NOTE 11 (Continued)

NOTE 11: ON MICROCREDITS (Continued)

In the previous Note I started to introduce some brief suggestions to strengthen the relationship between debtors and creditors in the six points raised; (1) Trust (2) Sincerity, (3) Discipline (4) Character, (5) The assessment of the creditor and (6) The continuity of the relationship, now I will continue with some suggestions:

1.      Non-regulated MFIs should make strategic alliances with regulated financial institutions to open and operate savings accounts with customers with a credit agreement according to the savings portfolio of the ONG’s clients.

2.      Loan Officers must be given training and empowerment to find appropriate solutions for delinquent customers in their portfolio.

3.      Messages to encourage good payment should be added to materials permanently, to reinforce good behavior.

4.      The presentation with the “duties and responsibilities of the debtor” should be done before signing the credit.

5.      Open doors policy must be kept to analyze the problems of borrowers who have trouble paying their loans.

6.      To the IMF the first in the paying line to collect, before others do.

7.      Shield for overindebtedness, by managing information sharing between local MFI.

8.      Develop financial education efforts, as a part of the Credit Officers duties.

Let us start with point No. 1, "Savings Deposits": all countries required MFI to be supervised by the Banking Authorities to take deposits from the public, this will not be the case of NGOs, which cannot receive deposits from the public. The non-regulated Savings and Loan Cooperatives can receive savings only from its members, either in the form of equity, savings accounts and term deposits. The regulated Savings and Loan Cooperatives, which are known as “Credit Unions”, are supervised by their Specialize or Official Authorities or by the Banking Authorities and can receive deposits from the public that are not members, but to receive credits these customers must become members. As you can see, the more limited institutions are the NGOs, but there are experiences: For example, Pro Mujer in Bolivia, created by Lynne Patterson and Carmen Velasco (https://promujerblog.wordpress.com/tag/carmen-velasco/). This institution reached a strategic alliance with FIE FFP (Today Banco FIE) to provide access of its members to have savings accounts (http://promujer.org/what-we-do/), generating loans for the NGO in the proportion of the savings received from Pro Mujer’s members, for Pro Mujer to give loans to its affiliates. There are thus solutions to financial services even when NGO are not regulated.

Moving on to point No. 2, "Train the Credit Officers to control the underpayment." Default is more likely to arise during the period of repayment of a credit (70%) than by failures in the assessment of the applicant to approve them (30%). I will address first the failures in the credit application. The first thing is to start not from the amount the applicant has requested, but from what is his/her actual payment capacity. Traditionally what is requested by the applicants is the starting point in a loan application, but they have no idea of what their paying capacity is; what is worse, when it arises, they become frustrated. I have never denied credit to anyone, but I have always calculated first the real paying capacity, to offer the maximum credit that it can be given, so that it can be paid back comfortably, if there is no overindebtment. It is very simple, from the start and as an initial verbal approach, the documents will come later, fill out a form with the fixed and monthly income variables of the family group that acts as guarantor of the loan. Apply a percentage of what should not exceed the monthly payment (I usually apply less than 20% of the income), this would be the maximum monthly fee. Then I calculate the factor for rate and term for a one unit of money and divide the maximum payment by this factor (Four decimal places will do). The result is the maximum loan amount the applicant can afford according to his/her income and that will be the loan amount that I will offer: If it is accepted: Well, if not, the applicant will reject the credit offer and leave. At this stage, no documents are used because it also serves to see the honesty of the applicant. If he/she accepts the credit offer and the documents are presented, the income is significantly lower, it can be assumed a lack of transparency from the beginning: Then what confidence there will be to learn the truth during the period of payment (70%)?. Now let us aboard the risks that occur during the payback period. It obeys a set of circumstances that put pressure on the Credit Officers to meet the goals of bringing new credits: (a) The stability of their income, so they must produce enough new business, (b) The competition from other Microfinance Institutions (MFIs), (c) The credit conditions demanded by the applicants and (d) The credit offers from the other MFI. In a competitive market, there is a tendency to try to offer more financial advantages than to better the ratio "price-value" of the financial products. What does this means?: It is easier to offer the maximum terms for the loans and better conditions than to add non-financial advantages to financial products to improve their value. Take an example: If we add to the loans the possibility of obtaining discounts on the inputs bought by Microentrepreneurs by negotiating with suppliers; for example: Creating a virtual "Discount Club", it is possible to improve these ratio by increasing the value while maintaining the financial "price and conditions" of the loan equal. I developed these services many times in various countries and have always found the distributors or sellers very receptive when negotiating to promote their business among the FMI customers in exchange for discounts. On the other hand, facilitating loan payments and improving the response speed of approvals and disbursements makes a difference to attract good payers. I think the most effective way to compete is based on service. However, I have observed that the longer term of the loans is always offered first, but there can be a problem: For example, to finance a know inventory turnover of a Microentrepreneur with a longer term loan, can be not only counterproductive, it can also fatal. If we know the time and rotation of an inventory, it makes no sense to give longer terms for payback, because it would also lengthening the time required by the debtor to renew its credit and in the meantime: How it will be paid the following rotations of the inventory, if these have been covered with a loan with a longer repayment period?. The problem is that the Credit Officers are trained on financial issues but they are not trained in professional selling of what they offer. Selling consist: First, to detect the needs of customers and to show them the best choice or "tailored suit" of financial products that satisfies these needs. According to my experience, the defaulting of a loan is due to five factors: (a) The intention of paying irregularly even not paying the loan, which it had to be detected in the application phase. (b)The external factors of overindebtedness; which can be controlled by creating a mini-credit bureau, even with a small group of MFIs, because experience dictates that debtors always resort to the same kind of institutions. (c) The relative importance of the institution, that places it at the top of mind of the debtor, when paying back. (d) The specific or exceptional situations in which the good payers may also fall in indebtness and (e) The lack of education and financial literacy. We will analyze and propose solutions "The intention of paying as they wish". There are people who live on credit, in the absence of a credit bureau or failing to access to know defaulters in other MFIs, the only way to detect them is by credit-structured interviews to detect inconsistencies in the application stage. Usually deception is associated with emotional stress, this is manifested by microgestures, strange attitudes, voice changes, etc., this implies that Credit Officers must learn to identify these and look for inconsistencies in the information submitted by applicants. On the other hand, a good sales person must be very observant to detect the needs of its current and potential customers, so this ability will also be helpful to a Credit Officer to evaluate loan applicants. If a group of MFIs in any area agree to exchange information on their bad payers, it is very easy to control a great part of the local overindebtment. One of the institutions becomes the monitor, receiving spreadsheets from the other MFI, listing their defaulters, consolidates the list adding its own returns it with all defaulters to each MFI in a spreadsheet ordered by the ID document number, which allows them to know who is indebted in another MFI. In fact, this system, has been mounted frequently and it is not necessary to know all the details of defaulter’s loans. To know the debtors ID, the number of installments in default, the amount of each installment of each credit in an MFI, is enough because the idea is for others MFI not give him/her loans until the debtor disappears from the default worksheet. The next item is the "relative importance of the institution", debtors establish a mental hierarchy in the sequence of how they will payback their debts, this means that the IMF should "remember" its debtors the maturity of the first installment, to ensure that the they internalize and add mentally the payment to the scheme of their mental hierarchies. In this sense, the comparative advantages of non-financial nature that the debtor values in an MFI play a very important role: (a) The quality and service excellence of the customer service. (b) The speed of approval and disbursement of the loans. (c) The advice and guidance received from the Credit Officer and (d) The non financial benefits he/she gets for free from the IMF. None of these reasons are financial. The reality is that it is harder for the competition to catch up in these areas, than to make adjustments on the financial issues to be competitive. Therefore, any MFI can be more competitive: For example, if it includes a free life insurance, disability and accident policy for the outstanding balance of the loans. This benefit could make the difference in non-performing loans placing the MFI in a stronger market position and more if the insurance is conditioned to be applied only to loans that are current at the moment of the sinister. The next point is "The exceptional situations of underpayment of good payers"; the reality is that there is a 70% chance that a loan comes in default, even in the case of good payers if the credit has been given in the right terms. However, even if they occur, immediate response of the Credit Officer will be necessary and empowering this employee is a must, to negotiate a recovery process in which helping the good payer is crucial. If the Microenterpriser gets sick, he/she will leave someone to run the business meanwhile, so it is essential that the Credit Officer reaches an agreement directly with the temporary person in charge of the business and maintain regular contact with the original debtor. First, to ask for his/her health and second to maintain contact and inform him/her of any rule’s change by the temporary person in charge that affects the MFI. Ultimately, the real owner is the one who has the authority to instruct the temporary in charge to act correctly. On the other hand, once the debtor rejoins work, if there are still any delayed payments, the Credit Officer should have the authority to agree with the debtor to carry on a recovery plan of the dues in default: For example, weekly installments that cover the next fee and offset some more money to recover the due payment. Finally, the aspect of "financial education", generally it is assumed in many MFI that debtors know about finance and that is not true, it is a very wrong assumption, so that Credit Officers must become “financial educators” to the debtors in order for them to manage better their money and therefore pay their dues on time. Because the more the customers know about finances, the better they will control their payments. I usually suggest to the MFI that before the applicant signs a loan it has to see a presentation with an electronic slides on "the rights and duties of a debtor", few credit customers read the contract. You will be surprised how many times an applicant decides after watching the presentation not to take the responsibility for a loan, if he/she want to have a good image with the MFI or may reduce the original loan amount, to lower the fee and be more comfortable. It is a misconception that an increased knowledge of finances, make harder the relationship of the debtors with the MFI, it is the opposite.

