Rahim Kanani: How would you describe the objective and vision of the Open Government Partnership?

Under Secretary Otero: The Open Government Partnership is a global effort to make governments more transparent, effective and accountable. It is a new multilateral initiative that aims to secure concrete commitments from governments to promote transparency, empower citizens, fight corruption, and harness new technologies to strengthen governance. In the spirit of multi-stakeholder collaboration, OGP is overseen by a steering committee of governments and leading civil society organizations.

Rahim Kanani: What do you foresee as some of the biggest challenges to achieving this vision?

Under Secretary Otero: I think the biggest challenge to this effort is getting countries to understand the vision of this initiative. This is not like other mechanisms that seek to promote transparency and accountability.

First, it’s voluntary. Any government that is interested and willing to commit to the high standards set forth by OGP is welcome to join. This is not for the faint of heart and free-riders need not apply. The Partnership has ambitious expectations of participants in terms of developing serious new commitments to open government through a national participatory process, and submitting themselves to independent scrutiny on progress.

Second, this is about partnership. This was really evident in the July meeting. We are partnering with governments around the world — you see that in the makeup of the Steering Committee. You also see that with civil society and having them as equal members of the Steering Committee. This collaboration is critical. Civil society keeps governments and elected officials accountable. Also, many civil society organizations are driving best practices and innovation in the space, so governments have much to learn from them…. [See the rest of the interview here]

Source: The Telegraph

“Susan Davis was an early adopter of entrepreneurship as a way to fight global poverty. She has been associated with the biggest names in the business: Ashoka, Grameen, and BRAC. Since working with Ford Foundation in Bangladesh in the 1980s, she has seen this country as a hotbed for creative development solutions, and she was really in a position to do so because she has a top pedigree—she has been educated at Harvard, Georgetown, and Oxford.

Recently, she founded BRAC USA to raise awareness of this unique, enormous Bangladesh-based global development agency that is largely funded by social enterprise and microfinance for comprehensive public health and poverty solutions.

SUSAN DAVIS: In some ways ethics and values have become part of my DNA, and maybe that’s true for most of us. It is probably a little like muscle in that you have to flex it on a daily basis in order to really develop the kind of tone and strength that’s required. But whether it’s through an early Catholic education or the Jesuits, who actually offered classes in ethics and international relations, or a chance to work with Derek Bok when I was at Harvard on a chapter in his book on the ethics of universities being involved in developing countries, I’ve been continually faced with different ethical dilemmas and tradeoffs where you needed to have the courage of your convictions.

JULIA TAYLOR KENNEDY: Give me an example of one of those times when you really drew on that.

SUSAN DAVIS: There are so many.

A good one that was scary for me was back in Bangladesh when I was working for the Ford Foundation in the 1980s. It was one of those classic cases of do you have the courage to speak up and do the right thing or do you play it safe and protect yourself, your career, your job, and perhaps yourself as a person.

What happened was a bunch of children turned up on my doorstep, and a few of them had their moms with them, and they were very excited and upset because their homes had just been bulldozed, and they wanted help. They lived in a slum community on the edge of the very wealthy, privileged community, Gulshan, in Dhaka.

I immediately went with them to see what had happened. As I was walking through what were the flattened thatched and tin-roof huts, I found a woman who was sobbing over the body of her little boy, Rafik, who had been in one of the homes that had been bulldozed.” Read more at Policy Innovations

The microfinance industry has been through a lot in recent times. From the suicides of over-indebted clients in Andhra Pradesh, India, to in-fighting over the future direction of the industry, microfinance as an idea and a practice is at a turning point, suggesting an end of one era and the beginning of something new. Here to make sense of it all and set the record straight is Mary Ellen Iskenderian, president and CEO of Women’s World Banking (WWB), the world’s largest network of microfinance institutions.

Under her guidance, more than 39 institutions worldwide are working to develop credit, savings and insurance products to support the needs of women. The WWB network works with 26 million clients, 80% of which are women. They’ve disbursed over $7 billion in loans and currently hold $3.5 billion in savings. WWB has also helped establish training programs to ensure the success of the next generation of industry leaders. As WWB’s president, Iskenderian advocates for women’s representation in the microfinance industry – from boardroom and leadership positions to their stake as clients.

