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36th ADFIAP Annual meeting in Ulaanbataar, Mongolia.
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24 May 2013


Plenary Session 2: Microfinance and Financial Inclusion
Topic: Social Capital – The Missing Capital.
Thank you for this opportunity to share with you, a bit about the region where I come from and my view on social capital and how it is integral to any effort to promote financial inclusion and economic growth.
Financial inclusion refers to the ability of people to understand how to manage their personal/business finances and effectively participate in all aspects of financial services in the mainstream which would enable them to build wealth and improve standards of living. A part of that inclusion process involves access to micro-financing especially for those living on and/or below the poverty line.
When people talk about poverty and their thoughts on what constitutes poverty, I am drawn to Amartiya Sen and how he places the context of human well-being beyond that limited by the availability of commodities and their use to what he terms functionings, “that is what a person does (or can do) with the commodities of given characteristics that they come to possess or control.”
The pursuit of any economic endeavour you will agree is largely an individual one. In the Pacific context as I will illustrate later, building upon social capital can be an integral part of the pacific region’s development progress as much as physical, human and financial capital because network cooperation is profitable and such profits occur when single actors provide each other with valuable information and services.
This inclusive form of capital has been coined by Svendsen and Svendsen (2009 Eds) as Bourdieuconomics after French sociologist Pierre Bourdieu, “who has played such an important role in establishing the legitimacy and structural interaction between the different forms of capital (that) such a neo-capital framework…aims to place visible and invisible forms of capital at the same level of analysis by reintroducing capital ‘in all its forms and not only in the one form that is recognised by economic theory’.”
This, in my view is our way forward if we are to address the reasons why the many micro credit and micro finance programmes in the Pacific have met with very little success.
Over the last decade, tremendous gains have been made towards increasing access to financial inclusion programmes in the region. The growing presence of government, civil society and private microfinance institutions are encouraging because it improves accessibility to financing for the “unbankable” as they are referred to in financial circles.
Not since Mohammed Yunus showed that it is possible to create wealth and break the cycle of poverty amongst the poorest of the poor through enterprise, that the rest of the world started to take notice and pay greater attention to microfinance as a viable solution to poverty alleviation. Yunus effectively changed the way we looked at people living in poverty. Overnight the view shifted from a “hand-out” to a “hand-up”.
To quote Yunus, “all human beings are born entrepreneurs. Some get the opportunity to find this out, but some never get this opportunity. A small loan can be a ticket to exploration of personal ability. All human beings have a skill – the survival skill. The fact that they are alive proves this. Just support this skill and see how they will choose to use it.” It is not too difficult to see how this links to Sen’s functionings’ that I mentioned earlier and Todaro and Smith’s core values of development which include:
1.      Sustenance: Basic goods and services, such as food, clothing, and shelter, that are necessary to sustain an average human being at the bare minimum of living;
2.    Self-esteem: The feeling of worthiness that a society enjoys when its social, political, and economic systems and institutions promote human values such as respect, dignity, integrity, and self-determination; and
3.    Freedom to choose: A situation in which a society has at its disposal a variety of alternatives from which to satisfy its wants and individuals enjoy real choices according to their preferences.
Fiji recently launched its National Financial Literacy Strategy (2013-2015): Leading Fijians to personal financial well-being. The six strategies adopted, stemmed from the findings of an UNDP (PFIP) study into The Financial Competence of Low Income Households in Fiji which identified the following as significant risks for households that displayed a low level of financial competence:
1.      The risk of exploitation by financial predators with respect to cost of financial services, borrowings (formal/informal), utilization of transaction services (domestic/international) and involvement in financial scams.
2.    The risk of ineffective use of household cash flows because of their inability to understand how income and expenditure works which limits the ability to build savings and thus makes them vulnerable to extensive borrowing for consumption.
3.    The risk of households being caught in a poverty trap because of their inability to generate surplus and to use the surplus to effectively increase household assets.
4.    The risk of poverty at old age given the monetized economy and the inability of those in low income households to accumulate sufficient savings and pension making them reliant on their family and community in retirement.
In some of our least developed member countries, a financial sector assessment conducted in 2007 highlighted the following:
1.      Only 20% of the population have access to financial services;
2.    Access to financial services are constrained primarily by economic inefficiencies that limit the reach of traditional models for delivering financial services;
3.    New opportunities exist primarily in the presence of communications technology as a means of overcoming some of the economic inefficiencies mention previously;
4.    Land tenure systems are rarely secure enough to allow borrowers to use land as collateral. Banks are experimenting with branchless banking. Governments have experimented with various credit delivery schemes and it was found that repayment performance is generally perceived to be poor and the initiatives short lived.
5.     Precise assessments of demand are impossible in markets where supply is constrained or the population uninformed about the possibility of services they have never encountered. Consumer response to savings is keen however, they seek savings instruments that are readily accessible but without great cost. The demand for credit is more complex – because people borrow and repay does not mean they understand what the net benefit from the transaction is. Consumption borrowing is also an issue and does consume entire pay packets for some borrowers.
6.    Most donor support is ad hoc and the low level of success isn’t inspiring enough to warrant a dedicated and sustainable microfinance programme in most countries.