Last but not least, remember that a healthy loan portfolio is the sum of the credits granted and monitored well. Statistics only show what is happening in a portfolio these do not solve the risks mentioned here that are related with human behavior, not with finances.

jlinaresf@gmail.com 

NOTE 10

NOTE 10: ON MICROCREDITS (Continued)

In my previous Note, I commented on the psychological approach to the credit relationship that is also applicable to the Microcredit. I would pick up again this approach which is determined by six conditions governing the relationship between debtor and creditor: (1) Confidence: If a debtor receives a loan from a creditor, it is because the debtor conveyed enough confidence to the creditor to believe that he/she will fulfil the obligation. (2) Sincerity: When the debtor files the required documentation to the creditor and consistently answers the questions that are being presented, the creditor will not have any doubts about the situation of the debtor. (3) Discipline: When applying for a loan, if the debtor was verified in the credit bureaus and he/she appears as a reasonably good payer, it can be assumed that there is a disciplined behavior. (4) Character: This is represented by the paying behavior, transparency and the honesty reflected by the applicant or debtor. If these are present, the creditor will be confident ("Willingness to Pay"). (5) Assessment of the creditor: The debtor clearly understands the implied commitment of the creditor, if he/she is a good payer there will always be an open door with the creditor. The latter clarify and strengthen the credit relationship in the long term and (6) Continuity of the relationship: Both sides tacitly agree that the relationship will be prolonged as much as possible in the future, if both are satisfied.

Perhaps some financial experts criticize me for this "soap opera" with all their right and all critics are constructive but as psychologist who has worked more than 46 years in the financial sector in 27 countries, I do not think the financial and legal approach is the best, less the unique platform for qualifying and resolving successfully a credit relationship. Hence, the above six points show me the basis for that relationship. As I think, there are better ways to manage a credit than those used traditionally, and still are being used today. In my opinion, this brought the world to the "credit crunch" and the recession. At least, I am proposing a new approach on lending relationships that it has worked for me in the practice.

As a marketing person, I have heard MFIs frequently say that the pressure of competition, forces them to act following the strategies of others in the market. If, competitors were in handling the lending situation, that would be right, but they do not, so it will be the worst way following them and falling in the risk of overindebtness with the customers. The best way, it is always staying one-step ahead of the competition with innovative and creative ways to attract new customers and keep existing ones, with an excellence in service and a quality of the customer service. MFI that responds to these two actions will lead the market, even if it is true that with time their actions will be imitated, the service excellence will shield their customers against the “siren songs” of the competition.

I will now analyze the credit from the perspective of previous six-points. In the last Note I commented that the risk of default is tripled during the life term of a loan, in relation to the risk of a wrong applicant qualification. I also commented that credit has two very distinct phases: The application phase and the payout phase. The first it is total and absolute responsibility of the IMF, so if a mistake is made, the institution can hardly attribute the error to the debtor and in the second, while the debtor is paying properly, an harmonious relationship is maintained by the creditor. But when the debtor falls behind, the attitude of the MFI gives a 180 degree turn in the way the customer is treated, assuming a very aggressive position, this radical and contradictory change is very far away from the relationship when the debtor was paying correctly. This change is so abrupt and excessive in many cases, which resulted in the scandal Andhra Pradesh in India, which caused 88 suicides in 2010 and has very worried to global microfinance sector.

