New Orleans  Secretary of State Hilary after her controversial, chaotic visit to China is stopping by India for 3 days on the way back to the United States.  For undisclosed reasons she is going to visit Kolkata on Monday and its new Chief Minister in West Bengal Didi Banjeree, who displaced the [...]]]>

Mamata 'Didi' Banerjee

New Orleans  Secretary of State Hilary after her controversial, chaotic visit to China is stopping by India for 3 days on the way back to the United States.  For undisclosed reasons she is going to visit Kolkata on Monday and its new Chief Minister in West Bengal Didi Banjeree, who displaced the Communist government after almost 30 years of successful elections and control of government.

Banjeree has a well known reputation as being pro-poor and populist though obviously her party was not affiliated with the CPM (Communist Party) in West Bengal.  She has been an ally of ACORN’s affiliate the India FDI Watch Campaign which has helped coordinate the opposition to opening India up to multi-brand retail without controls and protections.  FDI modifications in this sector, if allowed, would open the floodgates to Walmart, Carrefor, Metro, Tesco, and other huge multi-nationals and could adversely impact the 20,000,000 jobs held in this sector by hawkers, traders, and birani shops and others.  In the fights thus far Banjeree has stood with us.

Dharmendra Kumar, India FDI Watch Campaign director, alerted me to the Clinton visit because of widespread speculation that her real purpose is not to welcome a woman into power, which is one spin, or make an anti-Communist Cold War point, which is another spin, but to get involved in hard bargaining that Prime Minister Singh has been incapable of doing to muscle up on Banjeree to drop her opposition to the modification proposals.  The  business press has been full of such speculation:

Hillary may hardsell supermarket entry to Mamata

Please agree to FDI in retail, Hillary may tell Mamata

Frankly with concern that Walmart executives led by current CEO Michael T. Duke may have been involved in extensive bribery in India and China along the lines of the $24 million corruption scandal in Mexico, it would seem the last thing that a US-government official should be doing is carrying water for Walmart.  The fact that Hillary spent time in Arkansas and was a former member of the Board of Directors of Walmart should be even more reasons for her to keep Walmart’s mess far away from her mouth, and keep on the subject of welcoming another woman to power.  Hilary doesn’t need to be  helping Walmart take the livelihood for poor India workers anymore than blessing their efforts to grease palms around the world for their own purposes.

India FDI Watch in Action

New Orleans    Working with ACORN International, Melanie Craxton from the University of Edinburgh and I produced a hard [...]]]>

Mother holds one child which the other plays with a photograph of her debt-ridden husband Hari Prasad, who consumed fertilizer chemical to kill himself on Aug. 1, 2010, in the village of Kadiri near Bangalore, India

New Orleans    Working with ACORN International, Melanie Craxton from the University of Edinburgh and I produced a hard hitting report,  Mega Troubles for Microfinance, calling into question the claims that microfinance reduces poverty and the entire model of unsustainable practices, collection methods, and the resource bubble fueling their growth.   Sadly, a story written by the AP’s Ericka Kinitz largely focused on the Indian company SKS, formerly one of the largest players, once non-profit and now owned by investors, including Boston-based Sandstone Capital, now SKS’ s largest investor, and U.S. private equity firm Sequoia Capital eviscerates the industry once more.

Kinitz was able to obtain internal company documents, verify with outside investors, and conduct interviews with ex-employees and others familiar with the suicides and SKS.  She found:

An independent investigation commissioned by the company linked SKS employees to at least seven of the deaths. A second investigation commissioned by an industry umbrella group that probed the role of many microfinance companies did not draw conclusions but pointed to SKS involvement in two more cases that ended in suicide. Neither study has been made public.

Both reports said SKS employees had verbally harassed over-indebted borrowers, forced them to pawn valuable items, incited other borrowers to humiliate them and orchestrated sit-ins outside their homes to publicly shame them. In some cases, the SKS staff physically harassed defaulters, according to the report commissioned by the company. Only in death would the debts be forgiven.

