Atsumasa Tochisako is recreating microfinance and remittance-transfer industries to serve the world’s new, globalized poor regardless of where they are—at home or working abroad. While economic migration is quickly transforming the world, the financial-services industry has failed to adjust. Atsumasa recognized that by treating the family as a single, transnational entity, with all members accessing high-quality financial services, global economic migration can be leveraged as a powerful engine for economic betterment.
The New Idea
Through Microfinance International Corporation (MFIC), Atsumasa provides needed financial services to populations ignored by mainstream banks, and pushes other financial institutions to do the same. Where financial institutions see laborers without stable income or credit histories, Atsumasa sees hard-working individuals fulfilling their familial responsibilities—that is, good credit risks. His one-stop microfinance storefronts are demonstrating how the information inherent in responsible remittance-transfer behavior can be used to ease immigrants toward an array of more complex financial products.
Then, through its financial-settlement platform, MFIC brings partners aboard to level the playing field between small, local MFIs in developing countries and sophisticated international financial institutions. Atsumasa’s ARIAS software tool connects local MFIs in home countries to not only his own storefronts in migration destinations, but also to major banks that have licensed the tool. With only a computer, an internet connection, and ARIAS, MFI networks can accept and distribute remittances in local communities. With that channel at his disposal, Atsumasa is creating the world’s first transnational financial services (including mortgages, home-improvement loans and insurance in home countries) based on migrants’ creditworthiness, bringing those services to the world’s fastest-growing economic unit: The transnational family. ARIAS is a unique software offered for the first time in the financial industry, equipped with a real-time front-end regulatory compliance verification module and a real-time fund-settlement system. The system is designed to invite positive participation of banks, to cause hyper-competition in the remittance market (so that the remittance cost will be gradually lowered) and to improve the industry’s compliance performance, dramatically making the financial infrastructure serving immigrants solid and sustainable.
Atsumasa’s work provides the practical infrastructure to turn the multibillion-dollar cash transfer industry into an engine for long-term economic improvement, by equipping nonbanking service providers, both at home and in worker destinations, to serve their poor clients with appropriate and comprehensive services. In developing countries he is planning to lend the securitized “float” from remittance transfers to small MFIs who reach the poorest of the poor. In the process, he empowers them to begin providing more creative and comprehensive financial services, moving beyond the traditional microcredit models. In worker destinations, a second electronic platform will allow the ailing money service companies (currently only cashing checks or transferring cash) to begin replicating the array of financial services demonstrated by Atsumasa’s functioning storefronts.
Think tanks and development banks long have debated the role that remittances can play in broader development efforts. Atsumasa is leveraging them to recreate the microcredit industry to reach all members of the world’s poor families with the specialized, quality financial services they deserve.
Despite the proliferation of microcredit, adequate financial services remain out of reach for the world’s poor. This shortcoming is nowhere more striking than in the communities where migrants congregate in developed countries. In the United States, for instance, a 2004 World Bank study estimated that 61 percent of urban Latino families do not have a bank account. Credit access, the mainstay of financial services, illustrates the mismatch between existing services and the needs of immigrant populations. Credit-scoring mechanisms, designed to assess the risk of lending to a particular individual, regularly preclude hard-working, responsible immigrants because they either lack a credit history or have defaulted on a usurious loan signed in a moment of desperation. Banks are a deeply cultural phenomena, which intimidate immigrants who fear exposure of their legal status, do not speak English, or are simply unfamiliar with the concept of formal banking institutions.
Without other options, immigrants must deal with extortionary service-providers that have grown to fill that vacuum. Many use high priced check-cashing services, and many more rely on money-transfer companies—Western Union and Money Gram—that charge exorbitantly high rates for sending money home. Typically, immigrants go to mom-and-pop shops to make such transfers, where agents present the services which offer the most commission (rather than the lowest rates), and also often treat their immigrant clients disrespectfully. While some efforts by multilateral and private banks have pushed prices downward, to date, no one has developed sustainable, effective and respectable infrastructure accessible to immigrants who send small, periodic sums to their families at home. Moreover, as a result of both 9/11 and the financial turmoil of late 2008, the very existence of these services is threatened as the banks that hold their accounts are under increasing pressure triggered by financial regulators to close accounts which may allow anonymous financial transfers.
Inadequate financial services don’t end at the border. Once money is transferred, a family member merely picks up cash—66 percent of Latin American families receiving remittances do not have a bank account. This is a lost opportunity as holding the money as cash makes it more likely that it will be spent, rather than a portion of it saved. Large international banks don’t reach the community level in the countryside, and MFIs remain weak despite significant advances. A handful of large MFIs have access to capital and infrastructure, but the majority of operations, those most able to reach the grassroots level, have severely limited access to capital for expansion and lending. Other than a few experiments, these MFIs have not been able to tap into remittance flows to strengthen their operations. Upgrades that would allow them to connect to the global financial market are resource intensive and time-consuming. As such, MFIs, particularly those serving the most remote and poor populations, remain unable to provide more than basic microcredit services.
Thus, as families globalize, neither those remaining at home nor those living abroad have access to quality financial services. Even when a family member does successfully migrate and gain access to a steady income, existing banking infrastructure does not allow families to leverage this flow through access to a broader set of financial products. Money goes back and forth as cash, with large commissions held out, leaving a portion of immigrants’ earning potential untapped.
