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Microfinance: is it the answer?
Microfinance holds a lot of potential and it is easy to get lost in the brouhaha of it. It is not an end all and it will not end poverty but it has the promise of being the catalyst of bringing empowerment into the hands of the poor. Low Hansiong.
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Low Hansiong / New York, United States
In the vein of my last article on public service, I would like to expand on one method of actually bringing about poverty reduction. Microcredit has been around for the past 10 to 15 years. it was first formally pioneered by the Grameen Bank (based in Bangladesh: whose founder received a Nobel peace prize for his work).
As the name suggests, microcredit, in a nutshell, revolves around lending money to the poor. Unlike the situation in Singapore, where you could not escape the chance of obtaining credit even if you don’t want to, the poor (defined by people living under $2 a day) can never dream of being able to take a loan. It boggles the mind that a simple $100 loan could go such a long way in changing a household’s future for the better.
Financial Services for the Underprivileged
Traditionally, the poor can only access capital through moneylenders (colloquially known as ‘ah long’) or informal savings club i.e. ROSCAs (Rotating Savings and Credit Association) for financial transactions. The poor are ostracized by the banks because they were deemed high risk and have no collateral to back the loan, this is where the ‘ah longs’ and ROSCAs come in; they provide this niche that is essential to the daily financial balances of the poor.
So what banks like Grameen, BRAC and Bancosol are trying to do is to provide these services in a more efficient manner. Contrary to rational intuition, they are not around to drive the ‘ah longs’ out of business but they provide the poor with more access to capital. However, they also differ greatly from traditional ‘for-profit’ banks, which rely heavily on credit scores, collaterals and bank branches to adequately adjudge the potential borrower. Instead, these banks bring the ‘banking’ to the people and one of the most importantly innovation was the concept of group (joint) liability.
Without taking collaterals, Grameen initially had this condition: borrowers have to sort themselves into groups of 5. “Loans go first to two members, then to another two, and then to the fifth group member. As long as loans are being repaid, the cycle of lending continues. But, if one member defaults and fellow group members do not pay off the debt, all in the group are denied subsequent loans.”1 (For a more in-depth explanation please read the textbooks referenced)
A Walk Down Memory Lane
Ok, the question is what has this got to do with Singapore? Well, you will be surprised. As early as the colonial days, ROSCAs were widely used in Singapore but it is just that most people do not know that they are in one. ROSCAs works by a group of people forming a savings club, a group of 10 (any number) will pledge an agreed amount ($100) each week. So one person will receive $1000 in the first week and proceed to ‘contribute’ $100 every week and each member of the group takes turn to receive the thousand dollars every week until the end of ten weeks and the rotating cycle begins again. You might recall examples of ROSCA in action on Channel 8’s period dramas on colonial Singapore.
A very similar arrangement would be the many wedding dinners we all go to. We complain about spending $100 dollars every time we attend one. However, assuming everyone gets married, this money spent is like money ‘saved’ because you will get the pool back when it is finally your turn, just that you are not quite sure of when your turn will come. Of course it is not an exact science in this example but it will do.
Getting involved in Microfinance
Although Singaporeans do not have a great need for microcredit, it does not mean that we cannot get involved. With repayment rates from loans to the poor being over 95% (Grameen Bank), it is showing promise of becoming one of the more reliable forms of financial intermediation. Do not mix these loans with the sub-prime mess that we are seeing now. Microcredit loans are usually less than $200 and are mainly given to mothers who have a genuine need for capital to build a better future for her kids. Though not 100% safe, it is a far cry from the reckless lending in the United States.
Hence, what we can do is to help raise capital for microfinancial institutions by venturing into the securitization of these loans. If the securities are packaged correctly and with enough information, Singapore can be part of the next wave in economic development. We are situated right in the middle of it all. Vietnam Bank for Social Policy (VBSP), Indonesia’s BRI (Bank Rakyat Indonesia), Cambodia’s Acleda Bank and Philippines’ PinoyME, among others, are extremely active in this field and with a little push; microcredit can go mainstream and bring more private capital to poor (the writer realizes that bringing in private capital changes the landscape of the field and therefore must be assiduously managed).
