Professor of early modern English literature Sophie Chiari
email: sophie.chiari@orange.fr

Climatic Issues in Early Modern England: Shakespeare's Views of the Sky

Climatic issues pervade early modern English drama, and three main reasons may be adduced for this. First, while in the first half of the sixteenth century Renaissance natural philosophers still felt compelled to acknowledge the accidental nature of weather-related phenomena, in the second part of the century, new beliefs emerged and the dramatization of celestial events allowed for a more immediate access to the natural world. Second, then as now, Shakespeare's 'sceptred isle' (Richard II) was often exposed to the wind, the rain and the freezing air, and such characteristics were believed to have a lasting impact on the habits of the English nation. Third, people then had to struggle against the adverse weather conditions characterised by what is now referred to as the 'Little Ice Age.' As actor and playwright, Shakespeare saw the sky as a theatrical element. While his so-called 'festive comedies' appear far less festive if we pay attention to their climatic specificities, his tragedies offer interesting insights into the way the playwright associates heavens and humours on the one hand, climate and the planets on the other. I thus argue that climate was for Shakespeare a framing device giving coherence to his playtexts and providing the audience with a natural, elemental, and cosmic background. His interest in the way weather conditions affect human behaviour prompted him to modify traditional points of view and, as a result, to foreground man's ominous capacity to trigger climatic disorders.

INTRODUCTION

While ever since Homer, weather references have abounded in literary texts, literary studies have paradoxically long neglected the very idea of climate, partly because literary critics kept confusing celestial phenomena (which do not belong to the field of the humanities) with the way they were perceived (which definitely belongs to the scope of the humanities). New trends in ecocriticism are now fortunately changing this, and since the end of the twentieth century, literary scholars have started paying attention to the representations of the multiple emotions and ideas triggered by our daily contact with the sky.

As the title of this review makes clear, the following development will therefore be focused not on the sky per se, but on its mental and cultural representations, i.e. on the ways the sky is being interpreted in a given context. In Reading the Skies, Vladimir Janković argued that early modern meteorological ideas (as opposed to events) were worth studying since they reflected specific discourses and structures of thought. He suggested that, in the course of the seventeenth and eighteenth centuries, 'meteors became concrete "matters of fact"' for English individuals while they had so far only been examined from a purely theoretical point of view. He was followed in a more comprehensive book by the cultural historian Lucian Boia who, in The Weather in the Imagination, sought to examine how 'human imagination' was 'stimulated and sometimes even inflamed by climatic phenomena. With her hugely successful Weatherland, published in 2015, Alexandra Harris followed in the footsteps of Boia and managed to make the general public realise that the 'rich weathercultures of Scotland, Wales, and Ireland' actually 'fill [ed] many books,' informed the personal memories of the greatest British writers and thus shaped the literary culture of her country. Intriguingly, the book's epigraph is a shared line taken from Macbeth ('Banquo It will be rain tonight. / First Murderer Let it come down,' 3.3.16), even though very little appears to have been written on Shakespeare and his contemporaries from that particular angle. Yet, climatic issues pervade early modern English drama to the point that we may wonder why Shakespeare and his contemporaries were so obsessed with the sky: surely, the answer must not simply lie in the vagaries of the English weather in the Elizabethan era. In an effort to provide more complex answers to this question, this article draws upon some of the arguments developed in my recent monograph. I will proceed along the lines of three different sections respectively devoted to the various approaches of the sky in early modern England, to the context and to the issues linked to so-called Little Ice Age (a phrase coined in 1939 by the American glaciologist François E. Matthes and which designates the long 1300 to 1900 period which was not uniformly cold but was marked by several atmospheric shifts), and to the dramatization of skyey issues in a few examples drawn from the Shakespearean canon.

I will first discuss some recent engagements with early modern views, be they learned or popular, that circulated about weather (corresponding to the short-term apprehension of unpredictable celestial events) and climate (i.e. the long-term vision of meteorological phenomena arranged into predictable patterns) in Shakespeare's age. This will then lead me to study the impact of the 'Little Ice Age' on early modern English literature. I will finally consider Shakespeare's own view of the sky since a number of Shakespeare scholars now begin to argue that for the playwright climate was a framing device giving coherence and density to his playtexts and providing the audience with a natural, elemental, and cosmic background whose effects and sounds were then made more than perceptible on the stages of the public playhouses. Some, including myself, also show that his interest in the way weather conditions and affects human behaviour prompted him to modify, and sometimes reverse, traditional religious or superstitious points of view and, as a result, to foreground man's ominous capacity to trigger (and not merely endure) violent climatic disorders.

THE EARLY MODERN APPROACH TO THE SKY

Traditional approaches

In post-Reformation rural England, the mysteries of the sky were inseparable from the small local events of daily life as well as from the cycle of the seasons. As Wolfgang Behringer explains, '[f]or people living at the time, short-term changes [in climate] had greater importance than medium to long-term ones;' it is no mere chance that most documented accounts of early modern Europe contain 'observations about the weather [rather] than about the climate.' Most of Shakespeare's contemporaries were essentially concerned by the immediate present because their lives depended upon it, leading them to assuage their fears by seeking to predict the weather and play down its possibly negative effects. This follows a long tradition dating back to Antiquity-an attitude which Luther had firmly condemned (like all the traditional beliefs in calendar-divination, prophecies and supernatural protections against bad weather) but which persisted well into the seventeenth century.

On the other hand, in Shakespeare's time, apocalyptic discourses and sermons attributed natural disasters to divine fury-interestingly, this apocalyptic rhetoric in connection with climatic issues has now resurfaced in a number of scientific warnings (Philip Smith notes the rise of an apocalyptic global warming discourse which has fuelled strong 'ethical injunctions' since the late 1980s). If we turn once again to Luther, for example, the theologian argued that the Fall of Adam not only affected man but nature in general. The whole of God's creation, according to him, had degenerated into a corrupt nature (natura corrupta), and the situation was made even worse by the destruction of the world due to the Flood. Michael Kempe contends that seeing the deluge as a catalyst for speeding up the world's decay was a fairly common view in Renaissance thinking, especially in the tradition of the pessimistic cosmologies that presented the earth as an ageing world.

The emergence of new beliefs

These traditional approaches to the sky, which promoted the vision of erratic weather patterns, did not preclude, however, a more learned vision of climate issues and the emergence of new philosophical beliefs in particular. Aristotle's Meteorology has been largely influential in Shakespeare's England. In 'Conjecture, Probabilism, and Provisional Knowledge in Renaissance Meteorology,' Craig Martin shows that, for Aristotle, "[g]aining a good account of meteorological phenomena is hampered not only by their irregularity but also by their inaccessibility to the senses.' He thus posited the limits of a purely scientific approach to the sky. Yet as Martin argues, from the mid-sixteenth century onwards, 'an empiricism based on observation, not on matter theory' helped men of science to better grasp the complexities of the sky thanks to sensible signs. So, while in the first half of the sixteenth century Renaissance natural philosophers still felt compelled to acknowledge the accidental nature of weather-related phenomena, Aristotelianism became increasingly questioned in the second part of the century, new theories emerged, and together with the dramatisation of celestial events, they allowed for a more immediate access to the natural world.

The early modern theories of climate

If, according to Mary Floyd-Wilson, 'climatological theory' was regaining ground in early modern England, it must yet be reminded that not everyone agreed on how climate really worked on human temper as several systems coexisted at the time. Two acquired particular prominence. In Airs, Waters and Places, Hippocrates stipulated a form of continuity between human physiology and its natural environment, so that the wetness of the Englishmen's humours was then supposedly derived from the rainy climate of Northern Europe. But, according to Aristotle's Problems (actually a pseudo-Aristotelian treatise) and to his Politics, the body's complexion was determined in reaction to the surrounding climate, internal heat then resulting from external cold. Floyd-Wilson and Garrett A. Sullivan Jr. offer an overview of these theories in their introduction to Environment and Embodiment in Early Modern England. For them, the Hippocratic tradition promotes a form of continuity between the subject and his environment while the Aristotelian one favours a 'counteractive' model. The latter, as a theory of contraries, was often used to explain the English settlers' adaptation to their new environment in Virginia. Jean E. Feerick convincingly notices that, in the early seventeenth century, propagandist tracts commissioned by the Virginia Company argued that Virginia 'would have an ameliorative effect on those settling there' and emphasised 'the constitutive force of climate and geography' to counterbalance possible low spirits in the settlers' minds.

