I have been fairly critical of Kiva, as some of my more sensitive readers may have detected. Another peer-to-peer (P2P) microfinance platform, MyC4, actually endorsed my book. I did a project for MyC4 some years ago, helping them with their back-office system. They are somewhat comparable at the outset to Kiva, with the obvious difference that they are actually P2P (as opposed to peer-to-MFI disguised as P2P). As a result of this subtle distinction MyC4 are able to quote the actual interest rates on the loans, while Kiva cannot. Yesterday I froze my account with MyC4.
I typically lent to the poor via MyC4 at 10%-15%, which I consider reasonable: this covers inflation, the occasional default, some withholding tax and the forex risk. MyC4 charge a fee, about 6%, fair enough – they set up and run the thing. And the MFI that sources the clients and does the actual cash management and monitoring charges a fee (although they do not actually lend their own money of course – they lend mine). But fair enough, they need to cover costs. Despite MyC4 paying a modest return to its investors and being for-profit, the end recipient of the loan may actually pay less via MyC4 than through Kiva, but that’s an irony for another day.
One of the MFIs that MyC4 use is called Tujijenge. I’ve been wary of this outfit for a while. Take a guess at the fee they charge for lending my money to the poor? Yup, 50%. This is not an interest rate. You give me $100 to lend to a poor person, and I will charge that poor person $50 for lending your money. Sound ridiculous. See the MyC4 website (click “cost for business”). This is in addition to the actual interest charged, and all the fees.
So, I wrote to MyC4 to complain. I pointed out that many of their other MFI partners charge a fraction of this. KEEF charges 16% for the same service, for loans of similar sizes. The overall APR on Tujijenge loans clocks in at nearly 90%. Maybe life is just extremely expensive in Tanzania? The well-respected US-based NGO MFTransparency does nothing other than publish the interest rates of MFIs, and fortunately they have reported on Tanzania, including Tujijenge. The full date is visible here, but when we look at effective interest rates for Tujijenge, we see the following:
The black line is the Tanzania average, with smaller loans costing more than larger loans, as usual. The green bubbles are Tujijenge’s rates.
But, bear in mind these are the interest rates for Tujijenge lending its own funds. With MyC4 they’re charging the poor 50% for lending my money. I take the hit if the client doesn’t pay. I take the foreign exchange risk. Tujijenge pocket the 50%.
So, they’re above the national average, which is already eye-wateringly high in most people’s opinions. Ecuador has an interest rate cap of 30.5% APR and has a thriving, profitable microfinance sector and even concerns of over-indebtedness. Is Tanzania really that much more expensive to operate in?
According to MFTransprency (and I trust those guys), Tujijenge’s interest rates range from a relatively modest 67.2% to a stellar 150.6%, in terms of APR (Annual Percentage Rate). In terms of the EIR (Effective Interest Rate) the rates reach as high as 341.4%. Now, without entering into a lengthy debate about what interest rate constitutes extortion and which interest calculation method is better (EIR vs APR), does this seem like “affordable credit”?
What more can we find out about Tujijenge?
Well, they haven’t bothered reporting on the MixMarket since 2008, by which point they were already profitable with only 8.265 clients. They now have over double that. Their website is a little light on information, with no financials, no list of investors, in fact very little information about anything. It’s a private, for-profit company. They are members of the questionable Africa Microfinance Transparency Initiative (AMT), an initiative of limited competence but an uncanny ability to attract sordid institutions under its umbrella. I shall not devote additional space to discussing such futilities other than to demonstrate the broad range of interpretations possible with the word “transparency”. AMT do mention that Tujijenge gets only one transparency diamond according to the MixMarket, the lowest score possible, but they accepted them into AMT anyway.
However, guess who their “partners” are? Yes, that’s right, a profitable African MFI charging extortionate interest rates – Oxfam Novib, proud donors as usual. Yet more Dutch tax-payer money being pumped into a worthless privately-owned for-profit microfinance enterprise. Oxfam Novib aren’t alone in squandering the Dutch tax-payers hard earned Euros into silly practices, the usually ethical Oikocredit let down its guard on this one also. They just can’t spend that tax and donor money quickly enough.
