Does Hillary Clinton Have a Real Plan for Income Inequality?

Victims of MFIs display their daily payment cards in Visakhapatnam, Andhra Pradesh. The Reserve Bank of India has appointed a sub-committee to look at governance issues. Photo: The Hindu/C.V. Subrahmanyam

Victims of MFIs display their daily payment cards in Visakhapatnam, Andhra Pradesh.  Photo: The Hindu/C.V. Subrahmanyam

Halifax    It’s time to start getting serious now that reality is sinking in and giving us a better look at a possible political future. There’s woe and rage about wage stagnation, the few future prospects of family-supporting jobs, deindustrialization, and millions stuck in grinding poverty while others have been allowed stupendous riches, and while fingers are pointing wildly, if Hillary Clinton is going to be the standard bearer for hope on any of these fronts, does she have a plan? Do we have any hope?

President Obama floated an interesting notion of wage insurance that would provide a cushion for a couple of years by making up a large part of the difference between a former job at higher pay and a new job at whatever was available in order to allow workers a transition and the ability to try to stay on their feet. This is not a guaranteed annual income proposal, which is what we need, but a shot in the right direction, even though it has no current or likely chance of passage. So far Hillary Clinton has danced around the $15 per hour minimum wage fight, arguing that, yes, a raise is needed, but, geez, not that much. She has also concretely argued for an increase in the earned income tax credit, but once again, you have to actually have a low-wage job for EITC to give a worker and her family much of a break. Once again, this doesn’t alleviate poverty.

For all of Clinton’s talk about women and children both domestically and in her recent past as Secretary of State and via the Clinton Foundation, it is still hard for me to believe she has been uncoupled from President Bill Clinton’s bargains with the devils on “ending welfare as we know it” that has put a hammerlock around the necks of many of America’s poorest families, while opening the door on tax breaks that have created an entire new class of the mega-rich. Her constant drumbeating for micro-lending and microfinance in her career is also very disconcerting, since at best microfinance is a job-buying subsistence program, not a poverty reduction scheme. Increasing debt is a guarantee for most families of an accelerated poverty trap, not an escape hatch. The support of microfinance institutions is widely understood now as simply smoothing the path for new markets under the existing financial models, not narrowing the inequality gap.

Thomas Frank in a devastating critique writing in Harper’s recently labeled much of Clinton’s work both in and out of government in the poverty reduction fight as largely a “virtue quest” rather than a serious fight against inequality or a struggle to break ground with workable policy prescriptions. He correctly pulls down the false flag of microfinance, but also gets too close to comfort on what may be the real problem of Clinton’s coziness with elites which is an embrace of what Michael Lewis years ago called “access capitalism.” Access capitalism is a world of head-nodding approval from policy makers, celebrities, philanthropists, foundations, corporate heads, former government officials, and others, which secures the common consensus, through its special access to the cronyism that both provides the infrastructure and the launching pad for “professional liberals” and same-old-story-business-as-usual capitalism and its implicit acceptance of intractable poverty and dream shattering inequality.

If that’s where she has been living, what does it take for Bernie Sanders, young activists, and the progressive forces to push her towards real programs, both domestically and internationally, before the dumbing down of the campaign and the inevitable compromises of government pull us farther away from winning change?

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Studies Find Microfinance Does Not Reduce Poverty, Assets Do

Mega-MicrofinanceHamburg  Several years ago ACORN International did a research report that seemed heresy to many, but started from the simple proposition that since microfinance is debt, debt does not reduce poverty, therefore the value of microfinance was the same as buying a job through an employment agency: work at a steep price. For many the myth of microfinance will endure and millions of dollars will continue to support what are essentially public and philanthropic investments in banking startups, not for the poor, but for the managers of the debt fueled lending agencies themselves, many of which start as nonprofits and if able to prove out their finances at high interest, convert to for-profits.