Another financial product that might work in Singapore could be a form of long term micro-savings account. Singaporeans have many channels to financial intermediation, services are wide and varied, however amidst these products the long term savings account is perhaps at once lacking in breath and too complex when available. Consider if a household wants to save long term with consistent contributions to the account. The only products I can think of are the trust funds and investment linked insurance. These products are usually too complicated to understand and too volatile for the average household.
The new product should be simple: a guarantee fixed return over ten years, with the household committing to contribute a fixed amount every month for the next ten years. It sounds a lot like the CPF but the main difference is that the account is flexible. Early withdrawal and renewal of contract must be made available.
An example could be as such: The Tan family wants to save $100 per month over ten years. This account will guarantee a fixed rate of, say, 5% per annum simple interest with no ATM facilities and no checking option. All you get will be a statement that updates your balance. The account will not be permitted to be withdrawn in those ten years, although it can be done in extenuating circumstances and there is no minimum starting amount. This sounds like a really simple product and readers must be thinking that ‘surely such products exist’, but a search on the internet finds that such a product do not exist and even when it does, it is laden with conditions.
What the account will do, more than anything, is provide households a commitment mechanism and allow household to better plan for the future in an easy package and eventually use that money for their children’s education and more.
The Future
There is a reason why I used microfinance and microcredit at different junctures of the article. Think of microcredit as the walkman and microfinance as discman, microfinance takes credit and adds micro-savings and micro-insurance into the industry. It acknowledges that despite the poor, well, being poor, there is a great demand for reliable and convenient savings accounts. With proper access to saving mechanisms, the poor can save themselves out of poverty.
Microfinance holds a lot of potential and it is easy to get lost in the brouhaha of it. It is not an end all and it will not end poverty but it has the promise of being the catalyst of bringing empowerment into the hands of the poor.
Note
1Beatriz Armendarz and Jonathan Morduch “The Economics of Microfinance”, MIT Press, 2005, Pg. 13
Reference
Beatriz Armendarz and Jonathan Morduch, “The Economics of Microfinance”, MIT Press, 2005
Debraj Ray, “Development Economics”, Princeton University Press, 1998
——
Read also:
Home Affairs Ministry to consider borrowing from loansharks an offence (Channelnewsasia)
Loanshark cases up (Straits Times)
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Indonesia
Miss Universe cuts ties with Indonesia chapter after harassment allegations
The Miss Universe Organization severs ties with Indonesia franchise due to harassment claims. Malaysia edition canceled.
Women allege body checks before pageant. Investigation launched. Safety prioritized.
Indonesia winner to compete in November finale. Height requirement controversy.
WASHINGTON, UNITED STATES — The Miss Universe Organization has cut ties with its Indonesia franchise, it announced days after allegations of sexual harassment, and will cancel an upcoming Malaysia edition.
In the complaint, more than a half dozen women said all 30 finalists for Miss Universe Indonesia were unexpectedly asked to strip for a supposed body check for scars and cellulite two days before the pageant’s crowning ceremony in Jakarta.
Their lawyer said Tuesday that five of the women had their pictures taken.
“In light of what we have learned took place at Miss Universe Indonesia, it has become clear that this franchise has not lived up to our brand standards, ethics, or expectations,” the US-based Miss Universe Organization posted Saturday night on social media site X, formerly known as Twitter.
It said that it had “decided to terminate the relationship with its current franchise in Indonesia, PT Capella Swastika Karya, and its National Director, Poppy Capella.”
It thanked the contestants for their bravery in coming forward and added that “providing a safe place for women” was the organization’s priority.
Jakarta police spokesman Trunoyudo Wisnu Andiko said Tuesday that an investigation into the women’s complaint has been launched.
The Indonesia franchise also holds the license for Miss Universe Malaysia, where there will no longer be a competition this year, according to the New York-based parent organizer.
In a lengthy statement posted to Instagram, Indonesia franchise director Capella denied involvement in any body checks.
“I, as the National Director and as the owner of the Miss Universe Indonesia license, was not involved at all and have never known, ordered, requested or allowed anyone who played a role and participated in the process of organizing Miss Universe Indonesia 2023 to commit violence or sexual harassment through body checking,” she wrote.
She added that she is against “any form of violence or sexual harassment.”
The Jakarta competition was held from 29 July to 3 August to choose Indonesia’s representative to the 2023 Miss Universe contest, and was won by Fabienne Nicole Groeneveld.
Miss Universe said it would make arrangements for her to compete in the finale, scheduled for November in El Salvador.
