lower crime rates and higher investment returns: what’s the connection?

May 20, 2011 Leave a comment

 Social Impact investing is the new buzzword in social enterprise circles in the UK today. Impact investing basically refers to the process of financing long-term social programs that tackle social problems, but that are supported by government and only on their success do investors make a financial return.  This is done through a social impact bond which is a financial instrument created by Social Finance (a London Private Equity Fund), this bond is sold to private investors and institutions and only pays out a return if the programs it has invested in (eg lower conviction rates for criminals, reducing homelessness and Teen pregnancies etc)  actually show improvement. In this way investors are actually able to get richer by doing good. 300million has already been poured into social investment in Britain and the social investment market is itself estimated to grow in  the next decade to over 500 billion dollars.  The idea is catching-on, Obama’s white house has put aside funds to fund trials of similar bonds for the next fiscal year.

This is very interesting space that combines the need for solving the world’s problems but with an underlying commercial incentive, in other words a totally win- win scenario, let’s watch what happens when the US catches on this very innovative idea……

Categories: consumer loans

microfinance for londoners takes off

May 11, 2011 Leave a comment

Micro finance is no longer just the preserve of developing countries such as India or Uganda; London is now one of the fastest growing markets for small loans for lower-income individuals. On May 9, 2011, Fair Finance, the first firm to offer micro finance to East Enders in London received 2 million pounds from two large UK banks to expand its lending  to reach even more lower-income Londoners. Faisal Rahman, the founder of Fair Finance says that although the interest rates charged on loans average about 53%, this is still much lower that what the payday loan sharks charged which could be anything from 1000% to 13000%.  ‘Fair Finance is a cheaper alternative to Loan sharks and payday loans as our clients do not have access to the conventional banking system’.

Fair finance’s mission is to help clients get away from loan sharks and predatory lending but ultimately to help these individuals find their way into the mainstream banking system. Its interesting however that the very same banks that say no to lending to these individuals are the same ones that are funding Fair Finance’s expansion? this is probably their way of offloading the lending risk to someone else and helps them look good in the process as they look like they are helping the local community…!!!

Categories: consumer loans

top 3 ways for microfinance to get its groove back.

April 29, 2011 Leave a comment

would you knowingly pay 4000% in interest for a loan?

March 23, 2011 1 comment

Most of you would probably answer the above question with a resounding ‘NO WAY!’ 4000% does sounds like quite a rip-off interest rate for a loan but you would be very surprised to learn that  over 100,000 people a month in the UK have been paying this level of interest when they sign-up for pay-day loans with new lending site, Wonga https://www.wonga.com/ .The site lends funds to people who do not have enough liquidity to tide them over until they receive their paychecks at the end of the month and require money for funding consumer needs. They say that they process over 100,000 loans a month since they were established. All borrowers need to do is sign-up, provide their details for a credit check , request for a maximum of 400 pounds and within 15 minutes they are able to receive the funds they need in their bank accounts. I am not sure if most borrowers are actually aware of the effective annual rate of interest that they are paying as something tells me that anyone seeing the 4000% interest rate tag would rather call up their mate or family member and borrow money from them instead!! 

Wonga  seems to be very successful and all its lending capital is provided by a venture capital firm that has been backing it since it was established. The CEO of the firm confirms that the reason for their success is that ‘people now realise that they no longer need the services of a retail bank’. Although the interest rates seem quite exploitative, I would say that most borrowers on the site would probably not qualify for loans from a retail bank due to their poor credit history which means that Wonga is probably the only choice they have left.  Watch this space there will definitely be competitors wishing to replicate Wonga’s success in this market sector!

microfinance and political interference: is it unavoidable?

March 16, 2011 Leave a comment

The founder of Grameen bank (and now ousted chairman) and 2006 Nobel prize winner is currently being referred to as a blood sucking parasite by the government of Bangladesh. A man who has accomplished such so much in this poverty-stricken nation has moved from being referred to in saint-like terms to this. We are all smart enough to see that this is political interference at its best:  a few years ago, fresh from his Nobel Prize win, Yunus made a veiled threat to set up his own political party in Bangladesh and ever since then the government (namely one Sheikh Hasina) has done everything in their power to attempt to discredit by accusing him of corruption and theft to blaming him for stealing from the poor. (8.9 Billion poor women have benefitted from Grameen’s loans in teh past 10 years!)

The question is: is politics and microfinance  indelibly inter-twined or are they no-go areas for each side? On the one hand, regulation of microfinance institutions is extremely relevant and necessary to ensure that they are operating within their stated missions and not fleecing the unbanked, but on the other hand, independence between the government and microfinance is of extreme importance as it is not suitable for governments to exercise control over credit programs as this must remain the preserve of the Microfinance sector. There are some governments that get involved once they realise how successful the microfinance programs are as they also want ‘a piece of the action’ as has been seen in some parts of Africa. One example of favourable intervention by government was a few months ago in Nigeria where the state close over 200 microfinance institutions due to poor governance practices.

As with everything, a balance is called for: character assassination and elbowing occurs as we have seen in the case of Yunus then that’s the point that one has to say to the government ‘butt out’.  The microfinance community is 100% Yunus and hope that this situation is not repeated elsewhere.

crowdfunding goes cultural!

February 15, 2011 Leave a comment

It seems every day a new crowdfunding platform seems to pop out of the ether. A new platform has indeed come up in the UK called ‘We did This’ http://wedidthis.org.uk/ which is all about helping to fund the arts. This initiative has been developed at an opportune time when the new government has significantly cut down funding to the arts in line with their austerity measures. We did this seeks to remove the middle man between artists and funders by allowing them to contact eachother directly and quickly through the internet. This is an innovative way to promote the ‘smaller artist’ to reach interested funders, who normally would go directly to large Art Institutions to make donations or support artists.

Keep any eye open for more developments in this very exciting field!

Categories: crowdsourcing

do you really want to fight poverty? try girl power

February 10, 2011 1 comment

I read an interesting article last night from Nancy Gibb (Essay, Time magazine, February 14) talking about the best way to fight poverty: her idea is girl power, i.e invest in young women/girls in developing countries and you have the perfect recipe for economic development. She calls this the silent revolution not the noisy ones we have seen lately in the North of Africa and presents statistics such as the fact that in sub-saharan Africa, only 1 in 5 girls make it to secondary school, half are married by the time they are 18 and girls under 15 are 5 times more likely to die giving birth. It is extremely thought-provoking that helping out women can make the impact as it is generally accepted that when women earn money they reinvest 90% of it back into their families (compared with men who reinvest just 30%). This is the thought process behind the soon to be launched peer-to-peer microfinance lending site Inuka.org. Inuka means ‘to rise up” in Swahili and the online platform will geared solely to lending to women owned businesses in sub-saharan Africa. The uniqueness of this model is that the lending will be done to women’s groups rather than individual women, and it will give the chance to social investors across Europe to help make a difference by investing in women. And this wont be charity as charity has been proven many times over to increase depency and not create real wealth and development. This exciting venture is set to take off in just a few weeks and is a partnership with myAzimia.org,(http://www.myazimia.org/) keep a watch on www.inuka.org