While some English writers attempted to situate their own territory in the temperate area, neither too hot nor too cold, the climate they actually lived in was nonetheless considered as rather chilly by their European neighbours, especially the Mediterranean peoples, unsurprisingly. In Steven Mullaney's words, '[t]he perfect balance of humors [...] was found […] in people of a Mediterranean climate-unsurprisingly, since humoral theory and its Greek and Roman physicians were native to such a clime.' Following suit with Mullaney, a growing number of scholars have recently paid attention to the early modern logic of what Mary Floyd-Wilson has termed 'geo-humoralism'-i.e. the interrelation of geographical and weather issues and their impact on the human conduct and temperamentand which implied that 'humoral temperance […] was held to be attainable only in a temperate clime.' In sum, bodily humours were then thought to depend on climate and environment, whose external influences were somehow picked through the blood as well as through the skin.

If Elizabethan subjects generally stuck to that widely spread scheme in Renaissance Europe, it often was to their detriment: the English were northerners at heart, which means that they were regarded as 'heavy, obtuse, stupid, sottish' by promoters of climatic determinism such as Pierre Charron. There was no denying the fact that Shakespeare's 'sceptred isle' (Richard II, 2.1.40) was frequently exposed to the wind, the rain and the freezing air: in Henry V, for instance, the Constable of France famously describes the English climate as 'foggy, raw and dull' (3.5.15). Such characteristics were believed to have a lasting impact on the 'mettle' (3.5.14), mores and habits of the English nation, as pointed out by Floyd-Wilson. One understands why, therefore, Shakespeare questions this theory and tries to show, in a number of plays, that men should not systematically see themselves as fashioned by their climatic environment. Promoting free will rather than passive acceptance of nature's workings, he articulates a new approach to the sky which foregrounds man's ability to influence (rather than to be influenced) by it. The Tempest, with its magus expert in weather magic, is a case in point, as will be seen in the third part of this article.

SHAKESPEARE AND THE LITTLE ICE AGE

Climate in Shakespeare's lifetime Independently of England's geographical situation, the reason why Shakespeare's contemporaries were so much concerned with the sky was also due to their having to struggle against the adverse weather conditions characterised by the 'Little Ice Age'. Today, climate historians generally agree on the fact that 'the years from 1560 to 1600 were cooler and stormier, with later wine harvests and considerably stronger winds than those of the twentieth century.' In particular, Mike Hulme observes that, in Shakespeare's lifetime, the climate was much colder than ours and that especially harsh winters had to be endured over the years 1564-65 and 1601-1603, while very poor summers plagued crops and inhabitants alike from 1594 to 1597. Admittedly, Shakespeare and his contemporaries could not rely on any formal scientific measurement at the time and, above all, they were deprived of the retrospective vision supplied by the comparisons I have just made between then and now. They were nonetheless aware that, during the first half of the sixteenth century, weather conditions had been relatively temperate. As a result, Philip Armstrong suggests that '[t]he sharpness of this contrast between the climate of Elizabeth's reign and that of her father's means that Shakespeare would have grown to maturity surrounded by a generational sense that a previously fecund, temperate, and reliable natural environment had been replaced by freezing temperatures, blighted harvests, and sudden, wild storms.' This 'generational sense' may have varied in intensity depending on the sort of family one lived in. How strong it really was, we will never know-but it nonetheless existed.

The apocalyptic weather of A Midsummer Night's Dream

A Midsummer Night's Dream is a case in point. In A Handbook of English Renaissance Literary Studies, Bruce Boehrer notes that the Fairy Queen's famous speech on the awful weather consequences of her quarrel with Oberon, in act 1, scene 2, provides us with a 'vision of environmental disaster' and he argues that 'Titania's speech now appears quite clearly to reach into the immediacy of Elizabethan eco-historical experience.' Boehrer indeed refers to the comedy's purple patch when Titania acknowledges that 'The ploughman lost his sweat, and the green corn / Hath rotted ere his youth attained a beard. / The fold stands empty in the drownèd field, / And crows are fatted with the murrain flock' (2.1.94-97). Actually, England's fairly harsh climate did not necessarily entail poor harvests since, according to historians like Morgan Kelly and Cormac Ó Gráda, the economic consequences of the 'Little Ice Age' have been overstated. As John Thornes and Gemma Wetherell put it, '[o]bviously, one has to be aware that artists may freely use their "artistic license" to exaggerate and invent' and, in sixteenth-century England, naturalism assuredly did not exist so that the description of particularly bad weather spells necessarily implied a degree of stylization as well as of imagination.

What can simply be said at this stage is that the weather did have an influence on the population's daily morale. As the Dream repeatedly depicts poor meteorological conditions, the persisting rain or cool temperatures that were likely to attend its performances certainly contributed to arouse, among the audience, strong feelings of empathy with the plight of the Athenian youths lost in the dark labyrinth of the forest and thrashing around in the damp night. At the time when the Dream was presumably composed, John Stow notes that, in 1595, 'bitterly cold temperatures prevailed from April 20 until the end of May,' thus ruining the harvests and causing dearth and public unrest. In his 2013 production of the play for the Globe, Dominic Dromgoole highlighted the dismal climatic conditions in the forest of Athens, suggesting a 'perpetual October with miserable temperatures […] akin to those of the little ice age, and leaden skies which threaten frequent drenchings.' In Shakespeare's Representation of Climate, Weather and Environment, I push this analysis even further when I argue that, by presenting the weather as a consequence rather than as a cause of chaos, Shakespeare deconstructs the determinist perspective which prevailed at the time, thus making the sky the main source of human troubles.

King Lear's storm

In the same line of ideas, the violent storm and cold temperatures in King Lear ('this contentious storm,' Lear says, '[i]nvades us to the skin,' 3.4.6-7) are often presented by critics as a reflection of the poor weather conditions plaguing Shakespeare's England. In Shakespeare's Representation of Climate, Weather and Environment, I show that even Poor Tom's obsessional refrain, 'Tom's a-cold' (in 3.4 and 4.1), provides an apt comment on the old man's hostile surroundings while it also echoes the emotional frigidity and detachment of Lear's daughters towards their ageing father-to the notable exception of Cordelia. The spectators and readers of the play may have made a parallel between Lear's perilous condition in the frightening storm on the heath and the devastating weather conditions of the 'Little Ice Age.' Shakespeare's titular character 'is not wandering through a metaphoric storm that marks his poetic madness and signals the disruption of the natural order, but an all-too recognizable figure who registers the complex connexions between climatic instability and its potential consequences: the loss of agricultural harvests and the fracturing of ideologies of national unity, patriarchal authority, and socioeconomic stability,' Robert Markley asserts. Simon C. Estok, as to him, goes as far as to argue that the tragedy conveys the 'ecophobia' of an audience traumatised by 'bad harvests' and 'cold weather' and that the play proves particularly 'vivid in its foregrounding of environmental unpredictability and in its dramatization of a fear of nature.' Yet, for all its realism in terms of climatic representation, I cannot accept the idea that King Lear aims at depicting reality. It basically remains a terrifying dramatic poem, a playtext in which, as Touchstone ironically remarks in As You Like It, 'the truest poetry is the most feigning ' (3.4.16). Shakespeare's onstage storms, it seems to me, essentially partake of an artistic process that transforms the landscape into a mindscape open to scrutiny and anatomy.

DRAMATIZING THE CLIMATE

Science and the senses: Shakespeare's stance

In the sixteenth century, as Carla Mazzio observes, new forms of 'reasoning within astronomy, physics, meteorology and mathematics were in many ways moving further and further away from an understanding of nature accessible to the senses, the body, the human or intuitive experience of the world' (her emphasis). Mazzio, here, relies on the considerations of Mary Thomas Crane, and what the latter more specifically suggests is that, relying as much on classical knowledge as on new discoveries, cosmographers (who studied the heavens and the earth) and, more generally, early modern men of science, began to give precedence to a counter-intuitive approach in their efforts to read the book of nature. This new stance turning science into an abstract and abstruse discipline, barely accessible to the common man, was however countervailed by the literature and the drama of the period, which, up to a certain point, offered various means of reconciling science with the senses. While Crane's statement certainly needs to be qualified-physical observation was gaining rather than losing ground by the turn of the seventeenth century-, it places renewed emphasis on the early modern approach to science (one not entirely stripped of religious worship, but taking other standards of truth into account) and it exemplifies its complex relationships with drama and entertainment.

As actor and playwright, Shakespeare certainly saw the sky as a theatrical element. But as I argue in my own Shakespeare's Representation of Climate, Weather and Environment, he, as provincial man turned Londoner, must have realised how much the vagaries of the weather fashioned his native environment with, for instance, the building of the massive Clopton bridge in Stratford-upon-Avon under the reign of Henry VII in order to replace the former wooden bridge then ill-adapted to times of flood. As a result, his plays offer a pragmatic as well as a poetic approach to climate issues.

