Microfinance Meltdown?

The microcredit industry has grown in size and scale thanks in most part to the success of Mohammed Yunus’ Grameen Bank, which now serves over 7 million poor Bangladeshi women. It is in India that a number of problems have been surfacing in the last year or so. And it’s a sizeable problem that could get bigger when you consider the size of the industry in Africa - 427 microfinance institutions in Africa, lending more than $4.8 billion to over 8 million people (Mix Market (Microfinance Information Exchange).

The New York Times today reports that Indian banks have about $4 billion tied up in loans – about 80% of all microfinance in India. They’re increasingly worried about their returns in the state of Andhra Pradesh, where politicians, angry at how microfinance institutions are profiting from the poor, have encouraged borrowers to stop repaying their loans.

It’s a slippery slope as banks stop lending to protect from the increasing risk of defaults, and action spreads from state to state and country to country. Despite new legislation to regulate how and when lenders collect, there is an increasing feeling that what started out as a social development movement has become more capitalist and cut-throat than Wall Street.

That’s true in Africa too. Microcapital.org reported in January 2009 that the Malawian government had decided to stop guaranteeing loans from MFIs, given the “exorbitant” interest rates, naming two institutions that did not report to the Mix Market and did not publish lending rates.

The Central Bank of Nigeria and the Nigerian Deposit Insurance Corporation (NDIC), in an attempt to audit and regulate the microfinance industry, simply shut down 224 out of 800 mcirofinance banks. Microfinance Africa makes the point that while regulation is needed, the reputation of the industry now needs work.

About 10,000 organisations around the world have lent about $25bn to about 20 million people. An article by the BBC cites demand could be as much as $250bn. In the same article, Kate McKee, senior policy advisor at the World Bank's Consultative Group makes a now-oft-heard comparison to the financial crisis - that strong investor interest in the US sub-prime mortgage market created incentives for unsustainable growth and aggressive lending and the microfinance industry must guard against repeating the same pattern.

The Centre for Global Prosperity has an interesting article looking at the two mindsets in the approach to microfinance – profit and altruism. While this is in the context of the controversial IPO of SKS Microfinance in India it is a global issue. Like shareholder activism, if borrowers start to feel they are being taken advantage of – whether through NGO, government or civilian intervention – those dream rates of 95% repayment might be on the way down.

But then so will the opportunity to get out of poverty for the millions of people who have so far benefitted from microfinance. Philanthrocapitalism is one thing – many corporates, banks and private individuals want to see some financial return in the work they are doing to create good. But in Africa, as in India, there has to be more weight on philanthropy. The WSJ quotes an interview with Mr Yunus: "Microcredit should not be presented as a money-making opportunity. It is an opportunity to make an impact on poor people's lives”.

Africa Talks Climate

A new initiative has been developed to help communicate and advocate on climate change issues in Africa. Africa Talks Climate is a research and communications project undertaken by the BBC World Service Trust and funded by the British Council. http://africatalksclimate.com/

Africa Talks Climate recently launched a report about the public understanding of climate change in 10 African countries with the aim of identifying ways to engage, inform and empower Africans in local, national and international conversations about climate change. The report found that most Africans understood that their climate was changing but the term ‘climate’ is rarely used outside South Africa and francophone DR Congo and Senegal. There is also a strong tendency for people to hold themselves individually or collectively responsible for these changes, which they blame on local environmental degradation.

The report recommends that information and communication needs of African citizens need to be at the heart of any national response to climate change. The ability of African citizens to respond effectively to climate change will be determined by the quality of the information available to them and how easily they can access it. Increased public understanding of climate change will enable citizens and communities to discuss the issue, adapt to the effects of climate change, and make informed long-term choices about their future.

Africa Talks Climate suggests that local leaders from government and the community, as well as religious leaders should have more access to climate change information and that there is a need to increase the public debate on climate change and create more public spaces for example through TV talk shows, radio call-ins and other interactive media platforms. There is also a need to break down perceptions of climate change as an elite discussion and build a sense of immediacy to encourage the sharing of current examples of adaptation and mitigation to climate change.

In the absence of an understanding of global climate change, many people draw on their existing knowledge and beliefs to explain the unpredictable weather. Some Africans understand changes in the weather in relation to their spiritual beliefs – particularly women and rural populations, hence the importance of activating local religious leaders. Some opinion leaders compare the communication challenges posed by climate change to those formerly presented by HIV and AIDS. They emphasise the importance of using accessible terminology and discussing climate change in a locally relevant way.

The report also stresses the important role media and education can play. Media, and in some countries, schools, are the main sources of climate change information for most people. Media therefore need to improve their knowledge, resources and experiences about climate change in order to inform audiences more effectively. Some journalists perceive climate change exclusively as an environmental issue, which is not an audience or an editorial priority.

Overall, the report assumes that to improve environmental stewardship, Africans need to be educated more about the causes and effects of climate change in order to adapt to the damaging impact it creates. However, a main driving force for behavioural change in Africa relates to improving household incomes and creating more financially secure futures. What therefore also needs to be communicated is the short and long term economic benefit that can be accrued through different adaptive techniques. All activities related to mitigation and adaptation to climate change in Africa need to have a strong element of economic benefit for the citizens in order for Africans to be incentivised to undertake the activity and for African countries to alleviate poverty levels on a sustainable course.

The report can be downloaded here: http://africatalksclimate.com/research/africa-talks-climate-public-understanding-climate-change-ten-countries