Mary Ellen Iskenderian remembers the moment when she discovered her purpose in life.
As a child, her parents often took her to visit her father’s family in Turkey where she saw, for the first time, people living in utter poverty. She remembers thinking, “I don’t want to spend my life looking the other way.”

She hasn’t. After graduating from Georgetown University and Yale with degrees in management and international finance, she worked for 17 years for Lehman Brothers ( LEHMQ – news – people ) and an affiliate of the World Bank–largely in eastern Europe and the Soviet Union–linking newly freed entrepreneurs with sources of capital. In 2006 she became president and CEO of New York City-based Women’s World Banking (WWB), a global network of 40 microfinance institutions and banks in 28 developing countries.

Committed to the “double bottom line” of financial returns and social progress, WWB offers credit, insurance and savings products that enable low-income women to build assets, guard against risk and provider better opportunities for their children. In the process, WWB enables its partners in microfinance to evolve from donor-dependent charities into self-sustaining financial institutions. “We know the poor can be economically savvy about juggling what little they have,” Iskenderian noted during a presentation at the recent 14th Annual Wharton Leadership Conference, whose theme was “Leading in a Recovering (and Even Rebounding) Economy.” “When someone trusts low-income women with capital, often for the first time, they can become agents of their own change.”

Mission Drift
In 2008 Women’s World Banking released a widely cited survey showing that if microfinance groups did not specifically target women, the percentage of female clients dropped sharply as the microfinance institutions evolved from donor-funded charities to regulated financial institutions. The phenomenon is called “mission drift,” and it occurs when organizations shift their focus toward higher-income (and supposedly less risky) clientele and away from low-income customers, which in many developing countries means women.

Iskenderian wants everyone to recognize the damage, unintended or not, caused by mission drift. Recently a WWB publication uncovered another effect that hurts women: As organizations shift their focus to for-profit services, a marked decline occurs in the number of female staff members who might better understand the needs of women entrepreneurs.

To illustrate this aspect of mission drift, WWB developed a tool called the Organizational Gender Assessment, which was launched with a large microfinance institution in Bangladesh called ASA. The OGA uncovered policies that clearly affected mothers employed at ASA, such as a requirement that staff members at all branch offices work late into the night managing loan recovery and overdue payments.

ASA regularly rotates its field staff among the branches as a way to prevent fraud. Yet while most male loan officers are not responsible for childcare, most of the women officers are. With the OGA survey in hand, ASA realized how its rotation policy was disrupting these women’s family lives. And after determining that rates of fraud were extremely low among its female staffers, ASA altered the transfer policy for certain women to allow them six years in one branch, rather than four.
The focus on mission drift among financial institutions comes at a time when a fierce worldwide debate is raging about microfinance and its future. In 2008 investors plowed $14.8 billion into microfinance, up 24% from the previous year. The microfinance industry now holds more than $60 billion in assets, according to The Center for Financial Inclusion. And, adds the World Bank, for the first time, most of the money in microfinance comes from private investors, including pension schemes and private equity funds, rather than governments. “There is definitely a risk of new shareholders switching microfinance institutions’ missions from alleviating poverty to chasing volumes and profits,” notes Maya Prabhu, head of philanthropy at the U.K. private bank Coutts & Co., who advises wealthy clients on investments in microfinance.

Falling into the ‘Red Zone’
Interest rates vary widely across the globe. But those that draw the most concern tend to occur in countries like Nigeria and Mexico, where the demand for small loans from a large population cannot be met by existing lenders, according to a recent article in the New York Times. The average interest rate in Mexico, for example, hovers around 70%, compared with a global average of roughly 37% in interest and fees. Mexican microfinance organizations can charge such rates because people are often so in need of cash that they will accept any terms offered to them. Occasionally, interest rates spark political intervention. In Nicaragua, President Daniel Ortega became outraged when rates began to reach 35% in 2008. He announced that he would back a microfinance institution that would charge 8% to 10%, using Venezuelan money.

Muhammad Yunus, a Bangladeshi banker and Nobel Peace Prize winner whom many experts regard as the founder of microfinance, has said that interest rates should be 10% to 15% above the cost of raising money, with anything beyond that range amounting to a “red zone” of loan sharking. Yet by that measure, 75% of microfinance institutions would fall into the red zone, according to a March 2010 analysis of 1,008 microlenders by the MIX, a website where more than 1,000 microfinance companies worldwide report their own numbers. Many experts label Yunus’ formula as overly simplistic and too low, and fear that a pronounced backlash against high interest rates will prompt lenders to retreat from the poorest customers.

Yunus is famous in the microfinance community for founding the Grameen Bank in his native Bangladesh. By 2006 the bank had disbursed more than $5.3 billion to borrowers, 96% of them groups of women. Yunus has said he decided to lend mainly to women because they were more responsible about repaying loans, and because families benefit more when women control the money.

