedly avoided any further participation. By this time my decision to resume the qualification resulted from the combined desires of pursuing something useful to my career as well as giving me space to contemplate my next move. It succeeded on one of those fronts at least. By early June I was back into job-searching again in full force. Applications went out to various non-profits and a further attempt at contact with Cassia was made, this time successfully. I was extremely saddened to hear from her that she and her husband had experienced a tragedy in the intervening period and despite this Cassia was as helpful to me as could be and excited that I’d contacted her. She ran me through the various possibilities available at CHAI (Clinton HIV / AIDS Initiative) and asked me to forward my curriculum vitae.
A set of interviews ensued for a position which would have involved travelling around a third of Africa on a fairly constant basis assisting countries in their procurement and internal distribution of drugs. (That would be malaria prophylaxes and HIV anti-retrovirals rather than cocaine and ecstasy tablets.) Fortunately for me some combination of the three interviewers decided I wasn’t suited to the post and immediately it was suggested that I consider a “managerial” position. The job would have been very satisfying but too restless and clearly would have upped my carbon footprint by a not insignificant number of cubic metres. The Foundation’s suggestion was well taken. There followed two interviews, one with the CHAI Country Director for Rwanda and Burundi, Pascal, and t’other with the gentleman I would be replacing, the Program Manager for Rural Health, a Kenyan by the name of Kisimbi (which, I would later learn, is his family name; apparently all six sons in the family refer to themselves by their last name which causes no end of amusement when friends call their house in Nairobi). The interviews failed to entice me to say anything controversial or stupid and a visit to Kigali was hastily arranged for a tête-à-tête. After a mammoth Las Vegas – Washington DC – Rome – Addis Ababa – Kigali country-hop I arrived in Kigali for four days to seal the deal.
Thus am I now in the employ of the Clinton Foundation providing technical assistance to the Rwandan Ministry of Health. This has prompted several observers (as though I have those) to ask what exactly in my professional experience qualifies me to provide technical assistance on health matters to an African government. Or any government for that matter. Allow me to explain.
Sunday, 4 January 2009
Sunday, 28 December 2008
And onwards to Rwanda
[ This is an entry which I had previously circulated via email, not knowing whether I'd resume the blog. Since I have now decided to do so, I'm republishing this November 26th summmary from shortly after my arrival in Kigali. For those who are wondering "Kigali? WTF? How did you end up there and what have you been doing since you left Peru? When did you leave Peru? Why did you leave Peru?", the short answer is 6 months in California, 2 months in Las Vegas, now Kigali, Rwanda working for the Clinton Foundation. I'll come back to all these themes later! ]
13 days into Kigali life and it has flown by. I feel I'd better grab every experience by the horns else two years will go by in a flash and I'll look back wondering what I've been up to! I can't wait for some visitors to tell me they're coming so I can book a trip to see the gorillas! There's a trip prospectively happening in early January to Bujumbura (capital of Burundi). Two girls I've met here have recently moved to Buj and I figure what better reason to go to Burundi! I mean it's not like I'll be sitting later in life thinking, "where should we go on vacation, hmmm, Burundi is a good option". Apparently it's very different to Rwanda. There's a fairly spectacular beach there from what I hear, on the shores of Lake Tanganyika. Of course another likely trip in 2009 will be to Dubai to visit an old friend.
Work is starting to become a little clearer in its goals and responsibilities. I have a team of two and a half (two people full time, one person who works with me half of the time). One Kenyan and two Rwandese. Almost everyone I met when I came in September [for the interview] will be gone by Christmas, which is a little strange but I knew that was a possibility. So I have a brand new team. My boss is still the Swiss guy, Pascal, who hired me. He's a really interesting character who grew up in a UN family and who is very well respected within the Foundation and without.
Our dealings are entirely with the Ministry of Health, other NGOs working in the health field and the regional governments of the 30 districts of Rwanda. We had a meeting last Wednesday with the Permanent Secretary at the MoH, the number two person at the Ministry – she's quite the character. We were having a call with a large international NGO about getting some funding from them and she was impressively and amusingly firm in her approach.
On the personal / social side I'm in the midst of figuring out where I'm going to live. I'm currently living in the house of the guy who I'm replacing, but it's too far from everything. It's a pleasant if quiet neighbourhood but a 20 minute drive from the office. Ideally I'd like to be walking distance to the office, or at most a 5 minute drive. I will indubitably have to buy a car. Kigali is not a walking city. I've got two houses in mind, one of which is currently occupied by Guen and Felicia, two girls who currently work at the Foundation but who will both be leaving Rwanda and who have been extremely generous in welcoming me to Kigali. The other used to be occupied by the Minister for Education and is a grand place but a little off the beaten track.