The credit problem arises when the Pandora's Box opens, because a chase begins, in many very cases violent, with equal treatment for all defaulters and as insistent with those who cannot pay and those that do not have the wiliness to pay, rather than objectively analyze each case in search of solutions. I have always found there are always solutions, either preventive or corrective. Such as: (a) Use fractional collection procedures to avoid the extreme actions; (b) Educating financially the debtors on credit risk and the consequences of overindebtedness as preventive and on the in the best way to manage their money and (c) Watching the defaulters behavior to detect early problems. However, the IMF's emotional reaction to the risk of losing income, sends the wrong messages to the customers and the personnel, this last if they are not trained to manage this situations, the result is catastrophic to both parties: The MFI and the defaulters. I will discuss each of these aspects with examples.

I will start with point (c). Earlier I mentioned how you should handle the issue of competition and points (b) and (c) which are closely related, I will treat them jointly: The way MFI publish in advertising to their customers, in many cases is more harmful than beneficial. To demonstrate this I will present two typical examples that I experience, one in relation to savings and other on loans: The financial community competes by offering higher rates to depositors of savings, which has led savers to give an exaggerated value to the percentages more than money value of interests. By not educating financially on percentages, depositors have lost their meaning, except that some are higher than others are. Take the case of ordinary savings account in two MFIs: One offers an interest rate of 5% per year and another 3% annually, but none explains in the advertising that the interest is calculated on the average daily balances. However, if both show an average balance of $ 100 at the end of the month, the interest paid that month would be $ 0.25 for the 3% and $ 0.41 for the 5%: It is clear that the difference in money between the two accounts would be only $ 0.16, while the difference between the two rates would be 2%. The first difference is negligible while the second is significant and this is what it had been publicized by the two MFIs: Do you think many people would decide to open the account in one or another by such an small money difference?. The example on loans: IMFs tend to offer from the beginning and automatically the maximum term of a loan, regardless of the purpose of the money itself, claiming that this is what the competition offers. However, if the loan is to be used as working capital to renovate an inventory that rotates every 3 months, it does not make sense to lend this money with a 12 months term for payback. Because during that period the inventory will have to be rotated 4 times, but the Microcredit will only cover one rotation and the debtor must wait 12 months to repay the loan and receive a new one: But how will the debtor will finance the inventory during that time?. It is the duty of the IMF to educate the client, showing that in savings is preferable to evaluate other differential advantages of the two accounts. in borrowing to use a 3 months payback term to cover each inventory turnover with a new loan and to adjust the amount of the new loan according to the sales: If the sales increases or reduce the amount will cover either a part of the inventory or a bigger inventory if the sales increase. Both examples are related to financial education that MFI should give their customers and that most of these do not do when they sell their financial products or services, regardless of what the competition does, you have to sell the best financial solution for each customer which it must be a “suit tailored” to their exact needs. Therefore the personnel must be train to sell professionally, properly and educate the customers of their portfolio.

In (b) is difficult for me to interpret the perception of some MFI that defaults in payments are a betrayal of the debtor to the MFI or a sin, so he/she should be punished severely, rather than give the loan officers the opportunity to seek a solution with his/her customers. In many cases default happens due to an undisciplined behavior or ignorance (That was one of the triggers of Andhra Pradesh), and customers all of a sudden see themselves placed into a serious problem with a bad end. An example that I notice in one of my clients: The IMF used to pursue defaulters the hard way. I trained loan officers to find out the root of the problems of the defaults, based on the knowledge gained with time and trust and the relationship developed with their customers and how to handle the default, as a professional selling situation to recover and avoid future defaults. It cost me more to persuade the managers in the IMF, who resisted empowering the loan officers, instead of scolding them hard when the defaults occurred. Microloans in this IMF were paid in monthly installments, so I prepared the loan officers to react casuistically and at the beginning of each month, when a debtor showed a delay in the previous month. They persuaded the debtors (Sell ​​professionally, is to identify the needs and persuade solutions) to set aside a weekly a portion of the monthly payment, visiting customers at the end of each market day in each week and to assure the deposit in a “deposit only savings account”. Loan officers motivated the client to deposit as much as they could give each week. So actually, they made four installments every month, one weekly, which eventually covered more than their monthly payment and a part of the default of the previous month, catching up on the next two months. The Microenterprisers realized that it was easier to cover in this way payments, as the debtors alleged that paying the full monthly quota with the income of the last week of the month was not always possible. What happened is that customers saw their business with a weekly perspective, leaving for the last week of the month the payment of the Microcredit. From that moment on, they changed the way to manage their payments and the defaulting problem was significantly reduced. Today, in this MFI the lending officers have enough authority to manage freely the defaults up to 60 days, as they are the most interested in receiving their full bonus that it was being reduced in relation to the default of their loans portfolio. The moral: Loan officers in addition to selling and processing new loans should educate customers. Therefore, they must be taught to learn how to do professional selling.

Many MFIs do not realize that every defaulter is a unique case and that aggressive, equal treatment and collective action for all defaulters could be counterproductive. IMFs directors and managers must act rationally, with tailored solutions in each case and seek effective and permanent solutions, as in the example above; preventing conflicts and strengthening customer loyalty and also achieving the cross-selling of other services offered by the MFI (The Savings Account opened by the customer).

In conclusion, the debtor suffered when he arrived the last week of the month and sales were not sufficient to cover the monthly payment, so no matter how much the MFI grind them the situation could not be resolved. Once the debtors change their money management behavior, default was reduced and additionally a new savings account was opened. At this point, the executives of an MFI have a helicopter view. It cost to delegate, so when there was the slightest default there was a tendency to generalize and enter into a spiral of "management by spasms" giving orders, demanding immediate results and scolding everyone, making loan officers lose their margin of maneuverability with their customers and even if they were well trained. This leads them to react thinking more about the survival of their employment that in the delinquent customers. This aggressiveness tends to be contagious, so the loan officers must be taught to sell; is not enough for them to have financial knowledge. I have seen Microentrepreneurs talk with emotion in front of loan officer on how he/she help them and taught them, because this "soap opera" creates intense bonds of trust and loyalty between clients and the MFI. The relationship between a teacher and a pupil is very strong, and the strongest is this link, the more difficult will be for the competitors to attract the good creditors away from the MFI.