The debate over microfinance and mission drift has intensified as some researchers maintain that there is more to developing an entrepreneur than providing credit. “Credit alone is not a panacea,” notes Jonathan Morduch, a professor of public policy and economics at New York University. “The boldest claim for microfinance–that it can single-handedly eliminate a large share of world poverty–outpaces, by a long distance, the evidence accumulated to date.” At the same time, however, analysts like Morduch emphasize the success of microfinance groups that combine lending with other initiatives, such as education and health care.

Charting a Path Forward
That model, as it turns out, is where Iskenderian is pushing WWB to go.

To put its stamp on what Iskenderian calls “the next 30 years” of microfinance, WWB is moving into a broad array of products and services for women, including savings, insurance and financial education. “Loans and credit was the model for the first 30 years of microfinance,” she stated. “Savings is the future, the missing piece in climbing out of poverty.” Currently WWB is sponsoring research on the use of mobile phone technology and ATMs as ways to provide low-income women with banking services.

As another example, poor women have traditionally managed risk in very risky ways: by relying on their husbands, pulling children out of school to work, or selling productive assets such as livestock or equipment. WWB has published a paper highlighting alternative ways for women to manage such gambles using gender-sensitive microinsurance. For instance, women can choose another beneficiary if they don’t think their husbands will protect the children properly after the woman’s death. In Colombia the life insurance offered by one company pays monthly benefits that can only be used for the purpose of educating the children for two years after the death of a parent, in order to reduce the pressure on the surviving parent to pull children out of school.

This year WWB announced that it has received an $8.5 million grant from the Bill & Melinda Gates Foundation to research, develop and, in conjunction with four of its network member microfinance banks, offer products and services that will promote savings in Latin America, Africa and Asia. To educate the public about saving, a portion of the grant will support the creation of a “social soap opera” in the Dominican Republic. Because low-income women often tend to believe that saving small amounts of money in formal financial institutions is not worth the effort, notes WWB, the soap opera will feature stories highlighting responsible management of money. WWB will work on the project with Puntos de Encuentro, a Nicaraguan NGO with experience in using TV serial dramas to change cultural attitudes.

Through the soap opera, WWB will not only illustrate both positive and negative money management practices–and the consequences of these actions–but will follow up with a communications campaign that will use the buzz created by the soap opera to encourage people to save more money through formal bank accounts. If successful, the program could have a ripple effect across much of Latin America and the Caribbean.

“It’s not always size that makes the difference in [microfinance],” Iskenderian said. “People make the difference with their energy and their resolve. … Single individuals and the choices they make have a tremendous impact on the world.”

