News of the finance

The Africa Finance Corporation (AFC) has commenced operations with the appointment of Mr. Austine Ometaruwa as the pioneer President/Chief Executive Officer. This, among others, was disclosed at a press briefing addressed by the MD/CEO, IBTC-Chartered Bank, Mr. Peterside Atedo, in company of Ladi Balogun, MD, First City Monumental Bank (FCMB), Falalu Bello MD, Unity Bank Plc, Mr. Ignatius Imala Director, Banking Supervision Department, CBN and Mr. Festus Odoko, Head Corporate Affairs, CBN, after the Bankers' Committee Meeting held at the Central Bank of Nigeria (CBN) Lagos, Tuesday June 26, 2007. See details here.

SAN JOSE, Calif. - June 28, 2007 - Cisco® (NASDAQ: CSCO) today announced that it has passed another milestone in the rapidly evolving wide area network (WAN) optimization market with the deployment of its 1000th customer. Since launching its Wide Area Applications Services (WAAS) solution in September 2006, Cisco has seen broad adoption of its product across multiple industries, helping customers to solve IT challenges such as branch office application performance, remote backup and ...

Some econo-bloggers have been having fun with the fact that Muhammad Yunus, founder of the Grameen Bank and father of micro-credit, won the Nobel Peace Prize. Yunus, an economist who would not be shortlisted for the (kind of) Nobel Prize in Economics, wins a real one instead.

I saw Yunus speak in Ottawa over ten years ago, and he was amazing. Back then microcredit was new and hip – and held the potential of being a profound transformative tool. Today, it has become a fairly mainstream thing.
Tyler Cowen has some good links related to Grameen and microcredit here.

The Globe's story comments:

... Yesterday, Mr. Yunus and the Grameen Bank he founded were awarded the Nobel Peace Prize for establishing a "microcredit" system enabling some of the world's neediest people to establish small businesses through small, non-collateral loans. The average loan is about $200 (U.S.).

Back in 1974, not long after returning from doctoral studies in the United States, Mr. Yunus surveyed other villagers and found many, like the bamboo weaver, who were also indebted to loan sharks.

He decided to dig into his own pocket and lend the villagers money -- paying him back whenever they could -- so they could buy their own weaving supplies and "liberate themselves."

The idea led to the creation of the Grameen Bank in 1983. Today, it is the largest rural bank in Bangladesh with millions of borrowers, most of them women.

In awarding a prize more usually given to those pursuing peace in the world's trouble spots or fighting for human rights, the Norwegian Nobel committee specifically linked peace to reducing poverty.

... [T]he concept has been copied widely, the Nobel committee noted, saying Mr. Yunus and the bank became "a source of ideas and models for the many institutions in the field of microcredit that have sprung up around the world."The World Bank estimates that there are now more than 7,000 microfinancing institutions serving 16 million people.

A reality check is then offered:

Ample anecdotal evidence suggests tiny loans, along with financial training, have hoisted many out of poverty. Despite that, the precise benefits of microcredit are still hazy, several experts said.

"I am a great admirer of Professor Yunus -- he is a brave, generous and brilliant man who's done lots of things that needed to be done," said Abhijit Banerjee, a development economist at the Massachusetts Institute of Technology, referring to yesterday's Nobel Peace Prize winner, Muhammad Yunus. "But being where I am situated in the intellectual domain, I can't possibly say there is evidence that [microcredit] actually works."

That's not to say that it doesn't work. It just means more thorough research may be needed. Mr. Banerjee, who hopes to get more results next year from a study he's conducting in Hyderabad, India, believes it works but says the evidence so far has been "patchy."

There are "a lot of very plausible theories which make it highly likely that in some version it does work," he said. "But to go from there and say that there actually is demonstrated evidence that it works is a stretch."

That's because it's hard to compare someone with a loan with someone without a loan. People who tend to take the loans do so voluntarily, meaning they're probably already more motivated to claw themselves out of poverty, he said.

I saw today that Choice and the Consumer Action Law Centre are running a campaign to make banks more transparent about the penalty fees which we all pay on our accounts. It's called "Fair go on fees."

I'm interested. I accidentally paid the rent twice over a few weeks back. In the process, I overdrew our account, and got charged a penalty fee. Oops. I was miffed.