Perhaps Tanzania suffers from high inflation? Er, no, it’s been between 6% and 13% since Tujijenge was formed in 2006. Maybe Tujijenge serves those famous isolated rural Africans who live in forgotten corners of the country necessitating vast travel budgets to reach? Er, no, it appears “61% – 100%” are urban clients. Perhaps the cost of living is high in Tanzania? Apparently it’s the fourth cheapest country in all of Africa.
Or perhaps the loan default rate is so high that Tujijenge has to charge high rates to cover for the non-repaying clients? Its default rate in Tanzania is a mere 0.38%, and in Uganda it is yet to suffer a single default. So, what could possibly be explaining these astronomical rates?
Perhaps the desire to make vast profit from exploiting poor, vulnerable Africans. Wouldn’t be the first, would it?
The plot thickens further. According to the MFTransparency website MyC4 loans on Tujijenge cost 41%, but according to the MyC4 website, loans via Tujijenge cost approaching 90% all up, with Tujijenge taking a 50% fee. In fairness, when the total cost of capital is so high, what’s an additional 9% here and there? Mortgage payers in Europe may disagree, but they have human rights and consumer protection and regulators looking after them. Poor Tanzanians.
I then thought the Tujijenge website might be enlightening. Wrong again. Besides being utterly primitive and devoid of any remotely useful information, it contained some unusual statements:
“Tujijenge recognizes all Tanzanians as its customers. This means apart from our core activity of offering loans to micro and small entrepreneurs, we are also involved in community serving activities. Our staff team dedicate collective efforts to see Tanzanian communities boom bothways financially and socially. This is why we feel responsible in taking care of our society morally and materially by donating blood to the needy and supporting victims of various catastrophies arising in our country.”
So, besides redefining the common spelling of catastrophes and inventing a new word (bothways), they have pioneered a novel incentive plan to lure clients. Free blood. The website does not explain where they get this blood from, however. Perhaps the staff? Or maybe they take blood from non-repaying clients in lieu of penalty interest? And Tujijenge has generously recognized the entire Tanzanian population as its customers. So would I at these rates, were I a blood-sucking moneylender. But they go on. Their mission, in additional to making vast sums of money off the backs of vulnerable poor people, is “to improve the quality of lives of families in Tanzania through [the] provision of micro finance.” This has presumably fuelled the financial and social boom referred to previously, that no economist, sociologist or conscious human being has yet detected. They provide no supporting evidence of this claim, nor do they state how it could ever be measured.
And finally, there are five core values which guide Tujijenge to this astonishing but un-proven result: sustainability (i.e. profitability), integrity (no idea where that comes in), teamwork (work hard making sure these poor folk pay on time and we’ll pay you a reasonable salary, otherwise we’ll fire you), transparency (a cruel joke presumably, but a word that all MFIs have to have on their website somewhere, along with impact, empowerment and values), and respect for humanity (or rather, respect for people who will pay you such high interest when all you do is lend them someone else’s money, aka respect for the goose that lays the golden eggs).
Apart from these nuggets of wisdom, the website is a farce, but of mild nostalgic value to anyone who wishes to recall what a website from the early 1990’s looked like. And the spelling is appalling. Wikipedia suggests English is one of two official languages in the country. I guess the person who dedicated a full 15 minutes to constructing this website must have been proficient in the other one.
Adding insult to injury it transpires that they actually got a social rating, in 2010. It’s an amusing read. The section on “client protection and ethical finance” scores a “1-”. The only grade lower, on the scale from 0 to 5, is 0. What does it actually mean to score a zero on client protection and ethical finance? The report elaborates:
“ Despite the fact that over-or cross indebtedness is high amongst the clientele, no specific measures are put in place to limit the risk;  Information given to client is not sufficient to guarantee transparency on pricing as clients are not given the effective cost of the loan and documentation of transaction is not given to all members of groups;  Current policies and procedures do not sufficiently prevent the occurrence of inappropriate collection practices, which have been noted in the recent past.”