Our economic framework is wrong, it must change

Jun 15 2010

INTERVIEW: Muhammad Yunus: Nobel laureate & Grameen Bank founder Our economic framework is wrong, it must change Rajiv Tikoo Going by the response to his just-released Building Social Business, Nobel laureate Muhammad Yunusis on the verge of ushering in a social business wave to address problems like poverty. After launching Grameen Bank, which offers microcredit to poor women in particular, and profitable social businesses like Grameen Danone Foods to produce fortified yoghurt for malnourished children, Grameen-Veolia Water to treat contaminants like arsenic in drinking water, Grameen Intel to offer online solutions in healthcare and agriculture, and BASF Grameen to produce chemically-treated mosquito repellent nets to protect people from malaria, he is working overtime to add other building blocks like social investment funds and social stock exchanges to complete his vision of a global social business ecosystem. In the process, he has spread the Grameen footprint from Bangladesh to America, Europe and Africa. In an exclusive interview with FE’s Rajiv Tikoo, he says once India gets going, it will do so in a big way. Excerpts: Your last book, Creating a World Without Poverty, fuelled a lot of curiosity about social business. How is the response to the new book, Building Social Business, which elaborates the concept? The first book generated a lot of interest and curiosity. It came out when people were not prepared for the concept of social business. But people were positive. Since then, we have set up a few more social businesses in Bangladesh and many people have come forward to engage with us. People are more aware now. The response to the new book is much better and there is a lot of interest from people because they are not satisfied with the existing economic system and are looking for alternatives. They want change. Though you are calling for a transformational change in the way businesses are conducted, you expect the initial capital for social businesses to come from sources like CSR budgets of mainstream businesses and charities. How sustainable is this? Social business is, by definition, sustainable. If each (funding) business is sustainable, then there is no reason why social business as a concept can’t be sustainable. CSR is a part of corporate charity. Charities in the US alone earn annual revenues of more than $1 trillion. Besides, there is the donor amount of $60 billion, which goes around in foreign aid. Social businesses don’t need all this money right now. But potentially this money can be diverted to social businesses. Even if a fraction of this money is invested in social businesses, it can make a big difference. The recipient countries would benefit. The donor too would be happy because the money would be used in a transparent way and it will be recycled. I don’t think money for social businesses should be a problem. You have succeeded in setting up many companies as social businesses because today you are a big brand yourself. I presume aspiring social businesspersons face the same stumbling blocks that prompted you to set up Grameen Bank in the seventies. So, how do they get going? I agree. People know me. They find it easier to trust me and enter into partnerships with us. While others would not find it as easy as us, at the same time, they would not find it as difficult as we did it when we had started out. Your presence ranges from Bangladesh to America. You are also expanding from Europe to Africa. Why have you not really focused on India? We are making progress now. I have held talks with some people in India in recent times. A couple of social investment funds are being set up in Mumbai. Talks of setting up a social stock market in Mumbai are also on. One will hear an announcement this year. Once India gets going, it will do so in a big way and give a fillip to the social business movement. There are already a number of social funds all over the world, but they have remained confined to select pockets. How are the new social investment funds in India going to be different? There is a difference between existing “social” funds and the ones I am talking about. The existing so-called social funds are like any other fund. They don’t give up the objective of making money for their investors. The social funds I am talking about are not promising the investors any monetary return at all. They are promising social impact that will be made by these investments. Investors would like the idea of social business and invest in them for solving social problems. You have been reported to be against SKS Microfinance going in for an IPO. What is the alternative route for microfinance institutions to reach more people in a short span of time and enable them to come out of poverty? SKS presents a case of a mission drift in microfinance. When you use microcredit to make profits for investors, you are following in the footsteps of loan sharks. That’s why I am opposing the SKS IPO. The solution is not in bringing IPOs to the market to raise money, but in giving them a legal licence to take deposits and use that money for lending. We lend more than $1 billion a year. All our money comes from our deposits. Your journey from microcredit to social businesses has been a long one. What are the other missing pieces in your big picture of a sustainable social business ecosystem? When we started to talk about microcredit, it sounded outlandish to most people. But the concept of social business did not sound outlandish to most people. There is more acceptance of social business than in the case of microfinance. But these are only pieces in a larger picture. There are other issues vying for attention. There is a financial crisis. There is a food crisis. There is an environmental crisis. There is an energy crisis. There is also a social crisis, amongst others. It is all because we have a wrong architecture of economic framework. We need to build the architecture in a different way. That is why I am trying to bring my ideas of conceptual redesigning. Others can bring their ideas. But the present architecture must change. There is no escape from this.

Come for exotic sausages, beers and meeting others who want to change the lives of those in need through micro enterprise.

Details of the evening~

Please RSVP to Lindsay Parton: lkparton@gmail.com

Bring a friend and see you there!

Also upcoming events:

MUD RUN

August 21, 10am

Sign up here soon to reserve your spot at this fun event: http://www.ecomudruntour.com/lamudrun/registerla.html

We encourage you to raise money as an individual or as a group. Target raise/person: $300-500. Start your own fundraising page here: www.optinnow.org > click ‘Start a fundraiser’ page and begin raising money and tracking it here!

Opportunity International provides a new way of looking at philanthropy.  Instead of handout that steals dignity and decreases motivation, the organization that we support works to provide the tools such as microcredit, savings, insurance and training needed by the poor to work their way out of poverty.

Sincerely,

YAO LA team

10:00am-11:45pm (pacific)
Opening Session
Conversation with Maria Shriver, First Lady of California, Premal Shah, President of Kiva, and small business owners who have benefitted from microloans.
Opening Remarks: Martin Eakes, Self-Help

1:15pm-2:30pm (pacific)
A Living History: U.S. Microfinance Past, Present and Future

A “fireside chat” with seasoned microfinance leaders, some of whom founded the industry up to thirty years ago. Topics include the history of domestic microfinance, assessing where the industry is heading and scaling microfinance in the U.S.

2:45-4:00pm (pacific)
Leveraging Partnerships to Reach Millions
Innovative microfinance models and public-private partnerships are leading the way to a new wave of expansion into untapped markets in the U.S. Panelists will discuss the need and demand for microfinance products in low-income communities, and how they are leveraging partnerships and dollars in hopes of reaching millions.

4:15-5:30pm (pacific)
What is a fair price for good credit?

Emotions run very high around the issue of interest rates, and some MFI’s abroad have been criticized for their high rates.  Why is it that the price charged for money is scrutinized so much more carefully than the price charged for other goods?  Here in the U.S., non-profit lenders have kept their interest rates lower for a variety of reasons, including regulations, public perception and investor restrictions.  If we are serious about scaling up U.S. microlending, are much higher rates going to be necessary, so that earned income can replace philanthropic support?  We will hear from several practitioners and thinkers on the question: What is a “fair” price to pay for good credit?

www.microfinanceusa2010.org/webcast