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Fertilizer, fintech, blockchain and borrowing: FINCA’s Rupert Scofield on development, technology & microfinance

Rupert Scofield and Nelson Zuniga Lopez

Rupert Scofield, Co-founder of microfinancing pioneer bank FINCA, talks to Glint about his time in the Peace Corps, the dangers of populism and how technology is set to bring financial services to the developing world

The gun did not work but he didn’t want the locals to know that, and he didn’t want the Peace Corps to know he had the gun. “They would have immediately sent me home. It was an old .45 I had on the desk in case anyone was interested in robbing me. They knew I was taking in money so I wanted them to know I had a gun. Someone had found it and dug it up and sold it to me for a dollar.”

Rupert Scofield has a wizened grin as he recounts the circumstances that led him to found microfinancing bank FINCA, an operation that last year loaned out over $1 billion to the poorest people in the world. It all started, he says, because he was a draft dodger. “It was 1971, at that time the Vietnam War was at the point where, as John Kerry put it, ‘no one wanted to be the last man to die for a mistake’. I looked around for different ways to get out of it and found this thing The Peace Corps.” Assigned to an agricultural cooperative in the highlands of Guatemala he undertook to provide $50’s worth of fertilizer for the farmers trapped in subsistence cycles on large plantations who “were treated worse than animals”.

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Having secured orders in the form of credit loans for 800 farmers he was told nothing would happen as the rains had started. Finally he found the only truck driver who would make the delivery: “I called him ‘The Rommel of the Mud Roads’, we had this truck and we were skidding and sliding over the mountains but I’ll never forget getting to the village and the driver got on the horn and the people broke out cheering. One half who had invested were all smiles, while the other half were like ‘oh shit! The gringo came through!’”

Estela Amparo

Nicaraguan merchant and FINCA beneficiary Estela Amparo

The possibility of such programmes combined with the fact that 799 repaid the loans in full (“Apollonario Aptz didn’t – I’m still searching for him”) gave Scofield the moral motive and business mandate to continue, eventually joining John Hatch’s ‘Village Banking’ venture before setting up FINCA with him in 1984. The operation now operates in 21 countries, loaning out around $1.3 billion per annum and with an estimated 1.6 million clients, the majority being poor women, who FINCA believe will most wisely invest the money to make it provide for their family.

That early traversing of Guatemala’s mud roads could be seen as prophetic. The journey Scofield has taken has been far from easy and often weighted by tragedy. In 1973, while working with the Peace Corps in El Salvador, Scofield’s boss was assassinated by a hit squad employed by landowners seeking to crush a labour movement. While he himself has had to flee from security forces and nefarious agents on numerous occasions.

RS in Peace Corps

A younger Rupert Scofield serving in the Peace Corps

However FINCA, through careful, conciliatory management and perseverance have now managed to grow from a network of NGOs to a network of banks. Scofield points to one country, Pakistan, where they have over 500,000 clients, over 2,000 employees and over 100 branches through which they have loaned over $120 million.

The sheer size and scale of the operation is impressive as is the incremental impact Scofield and his staff have had on their clients. Loan receivers are able to scale their businesses, provide for their families, give education to their children and bring important, mutual economic growth to their communities. But, unlike many NGOs operating in such delicate spaces, FINCA is not a charity. Although just under 10% of their income does come from donations, the aim of the bank is to turn a profit in order to achieve growth and sustainability. “If we just gave money away we would not have become a billion dollar company in over 20 markets, we’d be unsustainable, we’d constantly be out raising funding.”

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That concept of mutual growth, rather than one way handouts, is crucial. “We floated the whole thing in 2011,” says Scofield. “We started out quite well, the first year we made $30 million, we decided that was too much money so we lowered our interest rates which worked like a charm because we made $24 million the next year – It’s kind of a sore subject with our investors,” he chuckles.

“The next year we made $12 million and then we started to really see the margins shrinking because there was more competition; everybody was looking to get into microfinance: big banks, retailers, fintechs, payment companies – and that’s still a huge challenge for us.”