Thus far I've found a tennis partner, a friend of Phil Bowen's who used to work at the Home Office and who now works for Tony Blair's initiative here. And Sunday afternoon is ultimate frisbee with a fun mix of Rwandese and mzungus (including some combination of the six Marines who are stationed in country to guard the US Embassy – they're pretty good). I might potentially take up Swahili but the jury's still out on that one.
Kigali is an amazingly safe place. After spending time in Nairobi where people live in barbed wire-encircled compounds, Kigali is surprisingly different. Even my female colleagues tell me they feel comfortable walking around at night and getting taxis home at all hours. Of course there's a cottage industry here set up just to serve the mzungu crowd. A bunch of taxi drivers whom everyone has stored in their contacts. Real estate agents who only deal with the high end of the property market. Stores which only the elite Rwandese and foreigners can afford. Although even the foreign crowd find the only decent supermarket in town to be excessively expensive. The difficulty is that Rwanda produces very little apart from coffee so even some basic food stuffs are imported. I bought five oranges yesterday and paid £4.60!!
Rent is going to turn out pretty cheap but other aspects to Kigali life will be surprisingly expensive. Thankfully it turns out that the US government is generous to people who earn their living outside the US and promise not to spend more than 30 days per year in the States: no federal income taxes!
13 days into Kigali life and it has flown by. I feel I'd better grab every experience by the horns else two years will go by in a flash and I'll look back wondering what I've been up to! I can't wait for some visitors to tell me they're coming so I can book a trip to see the gorillas! There's a trip prospectively happening in early January to Bujumbura (capital of Burundi). Two girls I've met here have recently moved to Buj and I figure what better reason to go to Burundi! I mean it's not like I'll be sitting later in life thinking, "where should we go on vacation, hmmm, Burundi is a good option". Apparently it's very different to Rwanda. There's a fairly spectacular beach there from what I hear, on the shores of Lake Tanganyika. Of course another likely trip in 2009 will be to Dubai to visit an old friend.
Work is starting to become a little clearer in its goals and responsibilities. I have a team of two and a half (two people full time, one person who works with me half of the time). One Kenyan and two Rwandese. Almost everyone I met when I came in September [for the interview] will be gone by Christmas, which is a little strange but I knew that was a possibility. So I have a brand new team. My boss is still the Swiss guy, Pascal, who hired me. He's a really interesting character who grew up in a UN family and who is very well respected within the Foundation and without.
Our dealings are entirely with the Ministry of Health, other NGOs working in the health field and the regional governments of the 30 districts of Rwanda. We had a meeting last Wednesday with the Permanent Secretary at the MoH, the number two person at the Ministry – she's quite the character. We were having a call with a large international NGO about getting some funding from them and she was impressively and amusingly firm in her approach.
On the personal / social side I'm in the midst of figuring out where I'm going to live. I'm currently living in the house of the guy who I'm replacing, but it's too far from everything. It's a pleasant if quiet neighbourhood but a 20 minute drive from the office. Ideally I'd like to be walking distance to the office, or at most a 5 minute drive. I will indubitably have to buy a car. Kigali is not a walking city. I've got two houses in mind, one of which is currently occupied by Guen and Felicia, two girls who currently work at the Foundation but who will both be leaving Rwanda and who have been extremely generous in welcoming me to Kigali. The other used to be occupied by the Minister for Education and is a grand place but a little off the beaten track.
Thus far I've found a tennis partner, a friend of Phil Bowen's who used to work at the Home Office and who now works for Tony Blair's initiative here. And Sunday afternoon is ultimate frisbee with a fun mix of Rwandese and mzungus (including some combination of the six Marines who are stationed in country to guard the US Embassy – they're pretty good). I might potentially take up Swahili but the jury's still out on that one.
Kigali is an amazingly safe place. After spending time in Nairobi where people live in barbed wire-encircled compounds, Kigali is surprisingly different. Even my female colleagues tell me they feel comfortable walking around at night and getting taxis home at all hours. Of course there's a cottage industry here set up just to serve the mzungu crowd. A bunch of taxi drivers whom everyone has stored in their contacts. Real estate agents who only deal with the high end of the property market. Stores which only the elite Rwandese and foreigners can afford. Although even the foreign crowd find the only decent supermarket in town to be excessively expensive. The difficulty is that Rwanda produces very little apart from coffee so even some basic food stuffs are imported. I bought five oranges yesterday and paid £4.60!!
Rent is going to turn out pretty cheap but other aspects to Kigali life will be surprisingly expensive. Thankfully it turns out that the US government is generous to people who earn their living outside the US and promise not to spend more than 30 days per year in the States: no federal income taxes!
