British Bank Barclays will be removing 1700 jobs from their branch network. These include personal bankers, cashiers, operational specialists, assistants and branch managers. See http://tiny.cc/xkj36w
. The major reason is that mobile payment technologies are no longer requiring such personal interactions as consumers reduce their transaction costs of commuting to banks and waiting in queues.
The growth of the mobile payment industry has been talked about for quite some time. Although the impact on developed economies may be new http://tiny.cc/wej36w
, we know that mobile payments are making a major impact on transaction costs in developing countries where distances travelled for making remittances can be huge and unsafe.
The impact of this news is certainly known to bankers. However, educational institutes would do well to start preparing for a change in the nature of jobs that bank managers will be required to undertake. There is probably a greater need for accountants reconciling millions of tiny payments and less for operational managers. Evidently, software for bank reconciliations will find a growing use.
Creative destruction à la Schumpeter is certainly good news for those who believe in capitalism. Certainly, new kinds of jobs will be created in developing, maintaining, and perhaps even hacking competitor payment sites. Jobs in website security are therefore another new area of developement. However, the changeover from one kind of technology to another may have a time lag as far as unemployment is concerned. The soon to be unemployed bankers would need training and education. But to do what?
In today's world, it is easy to keep a watch on jobs which are threatened. It is far more difficult to predict and prepare for new opportunities which will reflect tomorrow's needs.
The Rochdale Society, one of the earliest experiments in cooperatives in the 1840s, fawned many cooperatives either directly or indirectly. In the last few decades, we have been watching the merger of many of these cooperatives in Britain. A reading of these mergers reminds one of the external acquisitions for growth necessary for the continuing survival of worldcom and other catastrophes. There is no reason why cooperatives cannot be badly managed, and it is evident that they can easily grow astray. Bigger players may wreck greater havoc.
Is big bad? The Cooperative Group Limited in Britain has sales and other income of over £ 12 billion to over 7 million members. Its businesses include food, travel, banking, funerals and many other businesses. It has a profit of £ 180 million pounds, just 1.5% margin on sales. This is about 27 pounds per member.
The businesses of the cooperatives includes banking. Cooperative banking laid the foundations of the microfinance movement. While customer satisfaction with cooperative banks seems to be high, the rating agencies have been downgrading the Cooperative Group's bank because of inadequate capital. This comes from having absorbed an over-leveraged cooperative bank a few years ago. A lack of due diligence means one bad apple can spoil the barrel. Mergers and acquisitions often lead to poor returns, and they often hide the fact that one, perhaps both the firms, need to merge to hide past failures, including the failure to generate internal growth, a mantra which justifies high salaries.
The CEO of the Cooperative Group Limited may earn over a million pounds a year, while other top executives earn closer to £360,000 per year. Certainly, managing large cooperatives pays as well as managing large businesses of any kind. The competition to get these jobs and the kind of people they attract may also be similar to those running any other kind of company. Undoubtedly, these top executives are the political organs reflecting cooperative beliefs. If they are earning 28 times the minimum wage which is paid to many of the 100,000 employees, they must be believing more! The table below shows the calculations and assumption.
The Cooperative Group Limited is also linked to the Cooperative Party, one of the largest supporters of the Labour Party. Business and politics are closely intertwined. Big players in business can have a lot of influence on how we shape our society. Their beliefs and image are therefore crucial to the belief in cooperation.
The recent scandal of a top executive of the Cooperative Group buying crack is similar to the Mayor of Toronto buying crack. Therefore, at the least we can say that top executives and politicians are as human as anyone else. Should they therefore earn thirty to seventy times the minimum wage? Or should there be a ceiling to reflect that they are imposing risks, which greater potential downsides than those of people earning less because the image of the co-operator is at stake.
By Najmul Hoda
Faculty - College of Business Management, Ummal Qura University, Makkah, KSA
NH: I read your article titled "Financing French Cooperatives (CAE, SCOP, SCIC) to overcome loss aversion
". It was enriching in terms of the scope of cooperatives. I have some queries pertaining to the issue of entrepreneurship and cooperatives. The phrases/sentences in blue have been quoted from the article.
