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Top 5 reasons I’m looking forward to Microfinance USA

posted: 2010-05-19 @ 7:35 am EDT

By Rohan Mathew, “Student-Led Microfinance” panelist

1. Introducing people to the field
Domestic microfinance has a communications problem — no one has heard of it and those of us in the industry often make it more complicated than it is. Kiva brought unprecedented exposure to the international field by focusing on borrower stories that are easy to relate to. But when Kiva started a pilot with U.S. microlenders, an outspoken backlash ensued, on the premise that a low-income entrepreneur in this country is not as deserving as any other. I’m looking forward to meeting attendees who are new to the work that we do, answering their questions, and working to tell our story better.

2. Meeting other practitioners
The organizations represented by panelists are giants in the field with an impressive list of accomplishments. I plan on “talking shop” with them to find out what works and what doesn’t, what kind of software they are using, and glean the detailed kind of insight that is only possible with others who have built high-performing organizations.

3. Learning about innovations that will drive scale I’ve been particularly impressed with organizations like Grameen America (www.grameenamerica.org) and Progreso Financiero (www.progressfin.com) that gave been able to lend millions of dollars in just a few years, while maintaining a portfolio quality. According to the Aspen Institute, there are an estimated 10 million micro entrepreneurs that lack access to capital or technical assistance, yet our field has only reached a small percentage of them. New program models and a robust technology infrastructure are needed for us to move from serving hundreds to serving thousands per year.

4. Engaging with students
The Intersect Fund is the largest student-driven microenterprise organization in the country, serving 150 clients annually since we were founded at Rutgers University in 2008. Last year, we hosted students from 8 schools that are engaging in the same work to share learnings, create best practices, and collaborate. Based on overwhelming feedback, we created the Campus Microfinance Alliance (www.campusmfi.org) in partnership with the Elmseed Enterprise Fund (www.elmseed.org) at Yale and the Capital Good Fund (www.capitalgoodfund.org) at Brown. The Alliance provides seed grants and technical assistance to emerging student-run microlenders. I’m looking forward to promoting the Alliance to student attendees and encouraging them to think bigger about the kind of impact that is possible in their campus communities.

5. Staying in San Francisco
I love this city!

Rohan Mathew is the co-founder and Executive Director of The Intersect Fund, a student-run microenterprise development organization headquartered in New Brunswick, NJ. Conceived in a dorm room in the fall of 2008, The Intersect Fund has empowered more than 150 New Jersey entrepreneurs to build strong businesses. Now working full-time for the Fund, Mathew is laying the foundation for a strategic expansion of the Fund’s suite of services, which include access to markets, low-cost print and web design, and tax preparation. Mathew has been a leader in advancing the student-run microfinance field and helped form the Campus Microfinance Alliance, a coalition of nearly a dozen student groups that make loans in their communities. Previously, Mathew worked for Obama for America and in the Mergers & Acquisitions group at Credit Suisse. Mathew has a degree in mathematics from Rutgers University.

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The Unbanked: Broadening the Microfinance Tent

posted: 2010-05-18 @ 11:48 am EDT

By Jennifer Tescher, “U.S. Innovations: Serving the Underbanked” panelist

When you hear the word microfinance, you probably conjure an image of lending to poor people in developing countries to help them start tiny businesses.

But how does that translate to the U.S.?

You can find out during the “U.S. Innovations: Serving the Unbanked” session at 2:30 p.m. on Friday, when I’ll be joined by a fabulous panel of cutting-edge practitioners all focused on the un- and underbanked.

You’ll quickly learn that, in the U.S., it’s not all about credit or small business.

It is estimated that 30 to 40 million American households are financially underserved. Some are unbanked, although most of the unbanked have had a bank account in the past. Some are underbanked, meaning they have a checking or savings account but are unable to satisfy all of their financial needs through traditional bank products and services.

Participating in the financial mainstream and having the tools to manage money in the short term is a prerequisite for longer-term saving and asset building. Yet, basic financial products are often designed, marketed and delivered in ways that fail to meet the short-term needs, interests and abilities of un- and underbanked consumers.

They have requirements and minimums that are out of reach for those with low incomes. They lack transparent pricing and often fail to provide consumers living paycheck to paycheck with immediate and convenient access to their money.

They are marketed with poorly-tailored messages, and sold in locations that are intimidating, with operating hours that are inconvenient for many working families. They are underwritten with tools that cannot properly evaluate consumers with thin or nonexistent credit histories.

When consumers’ short-term financial needs aren’t well met, their ability to save, access credit and build assets in the long run is compromised. Without a safe place to store funds, un- and underbanked consumers lack a financial cushion to weather crises. They are also more challenged to build a strong credit history, making it more difficult to access the credit they need at a reasonable price. This in turn makes it more likely that they will turn to products and providers that may cost more and potentially strip assets instead of build them.

