ASN Bank’s “Ethical” Microfinance

ASN Bank was badly implicated in my book. They failed to make a single comment until KRO-Reporter exposed their activities on September 28th 2012. For anyone still labouring under the belief that this is an ethical bank, watch the documentary, read the book, and read their lame response (Dutch available here, English below). Not only do they fail to answer any of the questions sensibly, but they avoid the central claims of the book with painstaking precision. Below I provide a transcript of the Q&A between ASN Bank and KRO-Reporter (my translation) and my comments.

Triple Jump had previously attempted to refute the claims in the book, privately – no public comment to date. Noted Indian microfinance expert Ramesh Arunachalam (author of the definitive text on Indian microfinance) published their response, which I then annihilated. It appears these Dutch players don’t really know how to answer the questions they now face. The documentary has already led to nine questions addressed to the Dutch government, which I will address in a subsequent post. The pressure is mounting on ASN Bank, Triple Jump and Oxfam Novib. They better get used to facing questions.

KRO-Reporter introduction:
ASN Bank, with the ASN-Novib Microcredit Fund that invests in MFIs, chose not to respond to the findings of KRO-Reporter on camera. However, the bank was willing to reply in writing to questions.

KRO-Reporter question:
On 17 April 2009, Godwin Ehigiamusoe from  LAPO [Nigerian microfinance institution] was a guest speaker at a meeting of ASN investment funds in the Beurs van Berlage in Amsterdam. The meeting concluded with a question and answer session. From the audience came the following question:

“The essential battle is to lift the poor out of poverty, and I think everyone in this room trusts their money with the ASN Novib fund is a good cause. Now if you actually look at the actual cost that LAPO is charging poor Nigerian women you will see that this is approximately 110 percent per year when you consider all the costs. (….) So LAPO is basically one of the most expensive MFI’s that there is, and one of the most profitable. So my question to all or you is: Is poverty alleviation really happening at these interest rates?”

The report of this meeting on the website of ASN Bank states that “the meeting ended with a lively question and answer session.” About the question quoted above, however, there is no mention in the report on the website. Why not?

ASN Bank answer:
ASN Bank provides on its website a summary report of the meeting of the ASN Investment Funds. This meeting is attended by relevant and critical investors / participants of the various funds. Also at the meeting of the ASN-Novib Microcredit Fund there are therefore always many critical questions, including on the interest rates that the clients of MFIs pay. This one question is no exception. In addition, all minutes of meetings are retrievable for participants / investors. The report is thus intended to provide a general impression, the minutes to give a full report on all parts and questions discussed.

Hugh comment: The minutes were censored because ASN Bank had been caught red-handed exploiting the poor. The question was extremely embarrassing for ASN Bank at the time – I was there, I know. It remains extremely embarrassing for them to this day. However, this was alas the beginning of the criticisms against Holland’s leading “ethical” bank. The original question can be heard in the documentary, or on my website.

KRO-Reporter question:
A little less than three months after the said meeting in the July issue of Spaarmotief [ASN Bank promotional magazine for investors] appears an interview with Mark of Doesburgh, director of Triple Jump, the organization that on behalf of the ASN-Novib Microcredit Fund gave a loan of 1 million to the Nigerian bank LAPO. The question of ASNs Spaarmotief reads: “How much interest do borrowers pay?” To which van Doesburgh answers: “That is quite high, typically 25 to 30 percent.”

ASN Bank holds transparency in high esteem. Spaarmotief is one of the main channels of communication between the bank and its clients. Would it not have been, in light of that which was discussed at the meeting of April 2009, more honest if Spaarmotief had reported that sometimes there are interest rates above 100 percent? Or did ASN Bank have no knowledge of the level of interest that LAPO was charging its borrowers? If ASN Bank was aware of this, when and how, did ASN Bank inform participants in the ASN-Novib Microcredit Fund?

ASN Bank answer:
The ASN-Novib Microcredit Fund is informed about interest rates by Triple Jump, even at that time in the case of LAPO. We understand that Van Doesburgh refers to an average rate here. That average rate at that time was based on a calculation of 555 MFIs. For a balanced picture, as was reported, he has not referred to a lower interest rate or higher interest rate.

