Asset Building

I've been arguing for awhile now that microcredit has been overly hyped, even dangerously so (i.e., credit will end poverty). But now media (see The Times, The Boston Globe, Foreign Policy, articles, for examples) are beginning a backlash against microcredit (likely caused in large part by failed expectations caused by said hype) that I nonetheless find equally, if not more, disturbing (i.e., microfinance isn't working). I've never thought of credit as a panacea, but I do believe financial inclusion and access to an array of asset building financial services are essential if the poor are ever to move out of poverty.

The much-anticipated official poverty rates for 2008 are out and they are not pleasant. According to the US Census Bureau, the percent of Americans living in poverty increased to 13.2. Nearly nine percent of Whites, 12% of Asians, 23% of Hispanics and 25% of Blacks make up the 40 million people who were living in poverty last year.

Almost one out of every five children living in this country fell into that category. Not only 19% of Americans 18 or younger but 12% of adults aged 18 to 64 and 10% of seniors aged 65 and over were identified as poor. The Brookings Institution expects poverty to rapidly rise through 2011 and 2012.

As depressing as these statistics are, this is not the time to lose hope. They lend timely perspective to current efforts to advance policies that provide low income Americans with the tools and incentives to build their personal savings.

In California's tough economic times, even small savings can go a long way for a low-income family. Assemblymembers Jim Beall and Felipe Fuentes are working hard to make sure that CalWORKs families have the opportunity to set aside savings that can help them cushion financial emergencies and become financially self-sufficient.

On Tuesday, the California Senate Human Services Committee passed Assembly Bill 1058 (Beall & Fuentes). The California Workforce Mobility Initiative (AB 1058) repeals the $4,650 vehicle asset limit for recipients and applicants and eliminates the $2,000 cash asset limit for recipients. Also, it allows applicants to have $2,000 in savings adjusted to the California Necessities Index.

If enacted, AB 1058 would help CalWORKs families build the savings necessary to become financially self-sufficient through work. It will also save the state $3 million dollars in administrative staff time, according to the Assembly Appropriations Committee. This money is otherwise spent conducting quarterly tests to verify that the families are indeed asset poor. States that have eliminated the asset test report a savings and no fraud cases.

Imagine a California where every employee has the option to participate in a work based retirement savings plan.

Imagine a California where all workers retire with enough savings to sustain them through old age, so they do not have to depend on the government for assistance.

Well, this may not be too far-fetched of an idea, because California is taking strong steps in this direction.

Yesterday, the California State Senate Public Employment and Retirement Committee passed Assembly Bill 125, the California Employee Savings Program. Authored by Assemblyman De Leon, AB 125 aims to create a voluntary, universal, portable retirement account for California workers who do not have access to a retirement savings plan. Furthermore, AB 125 would enable thousands of small businesses to offer low-cost retirement savings to their employees.

Just days before the New America Foundation released its Global Assets Project policy brief, "Savings-Linked Conditional Cash Transfers: A New Approach to Global Poverty Reduction," the Colombian announces a major effort to do just that - link the beneficiaries of its nationwide CCT program with savings accounts.  This major policy development in Colombia has emerged in part as a result of the efforts of the policy brief's co-author Yves Moury (Executive Director of Fundación Capital), and his project, Proyecto Capital. Our brief, released today, advocates using the (typically) massive CCT infrastructure to formally bank the largely unbanked poor populations in developing countries. But we also advocate going one step further: use the power of CCTs to encourage saving and asset accumulation of the poor.

Signs point to toughening times for the microfinance industry. A recent article from the Economist has echoed my concerns that selling microcredit (as a concept or a product) will grow increasingly difficult as the global economy stumbles (or crashes and burns) on the heels of a debt-led recession in the United States.  Not only in the concept politically less appetizing than it was back when Muhammad Yunus won the Nobel Peace Prize in 2006, the capital fueling the industry is drying up.  The similarities and differences between subprime lending that fueled the US recession and the "sub, sub, subprime" lending happening in developing countries through microfinance institutions have been debated and analyzed for over a year now. But only recently has the engine of seemingly-endless capital to MFIs around the world starting slowing, sputtering to slow chug in some instances.