Clima(c)tic issues in Shakespeare's tragedies

Tragedies such as Romeo and Juliet or Anthony and Cleopatra offer interesting insights into the way the playwright associates heavens and humours on the one hand, climate and the planets on the other. The tragic action of Romeo and Juliet, a play composed in the mid-1590s, is supposed to take place during the summer, and the Verona dog days partly determine the fates of the two heroes. Philippa Berry was one of the first to trace the origins of the tragedy back to the dog days that plague the city of Verona. Shakespeare of course relied for this on widespread sources and popular conceptions. In early modern England, the July heat waves were generally thought of as the unhealthiest period in the year. The encyclopaedist Stephen Batman explains that these 'Canicular daies' are particularly evil ones. During this month, he affirms, 'all hot passions [and] evils increate […].' The phrase 'dog day' itself stems from astrology and climatology as it designates Sirius, the brightest star in the Canis Major (or Great Dog) constellation which rises about the same time as the sun in the month of August.

Written twelve years or so after Romeo an Juliet, Antony and Cleopatra is yet another play in which hot temperatures play a crucial part, and it is especially interesting from a geographical perspective. In his seminal Shakespeare and the Geography of Difference, John Gillies reminds us that Egypt was then situated in the 'scorched and burnt up,' middle region, while Rome presumably laid in one of the temperate zones adjacent to this middle area, right in 'medius mundi locus (the centre of the world).' The tragedy thus reveals how Roman and Egyptian self-definitions are tied to Stoic and Epicurean philosophies based on climatic conditions. In freely yielding to his passion, Anthony, a man otherwise only truly at ease when he crosses mountains and faces the harshness of the freezing air, behaves exactly like a Northerner ill-suited to the clime of Alexandria. As Caesar remembers his past feats, he reminds us that, 'like the stag when snow the pasture sheets, / The barks of trees [Anthony] browsed ' (1.4.65-66).

If the cosmic frame of Antony and Cleopatra has traditionally drawn much critical attention (Cleopatra compares Antony's face to 'the heav'ns' where 'A sun and moon' light 'The little O o'th' earth,, the most often probed of all Shakespeare plays in terms of sky-related issues is probably The Tempest. Dagomar Degroot sees the tragicomedy as a 'cultural respons[e] to the Little Ice Age' and insists, following many others before him, on the metaphorical quality of its storm that conveys 'upheaval and confusion.' Instead, one should perhaps start with the play's title which immediately suggests the playwright's renewed interest in climatic and scientific issues at the close of his career as well as his fascination with illusion and the invisible. As Keith Whitlock explains, the main character, Prospero, bears a name which 'signifies both material prosperity and, in its classical and Renaissance sense, good weather. [...] Prospero, then, is God on earth, an absolute and controlling force in human and meteorological terms.' We should probably add in magical terms as well. Gwilym Jones reminds us that, because of what the magus tells his daughter Miranda in the second scene of the play (Prospero suggests that there was neither a real shipwreck nor actual drowning), the harsh weather conditions plaguing the crew of Alonso's ship have often been 'exposed as magically derived rather than natural.' Prospero is indeed clearly portrayed by Shakespeare as one who masters nature thanks to the help of his faithful spirit Ariel. Commanding the elements into obedience is one of the play's central concerns, and the exasperated boatswain makes it clear that the old Gonzalo is totally deprived of such powers: 'You are a councillor; if you can command these elements to silence and work the peace of the present, we will not hand a rope more. Use your authority. If you cannot, give thanks you have lived so long […] ' (1.1.19-22).

The play's main source was probably the account of the wreck of the Sea Venture on the Bermuda shores. The ship was on its way to Jamestown, Virginia, in 1609, when a huge storm, probably a hurricane, blew it onto one of the uninhabited islands of the Bermuda archipelago. In a private letter, William Strachey gave a strikingly detailed account of the expedition. Steve Mentz explains that 'Strachey's description of the storm's arrival contains detail to recognize the typical counterclockwise rotating northeast winds on the left-hand side of the rotating storm […].' A manuscript version of this narrative was first circulated in England in 1610 before being put to print fifteen years later in the travel narratives compiled by Samuel Purchas. Even though critics still wonder how Shakespeare may have been acquainted with Strachey's manuscript letter, most agree that the playwright did borrow several ideas and phrases from a few 1610 pamphlets using Strachey's narrative, including Sylvester Jourdain's A Discovery of the Barmudas, Otherwise Called the Ile of Divels and The True Declaration of the Estate of the Colonie of Virginia. According to Alden T. and Virginia Mason Vaughan, Shakespeare probably had a direct access to Strachey's account, either by word of mouth or in manuscript form, while Gabriel Egan posits that the playwright may even have had contacts with 'those involved in the Virginia project'. This implied a number of scientific weather experiments before 1610 since a thermoscope, for example, was discovered among the artefacts dug out in the Jacobean settlement of Jamestown. Prospero's attempts at mastering the climate may thus reproduce some of the Jamestown experiments. 'The play is utterly ambiguous about the kind of control over the physical world that Prospero's knowledge gives him,' Egan observes, 'and by probing this question (what is his "art"?) we begin to perceive the ecological significance of The Tempest.'

Important as it certainly is, this 'ecological significance' was not systematically part of the concerns of the travel narratives that circulated in Jacobean England. As J.M. Nosworthy makes it clear, Shakespeare surely 'did not need an actual shipwreck and its concomitant pamphlets to tell him that vessels sometimes come to grief in squally weather,' and the fact is that, in Pericles and The Winter's Tale, 'storm and shipwreck find a place without any topical prompting.' The playwright undoubtedly found part of his inspiration in the vast reservoir of storms, sea travels and magical practices in Vergil's Aeneid as well as in various biblical and theological sources more discreetly woven into the texture of the play but nonetheless present. Staging a proto-scientific experimentation with climate actually allowed Shakespeare to engage in a debate opposing those who ascribed foul weather to natural causes to those who explained and justified it by resorting to some godly intervention.

CONCLUSION: BETWEEN SUPERSTITION AND RATIONALITY

All in all, by the turn of the seventeenth century, the observation of the sky had established 'a point of contact' between 'experts' (natural philosophers, astrologers) and 'laypersons' (seamen, shepherds, artisans). Poets and playwrights bridged the gap between these two broad categories. While the quest of the sublime traditionally associated with the changing English skies only became an obsession in the second half of the eighteenth century, John Gillies remarks that, in early modern England, most public stages of the 1599 period onwards were already the product of a potent 'cosmographic imagination' and the Globe, where many plays by Shakespeare were performed, had a roof protecting the actors from bad weather with images of the zodiac and of planets painted on its underside. As a result, plays by Shakespeare and his contemporaries were informed by early modern views of the sky. Most importantly, these plays were all, in various ways, affected by weather and climate issues and by what Gwilym Jones has called 'environmental irony,' i.e. by the unnerving intrusion of real weather into the playwright's fictional world. No wonder if Shakespeare's contemporaries still believed that climate determinism affected humankind as a whole. In an early tragedy like Romeo and Juliet, the influence of the stars turns out to be preponderant in the lovers' fate and weather determinism plays a central role in the tragedy. Yet in many other plays, Shakespeare qualifies this. In Antony and Cleopatra for example, life is defined by its mutability so that, in spite of their predictable interactions with their climatic conditions, the main characters evade any form of determinism. Even more strikingly, in The Tempest, science or proto-science enables Prospero to rewrite his own fate

as master of the elements. As a result, from the traditional view of the sky put forward by Romeo and Juliet to the experimental and pragmatic approach staged in The Tempest, we can assert that Shakespeare offers a panoramic view of the early modern sky. He suggests that a poised stance is possible, somewhere between superstition and the cold rationality prefiguring Descartes's theories. Influenced by Greek medical and meteorological thinking, his plays allow men and women to undergo a sensory and sensitive experience of the weather and of sky-related phenomena, one that could free them from dread and which could make them dream of a 'brave new world' (The Tempest, 5.1.186), one, above all, that enabled early modern playgoers to accept contingency and to feel unconstrained by the limits of the 'wooden O' (Henry V, Prologue, 13) of the playhouse and of '[t]he little O o'th' earth' (Anthony and Cleopatra, 5.2.80).