NH: "Another part has been related to the need for offsetting loss aversion for entrepreneurs
" Is it really the loss for entrepreneurs or the provider of capital? In case of the interest free cooperative experiment, the real challenge was to safeguard at least the principal amount of the saving members. The entrepreneurs are new to business and stand high chances of business failure. Don't you think the real need for offsetting loss aversion is for capital provider which can be done by making the (micro) entrepreneur more accountable and skilled.
AA: This is an excellent question.
Certainly, governance of entrepreneurs is necessary to protect the other investors. But this is true for all forms of enterprise.
The question is why there is so little entrepreneurship? Is is just lack of governance?
In France, there is much less entrepreneurship than UK, Italy or Spain.
Why so? And since it is entrepreneurs who lead to job creation (if they are successful), how can we increase entreprneurship?
So, what the CAE cooperative does is that the "skill providing function" along with other shared services are provided by some common structure (a few people) to all the member entrepreneurs.
So, this value increase is being done in this way.
The increased accountability is present in the SCIC form of CAE because in addition to salaried employees, the governance structure also requires at least two more stakeholders (out of users, local bodies, volunteers, others having a financial interest).
NH: cooperatives often have to keep large reserves before they can provide any dividend.
Is the rule same in India? Are there any prescribed rules for the use of these reserves (in France)?
AA: This is another thoughtful question. Actually the answer is not all that black and white. First, even before any laws came in place, cooperatives in France had a rule that the reserves were not sharable. What does this mean? In for-profit companies, the reserves belong to existing shareholders, and so it is incorporated in the share price of a public company or in the book value if the shareholder is allowed to leave a private company). But in a cooperative, the reserves belong to present and future generations. So the person can sell his share only at par value, often sell back to the cooperative. Now, this customary rule is reinforced in the case of SCOP where it is indicated that at least 16% of the surplus has to be kept in reserves. In the case of SCIC, 15% has to be kept in legal reserves till the reserves are equal to share capital. Of the remaining profits, 50% have to be kept in a statutory reserve and only the balance 50% can be distributed to the members.
I hope someone will provide the relevant answers for India.
NH: some not-for-profits may also provide some capital:
Can these also be interest free deposits/investments? In cooperatives, we may pool in members who can offer large deposits without seeking interest. There may be two cases - one needs just his principal back and the other would be interested in some surplus that accrues out of the profit shared with the micro-entrepreneurs.
AA: I don't know if this answers your question, but let me try. Micro-angels or Impact investors or social investors are people who are investing in order to facilitate creation of services. Often, they would like to get their capital back, perhaps a little more to cover costs of inflation. This may explain why there is a stakeholder category called "others having a financial interest". I myself have joined a micro-angel investor club (CIGALES) and we are considering placing our money for five years in a SCIC.
For example, a SCIC may have already been promised 20% of its share capital need by the local bodies, but still needs to find the other 80%. Undoubtedly founders and the initial employee as well as other such cooperatives in the founder's network would provide some capital , and some business partners too may join in. But this may not be enough to reach 80%, but the local body will not provide any money till all 80% is found. So, then associations and others like micro-investor clubs and users fill up the gap. The users may be given a discount on services if they become shareholders. Thus, there may be some amount of crowdfunding.
NH Solidarity Savings in specified tax-exempt accounts of indi
viduals: What are these? Are these the same as I mentioned above?
AA: In France, we have a solidarity saving scheme based on employee savings plans. These savings plans are remuneration of employees placed in a long term savings account by the enterepreneur to become exempt of social security charges as well as tax. This money is lying with some bank. A part of this, the bank lends to public interest bodies. These could include SCICs. However, usually the SCICs are too small for the banks to want to deal with them directly and banks would then lend this money to large bodies (example France Active or Bourgogne Active) who could then lend to the SCICs at a low interest rate of, say, 2%.