I will end this note with some brief suggestions to strengthen this relationship:

1.       You must know the use of money of the Microloans before defining the term of the loan with the applicant, in order to reduce this term to a realistic minimum payment periods. This reduces the risk of defaulting, reduces the operative costs of the Microenterprisers business and as you know, a shorter lending period result in less risk for the MFI during the loan’s maturity and gives the Microenterpriser more flexibility.

2.       The lending officers have to know how to observe inconsistencies and gestures of the loan applicants that warn them of the risk of default. This ability is also important in loan recovering processes.

3.       Loan officers must observe and process the experiences that give effective and permanent solutions to settle the defaults, as seen daily in their work. These strategies should become permanent and shared with their peers.

4.       You must ensure the outstanding balance of loans to recover them in case of permanent disability or death of the debtor. The group insurance premium applied to the balance of Microcredit is cheaper than a recovery process.

5.       To provide the maximum deposit in the form of a limited savings account and/or fractional payments of the loans so that customers can design their own payment-saving solutions tailored to their need.

6.       Do not forget that Microentrepreneurs cannot be away from their businesses for too long and that they must be taught to manage their money that includes reminders of the fractionated payments.

I will continue this issues in the next Note and as you can see the rating of debtors and portfolio recovery can be a marketing issue. Who'd say?.

jlinaresf@gmail.com 

NOTE 9: (CONTINUED)

NOTE 9: ON MICROCREDITS (Continued):

Continuing with the theme on Microcredit, upon which much has been written, I would like to add my general concept of credit risk linked to the credit in general terms, which includes the Microcredit. We suffered a worrying global recession, in which we have already 7 years of crisis. Countries show a varied response to the crisis, with few countries with a trend towards recovery, many under worse conditions than in 2008, which led me to wonder: What caused the credit bubble crisis?. There is no single answer to explain it, but having given it track before the crisis, there are four elements that stand out as potential generators of this situation: (1) initially it happened in developed countries and then it had a domino effect in the rest of the World; (2) it was caused when there was an effort to try to massify credit, calculating risk based on statistical models, (3) Automating  the approval process, and (4) it was assumed that on rising rates of riskier loans, the total risk was compensated, In short: Countries with a mature financial markets, complex mathematical-statistical models, the application of a risk-rate equation and automation of the credit approval. I am a psychologist, perhaps by my training and work in marketing and sales of financial services, I am a "financial Psychologist" and learned from my beginnings in this profession how difficult, perhaps impossible it is to predict theoretically, the human behaviour, an issue that Stephen Hawking raised years back in Black Holes and Baby Universes and Other Essays – 1993, quote: " The real reason why we cannot predict human behaviour is that it is just too difficult" and "So although we know the fundamental equations that govern the brain, we are quite unable to use them to predict human behaviour ". Credit is a situation in which the financial risk must be predict based on the human behaviour that produces it (To pay or not the instalments), so it is very difficult to determine a priori, what will be the future payment behaviour of any debtor. It is known that 70% of delays can occur during the life of the loan and 30% of it in qualifying. I am a believer of statistics and in the information and communications technology, but I seriously doubt if this can bring a lot of light to the future behaviour of an individual debtor.

I wondered which was the basis by which bankers of Florence in 1379 lent their money. Evidently they had neither the mathematical knowledge nor technology of today: However, they assumed, as today, the same risks for the recovery of the loans as we do today. But other aspects have changed that make the credit risk a critical issue nowadays: Today banks and chartered social financial institutions lend the money of the deposits from the public, but that money, unlike the days of the Medici, is not of the property of the financial institutions, so both the financial and moral responsibility for the institutions is complete.

I ask myself: Why it was assumed the use of mathematics to develop theoretical models for the prediction of human financial behaviour?. Perhaps it was because: (1) The financial aspect of it, is the actuarial science; but actuaries predict what is basically the probability of global risks based on consistent laws; some are natural laws (Life expectancy), others on collective behaviour (accidents, fires, etc.) that serve to determine the individual cost of insurance premiums; but in any case these do not refer to predicting patterns of individual behaviour; (2) In the science of the economy, here things are significantly more complicated because economic theories do not always apply to the micro level, as was observed with the failure of Long-term Capital Management LP (LTCM) in 1998. (3) The momentum of the great development in information and communications has us spellbound and it seems to be the answer to all our problems in our day to day. This led to the creation of tools that came to replace the traditional authority of the Credit Officer and were not able to detect NINJAS (no job/no income). These automatically and in many cases by phone granted loans based only on the data in the Credit Bureaus and using "Credit Scoring" systems. The support with mortgage guarantees, which finally did not, were as warrantable as it was considered. The aim of all this ideas was to give credit massively, automating a product that is by definition selective. It seems that the combination of increasing income by pricing rates according to the risk and massively spreading the credit, was the norm in 2007 and back, and unfortunately, is still done today, but this led to the credit bubble in 2008 which many countries have not yet recovered.

How do I think it should be a sound loan portfolio?: I do not think the statistical analysis is the answer. I believe in the information and communications technologies (ICT): In fact I am using it in an innovatively way: The last year and a half I have been developing training and consulting models using the Internet, you will receive more information on this issue. But I do not think that ICT are the best, much less the only answer to all problems, these must be used wisely to be effective. The fact that these facilitate and accelerate statistical calculations and manage information does not mean that the results are realistic. To me a healthy and productive credit portfolio, is nothing else but the sum of well awarded and monitored loans which are constantly observed and react fast to paying delays: This has always been the focus of Microcredit in Latin America where very important MFIs; such as BancoSol (Gross loan portfolio USD1.106 millions, underperforming loans 1.06% - 6/2015) and Banco FIE (Gross loan portfolio USD 1.048 millions, underperforming loans 1.46% - 6/2015) have shown undoubtedly, that MFIs can operate in the sector with a low risk level of underperforming loans.

But; To the end, what is a credit?: A credit is nothing more than an act of confidence in a debtor by a creditor: Can you statistically measure trust in a person?. The obvious answer would be that the Credit Bureaus are for that purpose; but is that really, can we consider today, that anyone who has paid very well before will do so in the future?. The crisis has shown us that excellent payers stopped being so with the world recession.

All this has led me to try to address the credit risk issue from a psychological perspective; because after all, a credit is nothing more than an agreement between people: A debtor and one or more representatives of a financial institution.
Based on these ideas, there are some points that I recommended in my consultancies and I hope it will also be useful to you:

1.      It is important to give empowerment to the Loan Officers to assume the consequences of a bad credit granted. That is usual in Microfinance by punishing the production bonuses of the Loan Officers according to the level of underperformance of their credit portfolio; this has not been the case in traditional banks. This reduces the moral risk of passing to others (Collection departments) who become responsible for recovering loans that the latter did not approve.