While the challenge of competition often has a silver lining, there were other challenges that were more fundamental in circumstance. In 2015 commodity prices started to collapse including oil and minerals, affecting many primary industry led economies, including China. This had the knock on effect of devaluing domestic currencies. Scofield is refreshingly candid for a banker in detailing the situation: “Most of our loan portfolios were in local currencies, so when the currencies began to fall our portfolios would take a balance sheet hit of 50% in some countries. But the real problem was traders who owed us money in hard [reserve status] currency, which we allowed them to pay back in local currency but at the prevailing exchange rate. For example, the manat in Azerbaijan devalued by 60% – suddenly the people owed us twice as much in local currency. Then the government would get involved and say ‘don’t pay FINCA’.”

However, the last six months has seen a $3 million turnover, reward it seems, for the dynamism FINCA have shown at the raw end of capitalism, a place where technology has a critical effect.

“In many ways I think our banks are more advanced than a lot of the banks here in the UK, or in the US, in terms of the digital financial services we provide. In the Congo for example: We have over 1,000 agents who work outside of the banks and sell lottery tickets and cigarettes at a kiosk and they have POS [point of sale] machines so they can take money from our clients when they want to repay a loan – they don’t have to go to a branch.” He also mentions the roll out of other remote payment systems and a smart phone app supported e-wallet in South Asia, already with 30,000 users.

Monica Mulondo

Rupert Scofield and co-founder John Hatch with Monica Mulondo in Uganda

On whether such innovation has been deliberate, or a more organic reaction, Scofield shows himself to be in tune with the business sentiment of the day. Indeed, the 68-year-old might be considered ahead of the curve. He points to the six points of business identified by Intel head Andy Grove and where to identify a disruptive “10x” inflection point. “You have to do something totally different or you’re going to go out or business. I was looking at these points on FINCA and five, of the six points, are ‘10x’. We’re looking at blockchain, that is going to disrupt every single business in financial services.”

Power corrupts

Finance is not the only sector that needs disruption, says Scofield. While he dismisses the argument that microfinance and social entrepreneurism have failed to make any meaningful impact on the developing world, he is clear that inherent, systemic, challenges remain. “It’s depressing really when I think about some of the countries we work in, the corruption is just so embedded and it’s always at the top – that’s where they set such a horrible example for the rest of society. Everyone knows the big man is ripping everybody off and so is his whole family.” He points to a health insurance service his team have provided in Guatemala: “People are just knocking the doors down because the health sector has collapsed because the minister is stealing all money, the hospitals have no medicines. These people are given an opportunity to help their country and they just squander and steal; it’s sickening.” The last sentence has venom: he is intensely critical of the abuse of power he sees around the world and doesn’t preclude developed states, going to pains to describe the “monster” of populism.

Titiwa Mwanji

FINCA beneficiary, Titiwa Mwanji, in the Democratic Republic of Congo

However, the friction between inclusive growth and selfish power need not be rote. Scofield points to a number of FINCA board members who are now ministers in Uganda, the desire for the next generation to do meaningful work and the power of technology. “We’ve exited Mexico and El Salvador and will be getting out of some other countries so there’s a sense of mission accomplished but, if we develop some killer app, then we could go back to these markets and make a whole new start with a totally different business model…”

From London Scofield will fly to Switzerland, Pakistan, Egypt, Kenya and Bulgaria to meet investors, innovators and clients before returning to the US. While he candidly admits microfinance hasn’t solved the problem of poverty he is unapologetic in his belief it has provided answers. “What would the world look like if you took it away? There are academics who say they’ve done studies and there is no impact. Are they saying all these people are that stupid that they’re working this hard at their businesses for no reason? We’re not talking about a few people, we’re talking about hundreds of millions. I still maintain it’s fulfilling a big role because everybody needs financial services if they’re going to be able to do anything.”

Due to the work done by Scofield and his peers that need is now universally recognised. Does being the instigator of a new norm still make him a draft-dodging rebel? He cracks a smile, “a rebel with a cause”.

Village Bank

Rupert Scofield setting up Uganda’s first Village Bank in 1982

FINCA

Top image: Rupert Scofield and Nelson Zuniga Lopez, a local farmer, in Nicaragua

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