Célestin Mayoukou -Cream

MULTINATIONAL BANKING AND MICROFINANCE AN ANALYSIS BASED ON THE PARADIGM "OLI" REVISITED Working paper

Keywords: G21, G24, F21 provision of microfinance services, multinational bank, eclectic (OLI) theory, FDI, entry on foreign banking markets

This working paper deals with some aspects of the internationalization of microfinance in emerging and developing countries. In several of these countries, multinational banks (MNBs) have become increasingly interested in microfinance. These banks have thus gradually become direct or indirect providers of microfinance services. We propose a two-step process for analyzing the entry of MNBs into microfinance on such foreign markets. The first step is conceptual and theoretical. We propose an original typology of modes of presence of MNBs in microfinance activity abroad. Then we analyze this issue with the help of the "Ownership-Location-Internalization (OLI) paradigm" (or "eclectic theory"). This in-depth investigation provides an appropriate framework for analyzing empirically the modes of entry of MNBS to microfinance. This empirical second step will be the subject of a complementary forthcoming development.

Introduction

Banking and finance is a constantly changing industry, which has demonstrated since its origin a permanent adaptability and an outstanding capacity of innovation. The emergence of microfinance is one of the most original and remarkable changes that occurred in the two or three last decades. Microfinance is "banking for the poor". In the wide range of the supply of financial services, it stands at the lower end of the market. It consists in the provision of microloans, micro-insurance and other financial services to private households and micro and small enterprises which are denied access to the traditional credit market. Microfinance institutions (MFIs) are primarily driven by social and ethical mobiles. Their most notable achievements are found in developing countries, where MFIs support income-generating activities such as microentrepreneurship. The number of "micro-clients" is estimated today at about 500 million worldwide 1 .

Microfinance institutions have been originally drawing their resources from private donors and public aid bodies. But a major change occurred in the early 2000s when commercial banks started to play an increasing role in the financing of MFIs. This new direction has reached a global dimension, with the recent entry of international commercial banks and investors in the activity of microfinance 2 . This working paper focuses especially on the engagement of multinational banks in microfinance abroad.

International banking (cross-border operations of banks) is as old as banking, historians say. Multinational banking (banks operate physically in more than one country) dates back to the 19 th century, and expanded dramatically in the second half of the 20 th century. Multinational banks (MNBs) operate globally through their network of foreign branches, subsidiaries and affiliates.

The topic that we address in this working paper is about the connection between MNBs and MFIs. At first sight, this connection seems almost unlikely to exist. MNBs are profit-driven global players from the developed world ("North"). MFIs in developing counties ("South") fulfill a social mission for the benefit of borrowers who generally do not interest large commercial banks. The world of multinational banking and the world of microfinance seem to have nothing in common, and could very well ignore each other. Yet it is not so. Multinational banks -or some of them -may find it worthwhile to engage in the business of microfinance. And in turn, microfinance institutions -or some of them -may find it advantageous to be supported by large and powerful foreign banks.

The entry of MNBs in microfinance must be set against the broader context of the "commercialization of microfinance". In the development of the microfinance industry, it soon became apparent that the only recourse to subsidies from public funding agencies and donors (that had often been primary sources of funds of MFIs in the late 1990s and early 2000s)would 1 Figures vary according to sources. According to Servet (2015, p. 15) "uncertainty affecting the estimates of members or clients of microfinance institutions results from the inability to add up each organization's data since a client may be a member or customer of several MFIs. The average rate of dual membership would approach 15 percent. It varies considerably from one region to another". 2 The first institutional investors in microfinance at the end of the 1990s were international banks. "Others, like Société Générale and BNP Paribas, already planned to offer directly microfinance through their banking network in emerging countries" (Reille et al., 2011, p. 6).

not suffice to support their growth (Goodman, 2006;Galemaet al., 2011).MFIs began to open to commercial funding. For a part of their needs, they engaged in raising funds from international lenders (multinational banks, capital markets) 3 .

How to address the MNB-MFI relationship? From a MFI perspective, the main questions that arise are the following: why, at some stage of its development, does a MFI become interested in having a MNB as a partner (lender, stakeholder…)? What does it expect from such a relation? What are the resulting risks? Etc. Our focus in this working paper is different, and we address microfinance from the perspective of multinational banking strategies. From a MNB perspective, the main questions that arise are: why to engage in a non-conventional activity such as microfinance? Why doing so in foreign markets? Which entry modes? What are the conditions for such an investment to be profitable and sustainable in the long run? Etc.

We shall adopt in this working paper a corporate strategy-based approach. MNBs are financial corporations and not purely financial investors, and their decisions are not only based on a return/risk analysis, as a fund would do. Such decisions should be seen in the overall context of their business (corporate) strategy, in which the diversification of the supply of services, the management of customer segments or the strategic positioning in growth markets may be major drivers.

When a MNB, which headquarters are located in a developed country, gets involved in microfinance activity in a developing country, it must face a double entry problem: the entry into an foreign market, because the targeted microfinance activity takes place abroad; and the entry into a new field of activity, because microfinance is a non-traditional business (and even a "niche" business). Such questions fall within the general frame of foreign direct investment(FDI) studies. We will refer to such studies and discuss more particularly the relevance of the "eclectic theory" for analyzing the topic addressed in this working paper.

Very little indeed has been written so far in the literature about the crossing of multinational banking and microfinance4 .Our effort in this working paper is to illuminate this blind spot in the literature. Still, a major problem must be faced: the lack of comprehensive data.The topic we touch is an uneasy one for quantitative analysis. From the observation of facts and from relevant parts of the literature on FDI, we endeavor in this working paper to identify an appropriate analytical frame, and to put forward a list of items in order to build a questionnaire which answers should compensate somehow for the lack of aggregate data.

Our study will follow a two-step process and this working paper should be viewed as the first step:

-First step: We provide a typology of the modes of presence of MNBs in microfinance markets of developing countries. We analyze the entry process of MNB in microfinance by discussing the scope and the limits of the eclectic theory (the "OLI paradigm") in this particular context.

-Second step: We use these findings for building a data set relying mainly on an ad-hoc questionnaire.

The remaining of this working paper is organized as follows. We briefly review some parts of the relevant literature (2). We give a statistical overview of the role of MNBs in the international supply chain of microfinance funding (3). We propose an original typology of modes of entry of MNBs into microfinance (4) and then discuss the process from the OLI approach (5). The last section proposes an agenda for further empirical work and concludes (6).

Brief review of the literature

Most of what is written on microfinance focuses on microfinance institutions and on the originality of the financial intermediation they accomplish. In particular, there is a rather abundant literature on sources of funds for MFIs. In the context of the so-called commercialization of microfinance, the way MFIs raise funds to support their lending activity draws much attention. With regard to the topic of this working paper, two main aspects are addressed in the literature.

Several papers in the literature deal with the international funding of MFIs and its determinants (Galemaet al.2011;Merslandet al. 2011;[START_REF] Labie | Investissement socialement responsables et microfinance[END_REF][START_REF] Rao R | Financial Resources of the Microfinance Sector: Securitisation Deals -Issues and Challenges Interview with the MFIs Grameen Koota and Equitas[END_REF][START_REF] Mersland | International Debt Financing and Performance of Microfinance Institutions[END_REF]Ghosh, and Van Tassel 2013;Bière and Szafarz2015;[START_REF] Chiu | Factors influencing microfinance engagement by formal financial institutions[END_REF]. Various aspects are analyzed, among which the role played by rating agencies (Hartarska and Nadolnyak 2008), the role of profitability as a driver of international funding [START_REF] Mersland | International Debt Financing and Performance of Microfinance Institutions[END_REF]Cull et al.2014)), the specific determinants of donations in microfinance funding [START_REF] Tchakoute | Institutional Framework and Capital Structure of Microfinance Institutions[END_REF] or the capital structure of MFIs [START_REF] Tchakoute | Capital Structure of Microfinance Institutions[END_REF].

A central place is taken in the literature by what can be called "the portofolio approach". In order to explain why international lenders channel a part of their financial resources to MFIs, this approach considers the diversification gains that arise from adding microfinance assets to a portofolio of risky international assets yields (Bière and Szafarz 2015; Galema 2011). From this perspective, foreign investors are supposed to be geared by financial (portofolio) mobiles only [START_REF] Swanson | The role of capital markets in microfinance[END_REF][START_REF] Chiu | Factors influencing microfinance engagement by formal financial institutions[END_REF][START_REF] Chiu | Factors influencing microfinance engagement by formal financial institutions[END_REF][START_REF] Mersland R | The Impact of International Influence on Microbanks Performance: A Global Survey[END_REF]. They would become interested in financing microfinance activities insofar as this kind of investment would improve the return-risk performance of their overall portofolio. Such an approach may well suffice for explaining the engagement in microfinance of purely financial international investors such as funds, but it loses relevance for explaining the engagement of global players operating on banking markets, which motivations may be more complex. Leaving aside the "portofolio approach", we will explore in this working paper a different approach, which can be called the "corporate approach".