2.      Practice has proved that it should be assume that all loan applicants may be potential defaulters. If their payment behaviour is correct, nothing happens and if they show a pattern of improper payment the institution will be ready to act in time to control it. In fact, the crisis demonstrated that defaults near to 100% can happen.

3.      The situation of a credit application is something punctual that reflects the financial realities of the applicant at the moment, so it is essential to monitor and observe the behaviour of the payments during the term of the loan, reacting fast and firm to the slightest delay to prevent It getting worse. Each delay in payment is casuistic and must be solved individually; I hardly found a common denominator or solution to all the defaulters in a credit portfolio other than going to Court, which is the end of the road.

4.      A credit applicant who is distrusted by a Credit Officer should not have the loan approved. This would imply a high moral risk for the financial institution and a source of future conflicts.

5.      The loans have two distinct phases, in which the borrowers show different patterns of behaviour: (a) The application phase: In it, the applicant is willing to give and gives all the information requested and (b) The payout phase: At this stage if the debtor defaults payments, stays away from the financial institution even evading it. Given this, it must be ensured in the first phase that all the information needed to press the debtor to come forward and/or take the case to Court has been collected, if the need arises. Again, too much information does not cause any harm to a good payer.

6.      The Credit Bureaus are important filters to detect "professional debtors" as those are present on a regular and systematic basis in them. This "professional" debtor wants to have access to a lifestyle that can not pay, so tries that be paid by the financial institution. This behaviour must be acknowledged and prevented.

7.      I cannot conceive of the approval of credit without interviewing the applicant personally, this comes in conflict with the mass given credit, which has been the practice for many years back, with the consequences we know. Credit interviews are ideal to detect inconsistencies and contradictions in the information of applicants. The differences between what an applicant says in the contacts with the Loan Officer in various moments and the documents can be an indicator of lack of transparency and therefore a warning of caution.

8.      No one can approve a loan based only on papers, either being given by a person or company, because this last is managed by people. There is a tendency to turn to the risk departments to revise, approve or veto the loans, without seeing personally the applicants, which is a riskier practice than the possible mistake of Credit Officer. Risk Departments should design and promote policies that reduce risks but cannot take executive decisions based on papers, this is the job of those who deal with applicants and must assume the primary responsibility of the credits and hence their recovery.

9.      Trust is very critical, because half of trust implies another half of distrust. The problem is that no one knows for sure which of the two will be applied to the financial institution. Trust is a yes or a no situation, not halfway. When in doubt it is better not to risk approval, because of the financial implications and conflicts that can be generated.

10.  Only the observation of a trained person is able to detect what the credit applicant thinks and how it thinks, there are no statistical methods to determine the sincerity; this can only be perceived by observing the behaviour of the person. The interview is an art and a science; it must be learned and mastered by the Loan Officers.

11.  As you have to sell the credit professionally, to show to the potential debtors that the financial institution is their best choice against the competition, it must also de sold to the debtor the idea that the payment delay can result in a limitation to enjoy future benefits and loans from the financial institution where the loan was made.

12.  It is the duty of any financial institution to give financial education to the debtors, to show them what their responsibilities and consequences are in a loan. Very few institutions do it. Debtors usually see themselves as the weakest link against the institutions, largely because they ignore where the money lent comes from in the financial intermediation equation. They assume that the money is a property of the institution itself and not from depositors, that give it in trust and/or creditors that lend it to the institution. Ask yourself: How many debtor read the loan contract?.

Many have asked me: Is it possible to mass sell the credit?, it is a marketing issue and the answer is yes, but not in the way that was been done and is being done today. The problem of mass credit lies in the saturation of branches, but if  the applicants are filtered using mass media (Call Center and/or Web sites), determining its presence in the Credit Bureaus and the net repayment capacity, this eliminates over 80% of applicants, because either they not qualify for being in the Credit Bureaus or are not interested in the maximum amount of credit that can receive based on their paying capacity and if all of them were been attended in offices, it would be a lost of time and money due to those that do not qualify. By filtering the applicants, it is easier to meet the 20% who qualify; either because these do not appear in the Credit Bureaus or have accepted a loan amount according to their paying capacity. Obviously, those who pass the filter must be sent to a Branch and will have to present all the documentation required to process the loan request as required by the financial institution.

José Linares Fontela

jlinaresf@gmail.com

NOTE 8

NOTE 8: ON MICROCREDITS

I will address the issue of credit and Microcredit in this and the following Notes, but keeping in mind that the Microcredit is a sensitive issue, which requires focusing on many facets and due to the social and poverty alleviation view given to the matter. I do not intend to create controversy, just express my personal views.

Microcredit was born from Dr. Muhammad Yunus hands in 1976, without doubt, that made him to deserved the Nobel Prize in 2006. The model has spread worldwide since the creation of the Grameen Bank. The basis of the model were: (1) The poor need small loans to generate income to overcome poverty; (2) Poor people respond by returning the borrowed money and (3) This will have a significant positive impact on poverty reduction. These concepts distanced the Grameen model from the financial grounds, taking it mainly to the social supportive field; that, in my opinion, has shown to be unrealistic and less likely to be a relief to global poverty. BEWARE: I'm not saying the Microcredit is not useful, necessary and important, what I say is that the focus has been a repeated myth, more than a proven fact; which was demonstrated as time passed and many successful MFIs that initially assumed this model have modified it, to bring it closer to the financial reality of their own sustainability and academic studies have conclusively shown that there is not a clear relationship between Microcredits and poverty reduction. As time passes and lived my experiences, without resting value to the merit of its pioneer; Dr. Yunus, I became distanced from the traditional Microcredit model that has shown a number of aspects that seem to threaten its sustainability, because: (1) Only a minority of people are able to generate income and assets from money lent; (2) A loan is a liability for the debtor and is a risk; both for their family’s economy, and their mental health; (3) Not all people want to borrow for fear of not being able to return the loan; (4) All persons are sensitive to saving money to meet the unforeseen, even when they are not using a financial institution; (5) A loan creates obligations; if these are not met, debtors suffer pressures, threats and aggressiveness from creditors; (6) A loan, regardless of its size, will always be a financial transaction, impacting the revenue and sustainability of the creditor; (7) All people have a credit capacity and have physical or fiduciary collaterals, regardless of their economic status; (8) Everyone has a payment capacity according to their income: (9) The risk of default has a double probability to occur during the term of the loan, than over the initial qualification of the loan applicant; (10) The credit risk of a portfolio is the sum of the quality of each loan, not an overall probability of the portfolio; due to the complexity of the combination of debtors and the particular situation of each of them; (11) The defaults must be attended objectively and early, taking in account the situation of the debtor that is causing them and (12) Credit is a psychological situation more than a financial issue, because the wiliness and the financial knowledge can influence more the payment of the debtor, than the financial capacity, since this last can change suddenly. The only exceptions to this last point are the massive crises that lead a country into a deep recession, due to the way it has been managed its economy, of what the ordinary citizen has no responsibility, but has to pay the broken glasses (Europe) and the exceptional nature’s disasters that are uncontrollable; as in the case of floods in Bangladesh in 1998. But the exceptional situations are not permanent, so the provisional lending policies are an exception, these do not function as permanent policies. It must be assumed a period of recovery adapting the lending policies to the circumstances and once reached the normality, there must be a return to the appropriate prudential financial policies, because otherwise inappropriate payment behaviors and loose expectations are encouraged; and this is a very dangerous moral hazard. This leads me to share with you some thoughts and concepts on lending that have been developed during my long career and it also apply to Microcredit. I will summarize these concepts in this first Note:

1.      Regardless of the purpose or application of credit, all; poor or non poor have a payment capacity, so there should never be denied credit to anyone; what has to be done is to lend the maximum amount according to their paying capacity, stability and not what the applicant aspires to get. Therefore, a person with a payment capacity of US $ 4.00 a week, at one-year term and with 20% interest rate, could only receive a maximum loan of US $ 100.00, to be able to pay it back without difficulty. That is about the average amount of an ordinary loan in the Grameen Bank.

2.      Everyone has an income; either in monetary form or in providing services or goods for use and/or consumption, the last two can become liquid by selling them.

3.      A Microcredit is exactly like any traditional financial credit transaction: it implies: A voluntary agreement to receive money, to be returned in equal installments over a given period of time, at a rate or commission and that, under normal conditions, the debtor will pay back properly.

4.      Each loan has a price (Interest rate or commission) that can be fixed or variable; calculated on the debtor’s outstanding balance or calculated on the total amount and deducted from the loan (Flat), as is the case of Islamic finance. But is not the same interest rate if calculated on the outstanding balance, that when it is calculated on the total loan, the second method generates a much higher rate. In fact; these are two completely different interest rates, due to the gradual depreciation of the capital, when calculated on the loan’s period balance.

5.      The characteristics of a Microcredit in a MFI are the same as that of a credit in any financial intermediary. The credits are fully linked to the results of the institution, which makes the recovery a prerequisite for sustainability, regardless of the level of wealth or the poverty of its debtors.

6.      A Microcredit is not a subsidy, but may become so if it is not recovered, being initially affected the Microfinance Institution (MFI), which is no longer sustainable and must close. However, the main victims are the customers as they lose access to credit, that was available before.

7.      The Microcredit is not a realistic solution for poverty reduction, for several reasons:

a.      Poverty is a very complex situation, which requires multi and interdisciplinary actions and an appropriate national economic environment that is driven to avoid or reduce poverty. The Microcredit is just a grain of sand on the poverty beach.

b.      Not all the people are able to successfully become Microentrepreneurs, this includes poor people and those who are not, so that only a minority has the features and innate personality to undertake and therefore to convert a liability in revenues and create assets.

c.      Poor people can also choose to receive Microcredit to solve specific unpredictable situations, but provided they are able to return it comfortably.

8.      Not necessarily all people have access to financial services; In part by the high amounts demanded, the minimum balances required, the maintenance charges, the high lending rates and largely by the attitudes and the treatment of the personnel in some institutions, which inhibits many people from going to these institutions. This requires providing everyone the possibility of using Microfinances, with a menu of options for savings and lending tailored to the needs of each segment of the population, this has been proven socially possible and financially sustainable.

9.      I have no objective evidence that the high number and low balances of the accounts and loans affects the cost of Microfinances, but the successful way to manage these is costlier, because it is a completely different form of financial intermediation, based not on operations, but centered on the customers: Perhaps this is product of its roots in the NGOs that were created to help people. I may be too simplistic in my analysis, but I would like someone to explain me how the greatest number and low balances of the accounts and loans increases today the operative expenses: Disposing of information technology and communications resources at very low cost and with increasing capacity and speed; with the payrolls of employees varying little (Many times reduced in the branches) despite customer growth; with the utilities, leases or depreciation of the premises being fixed expenses and being the variable expenses representing a minor part. As an illustration of my argument the case of the costs of the two Bolivian most efficient Microfinance Banks, as published by Mixmarket 2014. "100 best MFIs in Latin America" (BANCOSOL and Banco FIE) will be cited and comparing their average costs with those of the largest Multiple Banks (Commercial) in the country. The average operative costs of the Microfinance Banks in 2014 represented 59.1% of the revenues and in the Multiple Banks it was 62.0% (A 2,9% difference), the financial costs of the first were 30.5% and that of the second was 32,7% (A 2,2% difference) and the other expenses rose to 10.5% in the first and 5.3% (A 5,2% difference) in the second. Compared to the Multiple Banks, the Microfinance Banks duplicate the other expenses, due to the way that Microfinances must be managed, having to maintain a force of Financial Advisers in the field, in permanent contact with the debtors and promoting savings person to person, unlike the passivity of the traditional Multiple Banks.

10.  As shown, Microfinance is a very different and more expensive system to operate than the traditional bank’s finances because:

a.      The loan approval requires the visit and review of expenses, income and compromises of both; the households and the businesses and/or work of the applicants, to determine the real paying capacity.

b.      Credit monitoring, debt collection and recovery of portfolios is continuous, personalized and to detect potential problems and solve them early, which involves visiting the customer in their premises..

c.      There is a limited access of MFIs in many countries to bank Credit Bureaus. The Bureaus of Banking Authorities take much time to actualize the data and there is a lack of Microfinance’s Bureaus, this increases risks, due to over indebtness; so some Latin American countries has led to distance the Microfinance from the banking sector, opening the Supportive Institutions Banking Authorities and creating new local legal figures for Non Banking financial intermediation, allowing them to receive deposits from the public and monitored by the new financial authorities.

d.      The high costs and traumatic process of regularizing MFIs as full Microfinance Banks; applying to these the same requirements as those applied to universal banks, despite having a national jurisdiction; the high cost implied in the reporting and the disproportionate levels of demanded capital, made this industry to become restricted and jeopardize its sustainability. Experiences like the Delegated Regulation of the Non Bank sector, reporting directly to the Banking Authorities, by federations, unions and chambers, with independent units whose cost is borne by those organizations and have proved in Latin America to be an effective solution that has strengthened the Microfinance sector, enhancing transparency and avoiding its disappearance.