The story is shocking even if not surprising.  The company continues to try and deny responsibility and even the existence of an internal investigation.  The families are now worse than destitute.  The uproar caused by various states banning such collection practices and Indian politicians in some cases calling for borrowers to cease payments seems more responsible than some of the strong arm tactics of SKS and other microlenders.

The AP piece is a long and painful read, but if you ever thought you were helping someone in the developing world by putting your own dollars in an MFI or thinking this might work, please read every word!

Father hold a picture of his 18 year old daughter who pressured until she handed over her last 150 rupees ($3) drank pesticide while leaving a suicide note reading: "Work hard and earn money. Do not take loans."

Paterno     Monday was a long day in the La Citta campaign office.  The organizing committee was trying to get as many planes in the air as possible, but it was not an easy task.  As a new organization there were the usual tensions of learning what to expect from each other [...]]]>

Picture in La Sicilia

Paterno     Monday was a long day in the La Citta campaign office.  The organizing committee was trying to get as many planes in the air as possible, but it was not an easy task.  As a new organization there were the usual tensions of learning what to expect from each other and missteps in different directions as both program and practice struggled to align.  Having listened hard all day and navigated my way (poorly!) through Italian, I was finally able to contribute a detailed 2-page checklist of tasks that needed to be done and decisions that needed to be made, but at 1030 pm, I punched out and headed for the crash pad, since I was little more than a bystander in the often heated discussion in the cold office.

It was a fun surprise to be greeted at the coffee bar by one of the committee with a copy of the popular La Sicilia, widely read in the southern parts of the island, which showed a picture of several of the committee and me sitting before the La Citta sign.  The article’s headline quoted Rathke as saying, “the people’s voice shall be heard.”  What a hoot!  I tried to read the article myself, and it seemed ok, but we’ll see what the committee thinks soon enough.  New Orleans got some press and one guy was quoted who always calls me the “American” because it is difficult for Italians to pronounce “Wade.”  There is no “w” in Italian.  It took me sometime to remember enough of my high school Latin that “vir” which means man in Latin for example was pronounced as if the “v” were a “w,” but there was no “w.”  My daughter, Dine’, and the Canadians who enjoy calling me “wadee” after the African pronunciations would be having a field day with the new twists on “wade” here in Sicily, but they’ll get no help from me!

Exciting to get an attachment from ACORN India’s Vinod Shetty of an article from the Indian edition of People Magazine naming our Dharavi Rock project a “people’s hero!”  The internet connections are terribly slow, but I could see an excellent picture of Vinod and read enough about our collaboration with Blue Frog to know this was a good one.  Enjoy the article at http://www.acorninternational.org/images/ACORNIndiainPeople/acornindia.pdf  I’m still trying to download it myself and read the rest!

Reading Leon Panetta, the USA CIA director’s accounts of the search for Bin Laden, I found it telling that one of the last steps before presenting [...]]]> New Orleans Like many I’ve read the Osama Bin Laden deathwatch and Seal 6 commando raid stories, word for word, and line by line.  I’ve found it fascinatingly educational.

Reading Leon Panetta, the USA CIA director’s accounts of the search for Bin Laden, I found it telling that one of the last steps before presenting to President Obama for final decision was his statement that when they thought they had the whole piece nailed several months ago they then “red teamed” it with outside experts.  The story in the Times presented this process as turning over all of the documents and analysis to “outside experts” to see if their assessment of the likely of Bin Laden’s presence in the hideout was the same and whether or not they agreed with the plan.

When I read that, I have to admit, I said to myself, “thank goodness!  Man, that’s smart!”  My reaction probably reflects a lack of confidence in the in-bred cultures of the American sky and military apparatus, and in truth, who knows if the “outside experts” weren’t just retreaded, portfolio consultants only one step removed from the CIA and military itself, but the process was right.  Testing internal information and decisions against an outside “reality” check that trumps the bureaucracy and identifies vulnerabilities is an invaluable management technique that may be resented internally, but is essential to good decision making.