We sat down recently to discuss the state of microfinance and the future direction of the industry.

Why did you decide to get involved in microfinance?

I made the transition from a Wall Street career to a development career many years ago. I first went to the International Finance Corporation, which is the private-sector arm of the World Bank. I started there just as the Berlin Wall came down, and having Wall Street skills was important to those countries in Eastern Europe. I worked for about 10 years setting up stock exchanges, securities and exchange commissions and microfinance institutions (MFIs). That was the first time I saw MFIs being established, and it really gave people a sense of hope and an opportunity to put food on the table. Read More

Suresh’s comments were very interesting, so we’ve compiled the highlights into an exclusive interview, which is available to download for free from the event website. Below is a snapshot of the interview:

First of all I wanted to talk to you a little bit about the work you are doing at the moment in Microfinance – could you tell me some more about your current portfolio? Sure, we provide financial services to close to half a million households.  We have a wide range of services like insurance, credit, credit plus services including water and sanitation loans and seasonal loans.  These are some of the services we provide.  We also have non-financial products in our programmes including the financial interest programme and we also do a lot of work on water and sanitation.

You mention some of the different services that you are working on including insurance, are services such as these becoming more popular? Yes pension and housing is what we are working on at the moment.   There are some specific regulations that affect the pension schemes so we are working on that and seeing how we can provide the pension service.  Housing is also something that we are working on now and is a huge focus in India.

What do you think is going to happen in MicroFinance over the next 12 months? Microfinance is going to be very different over the next 12 months compared to the 12 months that we have just had.  We will have far stricter regulations, and more of them.  I think funding to the sector will slow down.  There will be pressure to reduce the interest rates and restrictions on recovery and collection practices.  MFIs will start innovating to provide more client friendly products.  Advancements in technology such as mobile banking will enable us to reach the unreached and bring in cost effectiveness.  There will be greater financial inclusion in the country.

What does the future hold for Grameen Financial Services over the next 12 months? We need to push boundaries with our technology and our capital.  We need to design suitable products, test them and then roll them out.  A lot is going to change in the next 12 months because of high competition and changing regulations.

What is the one thing that people need to be aware of when starting to branch out into new Microfinancial products like housing or insurance? With different credit products like seasonal loans or housing loans, water and sanitation loans, we need to be sure to whom we are lending and we can’t over burden the client just because we want to provide credit

Download the full interview as well as the meeting agenda for the conference.

At the Asian Investment and Innovation in Microfinance conference, we will be addressing all of these issues with the industry’s leading figureheads.

• Regulatory changes: Benefit from an update on the regulatory architecture for Microfinance in Asia with Eric Duflos, Senior Microfinance Specialist at CGAP
• New financial services: From MicroInsurance to MicroPensions and MicroHousing, learn how to design and deliver new products
• Client protection: Hear from the Smart Campaign on the Responsibility MFIs have for their clients and the best way of protecting them
• Multiple borrowing: Join Microfinance Networks from across Asia as they discuss where the responsibility lies and how solutions can be implemented

Hanson Wade would like to offer Mykro readers an Exclusive 10% discount off the registration fee, to claim your discount please remember to quote your priority booking code: MYKRO when registering.

Ever heard of interest-free loans in microfinance? Probably not, because some microfinance institutions need to cover their expenses and others are in it for the money. But Seeds for Development, which is a UK-based microfinance charity specializing in micro crops, is different because interest rates play no role in their business model. I recently had the privilege of interviewing Alison Hall, the chairperson of the charity, and decided it was worth sharing.

Fehmeen: Please tell me a little about yourself and how you, along with your friends, setup this charity.