Hugh comment: Mark van Doesburgh, CEO of Triple Jump, is yet to produce the original credit committee documents presented to ASN Bank. Nor have ASN Bank. In these documents it is interesting to observe the stated interest rates that they claimed LAPO was charging, which had been confirmed by two previous ratings by an independent rating agency (MicroRate) and were confirmed by two additional ratings performed by a separate rating agency shortly afterwards. The last rating quoted a report by a US-based NGO called MFTransprency, whose sole focus is reporting accurate interest rates. MFTransparency confirmed the interest rates reached as high as 144%. ASN Bank were well aware of these interest rates, as I had informed them in writing. To suggest they were unaware of the interest rates charged by LAPO defies all demonstrable evidence. Oxfam Novib, their partner in the ASN Novib fund, openly acknowledge this. Triple Jump was deliberately attempting to cover up the real interest rates charged by LAPO with full knowledge of senior management at ASN Bank. When the New York Times subsequently investigated LAPO and visited them on-site, their front-page article confirmed a current interest rate of 126%. A number of investors pulled out of LAPO as a consequence of this revelation. Not ASN Bank.

But, are we to interpret from ASN Bank’s answer that they were fully aware of the actual interest rates charged by LAPO? If so, this is perhaps more worrying still. They approved the investment, and invited the LAPO CEO to Holland as a guest speaker, fully aware of the exploitation taking place. If they were fully aware, then this has far-reaching implications for the Dutch government. Presumably Oxfam Novib were also fully aware (they co-formed the fund), and thus Dutch public sector funding was knowingly provided to LAPO despite these interest rates? This is a specific question asked by the politicians.

ASN Bank answer (cont’d):
To participants in the microcredit fund it is explained in every way – from the website of ASN Bank to the customer magazine – that microcredit is not a panacea, but that it can be a first step towards a better life for the poorest. That too high interest rates herewith can be a problem, is then taken and explained. The many critical questions that were raised and are raised at the general meeting of shareholders are a direct result of this.

Hugh comment: nonsense. Where is a single public acknowledgement of the interest rates charged by LAPO? That Triple Jump knew these clearly is well-known. That ASN Bank and Oxfam Novib knew these is well known. When and where did ASN Bank inform their investors that funds were being on-lent to poor Nigerian women at rates of 126%? When and where did Oxfam Novib advise their donors or the Dutch government that their funds were being used in such a manner? Note that these players are all signatories of the SMART Campaign. The third client protection principle relates specifically to transparent pricing, the fourth to affordable credit.

KRO-Reporter question:
How does ASN Bank in retrospect judge the loan of 1 million from the ASN-Novib Microcredit Fund to LAPO now that it is clear that this Nigerian MFI gives out loans with interest rates which were calculated as  126 percent (Report Planet Rating 2009) to 144 percent (report MFTransparancy / Chuck Waterfield 2009)?

ASN Bank answer:
Microfinance is a young industry where many actors have learned their lessons. That is the same for ASN Bank as for other investment funds. Triple Jump back in 2009 together with other investors took the initiative to request LAPO in writing to improve a number of things, to which LAPO has responded (including a substantial reduction in the interest rate).

Hugh comment: This is factually false. LAPO did decrease its interest rates, but it increased other costs to the client that led to an overall increase in the cost of capital to the poor. The exact description in the Planet Rating report states: “The decrease in interest rates coupled with the increase in the level of cash collateral, resulted in an increase in the Effective Interest Rate (EIR) for the clients to 125.9 percent from 114.3 percent.” This point is explicitly acknowledged by Oxfam Novib in the documentary, although ASN Bank deny it here, in writing. Or were they unaware of even a publicly rated rating report?

ASN Bank answer (cont’d):

In a broader sense, since then, in collaboration with many other actors, models and principles have been designed to promote transparency and protect customers. This is done by measuring the social performance of MFIs where Triple Jump is one of the forerunners in  (tailoring products to the needs of the customer, the range of women and customers in rural areas, and meeting the “Client Protection Principles “- seven principles to treat clients of MFIs in a transparent, respectful and responsible way). Triple Jump was also one of the co-financiers at the start of MFTransparency, which provides transparency on the effective interest rate to end customers.

