Perhaps unsurprisingly I rather enjoyed the KRO-Reporter documentary. I won’t go through it in detail, it speaks for itself. That something is deeply wrong in the sector is beyond dispute. Anyone who still denies this is living in cuckoo land.
That large scale exploitation of the poor is taking place is a pity, but Chuck Waterfield’s comment was quite astounding, from a veteran microfinance practitioner:
“There’s 4 billion people living on less than 2 dollars a day. That’s  two thirds of the world’s population. And the rich are very small, the very pinnacle of this pyramid. Some of what is happening in microfinance right now is a transfer of wealth, not the old-school ‘help the poor’ send money down to the bottom of the pyramid. We see a transfer of wealth from the bottom of the pyramid up to the very very top 1% of the pyramid. The rich getting richer off the very poorest in the world.”
There we have it, in a nutshell – welcome to commercial microfinance, the salvation of the poor! He’s referring to the the IPOs, the Holy Grail of the sector, what many of these MFIs are striving for, with their investors salivating in the background. This is the direction some are heading in and we all know it. Neither Chuck nor David nor I not anyone credible is suggesting all microfinance is bad, but concern is mounting over that portion which is.
Since the broadcast two Dutch politicians have asked questions to their government about what on Earth is going on in the Dutch microfinance sector, specifically with public funding. A valid question. Why didn’t the Dutch ambassador for microfinance, Princess Maxima, raise this issue? She hasn’t commented on the sorry state of her microfinance sector, with three of the largest institutions, Oxfam Novib, Triple Jump and ASN Bank looking frankly ridiculous, and instead politicians are now intervening. Surely she watched this documentary – it had her name in the title and was widely advertised?
Triple Jump themselves can’t be too pleased with this. I would love to have been a fly on the wall when their posse arrived in Barbados for the ForoMic (Latin America’s principle back-slapping microfinance conference for investors to hob-nob with one another and hatch unsophisticated plans to exploit more people and boost returns). The documentary aired just as things were getting started, publicly exposing a microfinance investment fund to a degree that is, as yet, unprecedented in the sector.
The microfinance funds congregating in Barbados must have been thinking “It’s not great for Triple Jump, but hey, they got caught once, could’ve happened to any of us”. Well, first of all, has it only happened once? Do we think really LAPO was an isolated case? As the Dutch politicians start sniffing around I predict that more dirt will emerge, as people start demanding answers to tough questions. Let’s see where else Triple Jump invested government funds. Let’s ask what other extortionate interest rates are being charged by Triple Jump investments and compare that to the information neatly presented to ASN Bank and Oxfam Novib. This ain’t over yet.
And what do the Americans think of Triple Jump managing their OPIC/Habitat fund? Are they convinced that the Dutch regulator will be keeping a close eye on their capital, catapuling people out of poverty by the dozen, in light of this emerging evidence?
The remainder of the documentary discusses a number of issues raised in my book specifically relevant to Holland. The broad impression is that microfinance is not all bad, but some applications of it are bad, and no one appears to be doing much about it.
So then we come to my favourite bit of the documentary. The producer asks the head of Oxfam Novib what he reckons about LAPO’s interest rates of 144%. Initially he suggests interest rates don’t actually matter. Does this guy not have a mortgage or a credit card? A slightly bizarre stance, but he swiftly changes his mind with the classic argument that if there is someone charging even higher rates, then 144% is ok, a logic pioneered by Grameen Foundation USA. He clearly has no idea what he is talking about. One can only assume that he doesn’t know that LAPO is incredibly profitable and suffers a chronic client desertion rate, as otherwise he is also in the land of the fairies – a serious concern given the amount of Dutch tax-payer money he apparently manages.
But then he begrudginly admits 144% is too high, and that they embarked on a failed attempt to encourage LAPO to reduce rates. LAPO told Oxfam Novib that they had reduced the rates, but this turned out to be a lie. Ooops.
Our friend Bouman fails to address two rather awkward issues. First, they had known about LAPO’s interest rates since at least 2007. Bruno Molijn, another Oxfam Novib veteran, had stormed into Triple Jump furious about these rates amongst other deceptions that Triple Jump had managed to present to him, but which were subsequently covered-up, until recently.
