Posts tagged under access to finance
In our survey on urban poverty and service provision we collected a total of 1,398 responses from four cities (Jakarta, Manila, Hanoi and Vientiane). Our sample included 69% women and 31% men. 87% of respondents indicated that they are the head of the household (513 respondents), or the wife (702 respondents) of the head of household. The average age was 43 years with an average household size of five members.
In this blog post I will give you a quick look at our results with regard to the borrowing behaviour of the urban poor in our sample.
When asked whether they borrow money regularly, 62% of respondents from Manila and Hanoi affirmed. Borrowing was much less prevalent in Jakarta and Vientiane, at 28% and 27% respectively. The primary sources of loans were relatives and friends. More than half of respondents in all four cities turned to someone they know to ask for small loans. The clear lack of alternatives became apparent when 22% of respondents said that they take loans from informal money lenders – often at annual interest rates higher than 100%. In that regard, Manila stood out with 42% of those regularly borrowing using informal money lenders.
Ekpatthana Microfinance Institution (EMI) was the first provider of microloans in Laos. It was founded in 2005 with the goal to reduce poverty in Laos through the provision of financial services to people excluded from formal banking services. Their clients are mainly small entrepreneurs, such as market vendors, shopkeepers, some micro-enterprises and small scale farmers.
Rapid growth – no need for a marketing budget
The organisation is experiencing a phase of rapid growth, despite spending little to no money on marketing their products. In the last two years, staff numbers have doubled to 75 employees, assets have grown from US$ 1 million to US$ 2.9 million, and the number of active borrowers now exceeds 4,000. The average loan size is around US$ 350 with a loan repayment rate higher than 98%.
EMI’s loan portfolio includes a forced-savings component in order to ensure that clients learn the importance of building up reserves for either business expansion or personal emergencies. Founder and Executive Director of Laos’ first licensed MFI EMI, Somphone Sisenglath, adds that “savings is part of our mission…[...] Access to credit is one thing, but if there is nothing left [at the end of repayment], they are still poor.” EMI makes it a requirement for all their clients to save 10% of their initial loan. The company’s more than 10,000 deposit account holders enjoy interest rates for their savings of up to 16% per annum.
The Asian Trends team conducted a survey among urban poor residents in Jakarta, Manila, Hanoi and Vientiane. The questions covered basic services such as water, sanitation, health care, education as well as access to financial services. Here is a short preview of the survey results in the area of financial inclusion.
Four out of five respondents did not have a bank account. More than half of respondents still keep their savings in cash hidden at home. The majority of respondents are employed in the informal economy, struggling to make enough money to feed their families every day. Thus, even a single emergency, such as urgent medical treatment for a family member, can wipe out a family’s entire savings. The survey also showed that 53% of respondents have severe difficulties to save at all.
Despite the fact that at least a handful of Microfinance institutions (MFI) currently offer their services in each of the cities included in our survey, the vast majority of the urban poor in Southeast Asia fly below their radar. With incomes below US$2/day, they are a difficult and often not very profitable client group. Several MFIs confirmed that they prefer to lend to the “upper poor”: households that have some existing working capital, a certain level of business acumen, and more reliable revenue streams.
The talk will take place on April 24, 2013 at 12:15 h at the Lee Kuan Yew School of Public Policy. RSVP to firstname.lastname@example.org
It is crucial for the world’s poor to gain access to savings, credit, transfers and insurance, so that they can seize economic opportunities and reduce their vulnerability to shocks. However, half of the world’s population – including 70% of people in developing countries – remain unbanked.
There is a fast growing interest in financial inclusion at the moment. Under the impulse of the G20 Global Partnership for Financial Inclusion, governments are developing national strategies to improve financial access. Technology is also bringing great opportunities to cut costs and expand the reach of banking to the poor. Still, the gaps are not fully bridged.
In the last eighteen years, CGAP, an international global research center, has produced ample research and global good practice guidelines to improve financial inclusion for the poor. The presentation will highlight major opportunities and challenges, the early successes of technology based business models, as well as innovative models for serving the poorest.
In Depok, one of Jakarta’s many suburbs, the team met and spoke to Eva P., the 26 year old owner of a warung (small shop) located just outside a traditional market. She is one of approximately 2.5 billion people without access to formal financial services.
In Eva’s hometown of Bengkulu, there were not many employment options after graduating from school. As with most of rural Indonesia, the only jobs available for her were agricultural. This prompted Eva to migrate to Jakarta in 2004, in search of better options.
Upon arrival, she immediately set up her own shop by building a stall next to the traditional market by Depok Baru Train Station. Her shop has remained in the same location for almost 8 years, surviving several police crackdowns on informal businesses in public spaces. She now sells a wide variety of food, drinks, and cigarettes to a clientele comprised mostly of jitney drivers, street musicians and motorcycle cabbies.