At yesterday's launch of the World Bank Policy Research Report, Conditional Cash Transfers: Reducing Present and Future Poverty, New York Times contributing writer Tina Rosenberg recounted her article pitch to her editors at the Times.  Asking her why she was so intent on going to Mexico to cover Oportunidades, the conditional cash transfer program that started it all, she answered: Because it's a social policy program that actually works. 

From Latin America, to Africa, to even the United States, conditional cash transfer (CCT) programs are sprouting everywhere and garnering an increasing amount of attention.  As the packed auditorium demonstrated yesterday, the buzz has long since reached Washington.  And as Justin Lin, Chief Economist for Development Economics, noted, the World Bank will be extending CCT projects to six additional countries this year.

In the scramble of eager participants that shot their hands up breathlessly to seize their chance to ask their multi-part queries to the pre-eminent experts on CCTs, I didn't have the chance to ask the question in the back of my mind: How can CCTs be used to incentivize and change savings and asset-building behavior?

The Clinton Global Initiative is coming to a close and as I sit here listening to Gordon Brown talk about the importance of the global economy and the gap between the rich and poor, I find myself also thinking about the images of Drew Barrymore, Matt Damon, Muhammad Yunus, Bono, Bill Gates, Wylclef Jean and Bill Clinton on my camera, and last nights performances of James Taylor and Yousoo Ndour's.  Waking up from my day dream, I realize that this conference could have easily succumbed to three days of a star-studded, papparazzi-riddled social affair.  And perhaps in some ways it is.  

But as I go through the notes I've taken over the last three days, I am quite pleasantly surprised by the amount of substance and the breadth of issues and innovations covered over the last three days. Indeed, I'm so impressed that I find myself at the end of this conference in 30 minutes unwilling to end my blogging on its sessions and commitments.  Over the next week, I plan to continue providing commentary on CGI sessions, issue areas and commitments. Here is a sampling of topics I plan to cover:

• Asset Building Beyond Microfinance? The Forgotten Bottom and the Missing Middle
• Rural Finance: a New Frontier for Global Asset Building?
• Technology, Information and the New Age of Access
• Energy, Climate Change and Sustainable Development: An Opportunity for Microfinance?
• Food Prices Shifting Microfinance Focus?
• CGI Commitments:  My Top 10 List

All day yesterday, I capitalized on the opportunity to unabashedly promote the asset building framework by putting a spotlight on its prominence in poverty alleviation discussions and commitments here at CGI.  And I actually barely skimmed the surface of some of the specific asset-focused activities coming out of these sessions (Habitat, others).  As much as I relished it, I also want to acknowledge that asset building and financial services for the poor are one piece of poverty alleviation in a complex global environment.  The specific commitments are great, but what about the larger perspective?

Yesterday's afternoon CGI held a plenary on profits, jobs and equitable growth.  The stifling of poverty alleviation around the world is not simply due to lack of access to effective financial services, but also to lack of access to property, to opportunity, to education and to healthcare.  Exclusion from any combination of these often results market inefficiencies, slack productivity, an inability for an individual to live to their full human potential.  Hernando de Soto called for property rights and legal empowerment of the poor to give them the tools they need to achieve their version of the American Dream. 

There is still much to learn about the financial tools needed to help the world's poor mitigate risks and build assets in order to build an economic base and contribute to long-term economic development. This session primarily focused on "building assets in the developing world."

Sylvia Matthews , director of Global Development at the Bill and Melinda Gates Foundation opened the second working group session stating that 2.3 billion with no access to financial services for the poor, even though evidence suggests they would make perfect customers. She asked her panelists: "What do people need, what works, what are some solutions and how do we reach scale?" Again, asset building and asset protection products reigned supreme:

Bob Rubin, the first Director of National Economic Council, then Secretary of the Treasury, and now a Director at Citigroup, Inc remarked on the health of the financial system and impact on financial services for the poor. "We need to stem the crisis of confidence in the US now, but we also need to put into place effective responses to longer-term problems the country faces, like healthcare, education and economic opportunities for the poor."