Alison Hall: Well, first of all, I have no background (or previous experience) in Africa, microfinance, microcredit, farming or charity work! I am a marketing manager at IBM. In September 2007, along with the 3 other founding trustees, I was sent to a conference in Oslo where Josephine Okot, the MD of Victoria Seeds, gave a very emotive talk about Uganda and the challenges farmers face, especially around

access to affordable credit. I had a light-bulb moment and decided to do something to help, and after some deliberation, we came up with the idea of lending farmers seeds (which is what they needed).

Seeds for Development was born!

Fehmeen: What exactly is it that Seeds for Development does a microfinance institution?

Alison Hall: Individual farmers looking for seeds to plant, approach Victoria Seeds, a seed retailer in Uganda, who combines the request of dozens of farmers and sends the details to us. We transfer the required money to the bank account of the consolidated group of farmers (Seed Farmers), who use the

money to purchase seeds, say, 20 kg of soybean seeds, from Victoria Seeds.

Once the crop is harvested, Victoria Seeds, bound by an earlier agreement, buys back the seed crop and deducts the monetary value of the seeds, which is recycled in the system to support other farmers. (In other words, the microloan is returned when the monetary value of seeds is deducted).

Fehmeen: What makes Seeds for Development stand out from the rest of the microfinance institutions (MFIs)?

Alison Hall: Microfinance institutions often charge interest rates that are outrageously high and hide under ‘onion skins’, so you have to peel away the layers to find out exactly how much they charge. Numerous people give their money to charities in good faith thinking all their donations go to the people they want to help, but when their money go via MFIs, very little of that donated amount actually lands in the hands of the people they want to help.

This is one of the reasons I set up Seeds for Development; all our donations go directly to the farmers we want to help – no interest, no risk and 100% repayment so far!

Fehmeen: Could you elaborate how you eliminate risk?

Alison Hall: The farmers carry no risk because we agree with them that if the crop fails due to flood, drought, disease, war or ultimately their death, then the ‘microloan’ is forgiven. Even though we do not expect to get the money back ourselves (because it was all raised from charitable donations) we make sure the farmers believe that this is not charity.

Fehmeen: How does Seeds for Development cover expenses if all donated funds are forward to farmers?

Alison Hall: We pay for them ourselves because we all have day jobs. The costs we face are limited to travel, web-hosting, domain name registration, and the ‘Just Giving’ online donation tool fee (we get the bank to waive bank transfer charges), so you can see our expenses are pretty non-existent at the moment. However, as we grow this will have to change and I am looking to see if we can get support in the form of grants to cover these expenses. All of our ‘individual’ donations go directly to the farmers and we want to keep it that way!

Video: Olwal Farmers Group – Seeds for Development

Fehmeen: The activities of Seeds for Development are limited to helping farmers in a third world country; are there any specific reasons for your choice of helping farmers only?

Alison Hall: I believe the word ‘farmer’ is misleading as it can conjure up an image of affluence. In fact farmers are the poorest people of the land and they have the greatest difficulties in securing credit. Agriculture is widely accepted as key to poverty alleviation and we want to help the poorest, most challenged people farm their way out of poverty.

Plus, most of our clients are refugees who were displaced because of the twenty-year civil war that plagued Uganda from 1986 to 2006, and caused 2 million people to flee their homes and live in IDP camps. When Seeds for Development was setup, more than 500,000 people were still living in these camps.

We are trying to help people leave these camps and go home to rebuild their lives through microfinance. This is very challenging for them because many of them have known nothing but war, have no education and no older generation to pass on knowledge. Their land has not been touched for 20 years they often have no house to go home to, and have no food security.

Since most of them are starting from scratch, we also provide funds to help them purchase other basic agricultural inputs, such as forked hoes, hand hoes, wellingtons, weeding sprays, drying tarpaulin, fungicide, etc. to cultivate their micro crops.

Fehmeen: Your results are commendable – a 100% repayment rate, even in microfinance, is remarkable. What factors would you attribute to that: commitment of workers, good credit discipline, strict client selection criteria, or complementary training of clients?

Alison Hall: Thank you! Yes, the selection process is very strict. Victoria Seeds select the farmers groups for us to work with, educates and trains the farmers on seed production and closely monitors their progress throughout the growing season.