Fortunately, we are witnessing a period of intense innovation around new products, distribution channels and business models for serving un- and underbanked consumers. Join us at Friday’s session to hear more from innovators in the government, non-profit and private sectors about their successes and challenges in serving this vibrant and growing market.

Jennifer Tescher is the founder and director of the Center for Financial Services Innovation, the leading expert on the underbanked in America. CFSI is a non-profit organization working to transform the U.S. financial services marketplace to help underbanked consumers achieve financial prosperity. For more information, go to www.cfsinnovation.com.

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The Importance of Savings Extends Well Beyond the Dollars

posted: 2010-05-17 @ 12:34 pm EDT

By Ben Mangan, “Is Savings More Important than Credit” plenary session speaker

The nation’s premier event on domestic Microfinance – Microfinance USA – opens  in San Francisco on May 20th. I have the privilege to speak on a plenary on savings at the conference, and look forward to what I know will be a fascinating conversation.  There appears to be a consensus among those of us working to encourage savings among lower income earners, that driving savings is a powerful strategy that can help people create prosperity. But there are sharply divergent views over the best way to encourage savings, and lots of data and perspectives that inform the arguments.

I was really heartened to learn that Opportunity Fund added a plenary specifically on savings. I have always been one of the folks pushing for the microfinance world to think of capital the way markets do – including equity and debt – and allowing for goals to drive a personal financing strategy – rather than leaning solely on debt. At EARN (www.earn.org), where we run one of the nation’s largest matched savings programs, we find a lot of burgeoning entrepreneurs who would be poorly served by debt, but could make breakthroughs toward their goals with small amounts of equity, in the form of their own savings, and any match that can be provided to their savings through something like an Individual Development Account.

But savings is a powerful asset that extends well beyond the dollars in equity the money provides toward a small business, pursuing college education or even getting ready to buy a first home.  Savings can be a form of insurance against disaster for very vulnerable people. While folks may start off to save toward a lofty goal – like launching a small business – they may find themselves faced with something like having to get a car out of tow. This may be an annoyance to a middle class person who winces at the $300+ it costs to get their car back. This could be a disaster for a low income earner who is stretched so thin financially that a car getting towed means they may be unable to pay rent. Not having the money to get the car out of tow could mean not being able to get to work and potentially even losing a job.

As concrete as the conversation will be, I hope to get people to think about the long tail of savings. We have done research at EARN that shows that lower income earners who sustain a pattern of savings keep it up over time, even if their income doesn’t increase.  Our research also shows that savings can be spark for related behavior changes. People make different choices that can really positively alter the financial and life path they walk.  While debt can play a role in financing some dreams, it’s missing all these positive ancillary effects. I am excited to have Microfinance USA put this discussion on the table.

Ben Mangan is the President, CEO and Co-Founder of EARN.

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Why Are Microfinance Interest Rates So High?

posted: 2010-05-11 @ 9:51 am EDT

By Elisabeth Rhyne, “What is a Fair Price to Pay for Good Credit?” panelist

At next week’s Microfinance USA conference, I’m participating on panel about microfinance interest rates, representing The Smart Campaign.  The Smart Campaign aims to make client protection principles a hallmark of microfinance around the world, and one of our most important commitments is transparent and responsible pricing. It’s important for supporters of The Smart Campaign in the U.S. to get aligned with their counterparts in developing countries about what responsible pricing looks like. This panel is an opportunity to do just that.

Often, people whose work is U.S.-based suffer acute sticker shock when they hear about interest rates charged in international microfinance.   At rates above 20 percent, most Americans start getting uncomfortable, and when they hear that in some places interest rates rise as high as 100 percent or even more, their moral outrage beepers start to malfunction. This is unfortunate, because when we are in a state of high outrage, it’s hard to listen.

I’m hoping that at the upcoming panel we will be able to set aside moral judgment just long enough to examine the factors that determine international microfinance interest rates.  Only after we’ve established a deep understanding of the causes of high interest rates in their own contexts do we dare make judgments about morality.

Here are just two things I hope we can consider dispassionately:

  • The arithmetic of tiny loans. Interest rates are constrained by the uncompromising arithmetic of the three main elements of administrative cost, all context-specific. How big are the loans? What is the maximum loan officer caseload? How much are loan officers paid?  A lender making $1,000 loans in a dense city market with a labor market that allows modest loan officer salaries  can charge a much lower interest rate (think Bolivia, with rates in the 20s) than a lender making $100 loans in the rural parts of a middle income country where loan officers earn a lot (think Mexico with rates in the 60s).
  • The need for sustainability to ensure coverage and permanence. Do we think prices should support lender sustainability? Microfinance grew to reach 150 million clients worldwide by striving for financial sustainability as the ticket to reaching more people permanently without heavy donor dependence.  Most of today’s international microfinance providers believe the poor should be treated as clients, not recipients of charity.