The role played by commercial banks is addressed in different ways in the literature. We note especially those papers dealing with the entry of commercial banks into the microfinance activity (Baydaset al. 1997;[START_REF] Isern | Commercial Banks and Microfinance: Evolving Models of Success[END_REF][START_REF] Bounouala | Commercial Banks in Microfinance: Entry Strategies and Keys of Success[END_REF]. This part of the literature focuses on bank strategy issues: modes of entry of banks in microfinance as a new activity, specific risks and expected returns, keys of success of commercial banks in microfinance, etc. However, it is noteworthy that this literature deals with the entry of commercial banks of developing countries in the microfinance market of the country where they are, that is with the entry of domestic banks in microfinance (Fall 2011) 5 . The issue that we address in this working paper is different: the entry of foreign (multinational) banks in microfinance. There is a great deal of knowledge on multinational banking, most of which was developed in the 1970s and early 1980s. This literature addresses the determinants of financial FDI and issues such as international operations of banks and bank entry on foreign markets [START_REF] Grubel | A Theory of Multinational Banking[END_REF][START_REF] Gray | The Multinational Bank: AFinancial MNC ?[END_REF][START_REF] Aliber | International Banking, A Survey[END_REF][START_REF] Herrero | Why Banks go to Emerging Countries and What is the Impact for the Home Economy? A Survey[END_REF]. But as far as we know there is no literature on the entry of MNBs into microfinance activities from a corporate perspective. This working paper has the ambition to fill this gap.

The international supply chain of microfinance funding

Microfinance is typically retail banking. But connections do exist with global finance. There is a chain of funding which connects international financial markets and microfinance, and which links decisions made by bankers, traders and fund managers of major international financial centers and lending decisions of loan officers to micro-clients of local African or Asian markets.

How do MNBs fit within this chain? What is their contribution to the allocation of funds to developing countries' microfinance? In this section, we try to find an estimate from available aggregate data.

We rely upon two complementary data sources. The first one is the Mix Market data base6 . 1,326 MFIs from six regions reported to this database. Over the period 2007 to 2012, the total funding of these MFIs amounted to 324.832 billion USD.

In the total amount of funds received by MFIs (324,832 billion USD), local sources (57.4%) were almost twice more important than foreign (cross-border) sources (33.9%) (Table 1). 1 andTable 2 (Table 3) Border Funder Survey [START_REF] Soursourian | Current Trends in International Funding for Financial Inclusion[END_REF] 8 . This survey gathered information from 23 funders, accounting for 66 percent of year 2014's global estimate.

Origin of funding

We note among major findings of this survey that:

-In 2014, international funding for microfinance amounted to 31 billion USD (in 2008, the amount was 18.3 billion USD 9 ); -public funders (multilateral and bilateral donors, United Nations agencies and development finance institutions) accounted for 72% of global funding and private funders (foundations and institutional and individual investors) for the remaining 28; -debt, equity and grants were the three major instruments of cross-border funding, among which debt dominates and accounts for half of all commitments; -about70 percent of overall funding was used to finance the lending portfolio of MFIsat retail-level.

From the CGAP survey, we learn that almost half of total of cross-border funding is provided through microfinance investment intermediaries and local wholesale facilities (also called Apexes). Microfinance investment intermediaries consist of microfinance investment vehicles (MIVs), holding companies and peer-to-peer lending platforms. The other half is channeled directly to retail providers, such as MFIs and local banks operating in microfinance (El Zoghbi et al.). But still, a question is not answered: what is the importance of the support given to microfinance by branches and subsidiaries of MNBs in the host countries? Such flows of funds are not cross-border ones and are not covered by the statistics above. This is indeed a major feature of microfinance international financing: most of the money that flows to this sector from international sources goes through a chain of intermediaries. The great bulk of it is directed to MFIs (including NGOs and all kinds of local banks engaged in microfinance).

Many other private firms are also recipients of funding for microfinance, including rating agencies, accounting firms or payment platforms. Cross-border funding also goes to public sector agencies, including government agencies, ministries, state-owned banks and wholesale entities.

There is no direct funding of ultimate micro-clients from sources located abroad. On-lending dominates: on local markets, MFIs offer microloans and other services from funds they have borrowed from microfinance investment intermediaries or other financial institutions.

The graph below illustrates the links between MNBs from North and microfinance in the South.

How do MNBs enter into microfinance?

Traditional banking and microfinance are not of the same kind, and for a MNB entering into microfinance means entering into a new business line. Then a second challenge arises: this new activity takes place in a foreign country. The analysis should therefore combine the general questions relating to entry in foreign markets (through cross border operations, or through direct investment -greenfield investment or acquisition) and questions relating to key success factors for engaging in a new type of business (required competitive assets and specific risks). In this section we try first to clarify the "how" question. How can a MNB turn into a "microfinance bank" on a foreign market?

On general grounds, a microfinance bank may appear on the market in three different ways:

-A microfinance bank is created by a former microfinance NGO.

Example: Compartamos Banco, a former philanthropic Mexican NGO, became the largest microfinance bank in Latin America.

-A commercial microfinance institution is constructed from scratch.

Example: Five subsidiaries of Société Générale have invested as founding shareholders in the creation of five MFIs in Sub-Saharan Africa 10 .

-An existing commercial bank moves into lower-income population segments and social markets. This process is referred to as "downscaling": the bank is already present in the country and extends its retail operations to reach micro-clients(entrepreneurs, households).

Examples: Agricultural Bank of Mongolia has extended the range of its activities to include the supply of microfinance services. Other banks have also followed this model. It is the case of Akiba Commercial Bank in Tanzania or the Rakya Bank in Indonesia [START_REF] Isern | Commercial Banks and Microfinance: Evolving Models of Success[END_REF].

In order to develop a typology of the modes of entry and presence of MNB in microfinance foreign markets, we cross two criteria, which are the answers to two questions:

is the MNB already present physically in the country where it wants to engage into microfinance? -does the MNB reach final micro-clients directly or indirectly (for instance, through a stake in other financial structures)?

These two criteria in combination result in four possibilities which are presented in Table 4. 10 Société Générale (2012), Flash info, Paris, 19 novembre, p.1.

Cross-border operations

No physical presence of the MNB in the targeted foreign microfinance market We exclude the situation of the first (upper left) quadrant, as we did not find any evidence supporting it. Although the provision at a distance of retail banking services may exist in banking (as in the Single European Market, under the Second Banking Directive of the European Union, or for services using electronic means such as internet and home banking), it is unlikely that it exists as far as the provision of micro-finance loans and services is concerned. We did not find any example of a bank having non-resident micro-clients without having a foot in the territory where these customers have their domicile. Therefore, there remain three situations:

Operations abroad

1/ (upper right quadrant of the table ) The MNB has a physical presence in the foreign market and gets directly involved there in the microfinance retail business: it offers microcredit and other micro-financial services directly to final users. We call this mode of entry foreign direct investment in microfinance retail activity.

Recalling the three canonic forms by which a microfinance bank can be created, we may consider that a MNB could enter into this new activity by creating from scratch a new microfinance commercial bank. However, such situations do not exist, for reasons that will be made clear

below. Yet downscaling exists: MNBs can take advantage of their physical presence in a foreign market and extend loans and other services directly to micro-clients through their existing branches or subsidiaries.

Example: BNP-Paribas' subsidiaries (BICI) 11 in Maghreb and sub-Saharan Africa offer accounts ("Trankil Pack" 12 ) which promote access to banking services to more than 36,000 customers with modest incomes. It also offers a mobile banking service, enabling unbanked individuals to perform simple banking transactions via the mobile phone.

2/ (lower right quadrant of the table ) The MNB has a physical presence in the foreign market and gets indirectly involved there in the microfinance business. This mode of entry is foreign investment in microfinance intermediation, which can take two forms. First, MNB's local branches and subsidiaries provide financial support to MFIs of the host country. And second, MNBs create in the host country an autonomous entity dedicated to the financing or support of MFIs.

Here are examples of MNBs which fund local MFIs through their branches and subsidiaries:

Société Générale focuses "in microfinance in countries where it has a presence of universal bank" 13 .In these countries, its subsidiaries provide credit lines to local MFIs 14 . 17 subsidiaries are involved in this process, and are mainly located in French speaking countries.

BNP-Paribas wrote in its 2015 Annual Report: " The group's strategy is to get involved in microfinance and social entrepreneurship in its countries of operation, relying on its local subsidiaries in order to assist local actors as closely as possible and to give them the benefit of the widest possible range of services".

In Tunisia, BNP Paribas supports MFIs through its subsidiary UBCI (which targets among others Enda Inter-Arabe, the largest MFI in Tunisia). In 2012 its commitment to microfinance institutions amounted to EUR 56.3 million, including 33.1 million towards emerging countries. Standard Chartered is one of the most involved MNBs in the financing of microfinance institutions (Table 6).