Most importantly, our farmers are totally committed to getting themselves out of poverty and know that they have to farm their way out. They have an astonishing attitude!

I meet the farmers as an equal partner – we shake hands and look each other in the eye. They give me their word that they will be honest, trustworthy and hardworking and the group committee signs an agreement. I then go and meet them again to see how they are getting on, etc.

A really motivating factor for the farmers is that when they pay back the loan, we transfer the money back to the group to use as ‘rolling credit’. This was a temporary arrangement because we didn’t have the infrastructure to take the money back and reallocate to other farmers. However, it is so successful that we will leave it this way and build on it.

Fehmeen: How many loans have you advanced so far? Could you share a few figures about your growth prospects and success?

Alison Hall: We have advanced 4 loans to 3 groups so far (here are their details):

Group 1 has received two micro crop loans, totaling £3,500, and thanks to the rolling-credit facility, these farmers have been borrowing seeds against it for 4 seasons now. The idea caught on fairly quickly because the repayment rate was perfect and the group size rose from 80 to 200 at one point, before settling at around 100.

Group 2 (70 farmers) and 3 (60 farmers) received much larger micro crop loans (over £4,500 each) because they belonged to the war-torn Northern Uganda. Despite this, they too have scored a 100% repayment rate, and we’ve recently forwarded funds to a third group in the North.

In addition to this, we also paid for 60 of the farmers to have a daylong training in organic farming because we felt it was vital to invest in furthering their education and building their knowledge.

Fehmeen: What is the way way forward for Seeds for Development?

Alison Hall: We currently have enough funds to support 2 more groups of around 40 to 50 farmers in each with significant (£4,000) micro crop loans this year. Our goal is to raise around £10,000 per year, which will allow us to support 2 new groups per year. However, we overachieved this by 50% last year, so we were able to take on an additional 2 groups this year.

We need to have some more formal structure in place to ensure that we can build on our success and grow in a sustainable way; for example, we will need to invest in management systems to track, monitor and develop the ‘rolling credit’ model efficiently.

But beyond that, I have lots of dreams and ideas for Seeds for Development!

—

(Just in case you’re wondering, there are no minimum donation amounts for Seeds for Development; in fact, some people donate as little as £1 at a time).

HIP Housing, as its name implies, focuses on finding housing solutions for the economically disadvantaged.  How does microsavings play a role?  Self-sufficiency Director, Carolyn Moore, explains.

Q: Tell me about your savings program with Opportunity Fund.

Carolyn:  At HIP Housing, I work with low income parents who are in school.  The self-sufficiency program pays a portion of their rent so they can focus on school, finish it, and eventually earn an income that will pay for their own rent.  The key is that I’m working with a low-income population which has an education plan, and this makes them a good fit for the Individual Development Account (IDA) savings fund through Opportunity Fund because the money you save and the matching funds must be used for education, small business, or a home purchase.  With the high housing prices in the Bay Area, most clients spend it on a small business or education.

We’ve been working with Opportunity Fund for the last three years.  The IDA works as a savings account with matching funds.  The client saves a minimum of $25/month and has two years to save up to a maximum of $2,000.  Everything is matched 2:1.  So if they save $2,000, Opportunity Fund throws in $4,000.

Q: Who are your typical clients?

Carolyn: Most of my clients are single moms because when you say low income parent that’s usually what that means, though we do have a few single dads and couples.  A lot might have been teen parents, who got out into the working world and realized you can’t make it on a high school education or less in this area so they decided to get some kind of training to increase their earning power.  Our program is 1-2 years of rental assistance, so we require the education plan be completed in 1-2 years.  So I’m working with people doing relatively short term educational programs, e.g. administrative assistant training, medical assistant, dental assistant – i.e. entry level vocational training at the community colleges.

Q:  Can you give me an example of a success story?