AMT must be delighted – this sits wonderfully with their other proud member, LAPO. So, Tujijenge do absolutely nothing to prevent clients from getting cripplingly over-indebted, lie about the interest rates, and sometimes mistreat non-repaying clients? Does this include a little torture perhaps? Women in India were forced into suicide and prostitution – do we see an early warning sign of comparable debt-collection practices?
But, to reassure anyone who may be a tad concerned about all this, Tujijenge endorsed the SMART Campaign, promoting the virtues of transparent pricing and preventing over-indebtedness, despite Tujijenge scoring almost zero on both these topics. Naturally the SMART Campaign couldn’t care less about this, because they collect endorsements alone, they don’t actually do anything. The sad fact is, the social impact report could have stated “Tujijenge regularly rape and pillage entire villages and torture delinquent clients with blunt, rusty knives while executing defaulting clients with Kalashnikovs obtained from their mafia operations and are the only MFI in Africa to actively insist upon prostitution, drug-trafficking and child-labour as conditions for a loan” and SMART would not bat an eye-lid. It’s called self-regulation by some people. I call it window-dressing. Anyway, we’ll save SMART for another day.
So, returning to the central theme, I wrote to MyC4 and told them I will be pausing all lending pending a response from them regarding their dealings with Tujijenge. I can, of course, simply choose to not lend via Tujijenge, but that is turning a blind-eye. I refuse to have anything to do with such moneylenders, and if this behaviour is deemed acceptable by MyC4, then I no longer find MyC4 acceptable – that is my opinion, I am entitled to it, it is my money, and I will move it elsewhere. The joys of capitalism and a free press – you can vote with your wallet and then write about it. Besides, I’m a campaigner for fair pricing; I can’t turn a blind-eye to this even if I wanted to.
The argument that if MyC4 pulled out the practices would continue regardless, or that the evil moneylenders are more expensive, holds no water with me. This is the famous Grameen Foundation argument in defence of LAPO (144% APR). We’re not screwing you because someone else would screw you slightly more than we are. Some (morons) might buy this argument, it’s yet to persuade me.
But then I discovered another interesting fact. Guess who also lends through Tujijenge? Yes, our friends at Kiva. They have pumped $4.6m to this veritable institution over the last 5 years, at a reported portfolio yield (Kiva’s equivalent of an interest rate, given that it isn’t in fact a P2P this is the best they can do) of 66.1%. They do at least confirm the astonishingly low default rate of a mere 0.08%. Of course, according to the MFTransparency data there is no separate Kiva loan identified, as there is with MyC4, because there is no such a thing as a Kiva loan, a small detail that millions of naive Kivans have failed to notice over the years. The fact that a Kiva loan, provided interest free to Tujijenge, costs more to the poor recipient than a MyC4 loan, is somewhat ironic, but this will be lost on 99% of Kivans.
This, of course, brings us to the question of whether any of this has the slightest impact on the poor. Financial inclusion, triple bottom line, credit as a human right blah blah, the bottom line is that no one has yet come up with any convincing evidence that microfinance has the slightest overall impact on poverty reduction, and it is fair to say that with triple-digit interest rates this is not entirely surprising. This does not mean that all microfinance is bad. It means some is good, some is bad, on average it’s simply useless. The evidence I see here regarding this particular MFI, gathered in an hour online, suggests to me it is pretty clear in which camp Tujijenge sits, and I don’t want to have anything to do with them, or anything to do with people who support such activities.
So, I’m afraid to say, it looks like we have yet another case of an extortionate, money-grabbing MFI dressed up as a beneficial do-good saviour to the poor, sapping money from naive investors once again (and a naive government in the case of Oxfam Novib, although I was surprised to see Oikocredit are involved), screwing poor Africans for the sake of the enriching a few individuals. In short, just another typical MFI.
Obviously this is more intriguing currently, as Oxfam Novib is facing some heat from the Dutch parliament currently over mis-use of public funding. The politicians were rather concerned with tax-payer funds being used for extortionate lending practices, amongst other gripes. Maybe they will tolerate this case on the grounds that the clients got some free blood thrown into the deal? But that Oikocredit also supports this organisation is astonishing.