Standing out on the ledge of prevailing economic development opinion, I took note of an article in the October 2015 Scientific American that looked at the work of a Yale University based nonprofit called Innovations for Poverty Action and its founder Dean Karlan, an economics professor there. He had become suspicious of microloans while working in South Africa decades ago and seeing people constantly returning to renew loans and understanding that it didn’t add up to getting out of poverty, but instead was little more than a debt treadmill.

At some length he says:

“Over the years microloans kept nagging at my colleagues and me. Fifteen years after my first study attempt in South Africa, we now have seven randomized trials completed on traditional microloans and one on consumer lending back in South Africa…These studies found some benefits of microloans, such as helping families weather hard times, pay off goods over time and make small investments in businesses. But there was no average impact on the main financial well-being indicators – income and household and food expenditures.”

In short maybe the loans didn’t hurt them, but neither did they help them, at least enough to get out of poverty. Furthermore, Karlan noted that these microloan programs were not reaching the poorest of the poor or what they term “ultra-poor,” people living on the purchasing power of $1.25 per day.

Not to just be a Debbie Downer, IPA’s experience argues for providing the poor with a “productive asset” to make a living, giving them training on asset utilization, providing them a direct stipend for daily living or what we used to call in welfare rights – More Money Now!, giving them health support and savings tools, and regular coaching like CEOs get.

It would cost money, but at least it would be money well spent, because monitoring has already established that health and hunger were greatly improved and the very poor were making real progress in areas as diverse as Ethiopia, Ghana, India, Pakistan, and Peru.

Sounds like that could be a way to go if we were really trying to get somewhere.

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Microfinance Company’s Own Investigation Proves SKS Provoked Suicides

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."

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Finding Friends on Microfinance, but Western Union Not so Much

Phoenix 3462_WesternUnioncampaignimage Winning any kind of global financial justice for low-and-moderate income families is admittedly a slog, but misery loves company, and I cannot resist keeping you in the loop as ACORN International pushes forward on these campaigns.

Good news first.  Our report, “Mega Troubles for Microfinance” www.acorninternational.org, picked up some friends in high places, which felt very nice, though we will have to see if it develops into real progress.  A letter from the Swiss international development agency indicated that they were in agreement with us that microfinance does not reduce poverty, and in line with our recommendations they had already scaled back involvement.  They were still hopeful about microcredit, though we are not sure what that really means other than saying that the poor should save, which is not exactly a development program.  Similarly when we issued our report the head of the United Kingdom parliamentary committee which has oversight over development joined in our argument heartily and indicated that they will take the report up more seriously now that the summer is past.  All very encouraging since we feared that we might burn at the stake for heresy!

On the other hand there is Western Union.  A long, as these things go, direct conference call between leaders of ACORN International and ACORN Canada with representatives from the Loveland, Colorado based king of remittances was difficult and indecisive.  Western Union conceded that there fees were not the 5 to 6% they claimed in their correspondence, but tried to argue that they were transparent nonetheless even though perhaps not fully.  If you can follow that sentence, you must have been behind the looking glass with us.  Their primary argument continued to rest in a defense of competition, which essentially is to say that they charge what the market will bear, until the market changes, and in response to ACORN International’s three reports on these questions tried to argue that there were 16,000 remittance channels so our dozen countries might just be out of luck.  We have pleaded with them for a direct face-to-face meeting in hopes of making real progress, and they agreed to consider it, but promised nothing.

Meanwhile we are pursuing meetings of the major countries who are soon looking at development issues to see if there might be a way to push ahead on financial justice for the global poor at those forums.  Optimism is boundless, but reality continues to intrude.

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Mega Troubles for Microfinance

microfinanceBuenos Aires
Today ACORN International released a shocking report, Mega
Troubles for Microfinance (www.acorninternational.org), as the result of months and years of
first skepticism and now study of the claims and contradictions of the industry. In a letter to
policy makers, politicians, and development agencies throughout the world, signed by ACORN
International President Kay Bisnah from Toronto and myself, we called for action on the three
main recommendations of the report:

  • We demanded that there be no further public monies expended to support microfinance
    or microcredit agencies around the world, and any donor commitments that have been
    made and not yet fully fulfilled, should immediately be abandoned. Microfinance and
    microcredit are conclusively not a poverty reduction strategy, but a best a “job buying”
    program masking as a poverty alleviator.
  • We demanded that interest rates on microcredit loans be capped, since our report found
    that poor borrowers are currently being assessed predatory interest rates, sometimes
    exceeding 100% of the loan. Credit and debt are not poverty reduction strategies,
    especially at usurious rates for unsustainable financial institutions.
  • We demanded that national banks and international bodies move to establish a regulatory
    regime immediately to stop these abuses in the huge microfinance industry.

