Microfinance 101 – Part 3 of 3: Issues in Microfinance

May 25, 2011

In our final blog of this three-part blog series focused on the topic of microfinance, Mary Ellen Iskenderian, President and CEO of Women’s World Banking and a leader in the microfinance industry, and I discussed the state of the microfinance industry and its impact. And don’t miss parts one and two.

Q&A with Mary Ellen Iskenderian:

Q: What is the current state of the industry?

MEI: The microfinance industry has undergone a dramatic shift in the past 5 years. It has moved into the commercial mainstream, reducing its reliance on subsidized donor funding and, instead, using other, more commercial sources of capital to finance operations. There has been much debate as to whether this is a good or bad thing for clients. One side argues, simply put, that microfinance institutions should not make profits. The other side claims that without bringing in profit-seeking investors, microfinance will never make a dent in the nearly 3 billion people who don’t have any access to credit, savings or other financial services.

Q: Where does Women’s World Banking (WWB) fall in this debate?

MEI: At WWB we are somewhere in the middle: we believe there will never be enough donor capital to bring microfinance to the scale it must reach. Yet as critical as commercial capital is to reach scale, we are acutely conscious of the impact on women if microfinance institutions are solely profit-driven. Microfinance can be expensive and even more so for women – they are typically poorer, less mobile, grow their businesses more slowly and we worry that, in an attempt to cut costs and make profits, microfinance institutions will elect not to serve women clients.

Q: Does microfinance have an impact?

MEI: There has been debate of late about the impact of microfinance. WWB’s fifteen years of research with clients of microfinance institutions provides ample evidence that microfinance does have a significant positive impact on many households and our network members demonstrate that focusing on serving women in microfinance makes business sense.

Q: But I also hear about studies which argue that microfinance has little impact. Who’s right?

MEI: There have been some studies that say the impact is negligible, but these studies measure change over too short a time period (usually 11-14 months) and don’t measure the small gains women make in their financial security that can have enormous longer-term impact. Our network members typically say they do not see any real measurable changes in their clients’ standard of living before three loan cycles have been completed (roughly 2-and-a-half to 3 years). And when those changes take place they are more likely to be things like moving from a mud floor to a wood floor or a family’s decision to leave a daughter in school rather than having her work to supplement the family’s income.

These are changes that can have profound impacts on the quality of a family’s life, but they are not easily measurable through consumption levels – often the standard applied by researchers using the randomized control group method. We look forward to studies that better measure the more nuanced—but no less important— changes in the financial lives of the poor.

Q: What do you envision will be the future of microfinance?

MEI: Now is an exciting time for microfinance. We have made great progress serving more than 190 million borrowers as an industry; however, there is still a significant access gap and closing this gap is going to require innovation. We have a tremendous opportunity to use advances in technology, particularly in mobile banking, to reach more clients. There has been great progress made, particularly in Africa, already. We just need to ensure that women have access to the technology so they are included in the progress.

Q: If readers of this blog are interesting in helping economically challenged women gain access to financial products and services, what is your recommendation for how they should go about getting involved?

MEI: What Women’s World Banking needs is for smart, committed women (and men) to invest in our work. This has been a very hard time financially for non-profits. Supporting Women’s World Banking has a significant impact that goes beyond a single woman entrepreneur: rather, one loan has the potential to strengthen a home, a community, and in turn influence many more lives.

Every dollar given to Women’s World Banking is amplified by the power of the WWB network. Your gift will support our network of 39 local microfinance institutions around the globe, helping them to better serve the poor by developing innovative products, and sharing best-practices and lessons learned. By building strong sustainable institutions, WWB helps to foster a socially responsible microfinance model. Moreover it ensures that women will gain access to the formal banking sector, claiming an identity beyond the home and empowering her to effect change. I ask you to join me in championing this cause. I know that together we can help the nearly 2.8 million unbanked access financial markets.

I would like to thank Mary Ellen Iskenderian for the time she provided me on the topic of microfinance for women. Reaching out to help economically challenged women around the world is an admirable mission to have in life and she serves as a wonderful role model and demonstrates the importance of women aligning their work with their values. Mary Ellen is a passionate advocate for women’s empowerment and dedicated to positively impacting the world.

Women’s World Banking (WWB) is currently the world’s largest network of Microfinance Institutions, representing more than 39 providers and banks working in 27 countries. With a unique ability to deliver financial products and services to low-income, female entrepreneurs, WWB is considered a global icon in the industry. Working for more than thirty years, WWB continues to advocate for the benefits of microfinance and for the need to serve women everywhere, while conducting critical research and sharing industry best practices.

To the WWB team, thank you for all the information you provided and the open access to Ms. Iskenderian. Your work around the world to help women in need is truly awe-inspiring!

~ Lisa Quast

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Photos: Courtesy of Women’s World Banking

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