This year’s Indonesia pageant also came under fire for announcing a “significant change in this (year’s) competition guidelines” with the elimination of its minimum height requirement after it had crowned a winner.
In its statement, the Miss Universe Organization said it wanted to “make it extremely clear that there are no measurements such as height, weight, or body dimensions required to join a Miss Universe pageant worldwide.”
— AFP
Malaysia
A Perodua service centre in Kuantan, Malaysia went viral for its strict dress code, Perodua responds
A dress code for vehicle servicing? A Malaysian car brand’s service centre dress code signage has puzzled netizens, raising queries about the need for attire rules during a routine service.
The manufacturer responded with an official statement after a flurry of comments, seeking to clarify and apologize.
MALAYSIA: A dress code signage positioned at a service centre belonging to a prominent Malaysian car brand has sparked bewilderment among Malaysian netizens, who question the necessity of adhering to attire guidelines for a simple vehicle servicing.
The signage explicitly delineates clothing items that are deemed unsuitable, including sleeveless tops, short skirts, abbreviated pants, and distressed jeans.
The car manufacturer swiftly found itself flooded with comments from both inquisitive and irked Malaysian netizens. This surge in online activity prompted the company to issue an official statement aimed at clarifying the situation and extending an apology.
In a post that gained significant traction on the social media platform, politician Quek Tai Seong of Pahang State, Malaysia, shared an image to Facebook on Monday (7 Aug).
The image showcased a dress code sign prominently displayed at a Perodua Service Centre in Kuantan. Within the post, Quek posed the question: “Is this dress code applicable nationwide, or is it specific to this branch?”
The signage reads, “All customers dealing with Perodua Service Kuantan 1, Semambu, are requested to dress modestly and appropriately.”
Adding visual clarity to these guidelines, the sign features illustrative graphics that explicitly outline clothing items deemed unacceptable, including sleeveless tops, short skirts, short pants, and ripped jeans.
Delineating the specifics of the dress code, the signage stipulates that male visitors are expected to don shirts accompanied by neckties, opt for long pants, and wear closed shoes.
Conversely, female visitors are advised to don long-sleeved shirts, full-length skirts, and closed-toe footwear.
Perodua’s dress code sparks online uproar
Following the rapid spread of the post, Perodua’s official Facebook page found itself inundated with comments from both intrigued and frustrated Malaysian netizens, all seeking clarifications about the newly surfaced dress code policy.
Amidst the flurry of comments, numerous incensed netizens posed pointed questions such as, “What is the rationale behind the introduction of such regulations by the management? We demand an explanation.”
Another netizen expressed their dissatisfaction, arguing against the necessity of the rule and urging Perodua to take inspiration from the practices of other 4S (Sales, Service, Spare Parts, and Survey) automotive dealerships.
A concerned Facebook user chimed in, advocating for a more lenient stance, asserting that attempting to dictate customers’ clothing choices might not be in the company’s best interest.
Someone also commented in an angry tone, “Oi what is this? Going there for car service, not interview or working, right.”
As the discourse unfolded, it became evident that while some inquiries carried genuine weight, others chose to inject humor into the situation, playfully remarking, “If I wanted to buy a Myvi, I should buy or rent a formal attire first.”
“I sell economy rice at a hawker centre, I have never worn a long sleeve shirt and a tie… I guess I will not buy a Perodua car then.”
“I guess they will not serve those who wear short pants.”
Perodua addresses dress code controversy
As reported by Chinese media outlet Sin Chew Daily News, the manager of Kuantan’s Perodua Service Centre had acknowledged that the images on the dress code signage were misleading.
In response, the manager divulged that discussions had transpired with the head office, leading to the prompt removal of the signage to prevent any further misconceptions.
The manager clarifies, “We do encourage visitors to adhere to the dress etiquette, but we won’t go to the extent of restricting their choice of attire.”
He also revealed that currently, no complaints have been directly received from the public.
However, feedback from certain customers was relayed through Perodua’s agents.
Perodua also released an official statement by chief operating officer JK Rozman Jaffar on Wednesday (9 Aug) regarding the dress code on their official Facebook page.
The statement stated the dress code etiquette is not aligned with their official guidelines and they are currently conducting an official investigation on the matter followed by corrective measures to avoid the same incident from happening.
Perodua also extends its apologies for any inconvenience caused.
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