The lingo of “red teams” comes from the military of course and field exercises where some soldiers and commanders become the red team in mock maneuvers to test military strategy and tactics.   When a red team “wins,” heads roll and ranks are stripped off the sleeves of the big brass at least in the movies, where we get most of our information these days.

If “red teaming” was an insight, the only chuckle I’ve found reading all of these stories is an article the other day on how it is possible to “hide in plain sight,” which was my son’s immediate insight and is frequently noted in the articles.  Some neighbors and kids in the area of the compound were interviewed by reporters and one told a story about a ball having gotten over the 12 foot high fence, undoubtedly in some rabid cricket match so common in the streets and vacant lots of India and Pakistan.  Trying to retrieve the ball, a guard at the house gave the kids 50 rupees (north of a dollar) to just buy a new ball.  The kids then regularly replayed this scam to raise money, and found it a surefire way to net the difference between 50 rupees and the ball.  In the story it indicated that Bin Laden’s folks always paid.   Such a common scam with such an unusual result in that area of the world, anyone who knew about that would have wondered what was really up in that joint!

Oh, and this guy is soooo dead, but I don’t want to even go there.  He’s been “dead man walking” for a decade.  I can’t believe that’s even news.

Delhi Last year’s stubbed toes in Delhi over India’s first shot at hosting the Commonwealth Games are still in the news in the wake of continued outrage at the national embarrassment caused by the widespread corruption that revealed shoddy construction and desultory preparations.  The headlines were full of charges and counter charges as [...]]]>

Delhi Last year’s stubbed toes in Delhi over India’s first shot at hosting the Commonwealth Games are still in the news in the wake of continued outrage at the national embarrassment caused by the widespread corruption that revealed shoddy construction and desultory preparations.  The headlines were full of charges and counter charges as the special report on accountability has been made public.  For the 45,000 families estimated to have been displaced by the Games, the memories are also still vivid and the experience still a daily grind.  With the ACORN Delhi organizing team, I visited the ITO community across from the now vacant athlete dormitory (waiting for condo sales!).

ACORN India with partners is operating a homeless tent across the highway from the dorms where up to 60 or more are staying nightly, still unable to find replacement housing.  This is one of 84 such homeless tents pitched about Delhi and provided by the Delhi Municipal Corporation.  Looking over the edge of the expressway from the front of the tent I could see recycling sorting going on all around complete with weighing areas and bundling, all crammed next to rows of bicycle rickshaws which are once again the livelihoods of many of these ACORN members.  Looking through a stack of membership applications and ACORN membership cards which also serve as Ids for many of these workers, the occupations were common:  rickshaw puller, domestic workers, hawkers, and waste pickers predominated.

Walking through the neighborhood nearby was a little like walking through a recycling center with walls, much like our work in Dharavi in Mumbai.  Doors were open that revealed ceiling high stacks of paper goods ready for recycling and then bundling.  On the streets young workers hardly in their teens used threadbare tarps to catch papers being pushed off of trucks and then readied for sorting, bailing, and weighing for the brokers.  In India there is no way to separate residence from livelihood for the poor, and every step through these crowed streets with life and work spewing out everywhere, reconfirmed that reality block by block.

Dharmendra Kumar, ACORN International’s Delhi director, explained to me that we had operated the tent here for four months and despite the fact that the DMC had only provided one month’s payment with three still owing for the work, we were trying to get them to agree to maintain the shelter for a full year or more, simply because it was so desperately needed.  I won’t be surprised to see it again in six months when I return, just like the empty Games housing that will still be hoping for sales, and the demands for accountability for the Games that will still in all likelihood be full of more contention than convictions.  The bitter residue of the Commonwealth Games still seems short on lessons learned even as the calendar more quickly turns.

