UPDATED Weekly Roundup: Haiti’s Peanut Pushback, Moms Vs. Markets and Should Google’s Payday Ban Apply to Microfinance?
(See updates below)
In March, the United States Department of Agriculture announced a deal to donate 500 metric tons of packaged, dry-roasted peanuts to a program intended to feed Haitian schoolchildren. The nut glut is the result of the 2014 U.S. Farm Bill that encouraged American farmers to grow more peanuts. It worked and now the government is sitting on a massive surplus of perishable nuts.
But didn’t take long for commenters on the USDA’s blog to universally assail the project.
“I can actually post the names of a few Haitian farmers who would be hurt by this dump,” announced one.
“Stop it. Just stop it. You are not helping Haiti. You are helping rich American farmers on the backs of the poor in Haiti. Just stop it,” pleaded another.
In Haiti, one of the more respected farmer financing and education organizations, Fokonze, thoughtfully explained how its program instructs ultra-poor women farmers to grow peanuts because they are drought resistant. “A massive influx of imported peanuts would cause the price of local peanuts to drop and would substantially reduce the income these women could obtain from this reliable crop.”
Like Fonkonze, NGOs such as Partners in Health, the Institute for Justice and Democracy in Haiti and Oxfam have all accused the U.S. of repeating an awful history of market tampering. Marc Cohen, senior researcher for Aid Effectiveness at Oxfam America, recalled Bill Clinton’s regret at intervening in the Haitian rice market in the 1990s:
“It was a mistake. … I have to live every day with the consequences of the lost capacity to produce a rice crop in Haiti to feed those people, because of what I did,” Clinton has said.
Cohen wrote that the U.S. government’s Feed the Future Initiative, the Clinton Foundation and Partners in Health efforts have found more effective ways to “reduce poverty and provide food for Haiti’s schoolchildren.”
Yet in an interview with PRI, Alexis Taylor, the USDA’s deputy under secretary for farm and foreign agricultural services, said there are no plans to alter the shipments. She encouraged critics “to go to Haiti and speak to the families that I spoke to, and see the children that are getting the food. … It is about supporting a very vulnerable population, and that’s the crux of it.”
I understand there are separate realities in play here. But given the increasing pressure from Haitians themselves, it seems bullheaded not to at least consider the impact on Haiti’s farmers and to work constructively with groups like Fonkonze. Because as it stands today, the USDA donation is just plain nuts.
– Scott Anderson
Market Solutions Babies Could Do Without
Even as entrepreneurs and supporting organizations find new markets in places like Haiti to help solve vexing problems, comes proof that few things are as simple as they seem. It involves breastfeeding.
The World Health Organization recommends breastfeeding up to 6 months of age and continuing, with “appropriate complementary foods,” up to age 2 and even beyond. The reason: Breastfed children are healthier and smarter than those fed baby formula, experts say, and mothers who breastfeed have less chance of developing breast or ovarian cancer. The evidence is so compelling that WHO’s World Health Assembly in 1981 non-controversially adopted the International Code of Marketing of Breastmilk Substitutes, restricting the advertising, marketing and promotion of baby formula.
It turns out only 39 countries have fully implemented the code and that baby formula advertising is undermining WHO’s recommendation. A report released this week by WHO, UNICEF and the International Baby Food Action Network shows that, in fact, two out of three infants are not exclusively breastfed for the recommended six months, and that rate hasn’t improved in two decades.
Dr. Phillip Baker is part of a team that researched the subject and found a surge in global baby formula sales – up 41 percent from 2008-13, and especially strong in industrializing countries in Asia, plus South Africa, Iran, Turkey, Brazil and Peru. That led the team to describe a global “infant and young child feeding transition.”
“Free trade agreements have allowed transnational formula companies to more easily enter and establish operations in developing countries,” Baker writes for PLOS. “Marketing by these companies powerfully shapes social norms about infant and young child feeding by portraying formula as a symbol of modernity, as comparable or superior to breastmilk and formula feeding as extensively practiced. … We estimate that the industry’s global marketing expenditure exceeded US $4.48 billion in 2014, a figure comparable to WHO’s annual budget.”
At NextBillion, we recognize and promote market innovations as the most efficient way to address complex issues in emerging economies. But we also recognize that fully functioning markets include regulation and accountability. Those are yet to be developed in the baby formula business, and many children are suffering as a result.
– Kyle Poplin
Google Targets Payday Lenders – Why Not Microfinance Too?
Payday lenders were already in the crosshairs of regulators and consumer advocates – now their enemies list has extended to the tech world. Google announced this week that as of July 13, the industry will join the likes of explosives and weapons manufacturers, tobacco companies, and drug and related paraphernalia marketers on its advertisement blacklist.