These funds are provided by its subsidiaries to local MFIs of 14 countries. [START_REF] Mayoukou | L'extension de l'activité bancaire international à la microfinance: analyse des stratégies de quelques banques multinationales[END_REF].

MNBs can also create autonomous entities dedicated to the financing or support of MFIs.

In partnership with the Grameen Bank, Crédit Agricole participated in the creation of "Crédit Agricole Grameen Bank (CA-GB)" which is heavily involved in the funding of MFIs in Africa, Eastern Europe and Asia.

Local financing structures of microfinance institutions such as "Apexes" (second-tier or "wholesale" funds) Apex" in English) take more and more importance. Lastly, MNBs may commit themselves in microfinance by the provision of expertise and technical services.

Several multinational banks have set up a credit analysis department and technical assistance to support MFIs in risk management. This type of department offers currency hedging services to MFIs that borrow in foreign currency.

In their microfinance strategy, MNBs may of course combine different modes of entry.

In summary, a major question is the nature of the engagement of MNBs in foreign markets. Do they engage themselves as providers of resources for microfinance intermediation, or as direct investorsin the microfinance market?

Given the above, we understand that the contribution of MNBs to the microfinance activity in foreign markets (of emerging countries) is twofold:

-As providers of resources for microfinance intermediation, MNBs do not operate as such in the banking (retail) business with micro-clients. They provide funding to MFIs, which are in contact with final customers. Such funding can be provided to local MFIs through crossborder transactions, or through branches or subsidiaries in the country. It can be channeled or not through a fund dedicated to investment in microfinance. Local MFIs which benefit from such funding will in the end allocate it to micro-business and microclients.

-As direct investors, MNBs engage directly in the microfinance retail business. They may create from scratch micro-banks in foreign markets, but this case is the least likely to happen. Rather, they will most often operate directly in microfinance through a "downscaling" process at branches and subsidiaries they own in the foreign market. In such situations, MNBs act as investors(in the "foreign direct investment" sense), and are driven by commercial and corporate mobiles.

MNBs entry into microfinance in the light the OLI paradigm

We turn now to the "why". We focus here on the determinants of the entry of foreign banks into the microfinance industry of emerging or less-developed economies. The choice of modes of entry is a closely related question, as modes of entry depend on the business goals of the incumbent bank and of the characteristics of the targeted market -including obstacles that are met on the road.

There are many theories in the literature explaining why banks go multinational, and why they decide to locate their branches and subsidiaries in some foreign markets preferably to some others. But connecting the FDI theoretical framework to microfinance is a challenging task. The "follow-the-customer" approach has been overused for explaining why banks go multinational. But it does not work here, as clients of MFIs in developing countries have nothing in common with the usual customers of banks of developed countries. The literature did not touch so far the issue of the entry of MNBs in the microfinance business of emerging countries. But our opinion is that theories of financial FDI are worth to be considered and possibly adapted to the explanation of the phenomenon we address in this working paper.Our view is that progress in the understanding of this subject can be made from an application of the Ownership-Location-Internalization (OLI) paradigm.

The OLI paradigm

The OLI paradigm (Ownership, Location, Internalization) was applied for the first time to the analysis of the multinational firm by John H. [START_REF] Dunning | Trade, Location of Economic Activity and the Multinational Enterprise: A Search for an Eclectic Approach[END_REF][START_REF] Dunning | The Eclectic Theory of the Multinational Enterprise and the International Hotel Industry[END_REF]. This analytical framework has been known since then as the "eclectic theory" of FDI. According to Dunning, theories developed previously sought to answer separately the following questions. Whydo some companies produce abroad? How are they able to compete with local firms successfully? Where do they produce overseas?

Dunning's innovative response to these questions was threefold. A firm-specific (ownership, "O") advantage is a precondition which drives companies to do business abroad and profit by location advantages ("L") in the host country. There, FDI is the best mode of entry for taking advantage of such conditions, as it allows for reducing transaction costs (internalization, "I").According to the eclectic theory, a multinational company (MNC) exists once O, L and I dimensions are taken together. The ownership and the location advantage are a necessary but not sufficient condition for FDI and must be completed by internalization. In a nutshell, a MNC possesses a specific advantages which can be transposed and exploited abroad, and this is the response to the why and how questions. Location advantages in the host country are the answer to the where question.

Theories of the MNC which have been developed since the 1960s tried first to account for the of firms of the manufacturing sector. When it became clear that service companies also grew massively abroad, existing theories had to be adapted to account for it. MNBs, as a specific case of MNC of the service sector, were good candidates for such an extension. The theoretical literature explaining financial FDI started to develop. Translating the OLI pattern to the banking sector was something particularly tempting [START_REF] Gray | The Multinational Bank: AFinancial MNC ?[END_REF][START_REF] Yannopoulos | The Growth of Transnational Banking[END_REF].Our working paper falls within this approach and focuses on foreign bank entry into the microfinance sector.

5.2

Is the OLI paradigm applicable to foreign bank entry in the microfinance industry?

What do O, I and L elements consist in, as far as the entry process of foreign banks in microfinance is concerned? And how far does the OLI scheme provide a convincing and complete explanation of this process?

What about "O"?

According to the OLI paradigm, a firm which parent company is located abroad must have some specific advantage over local firms. This is needed to offset the specific costs which the incumbent bank must face in order to enter successfully in the foreign market. The ownership advantage could result from a better technology, or a better commercial or managing expertise.

Then the question arises: is there any specific (ownership) advantage in the case of banks willing to enter into microfinance in a foreign country? How could they thrive in the absence of such an initial advantage? The answer depends on the way the MNB wants to get involved in the foreign market.

We noted above that the participation of MNBs to microfinance activity may be either direct (the MNB intends to operate itself on this market) or indirect (the MNB supports financially local MFIs or other microfinance intermediaries). We comment on the ownership advantage issue for each of these cases.

First case -MNBs as direct investors: building direct relations with ultimate micro-clients With regard to retail microfinance, a microfinance (local) institution has an advantage over a foreign bank willing to enter the microfinance market. All what we know about microfinance in emerging and less developed countries teaches us that the IMF has a superiority in the risk analysis and the financing of micro-loans for people excluded from the formal banking system. [START_REF] Fall | La complémentarité banque microfinance dans les économies en développement: une perspective théorique[END_REF][START_REF] Mayoukou | Avantage informationnel de la microbanque et intermédiation médiatisée par le groupe : application au cas des banques villageoises en Afrique Subsaharienne[END_REF]. In order to be successful in microfinance, an institution must possess intangible assets made of good knowledge of the population of micro-borrowers and good know-how of the specific techniques of micro-lending. This makes the great bulk of the apriori ownership advantage which is requested for a successful entry in the market.

But from the OLI perspective, this situation is paradoxical: the ownership advantage (specific know how in microfinance, good knowledge of the needs of micro-entrepreneurs and other small and poor borrowers...) is not situated on the MNB's side, but on the local microfinance bank's side. Traditional microfinance is something very specific, in which MNBs (and commercial banks, more generally) do not have any ex-ante advantage over traditional local microfinance institutions. In the microfinance activity, the lending technology is specific: there is no credit history or business records of micro-borrowers, and guaranty is provided jointly by a group of borrowers instead of formal collateral. For a loan officer in microfinance, a very good knowledge of local micro-entrepreneurship and more generally of micro-clients' sociology is a must -all the more that enforcing contracts is quite uneasy in regions with weak legal systems.

Although some of them were already involved in financing MFIs in their home country prior to getting interested in microfinance in emerging countries, MNBs normally do not possess the specific assets which are required in that specific context. But there are ways to overcome this obstacle.

a/ The MNB may accumulate required assets internally through a learning process, or create from scratch an entity dedicated to microfinance. Such an internal growth process is however a long-term business objective and the bank would rather prefer taking a stake in a local MFI as a quicker solution. External growth through equity investment is thus an asset-seeking strategy.

b/ Although MNBs cannot compete in the field with local MFIs for what concerns the supply of micro-credit, they have other advantages over local institutions: they are better equipped for managing fund transfers at the international level, and they master advanced techniques of digital financial services. In countries where they are active, MNBs have largely changed the provision of credit card services, ATMs, mobile banking and even insurance services [START_REF] Mayoukou | L'extension de l'activité bancaire international à la microfinance: analyse des stratégies de quelques banques multinationales[END_REF].

c/ The overall commercialization trend in microfinance is a boon for MNBs, as it draws microfinance to a field where they are more comfortable with and where they can express some sort of superiority. As microfinance becomes more commercially oriented, commercial banks can more easily introduce techniques or services they master well: according to [START_REF] Galema R | International Diversification and Microfinance[END_REF], the growth of microfinance is driven today multinational banks like HSBC.