Monday, 10 December 2007
Let's not lose sight of human weakness
Is it incompetence? Or pure dishonesty? Sadly, probably the latter. There have been stories in the press recently (see links below) reporting suspected fraud at credit unions in Uganda. These Savings and Credit Cooperatives are set up as societies where members can deposit funds and take out loans, in essence much like any microfinance institution, but due to the law limiting its remit, the Bank of Uganda has no jurisdiction to oversee these institutions. And the body that does oversee these credit unions is reportedly understaffed and lacks expertise. Many clients are reporting that the institutions are making it difficult for them to withdraw their savings. Recent pronouncements by the Bank of Uganda indicate that some of the poor clients may well lose their savings entirely.
It behoves those in positions of authority not to lose sight of what must be one of their primary objectives, supervision. The lack thereof doesn't only exist in Uganda and sadly closer to (my current) home, there are anecdotal stories of heads of microfinance institutions (MFIs) using their loan portfolios to curry favour with friends and influential people. Sad but true. Fraud can occur even in an arena which supposedly attracts those who want to help others. No harm in helping yourself at the same time, I guess the argument runs.
There are three responsible parties when it comes to supervision. The first line of defense is the board of directors. Some may treat being invited onto a board as another line to be added to their curriculum vitae with a couple of meetings to be attended per year as the price to pay. However being on the board carries responsibility and the senior management of the institution must be held to account. Regulators have their obvious role to play and as in the Ugandan case, microfinance institutions (MFIs) of whatever kind must not be excluded from the remit of the banking regulator. These are financial institutions just like those which cater to better-heeled clients. There may be a cost burden to the MFIs of providing information and of course the resultant bureaucracy should be kept to a minimum but this is a necessary precaution. Lastly the rating agencies have an important role to play. There are a handful of agencies which specialise in providing ratings for microfinance institutions, entirely on a voluntary basis for the MFIs. It is an important function of these agencies that they adopt a hard-headed mindset and ask the difficult questions. One would hope that the development world would be immune to such human weakness as defrauding the poor, but knowing that it isn't, all necessary steps should be taken to prevent it.
Microcapital article on Ugandan credit unions
New Vision first report of problems
It behoves those in positions of authority not to lose sight of what must be one of their primary objectives, supervision. The lack thereof doesn't only exist in Uganda and sadly closer to (my current) home, there are anecdotal stories of heads of microfinance institutions (MFIs) using their loan portfolios to curry favour with friends and influential people. Sad but true. Fraud can occur even in an arena which supposedly attracts those who want to help others. No harm in helping yourself at the same time, I guess the argument runs.
There are three responsible parties when it comes to supervision. The first line of defense is the board of directors. Some may treat being invited onto a board as another line to be added to their curriculum vitae with a couple of meetings to be attended per year as the price to pay. However being on the board carries responsibility and the senior management of the institution must be held to account. Regulators have their obvious role to play and as in the Ugandan case, microfinance institutions (MFIs) of whatever kind must not be excluded from the remit of the banking regulator. These are financial institutions just like those which cater to better-heeled clients. There may be a cost burden to the MFIs of providing information and of course the resultant bureaucracy should be kept to a minimum but this is a necessary precaution. Lastly the rating agencies have an important role to play. There are a handful of agencies which specialise in providing ratings for microfinance institutions, entirely on a voluntary basis for the MFIs. It is an important function of these agencies that they adopt a hard-headed mindset and ask the difficult questions. One would hope that the development world would be immune to such human weakness as defrauding the poor, but knowing that it isn't, all necessary steps should be taken to prevent it.
Microcapital article on Ugandan credit unions
New Vision first report of problems
Tuesday, 27 November 2007
Recent Peruvian History: An Update
Hot off the press this morning, the Minister of the Interior in Fujimori's cabinet at the time of the dissolution of Congress and the Judiciary in April 1992 has been sentenced to ten years in prison for having participated in and backed what is referred to in Peru as the "autogolpe" (self-coup). Nine other members of the cabinet from that time have been given four year suspended sentences for having been secondary accomplices.
Fujimori himself cannot be tried for this crime as the terms of his extradition from Chile only allow him to be charged for specific offenses, two related to alleged human rights violations and five related to alleged corruption. Fujimori's trial on these charges is to start on 10th December.
Fujimori himself cannot be tried for this crime as the terms of his extradition from Chile only allow him to be charged for specific offenses, two related to alleged human rights violations and five related to alleged corruption. Fujimori's trial on these charges is to start on 10th December.
Friday, 23 November 2007
Lima Reconnaissance Trip in May
In May 2007 I hitched a ride with Tom Sanderson, Director of Five Talents UK (FT UK), Craig Cole, Executive Director of Five Talents International (FTI), Helga Buck and Kelli Ross of FTI and David Fletcher, board member of FT UK, to Lima. For them it was an opportunity to visit the project they are funding in one of the southern poor districts of Lima called San Juan de Miraflores. For me it was an opportunity to meet the people I was, at that stage potentially, to work with come July. During the trip David filmed our encounters with clients as well as an interview with the Executive Director of ECLOF Peru, Carlos Venturo, one of the most upstanding citizens of the world you are liable to meet. This is the fruit of those labours.