Though there’s some ambiguity about how the company will apply this policy, it will apparently institute a global ban on ads for loans where repayment is due within 60 days of the date of issue. And in the U.S., this ban will also apply to loans with an APR of 36 percent or higher. “When reviewing our policies, research has shown that these loans can result in unaffordable payment and high default rates for users,” a Google spokesperson wrote.
Indeed, by offering small, short-term loans in exchange for a single flat fee that can amount to an APR of almost 400 percent, the payday lending industry tends to draw low-income consumers into a ruinous cycle of debt. It’s easy to see why Google has jumped on this bandwagon, joining Facebook, which instituted a similar ban back in August, to much less fanfare. But neither company has extended their policies to another popular financial product that bears some similarity to payday loans: microcredit.
Like payday loans, microcredit is targeted toward poor customers in underserved areas, necessitating interest rates that are far higher than most of us would feel comfortable paying. According to Chuck Waterfield, founder of the now-defunct watchdog organization Microfinance Transparency, “It is rare to find a microloan with interest of less than 30 percent, and in many countries the average rates are 75 percent to 100 percent.” As with payday lending, microcredit customers often take out additional microloans to pay off previous ones, sometimes resulting in “unaffordable payment and high default rates,” as Google might phrase it. If the company is determined to protect its U.S. users from exposure to 36 percent APRs, why does it seem unconcerned about interest rates of double or triple that number in countries that are far poorer?
The answer to that question likely boils down to the fact that microfinance has branded itself from the start as an anti-poverty intervention, and most providers, arguably, do try to uphold that ideal. But easy as it is to demonize payday lenders as predatory loan sharks, many of them also try to work in their customers’ best interest – just as some microfinance providers are mainly in it for the money. And both payday lenders and MFIs are facing the same challenges and pressures – the high defaults and overhead that are a natural part of working with the poor. It’s hard for any institution in that position to remain sustainable while offering interest rates that the general public would find acceptable. What’s more, both microcredit and payday loans are often the best of several bad options for the poor, even at high interest rates – if the alternative is eviction, or no electricity in winter, a three-figure APR may not seem so intolerable.
Clearly, there are many differences between payday lending and microfinance. But it’s equally clear that, based on its current logic, Google could make a case for extending its advertisement blacklist to microfinance providers. If that idea makes you uncomfortable, it should – if tech behemoths grow comfortable wielding their power as gatekeepers of the Internet to the detriment of entire industries, based on arbitrary internal assessments, it’s hard to predict where that might end. “Don’t be evil” is a fine maxim for a company – but do we really want “evil” to be defined by Google?
Arjan Schutte raises some points in this American Banker article that have tempered my skepticism of Google’s move. Money quote:
“Payday loans are the only product I know that are more expensive online than offline. There are a couple of reasons for this and Google is an important one. Not long ago when you searched for “payday loan,” as much as half of the sponsored results were either not lenders at all or they were lawless offshore lenders. Consequently, the customer acquisition costs for regulated, licensed payday lenders, or their more progressive brethren like LendUp or Zest, went through the roof. Think about it. How can you not charge three-digit APRs if it costs $100 to $150 just to acquire the customer? … Given its effective monopoly on Internet search, bidding up payday-related keywords is making a bad product worse.”
But since he’s also concerned that Google’s policy could affect responsible lenders serving low-income customers, Schutte suggests that Google set up an internal process, or contract outside partners, to vet buyers of payday-related ads and “separate the good lenders from the bad.” A great idea, but it seems unlikely that Google will introduce this degree of complexity (and possible controversy) to its policy, when an outright ban is so much simpler.
The Wall St. Journal has added a new wrinkle to this story, reporting that Google is a long-time investor in the payday lender LendUp, via its parent company, Alphabet Inc’s venture capital arm. As the article explains:
“LendUp describes itself as an alternative to payday loans, because it doesn’t charge early-payment penalties, nor does it roll over loans when borrowers don’t pay. But LendUp does float loans with APRs that can top 600%. Thus, LendUp will no longer be able to advertise on Google, per its payday loan ad ban.”
LendUp CEO Sasha Orloff expressed concern about the implications of the ban, which could make it harder for his company to market its loans and attract new customers. He’s quoted in the Journal as saying the policy “paints with too broad a brush,” and that “we were surprised by the announcement and would take a different approach.” But he believes his company and its powerful patron are still on the same page, in terms of their attitude toward the broader payday loan industry. “Google is applying pressure from the outside, and we applaud them. LendUp is trying to change the system from the inside.”
Maybe so, but I hope the folks at Google will take this as another sign that, when it comes to lenders serving low-income clients, separating the heroes from the villains is harder than it looks.
LendUp informed me via Twitter that their CEO has elaborated on his views on payday lending and Google’s ad ban in an article on Medium – you can view it here.
– James Militzer