— Author of this guest blog entry —
Jan de Graaf graduated this year from the Lee Kuan Yew School of Public Policy at NUS. He recently finished an internship with the Peacekeeping Department of the United Nations in New York.
The topic is remittances – a subject that deserves attention given its potential to help migrants and their families. The volume of remittances that is sent by migrants around the world to their countries of origin is huge. In fact, the remittance flows to developing countries are more than three times as high as the level of Official Development Assistance to these countries. Still, the money transfer is often a painfully expensive undertaking. And yet, the issue does not receive the policy attention one would expect. I wrote my master thesis on this topic and promised to share some of the final results. They were at times unexpected and truly fascinating:
As was mentioned in the earlier blog-post, I did not observe correlations between the level of remittance costs and almost any factor that related to receiving countries. Market conditions in sending country seemed to be much more influential. It was hard to determine what such correlations imply, but I found that it was mostly economic factors – which I proxied by looking at:
Imagine a whole country country with less than 20 ATMs, where only 1 in 10 people has a bank account. Imagine a completely underdeveloped banking infrastructure in a country where more than 90% of people are unfamiliar with any kind of modern financial service… welcome to Myanmar today. After hearing these few facts, a case for financial inclusion seems pretty hopeless. After all, how many examples are out there where banks and microfinance organisations have managed to rapidly expand their services throughout a country.
But in this day and age, Myanmar has a unique opportunity to leapfrog towards financial inclusion. Senior Microfinance Specialist Eric Duflos from the Consultative Group to Assist the Poor (CGAP) commented on the necessary steps to enable Myanmar to bring financial services to its largely unbanked population within a short period of time. In his blog post he points out that the extremely low starting point could turn into an advantage at the attempt to bring millions of unbanked into the formal financial system.
In the past few months our team has been busy collecting primary data from three different ASEAN cities: Jakarta, Manila, and Hanoi. Between April 9 and April 14 2012 the Asian Trends Monitoring team conducted a survey among Manila’s poor. We collected a total of 352 responses from nine different locations in Manila with the help of 14 researchers from the University of the Philippines, Diliman. This blog post is inspired by face to face interviews and some exploratory data analysis of the Manila data set.
Filipino communities stand out through their extraordinary community spirit, social events, and close family ties. Helping out family members and neighbours is part of the culture in the Philippines. Therefore, it is not surprising that 55% of our respondents say that their primary source for loans are relatives and friends. However, a close relationship comes with personal accountability and thus family is not always an option. The other commonly used loan service are informal money lenders, the so called “Bumbai”. Since the informal lending business in Manila is dominated by Turban-wearing Indians who drive by on their motorcycle on a daily basis, locals have given them the nickname “Bumbai” (a mix of the old Bombay, which is now officially Mumbai). Even though we asked around a lot, no one could tell us for sure when the man on the motorcycle would make his round. Attempts to find out where the Bumbai lived were (of course!) futile.
The Asian Trends Monitoring team conducted a survey among Jakarta’s slum dwellers between February 24 and March 2nd 2012. We collected a total of 348 responses from seven different neighbourhoods in Jakarta with the help of 15 research assistants from the University of Indonesia.
One of the items required respondents to rate their difficulty of “Saving Money”. More than a third of respondents answered that they were unable to save, while another third said that it was very difficult for them (see previous blog post). Seeing those results we assumed that a majority of them would then turn to different sources to borrow money for consumption smoothing. Among our expectations were a high percentage of Microcredit users, followed by the usage of informal money lenders, always a thriving business in poor areas.
However, the actual results were a little bit surprising. Only about 28% of respondents indicated that they actually borrow money.
It turned out that the primary source for borrowing money is among friends and relatives (52%), followed by cooperatives (22%), and informal money lenders (16%). Commercial bank loans, pawn shops, and MFIs were the least popular credit sources.
The Asian Trends Monitoring team conducted a survey among Jakarta’s slum dwellers between February 24 and March 2nd 2012. We collected a total of 348 responses from seven different neighbourhoods in Jakarta with the help of 15 research assistants from the University of Indonesia. The survey had a “perception of difficulties” section comprising ten categories, each to be rated on a 5-point scale (from “easy” to “impossible/unable to do”). These ten categories were then compiled into a “life difficulty” index through direct summation.
One of the items required respondents to rate their difficulty of “Saving Money”. More than a third of respondents answered that they were unable to save, while another third said that it was very difficult for them (see below). Together with finding work opportunities and having enough living space, saving money was the most difficult aspect of the respondents in our sample.
The ability to save money is highly correlated to other important aspects of surviving in the city. We found a significant difference in perceived life difficulty between those who save and those who don’t save regularly. The first group had an average score of 21.6 on the life difficulty index (10 Points indicates Ease, while 50 points indicates inability in all 10 items) compared to 31.3 points for the respondents unable to make weekly savings (see t-test below).