When I spoke to Rupert Scofield, he’d just got in the door from Malawi. His company, Finca International, was celebrating its thirtieth birthday two years late – and marking the launch of its bank in the country. “We had a marching band, all our staff were there. And we’ve opened up right opposite the central bank,” says Scofield, who co-founded Finca with John Hatch, who retired in 2006, back in 1985.
Now, Finca runs extensive financial inclusion programmes, lending to people in poverty across 23 countries, and receiving funds via donations and institutional investment. Thirteen of its subsidiaries are now regulated deposit-taking entities and, with over 2m customers, it is the most influential microfinance organisation in the world.
But 66 year-old Scofield didn’t always dream of changing the world. Having announced he spent his young adulthood trying to become a novelist, I asked him what changed. “When I was in fifth grade, I got the writing bug from an incredible teacher I had. He was a former journalist and one of those people who could inspire a whole room of kids every day.” As a twenty-something, Scofield penned his first novel. “When you’re young, you think you’re great. I was working for the Peace Corps in El Salvador and so I had enough time on my hands to write a novel... my boss was assassinated, so I thought I had ideal material too.” Publishers didn’t agree, but rather than let his drive wane, Scofield channelled it into the business that became Finca.
“I’d been doing dangerous work in Latin America – political work. It was the 1970s and we were helping union members. If I’d stayed in it, I would’ve followed my boss. I was married and had a baby, so that may not have been wise. John [Hatch] approached me with an idea, and that’s where it all started.” Hatch told Scofield that he wanted to start up a foundation to run a credit scheme from. It was similar to work the latter had recently been doing in Guatemala, but there was a twist: Finca would focus on lending to women. “It meant a far bigger development impact. Women are more honest about repaying loans; they’re also more likely to invest profits in their children. We thought it’d take six months to raise initial capital. It actually took six years.”
Finca is best known for its village banks, which is what the pair initially built, and a microfinance model that has been imitated over and over in the subsequent years. “I suppose these days people would call what we did ‘disruptive’. For the first decade and a half we just had financial NGOs offering credit only. We did take savings in some cases, though it wasn’t legal. But encouraging people to save was vital to our model, and they wanted to do it.”
Despite the informal banks enabling local people to lend out to others and receive good return rates, the lack of regulation or legality ended up being a serious issue. “We had incidents of treasurers running off with other people’s money and funding new lives elsewhere. Sadly, we had to stop doing it because we just couldn’t supervise it.”
Fortunately, the pair quickly came up with a solution. “We thought, ‘let’s turn the NGOs into commercial banks’.” Not all of Finca’s operations are straight banks – some are deposit-taking microfinance institutions – but each entity has given the organisation a lot more to play for. “It means far more capital to expand with, and savings that we can take as a service to our clients for starters.” And making loans in local currency across the globe also makes having people opening savings accounts in given currencies extremely helpful.
“It’s no picnic having financial regulations, though,” says Scofield. “Central banks are watching you very closely. The reporting means a lot of expense, but it’s a necessary evil that we put up with so that we can expand and provide a wider range of financial services to customers.”
Scofield is thoughtfully dismissive of newer microfinance models that require individual profiling of recipients. “It requires thousands of employees, and people making one-off donations to specific individuals... you’ve also got to process all of those small loans; it’s just not an efficient way to operate.”
Up to the minute
Finca is focusing carefully on other areas of innovation. It’s successfully rolled out agent banking throughout several countries, where a trained agent in a regional kiosk acts as teller on behalf of a bank, using a POS machine and automated ID checks to take deposits, make transactions and issue agreed loans to customers. In the Congo, Finca has 650 commission-paid agents, with 70 per cent of the country’s transactions done via kiosks. “A branch can cost us £250,000. This system is lowering costs for us and for our customers – and making things far more convenient for them.”
And the company has now gone a step further. “In Pakistan we’re working with a tech partner to develop an app which will provide our customers with a mobile wallet. They won’t need to go through an agent unless they’ve got physical cash, and the internet service provider charges us a subscription fee, rather than a transaction fee.” This last bit is important, says Scofield, as many people in Africa are currently “being hit” by per transaction fees. “Emerging markets are jumping over developed ones in terms of banking electronically. The good thing for our customers is that they won’t be charged a transaction fee.”
And there are other changes afoot. I met Scofield last month on a trip to London. Having raised investment solely in the US and Canada until now (the digital agency network was funded by MasterCard), Finca is looking across the pond, with the aim of raising £1m in the UK before the end of the year. “It’s kind of fun because, in a way, it’s like turning back the clock to when we started. It’ll be the same journey, but hopefully with the power of brand and track record.”
Scofield reflects on the suggestion that Finca has hyped the work it’s done over the years. “There’s no question that we’ve made an impact. There are many people now with access to financial services that didn’t have that access before. That’s a good thing, it’s a necessary thing. The nut that still hasn’t been cracked by anyone is how to keep getting the benefits to the bottom of the pyramid.”
On the upside, he adds, he did eventually manage to get his novel published. “It came about in a strange way. A poet in El Salvador contacted me years later and said he wanted to translate it into Spanish and get it published, because it was the story of his country during its civil war. He insisted I didn’t pay him. I felt bad for not doing so, didn’t know he was a recovering alcoholic, so gave him a bottle of Johnnie Walker and lost him for the next six months. Anyway, it turned out alright in the end – and it was thrilling to have felt like I’d finally made it.”