Choice and CALC are questioning the legal basis upon which banks charge penalty fees. It's fine for banks to charge customers a fee which represents a genuine pre-estimate of the loss caused by a default or breach of contract (sometimes called “liquidated damages”). However, “penalty” clauses, which seek to penalise the customer for the breach or default, are unenforceable by law, whether by principles of unconscionability (see eg. O’Dea v Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR 359; AMEV-UDC Finance Ltd v Austin (1986) 162 CLR 170; Esanda Finance Corporation v Plessnig (1989) 166 CLR 131) or pursuant to legislative provisions such as s 32W of the Fair Trading Act 1999 (Vic).

Banks call these charges by all kinds of names: "service fees", "account overdrawn" or "honour fees", "credit card late payment fees", "cheque dishonour fees" and "direct debit dishonour fees". But it doesn't matter what they call them - what do they look like in substance? The problem is that it's hard to know. Banks don't like disclosing information about penalty fees.

The fact of the matter is that some of the penalty fees don't seem to bear any relationship to a pre-estimate of loss suffered. And some bank fees are rising far in excess of inflation. Sounds unfair...and illegal.

Another problem is that you are more likely to end up paying these fees if you don't have much money. If you're a millionaire, you don't have to worry if the rent is taken out twice, or if you are charged for someone else's cheque bouncing, but if you haven't got stacks of cash in your account, then...whoopsies, there's a big negative bank balance there. So the vulnerable are penalised.

Choice and CALC argue that:

Banks and other financial institutions should:

• Eliminate inward cheque dishonour fees.
• Introduce systems to provide a greater range of options and real-time information to consumers where there are insufficient funds to make a due payment. These might include simply declining payments without charging a fee, an automated system to notify consumers by email or text message (or perhaps for concession card holders without electronic facilities, by phone), or by automated message via the ATM or EFTPOS system, before the payment is processed.
• Adopt one of the following responses to credit card over-the-limit and account overdrawn honour fees:
  • eliminate the fees altogether (we note that credit cards operated successfully in Australia for some 20 years without such fees)
  • offer consumers a choice between declining transactions (at no cost), or charging a reasonable fee no more than the actual cost to the bank or say 2-3% of the amount by which the consumer has exceeded the limit/overdrawn their account, whichever is lower.
• Ensure that all other penalty fees are limited to the actual costs incurred by the institution.

Sounds fair enough to me. If my bank had a policy like that in place, then my second mistaken rent payment wouldn't have gone through. The bank would have contacted me by e-mail, perhaps, to let me know of my mistake. I would have said I didn't want the second rental payment to go through. And then I wouldn't have been charged a fee. Simple.

But unfortunately, it doesn't seem to be about making things easier for the customer. Banks just want their pound of flesh.

After reading that Choice website, I think I might contact my bank about that recent account overdrawn fee, and ask for a refund. The worst they can say is "No". And the best outcome is that community pressure could force banks to change. Yeah! Power to da people!

Nabard announce the Bhavishya Nirman Bonds. This bonds are a 10 year zero coupon bond. The sale price is Rs.8250.00 upto 3 Crore investment and Rs.8200.00 for Rs.3 Crore and above investment. The maturity value is Rs.20,000.00. It carries a 'AAA' rating by CRISIL & CARE. The bonds also has the advantage of TAX U/s.2(47) & 2(48) of IT Act. The issue is on tap. Nabard is fully owned by Govt of India and the RBI. This is a very good investment opportunity where the yield is around 12.82%. One more advantage is that the money invested is directly utilised for the development of rural India. More information can be had from,

National Bank for Agriculture and Rural Development,
113/1, Jeevan Prakash Annexe,
J C Road,
PB No.02.
Bangalore-560 002.
Ph:91.80.2222-5248.
Cell:94484-97000.
http://www.nabard.org

The Bangkok Metropolitan Administration will cooperate with the World Bank in writing a framework for working to reduce global warming, Bangkok governor Apirak Kosayothin said on Friday.

Read the rest of this entry »

Had a very busy day attending meetings and presentations.

I was supposed to have our passbook updated at IBank yesterday, but the bank was offline for most part of the day.