NH: Thank you
A lot of my work has been related to encouraging entrepreneurship, or at least remove the bottlenecks which keep people from starting enterprises. One part has been related to financing, especially innovative forms of microcredit [1
]. Another part has been related to the need for offsetting loss aversion for entrepreneurs [3
The last financial crisis showed that a social security oriented state is more resilient to downside risk. Social security is in fact a downside protection for individuals. However, since it involves redistribution, it also provides some form of reduction in income inequalities. This redistribution also leads to greater purchasing power in the hands of those who have a higher propensity to consume, thus boosting the multiplier effect and maintaining growth. This reduces macro downside risk.
However, social security is also a poverty trap. For example, people on the dole would not like to lose it. As a result it keeps them from entrepreneurship. One solution offered by France is to allow them to create Cooperatives of Entrepreneurs (Coopérative d'Activités et Emplois). This allows the entrepreneurs to keep the dole till they are earning adequately [4
Cooperatives by themselves seem to offer risk mitigation, because on the average, cooperatives in France tend to have a longer life than for-profit enterprises. Partly, this is because cooperatives often have to keep large reserves before they can provide any dividend. However, in addition to this benefit, the cooperative of entrepreneurs allows people to retain their social security benefits.
Typically, such cooperatives of Entrepreneurs follow the legal regime of SCOP (société coopérative et participative) or SCIC (société coopérative d’intérêt collectif). The SCOP regime was created in 1978 and there are about 2000 SCOPs in France. The SCIC regime was created in 2001 and there are about 300 SCICs today. Both these forms have a democratic governance (one person, one vote) and both are non-profit seeking. Moreover, they have the limited liability protection that is normal for commercial enterprises because they have to be legally formed as private limited or public limited companies.
What differentiates them is the ownership criteria. In both, the salaried employees own the enterprise. However, the difference is that in the SCOP, only the salaried employees are shareholders. In the SCIC, in addition to employees, the users, volunteers, local bodies and anyone else having a financial interest can also be shareholders. Thus, the downside risk that an employee has can be shared since others are allowed to take shares. Therefore, it is not surprising that some Cooperative of Entrepreneurs are moving from the SCOP to the SCIC regime.
Although local bodies such as the regional council can finance SCICs, thus reducing the risk of the entrepreneurs, their financing is limited to 20% of the capital. The question is then where to find the balance 80%. Venture capitalists and business angels would obviously not be forthcoming since they like high dividends. This is not possible, at least initially, if large reserves have to be maintained after breaking even. So, financing the SCIC is based largely on the founders and the salaried employees. However, some not-for-profits may also provide some capital. But it is always difficult to find this. Therefore, the SCICs have lobbied for greater share of financing by local bodies and the limit of 20% may be raised to 50% if the social solidarity bill lying in the parliament is passed (projet de loi Hamoun).
In addition to equity, SCICs can also be financed through preference shares. These preference shares may have high fixed dividend rates of 7% or so, but they then allow leverage at lower rates of 2% if the SCIC can tap the Solidarity Savings in specified tax-exempt accounts of individuals. This is because preference shares is added to the equity for leverage calculations since they are repaid after debt. They therefore allow a reduction of the risk for those providing debt.
References 1. Ashta, A., Microcredit Capital Flows and Interest Rates: An Alternative Explanation. Journal of Economic Issues (M.E. Sharpe Inc.), 2009. 43(3): p. 661-683. 2. Ashta, A., et al., Microcredit as a Social Innovation, in The International Handbook on Social Innovation, F. Moulaert, et al., Editors. 2013, Edward Elgar: Cheltenham, UK. p. 80-93. 3. Ashta, A. and P.E. Otto, Project valuation in the presence of loss aversion during economic crises. Strategic Change: Briefings in Entrepreneurial Finance, 2011. 20(5/6): p. 171-186. 4. Ashta, A., Cooperating For Entrepreneurship: The French Regime of Cooperative of Activities and Employment, in Cooperative and Microfinance Revolution, O.O. Oluyombo, Editor. 2013, Soma Prints Limited: Lagos, Nigeria. p. 53-61.