Thursday, 22 November 2007
A Primer on Recent Peruvian History
In amongst the microfinance discussion, it would be remiss of me not to mention the political dimension here in Peru. As Jeffrey Sachs repeatedly says in his rather good book The End of Poverty, you cannot think about altering the economic situation of a country without giving ample thought to all the factors which affect it: political, geographical, historical, infrastructural, personal.
The president of Peru is currently Alan Garcia and this is his second go at running the country. He was previously in charge between 1985 and 1990 and left office with hyperinflation causing economic havoc and Sendero Luminoso (Shining Path) and the MRTA (Tupac Amaru Revolutionary Movement) causing havoc of a different kind. Strong evidence for not electing a 36 year old to head the government it might be suggested. With the country needing some strong direction Alberto Fujimori, a half Peruvian half Japanese politician whose birthplace is disputed (he claims Lima, others claim Japan and it's of importance because only people born in Peru are allowed to run for president) beat writer Mario Vargas Llosa in an unexpected victory in 1990. Interestingly five years later Fujimori beat Javier Perez de Cuellar, former United Nations Secretary General in the 1995 elections.
Fujimori turned out to be quite the authoritarian during his two terms. He succeeded in bringing the economy under control and eventually in crushing Sendero Luminoso and the MRTA. On the other hand, because Vargas Llosa's party retained control of Congress after the 1990 election and since Fujimori was finding it hard to get anything done during his first term, he simply dismissed the entire Congress and judiciary in 1992. ("If only...", Bill Clinton must have been saying a few years later when he faced the same problem.) At the end of his second term, Fujimori tried to circumvent the 1993 constitutional two-term limit which he himself had introduced and ran in and won the 2000 election against Alejandro Toledo. The ruse only lasted until evidence of political bribery eventually forced Fujimori to resign the presidency from the safety of Tokyo.
Worse than the political machinations however were the extra-judicial torture and murders. In 1993 Fujimori became close to an army Captain by the name of Vladimiro Montesinos who alerted Fujimori that certain elements of the army were planning a coup. Montesinos later became the head of Fujimori's security apparatus and was responsible for fighting the terrorists as well as for the political espionage and bribery. The findings of the CVR (Truth and Reconciliation Committee) after the downfall of the Communist terrorist groups found that up to 70,000 people were killed during the fighting. Most of these were innocents in the battles between government forces and the terrorists and their blood was not only on the hands of the terrorists. The tactics used in bringing the terrorists to their knees as well as the bribery landed Montesinos with a lengthy prison sentence with Fujimori similarly awaiting trial on human rights abuses. He was extradited from Chile in September 2007 and the trial is scheduled to start in December.
This is likely to be an unwelcome distraction for the Garcia administration as Fujimori still commands considerable public support. I was recently in the centre of Lima and saw a huge banner hanging from a hotel exclaiming "Fujimori Libertad". This time around Garcia is attempting to cast himself as the economically responsible type and is attracting foreign investment to the country as well as looking to get a Free Trade Agreement signed with the U.S. which is likely to be passed by the U.S. Senate in December, having already passed the House of Representatives. It is likely to sail through the upper house of the U.S. Congress as it did the lower house because from the U.S. point of view Peru is an important ally against the "red tide" of Chavez (Venezuela), Ortega (Nicaragua), Correa (Ecuador) and Morales (Bolivia).
For the good of the country, Alan Garcia needs to be careful to attract investment to all areas of the country and not just around the big cities and the mineral and gas deposits. A little bit of money can achieve big results in a country like Peru and a little bit of patronage can go a long way. When I was visiting Puno last month, on the shores of Lake Titicaca, I met with the head of one of the floating islands of Los Uros who told me at least three times that the solar panels they had attached to their houses providing them with electricity were provided by Fujimori. "And what has Garcia done for you?", I asked. "Nothing."
The danger is that Garcia's political base is along the coast north of Lima and in the centre of the country. Outside of those areas but particularly in the south Ollanta Humala, a man the U.S. would lump in with Chavez and the rest, is the popular politician. In the first round of the most recent presidential election in 2006, Humala came top with 33%. Given that an outright majority is required to win the presidency, a second round was held in which Humala lost to Garcia who had lapped up the votes of the third placed finisher from the first round.