Hugh comment: Triple Jump did indeed finance MFTransparency, who are precisely the same institution that ironically proved the elevated interest rates charged by LAPO in 2011 reaching 144%. Regarding the social performance of LAPO, the reports repeatedly mention chronic client desertion and no social impact. It is true that these institutions endorsed the Client Protection Principles. It does not appear true that they enforced them

ASN Bank answer (cont’d):
In this regard, since the end of the loan in 2009 LAPO has changed much, especially because of  the realization that things could be done better. Also at LAPO itself by the way, because they are now regarded as one of the better MFIs in Africa. LAPO from then stood at the beginning of its development, and there were clearly some issues that needed to be improved. But those that want to help the world advance, must show courage, accept that some things turn out differently than one had hoped and draw the right lessons.

Hugh comment: LAPO has not changed much and ASN Bank pulled out of LAPO, despite it now apparently being one of the better MFIs in Africa. The interest rates remain some of the highest on Earth for a regulated bank, and abhorrent to most investors, most likely including ASN Bank investors who were deliberately misled by their bank. LAPO is not considered as one of the best banks in Africa, but as one of the most embarrassing cases of open exploitation the poor. It has been the subject of documentaries, books, featured in numerous articles, and generally considered a disgrace in the sector.

However, moving away from the activities of LAPO, the more interesting questions centres around ASN Bank itself.

ASN Bank was fully aware of the activities of LAPO prior to the AGM, and prior to the disclosures made in the book and documentary. It selected a questionable fund manager, Triple Jump, which remains managed to this day by two former Oxfam Novib staff member. The chairman of the board of Triple Jump is Ab Engelsman, former head of fund management at ASN Bank, chairman of the board of ASN Bank Foundation, as well as other senior posts. ASN Bank is a shareholder of Triple Jump, of course. The person who wrote the questionable Triple Jump credit committee documents presented to the ASN-Novib microfinance fund now works at…. ASN Bank. She also wrote the document presented by Triple Jump to Calvert Foundation successfully encouraging them to also invest in LAPO.

Ironically, if one examines what Oxfam Novib state about the investment in LAPO by the ASN-Novib fund, the picture is more clear. Theo Bouma, CEO of Oxfam Novib, specifically acknowledges that LAPO lied to Oxfam Novib regarding the interest rates, a claim that ASN Bank now deny, despite these being co-owners of the same fund.

The Dutch public have been exploited as much as the Nigerian poor. Oxfam Novib had the courage to admit incompetence, but ASN Bank continue to defend their integrity. The losers of this fraud are the Dutch tax-payer, the investors of ASN Bank, and the Dutch government. These are questionable and deceptive actors that should fall under the full legal scrutiny of the Dutch financial sector regulator, who has so far done nothing to regulate this sector. The future Queen of Holland, Princess Maxima, is the appointed spokesperson for the Dutch microfinance sector and has not made a single comment on this case, despite the activities in question taking place under her watch. It is therefore shameful, but also a source of hope, that two Dutch politicians have had the courage to formally demand answers to these accusations in the Dutch parliament.

According to the 2011 rating report, LAPO converted from an NGO to a private company. It had grown thanks in large part to Dutch public sector funding, provided by the Dutch tax-payer. When it converted to a private company, 12% of the shares were given to the CEO, Godwin Ehigiamusoe, who is a direct beneficiary of the generosity of the Dutch tax-payer. It can be stated no more clearly: Dutch tax-payers have been deceived into contributing to the private wealth of a corrupt Nigerian bank in the full knowledge of ASN Bank and Triple Jump. Well intentioned Dutch savers and pensioners invested in the ASN-Novib fund hoping to alleviate poverty. In fact their funds were used to exploit the poor with extortionate interest rates, enrich individual people, and done so in the full knowledge of the intermediaries they trusted. The Dutch government has remained a passive observer in this process, up until this point. The simple reason why microfinance has failed to produce any tangible impact upon poverty eradication is largely due to the fact that institutions such as ASN Bank and Triple Jump have chosen personal enrichment and exploitation of the poor over their stated developmental goals, and no regulator has cared to look over their shoulder.