Arvind Ashta, Priyanka Jayashankar and Rupal Patel *
Impact investment is a new paradigm for social investors who want to create an impact rather than get high returns, as distinguished from socially responsible investment which engages normally in screening out undesirable industries and firms.
A CGAP survey (Mayada El-Zoghbi and Henry Gonzalez, June 2013)
confirms what is found in other websites too: The major share of impact investments is in microfinance. The survey indicates that 72% of impact investments are in microfinance and that another 15% are in small industry finance. Thus finance seems to create more impact than education which only receives 0.2% of impact investments! Specialized funds such as microfinance investment vehicles strive to fulfill a double bottom line of meeting both financial and social returns. In labelling them as impact investments, maybe it allows these investment vehicles to attract crowd investors.
Though labelled impact investment, impact has been largely more implied than evidenced, even within microfinance. The diversity of results of different studies indicates that microfinance may or may not be creating a favorable impact (Duvendack et al ,2011
). While there is no conclusive evidence in hard statistical terms, community-led initiatives, such as SHGs (self-help groups) in India, enable women borrowers to interact socially and learn from each other. Group-lending can enhance trust, reciprocal behavior and coordinated actions among women borrowers, which is also known as social capital formation. Development organizations and social investors are promoting microfinance programs in order to build social capital and also empower low-income women at the grassroots.
Moreover, access to microfinance services can give rise ‘virtuous spirals,’ whereby women borrowers can have a greater say in household-related decisions and also become more socially and politically active. Nevertheless, empirical evidence linking microfinance and empowerment of women is still mixed and there is a need for more rigorous studies in this field.
This is not to imply that investing in the bottom of the pyramid (BOP) does not create impact. However, where does the line between outcome and impact lie? Impact requires identification of a goal and measurement of this goal. As opposed to this, outcomes are more controllable. An example is that outreach is an outcome. But increase in earnings of the poor people reached is impact.
Stakeholders in the microfinance sector, including investors, have realized the need for greater rigor in assessing the social outcomes of microfinance and they are stepping up efforts to develop social performance (SP) tools. Social performance is defined as “the effective translation of an institution’s mission into practice in line with accepted social values.” Social values range from design of appropriate services, outreach to poor and excluded populations, to environmental impact. Multiple SP tools are available from CERISE audits, Trulift trustmark, social performance assessments, and GIIRS ratings.
While the financial services sector has been able to identify and report on outcomes, it is now moving towards quantifying impact of those outcomes. Microfinance has been linked to impacts such as empowering women, improvement in health, increase in education, and economic empowerment. With such an expansive list of potential positive impacts, measurement requires consensus and skill. Evaluating empowerment-related outcomes can be even harder than assessing the economic impact of microfinance. Impact investors are taking steps to safeguard microfinance clients and also propagate best practices to enhance the social mission of microfinance institutions. In the midst of growing concerns of mission drift in the microfinance sector, impact investors are making investee-MFIs adhere to the above mentioned social performance benchmarks. Investors, practitioners, and funders are now focusing on collecting data on all facets of microfinance from delivery to client’s quality of life in complement with financial data.
Arvind Ashta holds the Banque Populaire Chair in Microfinance at the Burgundy School of Business
Priyanka Jayashankar is an adjunct assistant professor at the Leopold Centre for Sustainable Agriculture and the College of Business at Iowa State University, the US
Rupal Patel is a consultant on impact investments and microfinance
This is the festive season in India and we bring some good news from Ujjivan.
- Ujjivan was rated by CRISIL : mfR1 the highest rating which can be achieved by a microfinance institution. CRISIL is India’s premier rating agency.
- We release the Impact Assesment Report ( 2010-13) which was undertaken by Delphi. It shows significant improvement in the lives of our customers across 8 states. This is a result of a number of positive developments of which microfinance is a key player. The biggest lesson for us is that we must collaborate together with government, NGOs, banks, insurance companies and MFIs to achieve the objective of improving the lives of the financially excluded sections of our society. The report can be down loaded for our website for all those interested.