Maybe Bouman was unaware of all this? He should read my book to find out what is actually going on at Oxfam Novib. But what about the fact that his trusted fund manager, Triple Jump, openly stated to its investors in their newsletter that the rates charged by their MFIs were a mere 25% to 30%, shortly after they were revealed openly in the AGM of the ASN-Novib fund? Ooops, he must have missed that also.
Until this point Oxfam Novib simply look incompetenent, but then comes the tour de force, Ab Engelsman. He bounds in like a locomotive train. Apparently one must first look at the income of an MFI prior to the interest rates the poor are paying – debatable, but when LAPO was so visibly profitable, shouldn’t that have rung an alarm bell immediately? Where did he think this profit was coming from?
Then Engelsman changes his mind, in fact the clients’ needs do come first. A slip of the tongue perhaps? Engelsman’s logic runs as follows: because the repayment rates were high, the clients must be benefitting. So why were they fleeing the institution in droves? It’s apparently only us in the west that have an ethical problem with extortionate interest rates. Oxfam Novib had just stated that LAPO had lied to them, as proved fairly succinctly in an independent rating report by Planet Rating that Bouman referred to. So the producer asks Englesman if he feels they were screwed by LAPO?
“No, I personally don’t. As Triple Jump, I also think not. No.”
“Would you, with the knowledge you have now, again provide a loan to LAPO?”
“Not to the LAPO as it was back then, but yes to the current LAPO.”
There is neither the faintest attempt to get their stories straight, nor to apply logic in his responses. LAPO did not screw Triple Jump apparently, although Oxfam Novib disagree, so why did Triple Jump pull out of LAPO? And if Engelsman is correct, and LAPO had not screwed them, he concedes that he would not invest in “LAPO as it was back then”. Why not?
But now he would invest in LAPO. It’s just non-sensical. There’s no need for any forensic analysis of these comments, they defy the basic laws of logic.
So, an institution that has lied to investors, exploited hundreds of thousands of poor African women, operated illegally for years, is riddled with nepotism and frauds, suffered the first ever rating withdawal in microfinance history, boasts massive client desertion and been the subject of untold controversy blighting the entire microfinance sector is, in Engelsman’s informed opinion, ripe for a Triple Jump investment using public and private sector funding. I am not sure what one can say in response to this. But I am not surprised the politicians are asking questions.
In fact, I have a few suggestions to improve this mess. Firstly, Engelsman should urgently reconsider his position as chairman of the board of Triple Jump. Alas he is also head of the Netherlands Microfinance Platform, a position he should also review. The relatively ethical fund Oikocredit also has him sitting on their board too – they should resolve this immediately. And he sits on the ASN Foundation board also, but that’s of less concern – they only squander their own money.
Hopefully, if the Dutch have the slightest desire to clean up their sector, they need to put sensible people in charge of these institutions who are willing and able to clean up the mess and be a little more transparent in their operations.
But he’s not the only problem. Triple Jump isn’t going to clean up its act simply because it has a new chairman. ASN Bank and Oxfam Novib should review their choice of fund manager as soon as possible, appologise for their previous mistakes, and attempt to re-brand themselves with some actual ethical criteria. ASN Bank has a wide choice of fund managers to chose from in Holland, some of which are actually quite competent. The Dutch government should intervene, and threaten to cut public funding to Oxfam Novib unless they select a competent fund manager. Simple as that.
Engelsman will go, but Triple Jump will stay. It will be carefully brushed under the carpet, perhaps a little slap on the wrist. Of course Maxima is not going to say anything – what can she do? Admit that a major part of the entire Dutch microfinance sector has been operating “opaquely” under her watch? A future queen of Holland cannot make such an admission. The politicians may be able to increase the heat a little, but will they actually prompt change amongst the Triple Jump/ASN Bank/Oxfam Novib clique? I hope so.
Well done KRO-Reporter for rocking the boat.
We’ve created a monster. It has inertia. No one wants to rock the boat any further. So I will.