In the end, in retail microfinance the MNB has no preexisting ownership advantage, but by taking stakes in MFIs and/or by accumulating knowledge about microfinance, a foreign bank can build in the longer term an ownership advantage. In such situations, there is no ex-ante ownership advantage but an endogenous ownership advantage is created during the operating process in microfinance activities.

Second case: MNBs as providers of resources for microfinance intermediation

As already mentioned, MNBs may engage as pure intermediaries by financing MFIs. It is generally considered that they have a specific advantage in this indirect commitment. They have an easy access to international financial resources. Through their control of financial markets, MNBs can provide loans (in foreign or local currency) to lower rates than those asked by investment funds or even local commercial banks15 . Adding to their easy access to capital, recognizable brand name, infrastructures and systems are other advantages of MNBs.

Available statistics confirm what the OLI frame teaches: MNBs are much more engaged in the financing of MFIs than in the direct reach of local micro-clients.

What about "I"?

When applying the OLI paradigm to the issue of bank entry in a foreign market, the "internalization" part of the explanation has usually been associated in the literature with the "follow the customer" hypothesis: on foreign markets, banks would internalize their existing bank-client relationships. But such an explanation does not hold when a MNB targets new categories of customers such as micro-clients. Does "internalization" mean anything in case of a MNB entry into microfinance, in which no prior ownership advantage could be internalized?

Our answer is positive. Let's recall that internalization can be identified from this very simple question to a company willing to do business in a foreign market: "Do you want to do it yourself, or do you prefer others to do it for you?" Internalization means that the company prefers to establish and operate its activities itself rather than to delegate to others the enhancement of its products, services or know-how in the foreign market. As far as microfinance is concerned, there is a prerequisite for a bank to be able to practice internalization: it must have a prior presence in the country through branches or subsidiaries.

FDI in retail microfinance activities through a MNB branch or subsidiary enables internalization. Should the MNB decide to reach directly micro-clients -although it lacks any ownership advantage for such an activity, as already mentioned -it will reduce a part of the costs by using its in-the-field network. By working directly with micro-clients by means of its branch or subsidiary, the MNB can reduce some of the imperfection of information and overcome the drawbacks of using local contacts and intermediary agents.

A second form of internalization relates to foreign investment in microfinance intermediation. This second situation is fully in line with the teachings of the OLI approach. By funding directly a MFI, a MNB internalizes its ownership advantage, which is to access easily to international sources of funds in various currencies. In this second case, the bank will all the more be able to lower its overall entry costs as a part of them refer to assets that have already been internalized by the MNB local network (knowledge of the host country business environment).

This explains why most of MNBs favor entering into microfinance markets of countries where they are already established and undertake more traditional activities. On that condition only, internalization can occur.

The existence and role of a MNB's already established branches and subsidiaries in a foreign country should be emphasized, as it is a major driver of that MNB entry into microfinance business in the host country. We complete this view by taking localization factors into account.

What about "L"?

Entering in one country rather than another and enjoying in this way host country-specific advantages is the third part of the OLI explanation. On general grounds, MNBs may be driven by the search of attractive host market characteristics such as a supportive regulatory environment, an easy business environment, good prospects of market growth, profit opportunities, etc. Distance between the home and the host country is also taken into account.

Adapting this set of questions to the entry of foreign banks into the microfinance sector leads us to underscore the following issues:

-Size of the microfinance sector: countries with an existing and fairly developed microfinance sector may seem more attractive than countries where such a sector has a small size or is inexistent; -Regulation of microfinance activity: according to countries where such regulation exists, MFIs may be more or less constrained in their commitment to financial inclusion; -Financial and social performance of existing MFIs -an important benchmark, whether the incumbent bank would try to compete directly with them for reaching micro-clients, or would prefer entering in the funding of microfinance intermediation.

However, according to what has been described above, a major location-specific factor is the prior existence of branches and subsidiaries in the targeted market. Among the countries for which the entry into microfinance can be potentially interesting, MNBs will give priority to those they already know because they are already located there. Banks thus take advantage of their knowledge of the country and the different country-specific obstacles that should be overcome if it were a first investment in the country are flattened or no longer exist. They can thus concentrate on the challenge of entering microfinance, an activity which is not usual for them.

This assertion is supported by numerous examples. We give only two. It is easy to link the strong traditional presence of Société Générale in Sub-Saharan Africa to its commitment to MFIs of the region, and mostly in countries (Cameroon, Ivory Coast, Morocco, Senegal) where Société Générale is the first bank in the country 16 . It is easy also to correlate the long lasting presence of Citicorp in Latin America and Asia to its involvement of over 30 years in philanthropic activities in microfinance in these two regions.

Perspective for future research and conclusion

Up to this point, we established a typology of entry modes and referred to the OLI scheme as a relevant interpretation grid. We presented also a variety of examples. But a collection of examples is not enough to base a convincing analysis. We must now try to systematize the gathering of information in order to reach firm conclusions. This second stage of our work will be dedicated to data collection and processing.

We will draw our information set from a sample of MNBs which are well known for their involvement in microfinance at the international level. Reportedly, 15 major MNBs are in this case (Appendix 1). Our analytical point of entry will be geographical. We will focus on countries in which MNBs engage (or could potentially engage) in microfinance. For practical reasons, we will limit our observation to Africa. There are 55 different countries in Africa (North and Sub-Saharan) among which some host MNBs which are active in the business of microfinance and some others do not. Our goal is thus to concentrate on a cross-sectional (bank/country) set of information for the most recent year (2015).

Three major sources of information will be used to feed this double entry table and build our body of fairly comprehensive data:

-Annual reports issued by banks provide information on amounts of funds channeled to MFIs through loans, credit lines or equity investment. They also provide information on their social responsibility policy. But information is unevenly detailed according to banks, and it is hard to find in these reports data on the engagement of MNBs' branches and subsidiaries.

-A questionnaire will be prepared and sent to MNBs of our sample: this questionnaire is drafted in Annex 1. -Whenever necessary country data on the microfinance sector will be extracted from the Mix Market database, and macroeconomic data will be provided by usual IMF or World Bank databases.

According to the typology that we established in this working paper, MNBs get involved in microfinance abroad in three different ways:

they offer microfinance services to micro-clients through branches and subsidiaries they have in the country ("downscaling"; foreign direct investment in retail microfinance); -they provide financial resources to local MFIs through their branches and subsidiaries or other financial institutions that they control in the host country (direct investment in microfinance intermediation); -they provide financial resources to local MFIs from abroad (cross-border investment in microfinance intermediation).

We will consider each of these three modes as a dependent variable, and consider as explanatory variables:

the presence of branches and subsidiaries of the bank in the host country and the duration of their presence; -the size of the microfinance sector in the country; -financial performance of existing MFIs in the country; -country-specific macroeconomic variables (GDP per capita; financial development…) -(….)

Variables will be of a discrete or a continuous form, according to their nature and to the availability of data.

Elementary econometric techniques should hopefully suffice to reach firm conclusions from the central question to be tested empirically: we would expect MNBs to have a "O" (ownership) advantage in the funding of micro-financial intermediation and a "I" advantage whenever "downscaling" is observed; and we would expect country-specific variables to shape the location of MNBs' commitment in microfinance.

* * *

Conclusion

This working paper is the first (theoretical) stage of a study on the involvement of multinational banks in microfinance on foreign markets, to be followed by a forthcoming second (empirical) stage. MNBs come from developed economies ("North") and microfinance ("banking for the poor") has a significant importance in less developed countries ("South"). Why and how would MNBs from North get interested in microfinance in South? This is the central question that we addressed in this paper.

We met two difficulties on our way. The first was the inability to hold on to earlier work of the subject: there is no existing literature dealing as such with multinational banking and microfinance. The second difficulty was the lack of comprehensive data at the firm level. Trying to overcome each of these obstacles is a challenging task, which was only partly fulfilled in this working paper.

Our first aim was to identify appropriate concepts. We considered that the engagement of MNBs in microfinance could be addressed in the best way as a double entry problem: entry into an foreign market, because the targeted microfinance activity of MNBs takes place abroad; and entry into a new field of activity, because microfinance is a non-traditional business (and even a "niche" business). We established an original typology of the modes of presence of MNBs in microfinance abroad: 1/ MNBs offer microfinance services to micro-clients through branches and subsidiaries they have in the country ("foreign direct investment in retail microfinance"); 2/ they provide financial resources to local MFIs through their branches and subsidiaries or other financial institutions they control in the host country ("foreign investment in microfinance intermediation"); 3/ they provide financial resources to local MFIs from abroad (cross-border investment in microfinance intermediation). We then applied the "Ownership-Location-Internalization (OLI) paradigm" (or "eclectic theory"), a widely used approach in foreign direct investment studies. We then discussed successively the meaning of "O", "I" an "L" advantages in the case of MNBs entry in microfinance. As far as entry in microfinance retail banking is concerned, MNBs do not have any ownership advantage, but they do have such an advantage when entry into the financing of MFIs is considered. They have an internalization advantage whenever "downscaling" is observed. And country-specific variables (location variables) play their role in the choice of countries where MNBs commit themselves into microfinance. The second (and forthcoming) part of this study will be devoted to an empirical validation of the questions, assertions and hypotheses that we put forward in this working paper.