In the next Note I will continue with my analysis of Microcredit.

José Linares Fontela

jlinaresf@gmail.com

Suggested reading: "Microfinance and Poverty: Questioning Conventional Wisdom" (Microfinance and Poverty, questioning conventional wisdom), Hege Gulli 1998 http://www.amazon.com/Microfinance-Poverty-Questioning-Conventional-Wisdom/dp/1886938458

NOTE 7: (FINAL)

NOTE 7: ON FINANCIAL INCLUSION (FINAL)

In the two previous Notes, I commented the pros and cons of “Mobile Banking” as the main effort to promote Financial Inclusion, at least how it is sold nowadays. The issue is not whether we will have to use or not the “Mobile Banking” for that purpose: “Mobile Banking” is just another tool within a span of distant banking services such as: ATMs, Mobile Branches, Electronics Purses, Prepaid Credit cards, Teller stations in third parties facilities, walking branches, etc.,

Financial Inclusion is a more complex issue that cannot be solved simply with one paying facility, because we are working with people which implies a series of values and needs. As a simile to the “Mobile Banking”, it would be the same as to affirm that the Financial Inclusion can be solved with the International Family Remittances. So, to me the objective questions that must be raised about Financial Inclusion are: (a) How we should do it?, (b) Are we really taking in account the Financially Excluded needs, knowledge, trust and attitudes towards banking?; (c) Can a particular financial service complement to a financial product be the best and sometimes seem to be “only” option to do it better and make it more lasting?, (d) Will the Financially Excluded accept and use only Information Technology and Communications (ITC) solutions?, or will these be more used by the already banked?, (e) Do the financial excluded prefer the modern virtual systems to the traditional paper instruments?, (f) Will Financial Inclusion be effective and durable without intensive financial education?; (g) Will Financial Inclusion efforts be sustainable or will these need to be addressed as very long term profitable projects?, (h) Can the personal contact and persuasion be substituted by a payment facility?; (i) How can a new Financial Included be motivated to value and keep a continuity on the use of the banking services?; (j) Are there a series of restrains due to myths that block a more ample vision of the Financial Inclusion (For example: “The poor people cannot make savings”)? and (k) Will it be possible that the traditional financial industry unconsciously does not like to have the Financially Excluded as customers?. 

This and many other aspects produce me insomnia when addressing this important and very complex issue, for which there are no simple answers. We seem to forget that we are dealing with people, therefore the financial, technological and profitability aspects become secondary to the psychological issues behind the Financial Inclusion.

I will try to answer some of these questions, based on my experience in several cultures and for many years. Let us go, I hope not to be boring you:

There are many ways to kill a flea, so I am not convinced that there is an only way to do Financial Inclusion. The fact is that all the independent research shows that “Mobile Banking” is adopted mainly by the already banked; it has the behavioral logic of being virtual; so is easy to be accepted by the educated urban users that live the ITC in their everyday life. However in rural areas and marginal urban areas, where the Financially Excluded tends to be; this is not so clear. In a recent research done in Latin America interviewing a sample of rural people that do not use financial products it was found that: The only financial service used was bill paying: Next, about 33% would de willing to open an attractive regular saving account, in second place a little over 30% agree that security was important, surprise!; around 15% said that the rate of interest was important (85% did not care), 12% considered de debit card important and less than 4% consider the ATMs important. Maybe we are shooting at the wrong target, basing the strategy on paying facilities and interest rates, instead of addressing account attractiveness and security.

A lot of research has been done by scholars on the M-PESA® “Mobile Money” and after on the associated savings accounts: M-Kesho®, M-Shwari®, Iko Pesa®, M-Paisa®, but up to my knowledge, I have not seen any research done to validate the possible effectiveness of any “Mobile Banking” account before launching it, to match the Financial Excluded’s needs, attitudes, perceptions, expectations and motivation to save. All the research analyses that I read are focused on proving the goodness of the paying system. This seems a little weird to me, as I never developed a new financial product without a series of previous evaluations to detect what is important for the potential users for which it is designed and in that way, assure myself that the financial product will have the right balance between the customer’s and the institution’s needs. Maybe that could be the reason why I experienced few failures developing financial products and complementary services in many countries. I do not like to assume things, because financial products and complementary services failures are too expensive for the institution and very frustrating for the users.

Research points to the banked as the main stream users of the “Mobile Banking” services and, unfortunately, the results are incomplete either because the new developed “Mobile banking” products do not show precisely if the actual product’s users were banked or unbanked before opening the account and in the M-Shwari® savings account, that has an automatic loan attached to it, I never seen research on which product was the motivator to open the account; the savings or the loan.

Preferring a tangible document to a virtual solution has common sense among the Financially Excluded; printed information is much trustworthy to process any claim and to control better the money for this segment. In fact, the research mentioned before shows that more than 50% of the sample considers the savings passbook as the most important aspect in a savings account. So why are we going only virtual?, and does that fit the majority of the unbanked?.

More independent research would be necessary focused on the affectivity and acceptance of any of the actual Financial Inclusion efforts done today.