This last point does involve a moral judgment.  Is it more moral to help (a few of) the poor through subsidies or to provide (many of) them with services on a business basis? There’s probably a need for each, in different circumstances; the former makes more sense in the U.S., while the latter is an unavoidable necessity in the developing world.

This is just a start. If we can agree on the above, we can start to tackle the hard practical question at the heart of the Smart Campaign: how to determine when a lender is charging too much, and what to do about it.

Elisabeth Rhyne is Managing Director of the Center for Financial Inclusion (www.centerforfinancialinclusion.org) and a founder of The Smart Campaign (www.smartcampaign.org).

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Painting the Impact Picture: Which Method is Best?

posted: 2010-05-10 @ 9:42 am EDT

By Elisabeth Rhyne, “Microfinance Miracle or Myth” panelist

At next week’s Microfinance USA conference, I have the honor of leading a session on one of the hottest topics in microfinance these days: impact. Interest in impact has surged recently because of the big press coverage garnered by the researchers associated with MIT’s Poverty Action Lab and their new randomized controlled trials. At the session we’ll talk about how these new studies work (in layman’s terms – I’m no econometrician) and what their results are showing about microfinance.

To start off, I’d like us to consider all the ways we can learn about the impact of microfinance. Like these:

  • The seeing-is-believing method – otherwise known as talking to clients or anecdotal evidence.
  • The market method – if customers pay for the services, they must value them.
  • The institutional method – sustainable institutions that serve the poor are prima facie contributions to more inclusive societies.
  • The anthropological approach – talking intensively to clients in a structured way that allows inferences to be drawn. Recently the Financial Diaries approach has done this.
  • The simple quantitative survey approach – used for years despite suffering from many design flaws.
  • And finally, the experimental design approach – a statistically rigorous model patterned after medical drug trials, which is capturing today’s headlines.

I think we learn from all of these methods.  It’s like we are painting a picture using different kinds of paint and brushes.  Gradually, our picture takes on shape, color and texture, and ultimately all these elements come together to convey meaning.

At our session, I want to move beyond the often divisive arguments about which research method is better than others and look instead at the emerging painting, which is complex. The title of the session is Microfinance: Miracle or Myth.  Of course you can guess that my answer is, something else.

Elisabeth Rhyne is Managing Director of the Center for Financial Inclusion (www.centerforfinancialinclusion.org) and a founder of The Smart Campaign (www.smartcampaign.org).

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Special Learning Opportunity for Funders at Microfinance USA 2010

posted: 2010-05-07 @ 9:40 am EDT

By: Joyce Klein, “Funding U.S. Microenterprise: Why Now?” panelist

Silicon Valley Community Foundation and the Microenterprise Funders Group are teaming up to provide a special learning opportunity for funders at Microfinance USA 2010.  “Funding U.S. Microenterprise: Why Now?” will be a donors-only session for current and potential U.S. microenterprise funders to discuss the why and the how of funding microenterprise in the U.S.

At the session, we’ll welcome funders of all shapes and sizes: foundations, corporations and individuals; public and private; grantmakers and investors.  You’ll get a first look at just-released data findings on the size and scope of the microenterprise field in the U.S.. We’ll also discuss how microenterprise connects to some of the key challenges that our nation currently faces, such as job creation and meeting the needs of the underbanked.  My co-panelists—Amanda Feinstein of the Walter and Elise Haas Fund and Ash McNeely of the Sand Hill Foundation— will share their experiences in funding microenterprise development in the Bay Area.

Although we’ll be making formal presentations, the session will provide ample opportunities for questions and discussion.  Questions we may discuss include:

  • How is the current economic climate affecting microentrepreneurs and microfinance programs?
  • How are funders evaluating or assessing which microenterprise programs to invest in?
  • What is the role of private funders and investors at a time when there are significant Federal resources available through the Recovery Act?

We hope to provide an opportunity for funders to learn together and from each other, and to link participants to resources that can inform and support their grants and investments. We’ve also asked the conference organizers to reserve tables at the network luncheon just after our session, so that we can continue our conversation informally over lunch.

If you are a donor, funder, investor who is funding or interested in microenterprise in the U.S. – please come and join the conversation at “Funding Microenterprise in the U.S.:  Why Now?”

The Microenterprise Funders Group is an informal affinity group of donors who are interested in or are currently funding microenterprise development in the U.S.  Membership is free to any donor interested in learning more about the field.  The Funders Group is staffed by the FIELD program of The Aspen Institute.   FIELD also publishes Funder Guides, brief publications that discuss key important or emerging issues in the field, including:

  • Microenterprise programs and credit building
  • A  federal policy agenda for microenterprise
  • Microenterprise and asset development

Joyce Klein is a senior consultant to the FIELD program of the Aspen Institute.  She’s been working in the U.S. microenterprise field for 20 years, focusing on research, policy, grantmaking and identification of best practices.

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