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Title Fintech and Microfinance Are Preying on the Global Poor Author Milford Bateman Original Link https://jacobin.com/2023/06/fintech-microfinance-poverty-debt-global-south-world-bank/ Date Last Highlighted 2023-06-04 Date Published 2023-06-02 Type articles Source reader Generated Summary Beginning with the idea of microloans in the 1980s and then expanding to cover other sorts of financial services, “microfinance” was sold by global elites as a way to transform the economies of the Global South by allowing poorer communities easy access to banking and credit. “Fintech,” short for financial technology, is the latest evolution […]
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Highlights
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microfinance institutions evolved into some of the most profitable operations in the world. Most of their clients languished in poverty but, hoping to do better, were all too often plunged into even deeper debt. They lost the collateral they pledged against microloans — such as housing, land, equipment, and so on — and saw their communities “dumbed down” to the point where few productivity-raising jobs remained in existence.
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It is a useful thing for the global poor to have more and better financial services at their disposal, but the key is the way that financial inclusion is designed. So far, financial inclusion has not been about addressing global poverty so much as continuing the building of financial markets that include the poor as clients in order to benefit global investors.
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The claims around financial inclusion are nothing but a cover-up for continuing to expand the supply of microfinance. The microfinance industry in the 1990s began to realize, “Oh boy, we can actually make a hell of a lot of money” by stretching out its financial tentacles, one might say, down into the poorest communities
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Fintech is often described as “microfinance on steroids.” It’s clearly the next phase in the evolution of the microfinance model. The story started at the end of the 2000s when it became clear that microfinance hadn’t worked and, even worse, that it was associated with a lot of negative economic and social consequences for the poor. But at this precise juncture, you had this innovation emerge called “fintech”
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Many innovations, including financial innovations, start out as beneficial to the poor. But the problems start, in general, when such financial innovations are then commercialized and privatized. Once private fintech corporations conquer a critical customer base and become oligopolists, or even monopolists, which is the goal of those scalable data-driven business models, the situation radically changes. The poor are no longer the beneficiaries of a particular financial innovation, but increasingly its hapless victims.
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The amounts involved in microloans were so tiny, by definition, that it mostly supported “survivalist” entrepreneurial activities that, collectively, had little to no sustainable impact on the well-being of the wider community.
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the use of microloans shifted to satisfying consumption needs rather than investment in microenterprises. That is where even more problems began to arise, because if the microloan does not kick-start additional income generation, how do you service the debt?
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Just look at the “one hundred richest individuals in South Africa” list, and you’ll see so many of the senior executives and key shareholders from Capitec Bank on that list. But microfinance did nothing for the poorest black communities. Put simply, black communities didn’t really need microcredit; they needed small business credit on affordable terms and maturities, as well as business and technical support. But that’s not what they got.
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all microloan and fintech companies initially offer services as cheap as they need to to rapidly build up a client base and scale up their business to lower the costs of their operations. But as sure as the sun rises tomorrow, in a few years’ time, they’ll start to raise the prices of all the services they offer because, they hope anyway, that you’ll be locked into their network.
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Vodafone plc finances its telecoms investments in the UK, which are vital to UK development and growth, out of the dividends it receives from the profits that are extracted from some of the poorest communities in Kenya.
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Maricá has a very big advantage, as in their territorial jurisdiction they have much of Brazil’s offshore oil and gas industry, which is mandated by the central government to pay a certain amount of royalties to municipalities affected by their activities. Maricá has a conditional basic income program that is paid out through its community bank (Banco Mumbuca) in a local currency (the mumbuca) using a fintech platform. It works very well to provide important financial services to the community. The Mumbuca Bank introduced a credit card and later an app on mobile phones to pay out a conditional basic income without the intervention of, for example, Visa, Mastercard, or PayPal.
✏️ Positive example of fintech, because it’s publicly owned and citizen-centered.
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Enticing the local citizens to pay bills using their mobile phones saves the municipality a lot of money. In return, it funds the municipal bank, which supports local enterprise development. The value generated by using fintech, which is usually appropriated by the private sector, is thus now used for the public benefit. They operate without any charge levied on the poor by profit-driven banks or the digital payment corporations. There is no charge to the recipient when receiving the basic income that is paid in mumbuca. In other words, you get 100 percent of the amount that is officially due to you. Mumbuca Bank covers its operating costs by charging the many local businesses that accept the mumbuca a 1 percent fee to convert any mumbuca they receive from recipients of the basic income into the Brazilian currency (the real).
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Banga was the longtime CEO of Mastercard, which many see as one of the most problematic digital payment firms in the world. Mastercard wants to abandon cash so it can intermediate most of the tiny financial transactions made by the poor and extract a growing amount of value from them.
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The process of driving cash out typically starts slowly, so as not to alarm ordinary people and governments, and to ensure that the process is not halted midway. But once cash has been largely abandoned, then the profiteering can start, as the poor cannot easily revert back to cash payments.
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The value extracted by Mastercard from such transactions is already pretty large, but if cash could be removed entirely, then there is almost no limit to the value that Mastercard and other digital payment corporations can extract from the poor. For Mastercard and others like it, serving the financial transactions needs of the poor in the Global South is a new “gold rush.”
✏️ The key point is who’s in control. A corporation trying to get you to use its mediums and abandon govt.-based mediums (like cash), means that you become wholly under their control. What Brazilian communities are doing however, is establish municipal and local services and currencies that are people-centered, and instead draw the fees from the private businesses that interact with the people and benefit from their patronage.
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control of the local financial system is the gift that keeps on giving — it means you simply quietly skim off your slice of every financial transaction every day forevermore.
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Banga will be expected to ensure that there will be no chance of any local publicly owned fintech projects. That would just be way too much like socialism — as is comically said in the US government, World Bank, and IMF about even mildly pro-poor policies — but it would also deny foreign investors their “right” to enter any market they chose, which is the fundamental right given to them under the current global economic order.