MFIC, through its subsidiary Alante Financial, combines the full spectrum of financial services in single one-stop shops serving local immigrant communities. Locals first stop in to send money home, taking advantage of rates that are half those of traditional money-transfer companies, but over time begin accessing other financial services, as well. Alante tracks remittance-transfer histories and begins to learn about its clients’ creditworthiness through this crucial, but otherwise inaccessible, information. A neighborhood presence allows Alante staff, themselves community members, to carry out effective due diligence on a potential borrower through reference checks and popular knowledge. With this information, Alante helps clients build a formal credit history (loans can be reported officially to credit tracking companies), beginning with micro-loans and eventually working up to more complex financial products.
Beyond money transfer, Alante centers offer services ranging from mortgage and emergency loans to insurance products and low-cost calling cards. As of 2007, MFIC was serving 70,000 people via nine storefronts in Washington, D.C., Maryland, Virginia, and Delaware. The Alante retail centers treat customers just as what they are: Clients. They are served quickly, in a clean and bright space, in their neighborhood, in their own language, with products and services designed to meet their needs. Alante treats immigrants with the dignity and respect they most desire and deserve, building a loyal customer base in the process. Most importantly, prices are reasonable. Remittance rates are half the national average, and consumer financing hovers around 22 percent, far lower than the effective annualized rates—often exceeding 100 percent or even 500 percent—to which most immigrants have access.
Atsumasa knows that the Alante storefronts are expensive and stand little chance of penetrating the entire market. He sees them as test sites and models for an electronic platform that he currently is developing and which will allow non-bank financial institutions—the money-transfer and check-cashing companies that pepper cities around the world—to provide the same array of services. The economics will drive their decisions, as those in the U.S. face increasing scrutiny and shrinking profits. MFIC is pursuing a global partnership strategy to spread this work, beginning with Abu Dhabi-based UAE Exchange, which has a strong presence in the Middle East and Asia and currently allows MFIC to transfer money to more than 90 countries.
With Alante centers on the sending end, MFIC partners with the home-country-based MFIs in the communities served to operate on the receiving end. MFIC provides those MFI partners with the tools they need to tap into global financial transfers. But MFIC’s partnerships only begin with the MFIs it engages. The ARIAS system, a Web-based financial settlement platform, allows global banks transferring billions of dollars a day and small MFIs alike to operate side by side with the requisite level of security and efficiency. As mainstream banks seek a greater share of the remittance market, attracting customers both in home countries and abroad, they too will need access to a settlement platform that allows them to operate globally and outside their own branches. MFIC currently licenses its ARIAS platform—built to be compatible with the internal systems of most global banks—to two regional banks in the United States, but ultimately can provide easy access to the global money transfer market for all players in the field, both big and small.
The international development community has long sought a means for leveraging remittances so it might create more than just improved consumption. Atsumasa has operationalized this idea by linking remittances directly to local microfinance institutions, which can offer financial services that go beyond simple cash transfer. He is strengthening these local institutions, those serving the poorest of the poor, by giving them the tools to begin providing a broader array of tailored financial services. This begins by allowing a family member in the United States to leverage his or her remittance transfer and credit history to access, for example, a transnational mortgage, education loan, or insurance. MFIC then leverages its expertise in global finance to do much more. The company will soon begin to lend its securitized “float,” or the cash it holds at a particular moment while waiting for transfers to be settled by local MFIs, to the small MFIs that currently don’t have access to the capital they need.
Atsumasa’s life has been a series of unlikely happenings. A decade before his birth, his mother, near the end of a pregnancy, was called away from her home to visit family in a faraway city. The next day, her hometown of Hiroshima and everything she owned was destroyed.
Atsumasa grew up in deep poverty in Japan. His parents struggled daily to put food on the table and he recalls attending school despite lacking the coins needed for his school lunch. He dreamed of becoming a jet pilot. He trained, learned all he could and waited for his chance. The year he was due to apply for a pilot’s position, there was a downturn in an already bad economy and no new jet pilots were interviewed. Devastated, he took the first job that crossed his path: A position with Bank of Tokyo.
Atsumasa worked with Bank of Tokyo for the next two decades. As Bank of Tokyo merged and became the largest financial institution in the world, he took on increasing responsibility, running operations and living in Panama, Peru, Ecuador and Mexico at different points. During more than a decade in Latin America, Atsumasa recognized a clear difference between the challenges of his own childhood and those of the poor around him: Opportunity. While Atsumasa had come from a poor family, schooling, determination, and talent propelled him to the top of his field. In Latin America, he saw that families didn’t lack money, but opportunity. Atsumasa saw that each individual, each child, needed only a small opportunity to live up to his or her full human potential. All around him, he saw good, hard-working people struggling to simply feed their families.
In his years with Bank of Tokyo, Atsumasa rose to the company’s highest ranks. During Japan’s financial crisis, he was given “top-secret special assignments” to disassemble and restructure huge companies that were on the verge of collapse. He simply couldn’t fail—a public announcement of a major company’s collapse would have sent shock waves through the Japanese economy and likely thrown the region into a recession. Despite repeated pleas to be released from his work and several attempts to resign in order to begin his work recreating a financing system for the world’s poor, it took him six years to leave his position at the bank.
Finally, he got his wish and was transferred to Washington, D.C., to become the company’s chief representative. Atsumasa attended George Washington University’s MBA night school to gain skills. He founded MicroManos, a company designed to create dignified work opportunities for the Latinos he saw on street corners, helplessly hoping for work. That endeavor engaged him, but his work in Washington quickly showed him the difference between the business world he long had inhabited and the political world into which he had stepped. Conference after conference discussed the role of banks for improving economic conditions, leveraging remittances, and achieving the many ends of “international development.” But there was no action. During one of the conferences, in 2004, Atsumasa grew so frustrated that he turned over the sheet of paper in front of him and sketched the business model for a new remittance-based strategy to provide financial services to the world’s poor. Thus was born MFIC.