Peru has fantastic advantages relative to some other developing nations. Natural wealth (copper, other metals, natural gas), agriculture (top exporter of asparagus in the world, potatoes, maize, fish), access to the sea, an entrepreneurial workforce and significant tourism. Inflation has been below 4% since 1999 and GDP growth averaged 5.7% between 2002 and 2006. What Peru requires for development, to the advantage both of the poor and the country, is leadership which will, in addition to keeping the economy ticking over, ensure that the benefits of increasing wealth are distributed widely. That's not to say the leaders should tax the rich and kill the entrepreneurial spirit. More that the right combination of fiscal, monetary, trade, diplomatic and social conditions are needed to increase the general wealth of the country, which are best managed by a centrist party with an active and targeted social agenda rather than a more extreme party of one wing or the other with misplaced ideas of how to run an economy and a country.
The president of Peru is currently Alan Garcia and this is his second go at running the country. He was previously in charge between 1985 and 1990 and left office with hyperinflation causing economic havoc and Sendero Luminoso (Shining Path) and the MRTA (Tupac Amaru Revolutionary Movement) causing havoc of a different kind. Strong evidence for not electing a 36 year old to head the government it might be suggested. With the country needing some strong direction Alberto Fujimori, a half Peruvian half Japanese politician whose birthplace is disputed (he claims Lima, others claim Japan and it's of importance because only people born in Peru are allowed to run for president) beat writer Mario Vargas Llosa in an unexpected victory in 1990. Interestingly five years later Fujimori beat Javier Perez de Cuellar, former United Nations Secretary General in the 1995 elections.
Fujimori turned out to be quite the authoritarian during his two terms. He succeeded in bringing the economy under control and eventually in crushing Sendero Luminoso and the MRTA. On the other hand, because Vargas Llosa's party retained control of Congress after the 1990 election and since Fujimori was finding it hard to get anything done during his first term, he simply dismissed the entire Congress and judiciary in 1992. ("If only...", Bill Clinton must have been saying a few years later when he faced the same problem.) At the end of his second term, Fujimori tried to circumvent the 1993 constitutional two-term limit which he himself had introduced and ran in and won the 2000 election against Alejandro Toledo. The ruse only lasted until evidence of political bribery eventually forced Fujimori to resign the presidency from the safety of Tokyo.
Worse than the political machinations however were the extra-judicial torture and murders. In 1993 Fujimori became close to an army Captain by the name of Vladimiro Montesinos who alerted Fujimori that certain elements of the army were planning a coup. Montesinos later became the head of Fujimori's security apparatus and was responsible for fighting the terrorists as well as for the political espionage and bribery. The findings of the CVR (Truth and Reconciliation Committee) after the downfall of the Communist terrorist groups found that up to 70,000 people were killed during the fighting. Most of these were innocents in the battles between government forces and the terrorists and their blood was not only on the hands of the terrorists. The tactics used in bringing the terrorists to their knees as well as the bribery landed Montesinos with a lengthy prison sentence with Fujimori similarly awaiting trial on human rights abuses. He was extradited from Chile in September 2007 and the trial is scheduled to start in December.
This is likely to be an unwelcome distraction for the Garcia administration as Fujimori still commands considerable public support. I was recently in the centre of Lima and saw a huge banner hanging from a hotel exclaiming "Fujimori Libertad". This time around Garcia is attempting to cast himself as the economically responsible type and is attracting foreign investment to the country as well as looking to get a Free Trade Agreement signed with the U.S. which is likely to be passed by the U.S. Senate in December, having already passed the House of Representatives. It is likely to sail through the upper house of the U.S. Congress as it did the lower house because from the U.S. point of view Peru is an important ally against the "red tide" of Chavez (Venezuela), Ortega (Nicaragua), Correa (Ecuador) and Morales (Bolivia).
For the good of the country, Alan Garcia needs to be careful to attract investment to all areas of the country and not just around the big cities and the mineral and gas deposits. A little bit of money can achieve big results in a country like Peru and a little bit of patronage can go a long way. When I was visiting Puno last month, on the shores of Lake Titicaca, I met with the head of one of the floating islands of Los Uros who told me at least three times that the solar panels they had attached to their houses providing them with electricity were provided by Fujimori. "And what has Garcia done for you?", I asked. "Nothing."
The danger is that Garcia's political base is along the coast north of Lima and in the centre of the country. Outside of those areas but particularly in the south Ollanta Humala, a man the U.S. would lump in with Chavez and the rest, is the popular politician. In the first round of the most recent presidential election in 2006, Humala came top with 33%. Given that an outright majority is required to win the presidency, a second round was held in which Humala lost to Garcia who had lapped up the votes of the third placed finisher from the first round.