When I finally got around my hectic sked, I knew I can still make it in time to have the passbooks updated. I looked at my watch and saw that it was 10 minutes to 3pm. With 3 minutes to spare (on my watch, at least), I got to the door, which was already closed, and politely requested the guard if I may just update two passbooks. NO deposits or withdrawals, I said. The guard turned around to ask the tellers, then gave me a stern, unfriendly reply... Can't accommodate you.

I asked politely again. Just an update. Sternly, the guard answered again.. this time with a menacing look. Can't accommodate you. NO apologies. NO smile.

And to think this Bank proclaims excellent and friendly service.

Accounting is not a difficult subject for me, I must admit. I make mistakes, but who doesn't-they have a word for it and it's called "human error."

I made a couple of "human errors" on my banking in the last month or so. Enough to accumulate about a $60 difference. A $60 difference in an account with well over $100 usually doesn't make a difference. Well, it made a $270 difference this time.

This all, apparently, started out two weeks ago when I bounced sixty-two cents worth of a $10 check. It added a $35 fee for paying the overdrawn balance. The fees started to accumulate majorly putting me further and further into debt quicker than smoking week or doing ecstasy.

Last week I went the entire week without knowing how far I was overdrawn, so I kept swiping and the debt kept coming.

Saturday we were sitting in Leigh's car and we both checked our accounts before we went in to make sure we were going to be fine going in-although, I was positive I was going to be since Quicken had told me I had plenty of money in my account. These words came from the automated teller's computer mouth: "Your account is currently overdrawn by two-hundred seventy-eight dollars and" some change. I was floored. And freaked out.

I get to the bank on Monday. The manager wasn't as helpful as I figured she'd be. She blamed me on the problem and wouldn't even consider the fact that there _may_ have been a miscalculation and refused to even look at my documents from Quicken. That pissed me off.

She offered to set up OnLine Access-the out-sourced online banking software-so we did that. That's about the only productive thing we did.

I gave up and made a couple of phone calls and put in $150. She refunded $105 in fees, only "what she could." It put me at a positive balance.

Everything was fine and dandy. Throughout the day. Throughout the evening. And up until 2am, when I went to bed.

The next morning I awoke to, again, $270 worth of backlog.

UGH.

This time, I called ranting. Her words were: "We can't do anything for you. Good bye."

So, I had $275 transferred into the account. Now, I'm at a bare amount: $30. I have thirty damn dollars to show for the $400 I've put into the bank. All but $30 of the $400 went to the bank. I just paid a bank teller's salary for the week, go me.

I understand that the one way that a bank makes money is through the fees. But, if they wouldn't try to impress everyone with multi-billion dollar building with 1000 security cameras and 13 lazy workers who see many 10 people a day, they wouldn't be out to get everyone's money.

That's just my opinion. I'm not a bank and I'll never manage one. I promise.

Just a brief post on Mike Smith's appointment to head the ANZ. It is good that they have acted early to replace McFarlane, but there must be at least a few disappointed internal candidates. Headhunting externally is normally a sign that either an organisation is in crisis and / or internal succession planning has failed. It may also (more rarely) mean that there is a compelling case for a particular person.

As the ANZ does not appear to be in crisis then it means that either the internal candidates were considered not up to it or that Mike Smith brought something special. Either way, look for an exodus of senior people at the ANZ over the next few months as they gradually find jobs elsewhere.

Alexander Schellong has an interesting post in the Complexity Blog about the rise of social Peer-to-Peer (P2P) Lending where, like e-bay, you can make it possible to get borrowers and lenders directly together, as opposed to typical financial institutions that generate capital from savers and then figure out who to lend the money to.

More research needs to be done to determine whether such lending is more or less efficient than having intermediaries (i.e., weighing the savings from not having intermediaries against any possible greater efficiency of such institutions in figuring out who is loanworthy).  Also interesting to see whether loan repayment rates are higher in the P2P case.  Certainly in microfinance credit circles (like the Grameen Bank) the repayment rates are higher because of the social capital among the borrowers: in other words you don't want to let down your village-mates and fail to pay off your loans, because otherwise your lack of repayment inhibits their ability to borrow money, and they surely know where to find you...

Possible also, if repayment rates are high, that social lending, like e-bay or a transaction craigslist, does something to restore your general confidence that as Craig Newmark asserts, most people are honest and good.