Carolyn:  I have a single dad with two kids who has been in the program for about two years.  He was cutting hair on the side but you can’t do that without a license, so he needed to go to school.  There’s a barber school in San Francisco that cost $6,000 but he didn’t have the money.  When he came to our program we cobbled together various sources, including the IDA.  He didn’t have $6k immediately so we had to get him some other funding through the Workforce Investment Act, which is retraining through the welfare system to get started.  By the time he got through the first part of the program he had saved enough in the IDA to pay off his education.  Now he has a job with Philgood Cuts in San Francisco.

It’s hard to go to school, take care of your kids, and work.  The majority of my clients have part time jobs.  It would have been difficult for this particular client to be able to assemble the various resources on his own.

Q: How are you funded?

Carolyn: We have various funding sources.  This program gets a lot of money from the County of San Mateo.  We also get money from private foundations and individual donors.

Q: What haven’t I asked that would you like to tell me about?

Carolyn: Save Together.  Opportunity Fund is one of the partners, and it’s an IDA in the Kiva model where individual philanthropists can go on-line and make a donation to an individual in their community.  So a low income person goes on line and says they need $6,000 for cooking training.  An individual donor can then go on-line, think it’s a good idea, and donate $25, and the IDA can build that way.

Ben Magan, CEO of EARN

How often do you catch yourself saying “microfinance” when you really mean “microcredit?”  Let’s face it – in the world of microfinance, lending represents the lion’s share of financial activity, with savings and other services the poor second cousins.  However, in San Francisco, EARN has flipped that equation, with microsavings playing the leading role.   I interviewed EARN CEO, Ben Mangan, to learn about their program, savings and sustainability, and the role played by public policy.

Kirsten:  Why was EARN started?  What’s the mission?

Ben:  The original vision was to bring asset building products to scale.  Since the early 90s, the concept of matched savings accounts has been in play.  The first step was to prove poor people can save, which we’ve done.  The second step was to get government funding for matched accounts.  During the dot.com boom, when the concept of EARN was first developed, there was a window open for major government investment because budgets were flush.  Unfortunately, by the time the plan was finished, it was irrelevant.

Initially savings accounts for low-income earners may seem like a crazy proposition.  But if you study prosperity, it’s clearly tied to public policy.

K: What do you mean?

Ben:  Something as simple as the creation of the 30-year mortgage doubled home ownership in the US.  Even with the crisis today, home ownership is the greatest generator of wealth because it enables multi-generational prosperity.  The number one source of down payment assistance is parents because of the wealth built through their own homes.

Another example of asset building policy is the 401k.  These are pieces of the engine.  People who work in the asset building field argue policies should be expanded to low income workers.  We give by much larger multiples subsides through the tax code to middle to upper income earners.  For example, ninety percent of the home mortgage interest deduction subsidy goes to households above the income average.  Fifty percent goes to households that earn over $100,000/year.

Low income workers pay income, payroll, and sales tax yet they get a disproportionately small piece of the subsidies that create wealth through public policy – so small that it keeps them from entering the middle class.  This economy would be far more robust and sustainable if there were more opportunities to be entrepreneurs, to own homes and to have a greater civil stake.

EARN’s goal is to provide products and services that help low-income workers build wealth in a way that could be offered at true scale across the country.  We use our successes on the ground to advocate for policy changes that would realize scale.  Sometimes this push involves different models, for example a very successful pilot program called Bank of San Francisco.

K:  Can you tell me a bit about that?

Ben:  It’s an interesting pilot between the City of San Francisco, the Federal Reserve Bank of San Francisco, and EARN.  Together we compiled research that clarified the number of unbanked in San Francisco, who these people were, and through our primary research, why they were unbanked.  We then went to financial institutions and negotiated to provide products that appeal to the unbanked to open checking accounts.  The goal was to get people into mainstream banking and it’s been wildly successful.  Our initial goal was to get 10,000 people into the program.  We’ve had 40,000 in the past 24 months.  The program is being replicated in California (the Bank of California) and across the country.

K: What are they doing?

Ben: They’re creating coalitions of banks, non-profits, and the government.  I think, however, their success will depend on certain critical factors.  First, products must be demand-based.  There’s been this idea that if only we publicize checking accounts and bank services, the unbanked will join the banking system.  But we’ve found through our research and focus groups that it isn’t true.  The unbanked choose not to open bank accounts for very rational reasons.  Banks frequently have hidden fees that check cashing services don’t.  Many can’t get a bank account because of the bank credit rating system.  Or they think they don’t have the right ID.

