According to the World Bank’s Global Findex database, two billion adults worldwide, and primarily in developing countries, lack conventional bank accounts. Many of these adults are poor and likely to be excluded from a broad range of financial products and services. While banks have been unable to incorporate these groups into the financial system, a smaller sector, known as microfinance, has made great strides. According to the Microfinance Barometer 2014, coordinated by Convergences, in 2013 the global microfinance sector as a whole held approximately USD81 billion in combined loan portfolios and USD40 billion in deposits. If the sector globally were one financial institution, it would rank at around 23rd in the United States in terms of assets, about where a mid-sized regional bank might lie. The main difference is that to serve their clients, microfinance institutions (MFIs) offer loans via more than 220,000 loan officers, who operate out of 47,000 outlets worldwide. In a US bank, such a portfolio might be handled by one-tenth of the staff in 1,800 branches. To some extent a better business-model comparison could be McDonald’s, another distributor serving low-income customers. This outlet offers burgers instead of loans to 68 million customers each day in more than 35,000 restaurants worldwide. But while customers might enjoy a burger multiple times in a week or month, borrowers cycle through microfinance loans every three months at best, and often over more than a year.
Loans are of a greater dollar value than a Big Mac and should thus allow for higher margins. Interest rates, ranging from 16 percent in some countries all the way up to more than 100 percent in annual effective terms in others, should cover costs. Yet it is important to keep in mind that servicing these loans in excluded and remote areas has high costs. Where markets are more competitive, 16 percent doesn’t go far to cover costs. The result has been that in some markets, institutions have responded by offering clients larger loan amounts to feed the bottom line. As this happens, we may be beginning to see a reversal in the trends toward financial inclusion, in particular of poor women. In Peru, which boasts a large and competitive microfinance market, average microfinance loan sizes have increased by 70 percent since 2008 to USD2,025. At the same time, the proportion of female borrowers in MFI portfolios has dropped by 12 percent. Women in Peru are less prosperous, less literate and less likely to own land titles than men, suggesting that they need smaller loans than men. A few smaller MFIs that serve poor women almost exclusively have loan sizes of about USD400, for example. The trends in Colombia are similar with average loan sizes increasing 66 percent in the period and women dropping 13 percent as a percentage of MFI portfolios on average. In recent analyses, EA Consultants found similar trends in Bolivia, Nicaragua and Uganda. Often this trend is the result of microfinance industries moving from group loan models to single commercial loans to creditworthy individuals. As such, India, which has massified the group-lending model, is one exception to date. As the MFI sector matures in many countries, however, the question must be posed once again as to whether some poor women will be left out of the picture.
If offering loans to the poor looks similar to selling Big Macs, this is precisely because of the exclusion—financial, economic, geographic and social—that many of their target clients face. Like burger sales, loan offers to low-income people require costly face-to-face interactions. Their cash flows are not well-documented, and thus non-traditional analyses of their business and repayment capacities are required. Willingness to pay can be hard to measure, especially for first-time borrowers. MFIs often call and visit neighbors or other acquaintances for references. This work is not for the fainthearted. For loan officers, it involves many hot hours outdoors, and often in dangerous private vehicles or public transportation. For managers, it involves commitment and strong discipline. Unsurprisingly, a good percentage of today’s organizations that serve these target groups were born in the not-for-profit world, in which getting your hands dirty was always part of the job. Today, as many MFIs look more like banks, they are attracting a different type of worker: young professionals with college degrees and banking ambitions. Much like their client base, the staffing and leadership of MFIs is beginning to lean more toward men than women than in the past, in step with a growing emphasis on the commercial aspects of the business. Without women at the helm and with fewer women served in the field, microfinance risks the possibility of looking more like an inefficient commercial bank than an innovative social business proposition.
In 2014, I co-founded a network of women working in microfinance in Latin America and the Caribbean called Andares. The network is 175 members strong and growing as it brings together professionals working in microfinance across the Americas to address the changing role of women in the sector, both as leaders and as clients. Putting these discussions into motion, Andares was recently asked by the Inter-American Development Bank to implement a study of women’s leadership in Latin American microfinance. The motivation driving this study is to understand the role of women in the leadership of these institutions with an eye towards policy and product-offering implications. Over the coming months, we hope to add more to the discussion about gender and microfinance, and the part that these institutions do and could play in the financial inclusion of low-income populations worldwide.