But, I for one will be removing my money from MyC4 unless they either cease dealing with Tujijenge or oblige them to reduce the fee to under 20%, by the end of this month. Instead I will put my money into Zidisha, a similar outfit that doesn’t exploit poor people. Are they perfect? I doubt it. My wife and I have had a sniff around them and they seem a step-up from the likes of Kiva and MyC4, the interest rates at least are reasonable – double digits, and even under 20% when all costs are considered – a positive bargain. We did $400 so far, seems to have gone ok, the site is pretty easy to use, I spoke to the CEO and she seems to have her head screwed on, which already puts her in the top 1% of this sector. But until we see the full loan process I am not forming an opinion on these folk either, but innocent until proven guilty is a cautious working assumption. The others are just guilty. I won’t earn such a decent return on Zidisha, but who cares? I’m not putting my life savings in there. But I can sleep at night knowing there isn’t some woman slaving away in some “micro-enterprise” desperately trying to boost her income by 90% just to cover the interest rate. Who knows, I might actually help her.
This is all to do with signalling. When Oikocredit or MyC4 invest in Tujijenge, or Grameen Foundation and Triple Jump etc. invest in LAPO, they justify the deals in terms of financial inclusion jargon, but at the end of the day they are rewarding extortionate money-lenders. If these funds had the courage to simply say “no, we will not give you a dime for as long as you keep exploiting the poor”, then they might actually stop exploiting the poor. Put a limit of 60% – it’s hardly a restrictive ceiling. Many (regulated) countries are perfectly able to operate at interest rates far below 60%. But, of course, this reduces profitability, and that is what they’re all after, although few admit it. If it really is impossible to lend at rates under 150% and cover costs, maybe it’s better to simply not lend? Is there really no limit? 500%? 5000%? Why will the microfinance sector not define extortion? We have all these campaigns claiming to prevent it, but they haven’t bothered to define it yet.
What is my advice to other people in this situation?
If you’ve invested in Tujijenge via Kiva, just get out of financial services altogether, they are clearly not for you. If you invested via MyC4, write them a letter threatening to pull your money out, if enough people do so they’ll panic (bad publicity and loss of income are the only two ways to prompt action, remember). If you think that lending money at these interest rates to poor, vulnerable women in Africa is actually helping them, and by implication that the bulk of academic research is incorrect and that you are correct, then good luck in your fantasy world. And if you are simply despairing of the entire sector – join the club. But before you abandon microfinance altogether, write the threatening letter, complain to someone, blog about it, write to your local newspaper, do something, anything. If you just quit nothing will improve. Start shouting loudly, if enough people join you it might actually work.
Oikocredit are being very foolish here in my opinion – they have a reasonable reputation, and currently the Dutch microfinance sector is in turmoil, with politicians sniffing around, and Oxfam Novib/Triple Jump currently the laughing stock of the sector. This is a good moment for Oikocredit to be clean as a whistle, and possibly hoover up some additional funds coming their way if the Dutch government finally acknowledges that Oxfam Novib/Triple Jump are incompetent fund managers. But they look just as questionable now. Oikocredit should immediately withdraw from Tujijenge and apologize to its donors for a minor error and clearly explain the measures they are taking to prevent this from happening again. That’s called transparency.
And finally, the Dutch government should regulate this sector immediately and extend the investigation of mis-use of public funding to Oikocredit also.
Mohammed Yunus, whom I quote frequently, summarised it succinctly.
“I never imagined that one day microcredit would give rise to its own breed of loan sharks.”
You have to laugh a little here. The alternative is to cry. We have created such a ludicrous fascination with debt and capitalism and self-help and teach-a-man-to-fish nonsense that we have actually begun to believe our own spin. Kivans, MyC4 folk and entire investment funds remain absolutely convinced that literally hundreds of millions of poor people are wondering around in developing countries over the moon with joy that they can borrow money at 100% interest a year. The fact that the majority of these imbeciles (I refer to the investors, not the poor) moan about credit card rates of 20% a year, their mortgage at 5% a year, and think that the entire nation of Spain will collapse if it has to pay more than 7% per year is mere detail to these folk. And they have an astonishing ability to ignore the actual evidence in front of them.
Is this what Orwell called “Groupthink”? Or is it what I call “Stupidity”?