Peru has fantastic advantages relative to some other developing nations. Natural wealth (copper, other metals, natural gas), agriculture (top exporter of asparagus in the world, potatoes, maize, fish), access to the sea, an entrepreneurial workforce and significant tourism. Inflation has been below 4% since 1999 and GDP growth averaged 5.7% between 2002 and 2006. What Peru requires for development, to the advantage both of the poor and the country, is leadership which will, in addition to keeping the economy ticking over, ensure that the benefits of increasing wealth are distributed widely. That's not to say the leaders should tax the rich and kill the entrepreneurial spirit. More that the right combination of fiscal, monetary, trade, diplomatic and social conditions are needed to increase the general wealth of the country, which are best managed by a centrist party with an active and targeted social agenda rather than a more extreme party of one wing or the other with misplaced ideas of how to run an economy and a country.
Monday, 12 November 2007
The Word of the Day: Opportunity
It's impressive how much introspection, if not outright criticism, is going on in microfinance. Not long before I left London, and well after I'd submitted my resignation to Goldman Sachs, I went along to a meeting of the Microfinance Club UK held at the Barclays building in Canary Wharf. The talk was entitled "What's Wrong With Microfinance?" If I was in need of a reality check for my off-to-save-the-world ambitions, here it was in flashing neon lights.
Two gentlemen, who had coincidentally just published a book with the same title, stood forth and pontificated on their views that microfinance is really microcredit, with loans being dispensed but with few other financial services being offered. It promotes debt and often excludes the poorest whom microfinance nominally seeks to help the most. Microfinance isn't the basis for a sound economy. Women (to whom the majority of microloans go) don't create businesses, they work for themselves. [This one drew bemused laughter from the assembled.] Self-employment is just a euphemism for survival. There's too much cash pouring into the arena chasing too few real opportunities for investment. A large section of the population being unbanked doesn't mean there's unmet demand. And so it went. A GS colleague who had similarly just left our esteemed employer to join Five Talents, she on a full time basis, was sitting next to me at the meeting. Was it too late to change our minds, we joked?
So is there any foundation to the accusations? Well three months of exposure to a small corner of microfinance in just one country does not an expert make. However having spoken to quite a few of ECLOF's clients and having perused much of the learned writing of microfinance insiders, both pro and anti, the answer, as ever, lies somewhere in the middle.
Richard Posner exclaims (on the excellent Becker-Posner Blog) that "the idea of borrowing one's way out of poverty is passing strange". Furthermore, he states, "I am unaware of any historical examples of nations that climbed out of poverty on the backs of small entrepreneurs financed by credit". He has a point, but it's unfortunate that he chose to express it so starkly without considering the whole picture. Microfinance is, and should be, the provision of financial services to the poor. That is to say that as well as loans, savings and insurance products should be offered. Many institutions in the field focus on the debt and this is what is drawing much of the criticism. And it is valid. Consumer debt cannot solve the problem on its own.
The crucial goal is to provide opportunities. The poor are not just poor of cash, but generally poor of opportunity, mainly because of the view that providing opportunities to the poor is a money-losing (or at best profit-neutral) proposition. Which for some players it is bound to be mainly because they're not set up for this kind of high-cost, low-margin customer interaction (e.g. my former employer). However this is a profitable (but please, not too profitable) business if done right. Though the providers need to be constantly mindful that the goal is not simply to load up the poor with debt. Microfinance needs to be a means of assisting the poor with all of their financial needs. At times and for certain people the need will be to give them a place to keep their money other than under their mattresses. At different times and for other people the need will be for leverage to enable them to exploit a niche they see in the market. And for all of them the need should be to hold inexpensive insurance such that they aren't starting from scratch if an earthquake fells their home.
Two gentlemen, who had coincidentally just published a book with the same title, stood forth and pontificated on their views that microfinance is really microcredit, with loans being dispensed but with few other financial services being offered. It promotes debt and often excludes the poorest whom microfinance nominally seeks to help the most. Microfinance isn't the basis for a sound economy. Women (to whom the majority of microloans go) don't create businesses, they work for themselves. [This one drew bemused laughter from the assembled.] Self-employment is just a euphemism for survival. There's too much cash pouring into the arena chasing too few real opportunities for investment. A large section of the population being unbanked doesn't mean there's unmet demand. And so it went. A GS colleague who had similarly just left our esteemed employer to join Five Talents, she on a full time basis, was sitting next to me at the meeting. Was it too late to change our minds, we joked?
So is there any foundation to the accusations? Well three months of exposure to a small corner of microfinance in just one country does not an expert make. However having spoken to quite a few of ECLOF's clients and having perused much of the learned writing of microfinance insiders, both pro and anti, the answer, as ever, lies somewhere in the middle.