When the Bank on SF steering committee negotiated with the financial institutions we ended up working with, we had a list of deal-breakers.  The product had to accept matricular IDs from Mexico and Guatemala, the check system [the banking credit rating system] could be waived for people who’d been on it for over six months and who weren’t on it for reasons of fraud, and there had to be some forgiveness for insufficient funds fees.

K:  Tell me about EARN’s savings product.

Ben:  We offer a matching savings account called the IDA – Individual Development Account.  We’re one of the biggest in the nation, alongside Opportunity Fund in San Jose.  We have more active accounts than anyone else, and Opportunity Fund has the most cumulative accounts.

K: What’s the match?

Ben: It’s a 2:1 match, up to $6,000.  So people can save up to $2,000 and are matched with an additional $4,000.  The main account is funded half by the government, and the other half through private donors.  For people who purchase homes, there is an additional subsidy we can access through the Federal Home Loan Bank of San Francisco.  But the majority of our savers use the account for education.  Small business is the second most popular use.

K: For their children’s education, or for their own?

Ben: For their own post-secondary education, though we are piloting a product allowing families to save for their kids’ education.  The redesigned version of this is expected to be offered in the third quarter of 2010, and our goal again is to be scalable.  This “Family Education Account” will be designed so EARN can open accounts anywhere in the state without having an office or staff there.  Ultimately, our vision is to be successful enough that we put ourselves out of the business of offering accounts as an intermediary. Once policy makes these accounts available at scale, people should be able to walk into any financial institution for some form of a Family Education Account, just as they would walk into Wells Fargo or Citibank to open a ROTH IRA.

K:  I come from the microfinance world, so I have to ask: is it sustainable?  Does it matter?

Ben:  I get a lot of argument from microfinance practitioners about this!  But I think it depends on how you define sustainability.  You can’t ignore the history of the public policy role in asset creation.  Would retirement savings be sustainable without the IRA or 401k?  There’s no way to fund these sorts of things without changes to public policy, and it doesn’t need to be overly expensive in the long term.

The UK, for example, has a program where every child born gets £300.  At age 18 they must repay the money, but they can keep the interest or capital gains earned on it, and use it for any purpose.  The British government believes that it will be used for education or entrepreneurship.  I’m frankly more skeptical that it might be used for a rave!  But I think an American version could restrict the use of the money for education or business, and with the repayment could be sustainable.

Some economists make a strong argument for sustainability through increased economic activity, for example, the Homestead Act.  Twenty five percent of the wealth in the US can be traced back to the Homestead Act.  Another example is the G.I. Bill.  Depending on which economist you talk to, that bill had an 11-1 or 7-1 return on investment.  The question of sustainability has to look beyond annual profit and loss and look at the long term economic impact of creating wealth for people.

K:  Financial literacy is something close to my heart, since so many of us grow up without basic financial skills.  In fact my current project is speaking to parent-teacher associations on the San Francisco Peninsula about techniques parents can use to develop strong financial habits in their kids.  So I was intrigued when I read that EARN has a financial education program.  Can you tell me about it?

Ben: There is a lot of evidence suggesting that financial education to adults, on its own without connection to a product, is ineffective.  So the education we provide is required for people who open IDAs.  Since they’re required to save monthly, we feel obligated to provide this education.

K: How does the program work?

Ben: It’s an eight hour program, over two sessions.  It’s very hands on and results in a budget, with a line-item on how much they’ll be saving per month in the IDA and a detailed exploration of how they’ll achieve that.

But another important part of our education has to do with our alumni association.  People have become so empowered by the IDAs that we wanted a space to channel the energy.  The alumni association provides a bundle of products and services, but the cornerstone is access to a financial coach, and we don’t use the word “coach” lightly.  Our coaches are highly trained professionals.  Everyone who goes through the coaching also gets financial planning, but the financial planning is separate in that coaching works on behavior, while the financial plan develops goals.