Table 2 :

 2 Source of funds of IMFs Source: Extracted from Mix Market database These figures show that funds flowing to MFIs come primarily from local sources (57.4%) and from commercial banks (35.6%). But what is the importance of foreign funding by commercial banks? This can be calculated by cross-tabulating data from Table

		Number of MFI Amount (billion USD)	Amount (%)
	Foreign funding	783	110.242	33.9
	Local funding	1,139	186.582	57.4
	Unspecified	818	28.006	8.6
	Total		324.831	100
	Table 1: Foreign funding and local funding in total funding of MFIs
		Source: Extracted from Mix Market database

Table 3 :

 3 . It may well be that foreign banks indirectly contribute to IMFs resources as stakeholders of some of reporting funds 7 . In order to understand the role of funds, we draw on the CGAP 2015 Cross-

		Number of MFIs	Amount	%
	Foreign funding	221	10.447	9.02
	Local funding	659	104.312	90.13
	Unspecified	127	0.976	0.84
			115.735	100.0

Foreign funding and local funding in total commercial bank funding of MFIs Source: Extracted from Mix Market database We observe that in the total funding of MFIs by commercial banks (115.735 billion USD) foreign funding represented a minor part (9.02%).

"Fund" is the second most important financing source of MFIs (19.77% of the total). 7 Société Générale or Deutsche Bank are examples of shareholders of microfinance investment funds. Société Générale is the founding shareholder of Microcred, a holding company for microfinance. It invested initially Euro 3 million. Its share of the capital of the holding company was 7.5 % in 2013. Microcred has seven subsidiaries in Africa and China, serving near 210, 000 customers in 2014. It asserts itself as a major partner of local microfinance actors in the countries where the group is present with its universal bank model. Deutsche Bank was the first global bank to launch a microcredit fund. In 2010 it launched FINCA Microfinance Fund, one of the largest microcredit networks. In 2013 Deutsche Bank secured US $ 75 million from institutional

Table 4 -

 4 Modes of presence of a multinational bank in microfinance on a foreign market

	Physical presence of the MNB in
	the targeted foreign microfinance
	market

Table 5

 5

	provides an overview of BNP Paribas's

Table 5 -

 5 BNP-Paribas's engagement in microfinance in emerging markets Source : BNP-Paribas, Annual Social Responsibility Reports2012 to 2015 11 Banque Internationale du Commerce et de l'Industrie.

12

"Trankil Pack" is a service which offers a bank account, an ATM card, a secure SMS service to track one's account remotely, and advice via a credit relationship center at a cost of 1.5 Euro per month.

13

Cf. "Le groupe Société Générale, un soutien local stable pour le développement de la micro-finance". http://rse.societegenerale.com/layout/set/print/accueil/rse/ 14 Ibid.

Table 6 -

 6 Financing of MFIs by Standard Chartered Bank Source: Annual Reports 2014 and 2015 Citigroup has a direct strategy through its worldwide network. In this way it provides services for equity financing, risk coverage, remittances and insurance to MFIs. Throughout the world, Citigroup has provided funding to 140 MFIs in 40 countries. It is the most committed bank to microfinance in Latin America.

Here are examples of MNBs which subsidiaries have created or taken over local MFIs: Société Générale's subsidiaries have created MFIs in Cameroon, Ghana, Ivory Coast, Democratic Republic of Congo, Tanzania and Cambodia. BFV-SG Madagascar, a subsidiary of Société Générale,has taken a 17% stake in Access Bank Madagascar. Another subsidiary, SGBC, holds a 20% stake in Advans Cameroon. The subsidiaries of the Advans microfinance bank, which it owns, are located in Ghana and Ivory Coast. In 2007 it contributed 19.6% to the creation ex nihilo of Microcred (a microfinance holding) alongside with AXA, the International Finance Corporation (IFC), the European Investment Bank (EIB) and the French Development Agency

(AFD)

  MNBs create (or take a stake in)entities ("microfinance investment intermediaries") which provide resources to MFIs of several countries. Micro investment vehicles (MIV), which assets are invested, at least in part, in MFIs and holding companies, fall under the category of microfinance investment intermediaries(El Zoghbiet al.2011).

	2005 2006 24 70 themselves through cross-border operations. Typically, In 2009, BNP-Paribas launched Obli Etheis, its first investment fund in microfinance. This fund includes 5 to 2007 2008 2009 2010 2011 2012 2013 2014 2015 Outstanding loans (USD Million) 170 385 540 755 850 870 271 318.1 271.6
	Average amount (USD Million) 10% of its assets to microfinance.	1	2	4	7	8	11	11	11	4	4	3
	Number of micro-clients (Million) 0.16 Deutsche Bank created in 1997 "Deutsche Bank Microcredit Development Fund". In 14 years, Deutsche 0.47 1.2 2.6 3.6 5 5.6 nd nd 2.1 1.8
	Bank Microfinance Development Fund (DBMDF) granted 215 million USD in loans to 119 MFIs in over 50
	countries. The activity of DBMDF is very broad. It grants loans to MFIs, but also directly to micro-entrepreneurs.
	It often provides seed capital to newly created MFIs. Its business extends to the provision of collateral to the benefit
	of local banks wishing to refinance MFIs. Deutsche Bank also operates through Bank of Luxembourg (of which it
	is a shareholder) which refinances MFIs in Salvador, Cambodia and Mexico.
	Strategic alliances, which are still emerging, cover the various forms of partnerships: equity, staff
	or outlets.
								In 2009, CGAP identified
	76 Apexes. Funds disbursed by 47 apex for which CGAP could collect data amounted
	respectively in 2006 and 2007 to 1.8 and 2.3 USD billion (Forster et al. 2012).
	3/ (lower left quadrant of the table) The MNB gets involved in the microfinance activity from
	abroad, through cross-border funding of MFIs, strategic alliances or technical partnerships.

A major form of engagement of MNBs in microfinance occurs through ad hoc financial bodies (funds, other financial intermediaries) which are not located in the country, but commit JP Morgan has created a foundation that provides grants to NGOs engaged in microfinance. Its support gives priority to the "borderless bankers" network, a program launched by the Grameen Bank Foundation.

Barclays Bank has developed a partnership with the NGO CARE, which has implemented a program of village associations of savings and credit (Village Savings and Loans Associations -VSLA) in

India, Indonesia, Kenya, Mozambique, Peru, Tanzania, Uganda, Ghana and Vietnam.

In the frame of this partnership, Barclays's subsidiaries provide services of mobile banking and finance VSLAs.

According to Jayadev et al.(2012, p. 30), "Internationally there are many investment funds that specialise in microfinance (…). Big banks are also entering the field: Citigroup, Deutsche Bank, TIAA-CREF, Morgan Stanley, ABN AMRO and Société Générale are deploying their structuring and fund-management skills to offer investment products(…)".

We mention howeverMersland et al. (2011, pp. 164-165) who highlight, according to ING 2006 that "microfinance became an attractive investment opportunity. Interestingly, a number of international banks such as Citibank, HSBC, BNP Paribas, ABN AMRO and Barclays are engaged in microfinance activities and in 2006 held a portfolio in micro-banks of more

million US dollars".

"Downscaling" is the name given to such strategies (see below). For example, the Reserve Bank of India granted a micro-finance licence to Bandahan Bank, which is a universal bank (Cf. "The New Age of Indian Banking", The Banker, April, 2016, p. 21).

Microfinance Information eXchange(MIX 2008) database is a web-based microfinance platform which provides data on individual MFIs. The MIX ensures the financial transparency of approximately1,900 MFIs.

"A J.P Morgan team evaluated the FX risk management practices of MBK Ventura (a leading Indonesian microfinance institution) and recommended measures that enabled MBK Ventura to develop a more robust FX risk management framework"[START_REF] Diamantini | Corporate Responsibility, Passion to Reform, DEUTSCHE BANK Microfinance development fund[END_REF]).

Société Générale (2013), "Société Générale, 1 er réseau de banque universelle en Afrique au service des entrepreneurs ", Communiqué de presse, 3 décembre, p. 3.