Reflections on ChildFinance

Just in case one more person thinks I was kidnapped by some Amsterdam gremlins, I thought I’d better break the radio silence. It’s been a hectic time ever since I returned from the International ChildFinance Expert’s Meeting in Netherlands. Four days of good energy and learning, where the magic is truly in the people.

My respects for Jeroo and the folks at Aflatoun. What a feat of bringing together the accelerators with convening powers, the mavens of academics, the practitioners of financial education with immese ground experience and just about everyone who has done relevant work in this space. There’s a new exciting movement that is brewing to chart the way forward for financial education and access for children – at the age where habits start forming (from the researchers), and at the time when the marginal rate of investment is the greatest (from the policymakers).

Some quick lingering thoughts -

In some circles, the term financial literacy has become as taboo as entrepreneurship or web 2.0. The new focus is now on financial capability, with the ultimate goal of behavior change, as the result of having received a financial education. Yet, measuring behavior and action (what does it look like?) or involvement in existing financial systems (or a lack of involvement?) may not serve as good indicators of financial capability, especially in less-developed countries. The smartest of the poor deliberately exclude themselves from traditional financial institutions, rejecting savings instruments that offer 6% when inflation is standing at 16%. In fact, there were fascinating insights into what money management looks like in the poorest communities in the world. Recommended reading: Portfolios of the Poor.

Another exciting theme surrounds financial access, and the debate in creating child-friendly banking products with possible certification, ensuring appropriate safety and quality levels bounded by an ethical framework. Talks of easing in control gradually until kids turn 14, removing transaction fees and a minimum balance. No surprise that the bankers were demanding a business case, mirroring the rather tragic move when UK scrapped their Child Trust Funds just a few weeks ago, which I thought was a brilliant scheme when first introduced.

There was a clear dichotomy in the problems faced in the developing vs. developed worlds. At the lower levels of poverty, asset building is non-monetary as people invest in cattle, jewelry or relationships that may offer a better return. Was surprised to learn of the 90% savings rate in one case study, where survival literally depends on the ability to save up meager, irregular and unpredictable incomes – you don’t need to teach them how to save. I made a case that unlike the developed world, entrepreneurship in this instance is no longer a choice, and resonated immensely with the Teach a Man to Fish initiative in Paraguay – a rural education where students learn earned income strategies and graduate with a business. Ironically we have savings problems in developed countries, where you find complete financial inclusion but amateur knowledge on getting involved. It led me to scribble down this framework, revealing the importance of timing and matching financial education, capability and access. An important question raised in the academic track to ponder as well – Are we to claim that money is the equitable currency across the board?

On a side note, (this was not on the agenda but arose out of private discussions). I’ve always resonated with Mohd Yunus’ principles and the microfinance model, but have become a little apprehensive of how it’s evolved. Some MFIs are now a monolithic corporate structure, with funding from commercial banks and private equity firms, set in deregulated environments charging anywhere from 30%-85% interest, with a high repayment rate. This makes for a reliable super-profit machine with returns of over 50% and naturally attracts an overabundance of capital. Disbursement pressure skews responsible action and loan placements. Why does this already sound familiar? Even if we ignore the business case and revisit first principles, shouldn’t we advocate putting savings into business capital instead of just taking out a loan? It’s a myth that most of the poor cannot save.. transferring the control of money to the women sometimes works wonders.

And so I left with even more questions than before, but am ever so excited to get involved in these discussions going forward and hope to shape a product that could fundamentally solve the problem. At the heart, we all believe in the empowerment of children and to treat them as part of the solution. There’s always a fine balance between over-strategizing, and gaining momentum with madly passionate folks who have the gut-level indignation of the status quo. And I guess it’s only fitting to end off with Audrey‘s famous quote of the meeting – Let’s not forget to just let the kids have fun.