Within this, the EARN Alumni Leadership Group has networking events, such as expos for EARN alums.  We also have a microlending pilot to eliminate credit card and medical debt.  It’s focused on a very specific niche, where we feel we can add value.  We found that many of our saver alums still carried credit card or medical debt.  So we seeded the fund on prosper.com, a peer-to-peer lending platform.  We’re currently trying to create an EARN affinity group and to attract outside capital.

K: What question do you wish I would have asked?

Ben:  People often link us to microfinance and then can’t quite figure it out since we do so little lending.  I think the world of microfinance should increasingly expand to other types of financial products besides credit.

K: It’s interesting you bring that up, since the savings focus of EARN was what made me want to speak with you.  When I first started my career in microfinance overseas, I saw a tremendous focus on savings.  However, over time the savings component diminished and there were several reasons for this.  In some cases, restrictive legislation made savings problematic.  In others, inflation was so high that it really made no sense for borrowers to save money – it was much more rational to invest it or borrow at fixed rates.  Finally, some MFIs found that the savings was so successful that clients didn’t need to borrow as much; the MFIs (and I won’t name names) realized that they could be more profitable if they cut back on the savings and pushed people into taking more credit.  At any rate, I think this all goes back to the definition of microcredit – which is debt-specific – vs. microfinance, which really encompasses a range of financial services.

Me:  Thanks for letting me interview you on a Sunday, Elisabeth!

Elisabeth:  Thank you!

Me:  What inspired you to write this book?

Elisabeth:  The book really came out of the United Nation’s Year of Microcredit in 2005.  As a result of that, the UN formed a high level group called the UN Advisors Group on Inclusive Financial Sectors, headed by HRH Princess Maxima of the Netherlands, who’s an expert in this topic area.  It also had experts from governments and major banks, and ACCION was represented.  A group of private sector representatives said, “The private sector has a role here, so what can we do to attract the private sector to be more of a contributor to financial inclusion?”  We decided we needed some good examples, a kind of road map, and some information on how big the market is, and that’s the book.  I should also mention that Visa provided financial support for the book because they were also part of the UN advisors group.

Me:  Your book mentions the entry of some big local firms, like Visa and Sequoia Capital, into microfinance.  Can you tell us about a case that you won’t be discussing in your presentation to the SVMN this week?

Elisabeth:  In the Silicon Valley, a lot of companies have been interested in supporting the development of MIS, the information technology that goes into running microfinance, and have gotten involved in a lot of different experiments on that score.  It may seem a little mundane, but systems for financial services are typically designed for big banks, not microfinance institutions.

Me:  I should explain I used to work in microfinance, in the field, and MIS was my bête noir!  Everything felt jerry-rigged.

Elisabeth:  Right.  MFIs don’t have a lot of spending power so big companies tend not to move into that market.

Additionally, a lot of companies have been involved behind the scenes in microfinance, Microsoft for example.  You see things like the head of the board of Grameen foundation is ex-Microsoft and another ex-Microsoft person – Mike Murray – co-founded Unitus.  So a lot of people have gotten involved individually as entrepreneurs in this space.  I think that’s true on the investment side too.

Me:  What question should I have asked you?

Elisabeth:  About the takeaways for private businesses that want to get involved.  One, let’s acknowledge you need a deep market understanding of low-income people; that their special characteristics don’t make them unviable customers.  You need to understand how low-income people work in order to have good products that work for them.  Financial services support people’s fundamental needs and that’s why they are viable customers: they’re willing to pay for services that meet those basic needs like housing, shelter, education, etc.  So when you see an unmet need what you see is an emerging market opportunity.

Another message would be about partnering with MFIs, because MFIs can introduce private businesses to their market segments.

My final message is to absolutely approach entry to this market with a strong consumer protection awareness and a commitment to make social goals part of the overall goal of the business.

Want to learn more?  There are still spaces available to attend Elisabeth’s presentation at the SVMN on September 16^th in Santa Clara.  For more information, go here.