Richard Posner exclaims (on the excellent Becker-Posner Blog) that "the idea of borrowing one's way out of poverty is passing strange". Furthermore, he states, "I am unaware of any historical examples of nations that climbed out of poverty on the backs of small entrepreneurs financed by credit". He has a point, but it's unfortunate that he chose to express it so starkly without considering the whole picture. Microfinance is, and should be, the provision of financial services to the poor. That is to say that as well as loans, savings and insurance products should be offered. Many institutions in the field focus on the debt and this is what is drawing much of the criticism. And it is valid. Consumer debt cannot solve the problem on its own.
The crucial goal is to provide opportunities. The poor are not just poor of cash, but generally poor of opportunity, mainly because of the view that providing opportunities to the poor is a money-losing (or at best profit-neutral) proposition. Which for some players it is bound to be mainly because they're not set up for this kind of high-cost, low-margin customer interaction (e.g. my former employer). However this is a profitable (but please, not too profitable) business if done right. Though the providers need to be constantly mindful that the goal is not simply to load up the poor with debt. Microfinance needs to be a means of assisting the poor with all of their financial needs. At times and for certain people the need will be to give them a place to keep their money other than under their mattresses. At different times and for other people the need will be for leverage to enable them to exploit a niche they see in the market. And for all of them the need should be to hold inexpensive insurance such that they aren't starting from scratch if an earthquake fells their home.
Tuesday, 30 October 2007
To profit or not to profit (part II)
Imagine if you will, Mother Teresa finding out that Donald Trump was going to take over her hospice and, although promising to continue catering to the dying, things were going to be run a little differently from now on. This gives you some idea of the shockwave that spread through the microfinance world in April of this year when Banco Compartamos of Mexico, a microfinance lender of 17 years' standing, completed its IPO (initial public offering). The IPO was 13 times oversubscribed and reportedly made US dollar millionaires of some board members and senior officers. Accusations of making money off the backs of hard-working poor people flew.
In the entry from 2nd October I gave a short explanation of the non-profit model of microfinance. The for-profit version involves the same mechanics. Short-term, small-sized loans aimed at poor businesspeople with (comparatively high) interest rates applied. Both the for-profit and non-profit models cover administrative and capital costs (staff salaries, cost of funds, infrastructure) out of interest charged so we'll leave that out of the picture. However there are some very fundamental differences. At first glance, running a microfinance institution (MFI in development parlance) as a for-profit means simply that some of the cash generated from interest on loans is taken out of the cycle as profit, instead of being plowed back into further loans, as all of it is in the non-profit version. Is this making money off the backs of poor people?
Consider two MFIs charging the same level of interest to clients, say the roughly 35% per annum that my firm ECLOF Peru charges. The first, the non-profit uses 30% to cover costs and the remaining 5% goes into enlarging the loan pool. The second, the for-profit uses 30% to cover costs and the remaining 5% goes to infrastructure improvements, staff bonuses and shareholder dividends. From the point of view of an individual borrower there's nothing to separate the two institutions. Whichever she pitches up at, they're charging 35% interest.
One might then argue that the earned interest that doesn't go into increasing liquidity at the for-profit has an opportunity cost which is the reduction in possibilities for an incremental few borrowers to finance their businesses. This is true, but then not providing an opportunity to borrow doesn't count as profiteering from the poor. So in principle a for-profit structure in this field may not necessarily be morally wrong. For-profits bring many advantages which non-profits lack, not least of which is much easier access to funds. Even social investors are more likely to place their available dollars where a financial, as well as social, return of some kind is likely. However, there are also some serious disadvantages to the for-profit model. Not least of which is the profit motive itself.
The returns available in the informal economy are considerable. Which is why MFI loan clients are able to pay such hefty levels of interest. Large institutions are prevented from piling in with large sums of money to take advantage of these returns because the barriers to entry are high and scaling up would be logistically problematic to say the least. In addition to which the margins may be significant relative to the investment (i.e. in percentage terms) but in absolute terms we're still talking about small dollar amounts. An interesting example of this is demonstrated by our recycling clients. There's big demand from large manufacturers for scrap metal, which is abundant in the poor areas around Lima. The same goes for used plastic, cardboard, cans and so on. However there's no systematised collection mechanism. The manufacturers will pay a decent rate for this material, enough to incentivise locals to start businesses and make good money by paying local residents for their scrap and selling it back to the manufacturers. However those manufacturers could never do this for themselves. Having to take on employees, pay benefits, taxes, etc. would likely make them run this part of their business at a loss.
The heads of for-profit MFIs are well aware of this return potential. If the loan clients can therefore absorb higher interest rates, why not charge them? There's clearly a tension between social and commercial objectives here. And even the best-intentioned for-profit MFI head might be at pains to argue the case in the face of agitating shareholders. The current housing situation in several developed countries demonstrates the point. The difference is that intense competition in that arena means that interest rates are set by the market so it's the size of the loans which are being jacked up, with evident consequences. In the microfinance space there's only so much the size of the loans can increase (for now), so the interest rate is the flexible variable.