An issue that must be cleared is who the bankarized are and who is not. If we take the beneficiaries of only Microcredits as bankarized, we find that millions of people are Financially Included in the World. But, are these really bankarized?, have all benefited with an ample offer of financial products or have only gain a liability (There it has been many cases in the World like India’s Andhra Pradesh scandal that places doubts on this, not to count the thousands of MFIs that disappeared because these were not sustainable). Is this the Financial Inclusion that the World needs?. I can only talk based on my experience, I think that a healthy financial inclusion has to be clearly defined, At the time we were doing Financial Inclusion in Brazil, in the 70s, we saw absolutely clear that only a “Savings Passbook”  could be considered a healthy bankarizing product, no matter the flavors (Basic savings account, savings account with a money bank, a programmed savings account or a term deposit savings account, etc., however. today most of the financial institutions still offer only the traditional savings account and the term deposit). The reason for being so clear on the issue maybe was because in the savings and loan housing sector, where I worked at that time, home buying demanded a down payment that had to be saved and in relation to the tools, we had no doubts either; mass marketing motivation and financial education were fundamental to be successful, even more than the savings account itself and the way to access the savings. For us the two first were the main focuses on the Financial Inclusion issue. Today I have seen little or none marketing efforts, except the push the “Mobile Money” by the mobile telephone operators, and very little on financial education as solutions to the Financial Inclusion, basing everything on the payment facilities. But evidence along those 45 years of experience has shown me that products and paying facilities contribute to sell the savings, but the important issues are the motivations to open the savings products and these can only be reached trough effective mass marketing and selling strategies to satisfy the potential customers needs (That is why in 2012 Brazil reached 82,1% of Financial Inclusion, nearly the double of the rest of Latin American countries), Financial education is the aspect that brings forth to the mind of the unbanked the unconscious needs of asset building as a family protection and a better use of the money. It has no sense to ignore the fact that loans require no selling efforts because these are a natural demand product and the 2008 crises proved that if you offer a loan with easy terms and tolerant applicant qualifications the market will take them. But savings is another different animal, the decision to save will always be in the hands of the savers, who choose if they are going to save or not; how to save; where to take their money and what to do with the savings; this is an offer product, reason why there has to be in the Financially Excluded’s mind a clear understanding about the benefits of making savings and the motivations to do it, not necessarily the easy access to the money is the best or unique motivator, which points more to consumption. To save is the reason of being for the “keeping money under the mattress” or the informal savings schemes (ROSCAS, Pasanakus, Chains, etc.). So there are a few clear facts associated to the Financial Inclusion efforts: (a) The “Savings Passbook” has been proven for years that it is the best Financial Inclusion product because it creates financial saving discipline, is physical and trustworthy and is an asset to the saver and the family, therefore an attractive savings product’s menu offer is needed, (b) Not necessarily the services must be based totally on the CIT, which are only a mean not and end; the end is satisfying customer needs of control and access for the savings; (c) The personal and family needs for making savings as a way of protecting themselves from uncertainty and as income generating assets must be addressed; (d) The design and development of savings products must be based on the Financially Excluded needs and not only on the institution’s needs for a win-win situation for both parties; (e) Bettering the MFIs efficiency in order to give better service with a variety of outreach options (Correspondent branches, electronic purses, mobile banking, etc,) is needed; (f) Between the 60s and the 70s with fixed interest rates, we charged nothing for managing the accounts, and we did it by hand, today technology has proven to make massive and cheaper the account management, and the spread between savings and loans has grown higher due to the lowering costs. In Financial Inclusion efforts the fees must be revised and/or eliminated; (g) The understanding of the benefits of an adequate use of the money (Financial education and Money Management) and its use for asset’s building and the understanding of the banking operations is a must; (h) The advantage of the security of the money saved should be informed, usually guaranteed in the regulated financial institutions or on the federation’s or union’s Guaranty Funds in the case of non regulated Credit Unions or Savings and Loan Cooperatives; (i) Not necessarily the CIT are the right answer, less the unique answer. According to the International Telephone Union (ITU) (http://www.itu.int/en/ITU-D/Statistics/Pages/default.aspx) a majority of countries are in the category of “less connected countries” and the demanding attitudes of the Financially Excluded towards physical savings passbooks, points to the “hand-matic” solutions as the best answer (I call so the mix of CIT and manual operation, in fact in Spain the passbook with magnetic strip is the major system used), even this are the way for progressively changing the acceptance of “chemically pure” CIT solutions, which can take generations and (j) Having the financial institutions to assume a profit on Financial Inclusion efforts in the very long time; forgetting the short time profit, because it would be a fantasy.

We must run away from the fashions in the financial world. Today it has been shown that the Grameen model does not work well in all environments and that modern versions have been designed that do the job much better, but for many years the original model has been fashionable and the price paid was the lack of sustainability of many MFIs and the users loosing their credit sources. The World’s banking industries assumed the massive lending fashion in the 90s using the financial engineering (NASA style) statistical focus on massive lending as a token for low risk in a perfect market, the more risk the higher the interests to compensate the losses, It worked well until a critical mass of NINJAs (No job no income) loans was reached and it exploded with the credit crunch of 2008 (With some symptoms before with the Long-Term Capital Management L.P. (LTCM) in 1998, that was ignored). Financial fashions are very dangerous because these are usually a long term situation, because it can take years to reach critical mass and when these explode it have a world wide impact, so any financial innovation needs to be closely watched and studied objectively, not just becoming in “love on first sight” and assuming that it is automatically the right answer. Progressive practice and executions gives, with years of observation clues to the way to develop the best financial options, but with the “Mobile Banking” I see a significant lack of information and statistics and it is spreading too fast pushed by the mobile phone operators, similar as it happen with the mass lending in the last 15 years and the myths raised of a perfect market. True, this lending worked for several years until the loans defaulted and the financial institutions found themselves full of toxic assets: As I say in my courses and consultancies, the probability of dying in an airline accident is of 1 in 20.000, but in the falling plane is 100%; the same happened with the 2008 credit crunch. So we must avoid the fashions associated with Financial Inclusion and balance the importance of the short term profitability of the efforts, giving more weight to the significant efforts that are based on the customer’s needs, attitudes and behavior and on the ways to reach these customers with the right products, the right information, the right motivation and the right financial education, pointing to the assumption of the customer of the fact that being bankarized is the best option. The CIT have much to do with this issue, because multimedia is a good way of reaching and informing the unbanked, but finally personal contact and trust cannot be replace by webinars and premanufactured materials, marketing and personal selling strategies are also a must, in my 45 years of experience doing financial marketing, teaching and selling financial products I can guaranty you that these work and these strategies will do very well. But marketing has been demonized as the cause of the excessive or exuberant consumption, when in fact the needs for consumption are in our ADN since the Iron Age (On this I will dedicate a future Note). But when marketing is used ethically to motivate people to save, being protected and make income, the negative issues associated with the abusive marketing strategies has no sense. That is the reason why since 1965 after I graduated in psychology and started to work in a savings and loan association, I studied and applied marketing to promote savings, because I reached the conclusion that many people would benefit from the right application of this technology.  We must be careful to avoid the shot from the rifle’s butt in relation to the Financial Inclusion efforts, some more “open source” produced research on the Financial Excluded needs and financial patterns of behavior are required, and the follow up on the results of the tools used in Financial Inclusion could bring the right focus on it. Good luck!

Very best regards

Jose Linares Fontela

jlinaresf@gmail.com