- We are getting ready to transform ourselves for the future. Our spanking new regional office at Rajarhat, Kolkata is a part of that change. The office was opened by Alokananda Roy Choudhury who is a famous dancer & social activist. Her incredible work of dance therapy for prisoner to provide them a positive meaning life is awe inspiring. The staff of our East RO and Ujjivan happy to support her program to provide quality education for prisoners’ children through the NGO Touch World.
- We complete relief work for flood victims in Panskura, West Bengal. As we send out this update, we are very concerned on how our staff & customers in Odisha are coping under the impact cyclone Phailin.
- We are very happy that Parinaam Foundation is receiving international recognition for the great work they do under their ultra poor program in Bangalore.
Wishing all of you & your families a joyful festive season.
Samit GhoshManaging Director,
Ujjivan Financial Services Pvt Ltd.
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LEAPFROG RAISES MORE THAN $204M FOR SECOND FUND
Friends, colleagues, and supporters,
We are delighted to tell you that LeapFrog has raised an initial $204m for our second fund. This is a game-changing moment:
· For alternative investing, investments in LeapFrog II from several of the world's leading financial institutions demonstrates growing interest in the emerging consumer opportunity.
· For private equity in emerging markets, this is a powerful endorsement of the specialist hands-on operational model that has underpinned LeapFrog's success.
· For impact investing, LeapFrog's raise represents a going-to-scale, with LeapFrog now managing over $300m and planning ultimately to make investments of up to $60m.
Our first fund has backed high-growth businesses reaching 18 million people with financial tools, almost 12 million of whom are low-income or underserved. The implications of Fund II are quite profound because a fund of this size will be able to invest at scale, supporting businesses that empower an ever-growing number of people. It is to this task that we now turn.
Thank you to all of you who have championed profit-with-purpose investment. Five years ago, we were honoured to launch LeapFrog at the Clinton Global Initiative, and it's fitting that at the same event this week, I'll be speaking about the next leap. INVESTORS INCLUDE GLOBAL INSURERS AND ASSET MANAGERS
Investors in LeapFrog's second fund include major insurers and reinsurers MetLife Inc., Prudential (USA), XL Group, Achmea, PartnerRe and Swiss Re. Global banks and asset managers that have committed include JPMorgan Chase & Co., Christian Super and TIAA-CREF, and Fund II also obtained backing from five of the world's leading development finance institutions: CDC, DEG, the European Investment Bank, FMO, and Oikocredit.
Behind the LeapFrog story is an important macro-development: investors are recognising the growing attractiveness of the emerging consumer segment – low-income people working to rise into the middle class. In our target markets there are some 1.9 billion emerging consumers, and their spending power is forecast to rise from $2 trillion today to $5 trillion in the coming decade.
MAKING A REAL OPERATIONAL DIFFERENCE
LeapFrog Fund II will continue to invest in businesses that provide insurance, savings and investment products to these emerging consumers. We will also continue to prioritise our eight focus markets of Ghana, Kenya, Nigeria, South Africa, India, Sri Lanka, the Philippines and Indonesia.
While capital is an essential commodity, sustainable growth is really stimulated by an investor's contribution to governance, product innovation, distribution effectiveness, financial management and more. Fittingly, shortly after our fund announcement, EMPEA published a case study
on our operational expertise and support that has enabled Ghanaian portfolio company Express Life.
This is the level at which value is added and lives are changed, and it is what LeapFrog does best.
Finally, on 19 September, the WEF launched its report
on Mainstreaming Impact Investing. LeapFrog was privileged to be part of the working group leading up to its publication. This report represents a milestone: it is now clear that mainstream investors are starting to see that real engagement with the needs of the emerging consumer represents the new frontier of opportunity for investors. This is truly a watershed moment for the impact investing industry, and for the global capital markets as a whole.