Our interest was piqued in microfinance for two reasons. First, the ACORN International
federated countries in India, Africa, and Latin America contain over one-third of the microcredit
borrowers worldwide. Secondly, the similarities in the abuses of microfinance were disturbingly
reminiscent of the same issues that are at the core of our Remittance Justice Campaign –
predatory pricing and no regulation!

Microcredit and microfinance have been sacred cows, but as more and more evidence is
marshaled proving that these are investments in pilot programs for private financial institutions
rather than tools for poverty reduction, it is abundantly clear that precious development dollars
for the poor need to be spent on proven remedies not private enterprise stalking horses. Forty
years of running this train ought to be enough for us all to admit that the whistle has blown and it
is time to try another track.

ACORN International is clear that the solution likes more in the direction of building
community power for change rather than trying to pretend that debt is somehow something
other than debt. Governments don’t have the money to waste in international development,
and the poor cannot survive more wolves masked in sheep’s clothing, which has become the microfinance story as Mega Troubles for Microfinance documents.

We are demanding action now!

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Super Volunteers with a Super Idea for Micro-Finance Borrowers – Help!

New Orleans ACORN International is hard at work right now on pulling together all of the pieces and pressure on our Remittance Justice Campaign (www.remittancejustice.org) as we try to tighten the screws on banks and money transfer organizations, but we are keeping our eyes open on our next campaign around microfinance.  Melanie Craxton, a student at the University of Edinburgh, is coming to help, and in her ball-of-fire manner has already begun to take the germs of our ideas and see what new branches might develop.

I woke to a note from Scotland which quoted a friend of hers, Ross, who is a student in Western Ontario, whom she had already recruited to help on the math.  You see we want to really, really figure out what actual interest rates are charged by microfinance institutions around the world, particularly where our members work.  I know just enough to be dangerous so may have blurted something to Melanie about wondering if there was an algorithm we could figure out that might be helpful, basically talking out of my rear end in all likelihood.  She, being a brilliant threat in the open field no matter what play is called, has obviously been all over this.

Melanie talking to Ross not only have started thinking about how we can do the analysis on microfinance, but how we might be able to figure out, yes, an algorithm (!), that would help our poor borrowers figure out the real deal on who was charging what and whether or not it was worth it to them, and make it (are you still with me?) a mobile phone “app!”  But, let’s go right to Ross here:

“You mentioned an algorithm, which made me think what if you could

turn your findings into something that could actually be used by MFI

borrowers. Perhaps a bit of a stretch, but I was thinking a mobile

app. Something that lists every MFI in a country and allows the

borrower to compare interest rates, international reviews, ratings

from other borrowers etc. Basically the idea would be to empower the

consumer with more information. The challenge would be language and

sophistication, it would need to be easy to use, and convey

information in a extremely simple way.

Starting by creating a program/algorithm that makes it easier for the

international community to evaluate how much MFIs actually charge

seems logical but I think turning it into something that can be used

on the borrower end is really an exciting possibility. MF Transparency

has a few tools that allow for comparison of rates across MFIs, might

want to build on that somehow. ”

You know what?  These are fantastic ideas.  Anyone know anyone out there with some real math skills who would be willing to lend some time and sweat equity to my bungling and our volunteers brilliance and creativity and actually turn this into reality and a tool that we could distribute around the world?!?

Help!!

And, ps., if anyone else has some fantastic ideas that would benefit our lower income and working members around the world, get it to us as well.  Rain follows the plow, you know.  If we have the ideas, we can make stuff happen.

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