The above is not an exhaustive list of issues discovered, just highlights to provide me the basis from which to argue for greater consideration for the inclusion of social capital in the design of macro and micro policies for countries in the Pacific region.
Amongst Pacific island nations, some of the contributing factors to the absence or low evidence of financial literacy as defined under the western precept; share certain commonalities. We are a society of people that are communal and largely traditional in our living arrangements.
Resources such as land and fisheries are shared within traditional conventions that stipulate how this is done. Even food that is planted by an individual in the village setting is shared or given as contribution whenever an occasion calls for it – deaths, weddings, church festivities etc. The concept of individual ownership is alien and the tendency to share without reservation is everyday life. Items or money borrowed are not expected to be returned, replaced or repaid and therein lies the fundamental issue when understanding why loan repayments are sometimes a problem – apart from the defaulting party having limited understanding about finances and binding contractual obligations that are common place with the formal financial sector.
That said the formal economic and financial systems are founded on the principles of capitalism. The capitalist representation of wealth is bound in the form of formally registered assets such as land and buildings in addition to savings in the bank. de Soto (2000) proffers that the poor also possess assets and savings that they need to make a success of capitalism but because they lack formal registration of their assets, these are deemed “dead capital”. The poor also he contends, thrive because of the vast social networks they have cast themselves with like people thereby creating an informal economy within which they conduct their business and manage transactions such as accessing credit and land etc. “…the entrepreneurial ingenuity of the poor has created wealth on a vast scale – wealth that also constitutes by far the largest source of potential capital for development…many times greater than all the aid from advanced nations and all the loans extended by the World Bank”. The poor in short, are the solution not the problem.
To understand and appreciate why over the last few decades micro-financing in the region has met with very little success I turn to American sociologist C. Wright Mills’ sociological imagination where he challenges us to understand the social context first before arriving at a conclusion: “No social study that does not come back to the problems of biography, of history, and of their interactions within a society, has completed its intellectual journey”. If we do not heed this, efforts to create financial inclusion programmes will also suffer the same fate as micro-finance projects.
As Svendsen and Svendsen (Eds 2009) have so carefully illustrated in the Handbook of Social Capital, the troika of social capital involves a synergetic integration of the three disciplines of political science, economics and sociology. “This means that intangible forms of capital, for example, cultural and social capital should be accounted for alongside the more traditional, visible capitals such as physical and economic capital. In such an approach, culture is seen as no less economic than economics, and vice versa, and various forms of intangible, normative resources such as trust, cooperative skills, tolerance, optimism and happiness are included…the notion of social capital implies that all three disciplines recognise the power inherent in network cooperation – invisible, but arguably with highly visible effects.”
This is the gap, the missing capital that we all need to start paying attention to.
Ladies and gentlemen, as modern day economies in the Pacific we are trying our best to progress our citizens towards a capitalist system however, the traditional subsistent economies and mindsets with which the majority of our people are so familiar, can either be viewed as an impediment to economic success as we would like in the western context or as an untapped potential that can be engaged and enhanced because of the abundant presence of social capital within.
Bridging the traditional with the modern can be done if we heed Sen, Mills, de Soto and Bourdieu. Historically, as we have seen in other societies and cultures, the transition can be made successfully, provided the actors involved are clear at first as to why certain conditions exist (socially, politically and economically) and any policies derived pay due consideration to these issues in a manner that is in context and reflective of an expressed desire by those concerned.
If we were to as part of the financial inclusion programme for example, seek to open a bank account for savings for every unbanked person, the first question to be posed is “why?” For a wage and salary worker opening a bank account is a means for receiving one’s pay and additionally, that account will also serve as a reservoir for savings. Now, for a simple subsistence farmer, opening a bank account is of no consequence because he has no money to place in it as he has no surplus to sell for income. This is his rational world. For the farmer, it would be far more practical if he were to learn how to generate surplus and have access to the market from where he can obtain the money to be saved. To save money will become his expressed desire because he is now a bit more familiar with how money works or can work for him if he accumulates it.
The greater a person’s social capital, the more likely it is that he or she can be successful in whatever he sets out to do. Why? Because there will always be people around him to help him with whatever he needs. Similarly, in a village setting where people have always worked and thrived as a collective, the application of that social capital in the world of business has been known to work – I have seen it work. But once one person in that group tries to break away and strike out on his own, that social unit cum business entity starts to disintegrate and the project starts to decline because the withdrawal has a psycho-social impact on the group.
So how do we marry the traditional with the modern? One way in which I can see us in the Pacific thriving as an economic force is to encourage alongside the individual, the participation of communities (as cooperatives, companies, shareholdings) in economic enterprise. But more fundamentally, financial literacy from a very young age (as opposed to later on in life) needs to be taught and reinforced so that it becomes as well remembered as the times tables.
It is my view that institutionalizing financial literacy from the first year of primary school to the last year of high school will help generate the change that we so desire to see in terms of knowledge, attitude and practices towards finances. The blending of years of social capital gathered through the traditional and social networks in addition to knowledge of financial systems and entrepreneurship is the panacea to ending poverty and inducing economic growth particularly in the Pacific region.
Thank you.
EDITOR’S NOTE: This version has been edited for brevity.

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