Onward and upward, Andy and the LeapFrog team www.leapfroginvest.com
Microfinance and Financial Inclusiveness usually refer to the provision of banking services/ financial services to huge sections of national populations who are unbanked or are excluded from the formal national financial systems. Often, these excluded populations include the poor, the women, the youth, and of late the retired
elderly. In this paper, we explore the importance of Microfinance as a tool for bringing the socially and financially excluded elderly into “active ageing”, i.e. microfinance as a tool for ensuring effective participation and continued contribution by the elderly into national economic development programs, improving the quality of their life, their communities, and their economies in general. 1. “The Aged are a repository of skills...
The aged are usually those over 65 years of age, who have reached their retirement age and are retired. They may also have exhausted their savings and are usually idle. But this class of people would have seen it all; they possess various skills, expertise and experiences which if harnessed, can contribute significantly to their own quality of life and to economies in general. This is more relevant now when the world is fighting global recession. The aged thus represent idle, excess but valuable pool of resources that can contribute to development of economies the world over. 2. ...but just like the youth, they may also lake capital/financial resources
Despite possessing various skills, they may not have access to capital to start various business projects. Some
might have exhausted their personal savings, and may now be dependent on welfare despite their relative health and skills. It is true that they may not be able to carry out jobs demanding physical effort, but they can make meaningful business in light industry such as auto-electronics, electrical shops, tourism, counselling, trading, financial services, and all light industries. 3. Microfinance is the answer
Provision of financial services to the aged, especially loans to start and run income generating projects will not only take the aged out of idleness and inactivity, but also enable them to contribute to their economic wellbeing, and to economies at large. And with inactivity eliminated, stress will also go and relative health restored. Besides, welfare expenditure on the aged may be reduced, thus successfully turning the aged from
cost centres into revenue generating economic agents.4. But how can we go about it?
We need detailed studies of our aged populations, their behaviour, their experiences and skills, and their willingness to run small businesses. We also need a paradigm shift; elders are not solely a liability/expense to the state,- they are an asset to national economies. We need to take stock of all projects in the economies that can be run by the elderly, for example counselling firms, cleaning companies, community projects etc. After analysing the Current Situation of the aged, and our economies, and potential role that the elderly can play, we then move to implement our microfinance strategy for the aged; i. Mainstream Microfinance into Economic Projects for the Aged.
We can then bring Microfinance to enable the aged, to empower the aged, to take them out of inactivity and promote active ageing. This can be done in much the same way we use Microfinance for the poor, for the women, for the youth. Microcredit/Microloans are availed to the aged to run business projects on a small, medium, or even large scale depending on their capabilities.
Microfinance ceases to be more relevant to third-world countries, but becomes truly globally relevant because the aged are found in the whole world. ii. Microfinance by the Aged.., for the Aged
Many of the aged are retired bankers, and these can be enlisted to run microfinance firms to assist the
elderly. In addition to running businesses and earning extra income, they will also be empowering other aged populations to start and run income generating projects. Microfinance can help unleash a global ‘aged economy’ as retired nurses can run health services for the aged, retired mechanics can run car repair garages, retired teachers can run nursery schools, etc. All these will be income generating projects, and excess idle resources would have been mobilised into the mainstream economies. The benefits are broader; each projects will also
create employment (both for the aged and for the active), and some aged may even volunteer to be removed from social welfare. Conclusion
The aged represent idle, unutilised resources whose employment can not only benefit economies but also benefits the aged themselves through inclusion into the mainstream economies. We cannot believe the world is sitting on such a resource/skills base without mining them, in the same way that a nation can sit on gold or oil that is ten kilometres beneath the earth and will not derive any benefit from the resource. However, the aged skills/expertise/resource a zero kilometres beneath the earth! All we need is a paradigm shift, human skill/ expertise can never be dumped, if you recycle plastic, metal, and get value from recycled matter, how much more value can you get from retired or the aged!!
Clopedia Investments (Pvt.) Ltd
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