Banco Compartamos has been skewered on this point from various quarters. Their website is not exactly forthcoming but a report by the Consultative Group to Assist the Poor (CGAP), a kind of industry think-tank, estimates that Compartamos has been charging its clients 100% interest, a quarter of which being profit. Rates are generally higher in the Mexican market for various reasons, however on Compartamos' 2006 reported gross loan portfolio of $271 million, the estimated profit would be around $64 million. Is this profiteering from the poor? Is this the way to fix global poverty?
Further reading / Sources:
CGAP Report on the Compartamos IPO (PDF format)
Commentary on the Compartamos IPO by Jonathan Lewis, CEO Microcredit Enterprises (PDF format)
General discussion on the Compartamos IPO
PBS mini documentary on Compartamos (20 mins)
Banco Compartamos
In the entry from 2nd October I gave a short explanation of the non-profit model of microfinance. The for-profit version involves the same mechanics. Short-term, small-sized loans aimed at poor businesspeople with (comparatively high) interest rates applied. Both the for-profit and non-profit models cover administrative and capital costs (staff salaries, cost of funds, infrastructure) out of interest charged so we'll leave that out of the picture. However there are some very fundamental differences. At first glance, running a microfinance institution (MFI in development parlance) as a for-profit means simply that some of the cash generated from interest on loans is taken out of the cycle as profit, instead of being plowed back into further loans, as all of it is in the non-profit version. Is this making money off the backs of poor people?
Consider two MFIs charging the same level of interest to clients, say the roughly 35% per annum that my firm ECLOF Peru charges. The first, the non-profit uses 30% to cover costs and the remaining 5% goes into enlarging the loan pool. The second, the for-profit uses 30% to cover costs and the remaining 5% goes to infrastructure improvements, staff bonuses and shareholder dividends. From the point of view of an individual borrower there's nothing to separate the two institutions. Whichever she pitches up at, they're charging 35% interest.
One might then argue that the earned interest that doesn't go into increasing liquidity at the for-profit has an opportunity cost which is the reduction in possibilities for an incremental few borrowers to finance their businesses. This is true, but then not providing an opportunity to borrow doesn't count as profiteering from the poor. So in principle a for-profit structure in this field may not necessarily be morally wrong. For-profits bring many advantages which non-profits lack, not least of which is much easier access to funds. Even social investors are more likely to place their available dollars where a financial, as well as social, return of some kind is likely. However, there are also some serious disadvantages to the for-profit model. Not least of which is the profit motive itself.
The returns available in the informal economy are considerable. Which is why MFI loan clients are able to pay such hefty levels of interest. Large institutions are prevented from piling in with large sums of money to take advantage of these returns because the barriers to entry are high and scaling up would be logistically problematic to say the least. In addition to which the margins may be significant relative to the investment (i.e. in percentage terms) but in absolute terms we're still talking about small dollar amounts. An interesting example of this is demonstrated by our recycling clients. There's big demand from large manufacturers for scrap metal, which is abundant in the poor areas around Lima. The same goes for used plastic, cardboard, cans and so on. However there's no systematised collection mechanism. The manufacturers will pay a decent rate for this material, enough to incentivise locals to start businesses and make good money by paying local residents for their scrap and selling it back to the manufacturers. However those manufacturers could never do this for themselves. Having to take on employees, pay benefits, taxes, etc. would likely make them run this part of their business at a loss.
The heads of for-profit MFIs are well aware of this return potential. If the loan clients can therefore absorb higher interest rates, why not charge them? There's clearly a tension between social and commercial objectives here. And even the best-intentioned for-profit MFI head might be at pains to argue the case in the face of agitating shareholders. The current housing situation in several developed countries demonstrates the point. The difference is that intense competition in that arena means that interest rates are set by the market so it's the size of the loans which are being jacked up, with evident consequences. In the microfinance space there's only so much the size of the loans can increase (for now), so the interest rate is the flexible variable.
Banco Compartamos has been skewered on this point from various quarters. Their website is not exactly forthcoming but a report by the Consultative Group to Assist the Poor (CGAP), a kind of industry think-tank, estimates that Compartamos has been charging its clients 100% interest, a quarter of which being profit. Rates are generally higher in the Mexican market for various reasons, however on Compartamos' 2006 reported gross loan portfolio of $271 million, the estimated profit would be around $64 million. Is this profiteering from the poor? Is this the way to fix global poverty?
Further reading / Sources:
CGAP Report on the Compartamos IPO (PDF format)
Commentary on the Compartamos IPO by Jonathan Lewis, CEO Microcredit Enterprises (PDF format)
General discussion on the Compartamos IPO
PBS mini documentary on Compartamos (20 mins)
Banco Compartamos
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