Delhi      The Times of India and the Hindustan Times, among the largest papers in the world, were filled with incredulous and fawning stories on Sunday of a rarity in modern, big business India: a simple protest that ignited real change in the culture of political corruption. Most of [...]]]>

Delhi      The Times of India and the Hindustan Times, among the largest papers in the world, were filled with incredulous and fawning stories on Sunday of a rarity in modern, big business India: a simple protest that ignited real change in the culture of political corruption. Most of the stories centered on Kishan Baburao Hazare, variously described as a 71, 72, or 73 year old Gandhian leader, also known more popularly as Anna (essentially “uncle”) Hazare, whose “fast to the death” to force the drafting of a Lokpal Bill had won a governmental concession to create a joint committee including non-politicians to create a bill with a commitment from Prime Minister Singh to then have it introduced in the coming monsoon session of the Parliament.

This is really very important, so led me quickly translate for non-Indians what this really means and what is fueling the excitement of “Egyptian-style” change dominating the news and the talk of the town.

A Lokpal would be an independent ombudsman with the ability, if the bill is properly drafted and passed, to independently investigate and take action on corruption.

Winning an independent joint commission breaks the death grip that parliamentarians had had over any review or transparency for their own actions. Previous versions had essentially required politicians to write the bill and the same politicians to decide who and what business might ever be referred to a corruption monitor, essentially guaranteeing that such a post would have no power and no business.

Anna Hazare’s fast to the death, an old tactic suddently captured the imagination of the middle classes of India often portrayed correctly as indifferent to corruption and common practitioners of the steady diet of bribes at all levels and all direction that is a discordant note in the narrative of an emerging India. He did not create a movement but he did create a happening which led many sectors of civil society to rally around him and his fast to break the logjam in Delhi around corruption, drawing supporters from Bihar to Bollywood to the old warrior and his fast. The compromise was an advisory ruling, similar to what we would call an Attorney General’s opinion in the USA, which said that though it was unprecedented, there was no legal reason an independent body could not be appointed to draft the Lokpal Bill. The Prime Minister, seen to be personally honest, but teetering with the Congress Party around huge and embarrassing scandals with the mess of the Commonwealth Games fiasco last fall and the more recent billions lost in the piecing out of 2G telephone spectrum, quickly appointed folks from civil society including as co-chairman a legal gadfly in India who had headed the equivalent to the ACLU here and is described by the Times of India as a “William Kunstler” type lawyer, meaning an advocate of highly unpopular causes.

The celebration at the India Gate in Delhi across from the governmental buildings attracted more than 10,000 to witness the end of Hazare’s fast. Similar celebrations were reported throughout India. Is this Hazare’s 15 minutes of national fame or the start of something that could be a game changer in India?

That’s the project now. Perhaps Hazare and his dangerous fast-to-the-death simply caught lightening in a bottle with the right tactic for the right issue at the right time. The real question is whether or not a the protest can lead to more mobilizations and the happening to a genuine movement for reform. The poor are the real victims of corruption in India and if the emerging middle class stops turning a blind eye and deaf ear to the culture of corruption and allies with them, this could be the dawn of great social change in India.

It is almost hard to believe, but it is breathtaking to imagine!

Vikram Akula of SKS Microfinance

Microfinance has many positives, but should never be confused or misnamed as a “poverty reduction” strategy.   There is simply no way to reduce poverty through debt.  Microfinance or microcredit or micro-lending or whatever the name has a value for the poor as a way to access minimal credit [...]]]> New Orleans

Vikram Akula of SKS Microfinance

Microfinance has many positives, but should never be confused or misnamed as a “poverty reduction” strategy.   There is simply no way to reduce poverty through debt.  Microfinance or microcredit or micro-lending or whatever the name has a value for the poor as a way to access minimal credit to create or improve livelihoods, but such livelihoods, usually in the informal sector are marginal and fraught with the same risks common to all informal work and small business for that matter.  ACORN International’s experience around the world is also very clear that there should never be any confusion about whether or not many of these loans are charitable because in fact they are often simply predatory.