My simple advice to any Dutch person reading this blog is as follows:

  1. If you are an investor or account holder at ASN Bank, withdraw your funds immediately, this is an unethical and deceptive institution of questionable integrity. They are willing to deceive you without hesitation, as clearly demonstrated and not actually refuted even by ASN Bank. If you would like to issue a formal complaint to ASN Bank, or demand answers to these claims, this is the link.
  2. If you have ever donated funds to Oxfam Novib, demand a prompt response to these allegations, without evading the obvious questions as ASN Bank has attempted. I could not find a complaints procedure on the Oxfam Novib website (despite this being one of the client protection principles they espouse for their MFI investments).
  3. Withdraw any funds from Triple Jump.
  4. Complain to your local politician, regardless of your political standpoint, about misappropriation of Dutch public sector funding in microfinance and the appalling acceptance of exploitative interest rates charged to the poor.
  5. Demand that you future Queen, Princess Maxima, takes a concerted stance against such activities.
  6. Insist upon full, formal, financial regulation of the Dutch microfinance sector.

A central premise of my book is that there is no means to ensure that the agents we trust to invest funds on our behalf for the benefit of the poor act in either our best interests or those of the poor. There is no practical regulator of microfinance funds in Holland. There is no means to obtain an independent rating of microfinance funds themselves. And yet there is substantial evidence of these funds acting inappropriately. When academics, journalists and practitioners criticize microfinance for “not working”, to what extent is this a problem with the microfinance model, and to what extent is this the fault of the intermediaries standing between us and the poor? This remains an open question, but my opinion is that these funds need to be regulated immediately, and the case of the troika of ASN Bank/Oxfam Novib/Triple Jump presents a clear case of why this is so urgently required.

In the event that ASN Bank and Oxfam Novib wish to continue investing in microfinance, my advice would be to select a better fund manager that does not engage in these activities. Holland has a number of fund managers, and not all should be tainted with the same brush as the troika. As I repeat on numerous occasions in my book, there are good and bad microfinance banks, as there are fund managers and P2P organisations. But as long as we accept an opaque, non-transparent and unregulated sector there is no means for the tax-payer, investor, saver, pensioner or government to distinguish between the good and the bad. And in the meantime the poor will continue to suffer under these practices, and the entire microfinance sector will be discredited by a few rogue operators. That would be a pity.

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3 Responses to ASN Bank’s “Ethical” Microfinance

  1. Matt Raft says:

    Hugh, I just had the pleasure of discovering your book and blog. Which MFIs would you say are currently well-run? If you had $1,000 to donate, to which nonprofit would you personally donate? (I understand that you may not be able to make recommendations, so I understand you would be providing information for my own follow-up, subject to my own due diligence.) Thank you.

    • Hi Matt,

      The entire final chapter is aimed at giving well-meaning and responsible people such as yourself the tools required to identify the good players. However, you need to ask a fundamental question: does the microfinance sector need more money? Over-indebtedness is a major problem across the sector, so unless you know a specific MFI that is not fuelling such a bubble, I would possibly consider donating your money elsewhere. Look to companies such as for advice. Obviously I would avoid the institutions named in the book like the plague. I have recently started playing around with a few other P2Ps and will write something about that shortly, as some appear to be actually quite good, but I don’t know enough yet to officially recommend them. As a general rule, if your money ends up in a regulated country you probably have a better chance of it being used sensibly. Personally, given that the majority of microfinance is directed at women I would probably donate funds to a women’s rights organisation unrelated to microfinance. It would be wonderful if such NGOs would start actively defending the rights of female microfinance clients, and making them aware of the potential dangers of credit. Also, given that many micro-enterprises are labour-intensive, there is growing evidence that children are being withdrawn from school to work in the “micro-sweat-shop”, so perhaps donating to institutions that protect the rights of children and promote education would be a wise idea. Alas the likes of the SMART Campaign refuse to include the rights of children in their so-called client protection principles. In fact, that’s a great idea: write to the SMART Campaign and offer them $1.000 if they’ll add children’s rights to the principles. If they do, that is money well-spent. If they refuse, I’ll publish their response on this blog!

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