I say all of this to put in some context a confusing article in today’s Times entitled “Microcredit is Imperiled in India by Defaults” by Lydia Polgreen and Vikas Bajaj.  The handwringing in the article painted the problem as a “subprime” crises because 80% of the money being lent in India comes from the state banks and in Andhra Pradesh the article says, “…almost all borrowers have stopped repaying their loans, egged on by politicians who accuse the industry of earning outsize profits on the backs of the poor.”

Indian politicians have deservedly earned a lot of skepticism and abuse for their probity and fairness, but in this case there’s a lot more to the story, and the politicians are right about this, as even some of the industry officials partially concede.

Here’s the real story in India in a nutshell.   The microfinance industry is no longer your older brother’s microfinance industry of even a decade ago with small non-profits and NGO’s and do-gooders.

Fueled by private bank money, many private finance operations have swooped into this lucrative market for lending to poor families and poor workers.  Microfinance is a major player in South Asia in India and Bangladesh particularly.   Andhra Pradesh is leading the accountability parade because the penetration of microfinance in the lending market in that state now accounts for about 12.5% of the loans outstanding.  Karnataka, where Bangalore is located is next with over 9%, Tamil Nadu, where Chennai (Madras) is the largest city has almost 5%, as does West Bengal, home of Kolkata (Calcutta).

This is big, big business and this was never clearer than when SKS Microfinance,  which had operated a double-breasted private and NGO operation in microfinance, when public with an IPO, raised over $300 million USD, and saw its director and boss walk away with $13 millions USD and more.  As you might imagine this has been raging wild, huge news in India, coupled with one SKS misstep after another when shortly after the IPO, the founder kicked out the CEO and in mid-October a borrower committed suicide because of the pressure of the loan in Andhra Pradesh where SKS is a major microfinance player.

Politicians in AP have been calling for a cap on usurious interest rates involved in microfinance.  The state government had earlier asked the Reserve Bank of India (RBI) to cap interests, which on defaults scales up to 35%.  The proposal from AP to the RBI has been to cap rates on microfinance at 24%, which is still predatory, but an improvement on the current predatory rates in practice.  The RBI has refused to act as have the courts, claiming it was a state matter, and therefore pushing the ball back to Andhra Pradesh and in the lap of the local politicians, who have no taken up the cause.

It is important to understand that whether the lender is a big time microfinance outfit or an established brand like Citicorp, the pressure felt by the borrower is not simply a matter of sleepless night, but in fact can be broken bones and constant threats from the thugs employed by such banks to collect the debts.  This is frowned on in India, but allowed, and the press is constantly full of stories of injuries, deaths, suicides and mayhem caused by brutal collection techniques.  (Over the years I regularly sent copies of press clippings naming out Citibank from Bangalore for deaths resulting to brutal collection efforts, but there was no real response from New York – this has all been a scandal waiting to happen!)   The politicians of Andhra Pradesh are also calling for regulation of the collection practices, and who would not support their call, which to date has fallen on deaf ears from financial institutions of all sizes.

The Times does quote an industry executive, Vijay Mahajan, who “acknowledged that many lenders grew too fast and lent too aggressively.  Investments by private equity firms and the prospect of a stock market listing drove firms to increase lending as fast as they could,  he said.  ‘In their quest to grow they kept piling on more loans in the same geographies.’  He added, ‘That led to more indebtedness, and in some cases led to suicides.’”

North Americans and Europeans need to be careful about getting all starry eyed and gooey about microfinance.   This is another story of a predatory attack on citizen wealth motivated solely by greed.  Period.

An official of the well regarded SEWA is quoted in the piece as saying, “…the poor needed more than loans to be successful entrepreneurs.  They need business and financial advice as well….”  They need a lot more than that including justice which would provide them with fair and reasonable interest rates rather than the current predatory and usurious rates that dominate the industry not only in India but throughout the world, and they should be able to expect to live safely and out of harm as they attempt to repay these loans that are in some cases literally forced upon them.

The story of microfinance isn’t pretty, but it’s time for all of the truth to come out, and for politicians not only in Andhra Pradesh, but in all countries where such institutions are now playing a role, to demand and require accountability and protection for the poor.