By Genevieve Melford, “Behavioral Economics and Microfinance” session panelist.
At its core, microfinance is about empowering low-income people, through access to small-scale financial products and services, to improve their financial condition. Insights from the study of behavioral economics have a lot of value to add to the practice of microfinance. They help us understand how people make decisions, and the way that the immediate context of their decisions guides financial behavior, and can even undermine the ability to meet financial goals. Armed with this knowledge, we can design products, systems, and financial regulations that meet people where they are, and therefore have the potential to support their financial success in much more significant ways.
A few weeks ago I had the pleasure of introducing and moderating a session on Behavioral Economics and Microfinance at the 2010 Microfinance USA conference. As readers of this blog likely already know, there are myriad ways that insights from the behavioral sciences can apply to everyday life, and to financial decision making. We chose to focus the session on behaviorally- informed interventions to affect savings and borrowing decisions, two of the building blocks of personal financial management and opportunity, and key areas of interest for the microfinance field….
It wasn’t difficult for the roughly 700 audience members to follow the collective story that was told by the four entrepreneurs participating in the Microfinance USA 2010 opening plenary. Maria Shriver, First Lady of California, Premal Shah of Kiva, and two local Kiva borrowers (Mandy and Erik) each told a story about pursuing an idea or a dream—although each certainly went in a separate direction—engouraging others to do the same.
A few key messages were part of their story:
Partnership: This theme was discussed multiple times at Microfinance USA 2010 and it was the first topic of conversation during the opening plenary. Premal Shah began the panel recounting the partnership that began two years ago when Maria Shriver first visited Kiva. At the visit in Kiva’s office Maria simply asked Premal, “why not [microfinance] in our own backyard?” Two years later, Premal, Maria, and two U.S. microentrepreneurs funded through Kiva and U.S. field partner Opportunity Fund are talking about the success of that partnership.
Communication: Maria’s experience as a journalist and her effort communicating the cause of U.S. microfinance is one of the biggest strengths she brings to the movement. She emphatically reminded the audience of the importance of communicating the microfinance story. She emphasized the importance of keeping the message simple and straightforward.
Community: The entrepreneurs brought to light the real value of their struggles to access capital when they were starting their businesses, and told the audience their definition of “community” –the interdependence that encourages them to better themselves, their business, and society.
The panelists’ stories will keep evolving, but what they all agreed on is the urgency to share the microfinance message. In the words of Premal, if something “doesn’t work that means that you’ve gotten to the next starting point.” U.S. Microfinance, even after decades of work is still at a starting point— partnerships, communication, and community will help us see where we can take the microfinance movement, together.
Maria Shriver started the Women’s Conference to empower women to be Architects of Change in their homes, their workplaces, their communities and the world around them. Maria has been especially dedicated to empowering woman through entrepreneurship. Her conversation publicly and with organizations like Kiva, ACCION USA, and Opportunity Fund are helping to bring greater awareness to the cause.
Erica Dorn is the Volunteer Partnerships Manager at ACCION USA. Her work is targeted at bringing financial access to microentrepreneurs in the United States by harnessing the leadership of students. She served as the first domestic Kiva Fellow. Find her on twitter @eldorn.
I think I can speak on behalf of all the conference attendees in saying that Mayor Gavin Newsom’s speech was truly inspirational. This two day conference was created to have to bring people together to discuss the role of microfinance here in the United States. Mayor Newsom pushed that even one step further. While we can explore the amazing progress that microfinance organizations and companies have achieved on a national level, Newsom examined microfinance on an even more micro level: looking at microfinance within San Francisco city limits.
Mayor Newsom took the audience through a brief overview of how San Francisco has been using microfinance over the years to help San Francisco’s poor. Piloted with the Bank On San Francisco program that has now spread across the country, Newsom and the City of San Francisco have continued to expand their microfinance programs to include a payday loan program and savings program for children in San Francisco. The facts Newsom presented were thought-provoking: for example, a child is seven times more likely to go to college if they have a savings account in their name, or that there are more payday loan places in California than Starbucks and McDonalds’ combined. These statistics make the successes that San Francisco has had in implementing microfinance programs all the more inspirational. This type of thinking and activism on the part of Mayor Newsom and the City of San Francisco reinforces my point from my earlier post: that San Francisco is filled with passionate, innovative people committed to creating positive changes in the world through tools such as microfinance.
The programs that Gavin Newsom put in place are great accomplishments, but the city needs to do a better job of increasing their visibility. Having lived in the Bay Area for the majority of my life and following microfinance and community development in the area pretty closely, this is the first time that I heard about programs such as Bank On San Francisco or Payday Plus. And while programs like these are only a first step in combating our poverty problems—knowing that my wonderful city supports initiatives like these make me proud to be a San Franciscan.
Victoria McBride currently works with San Francisco based non-profit, Under the Baobab Tree, an organization committed to education and community development in Malawi. She is also a recent UCLA graduate with a degree in International Development Studies.
The panelists for this session could easily have presented for hours on the numerous innovations occurring in microfinance today. Kathleen Stack discussed Freedom from Hunger’s initiative to provide health loans, savings, and insurance products to prevent the drain on individuals’ incomes due to health crises in the family, while Chuck Slaughter of Living Goods presented their “business in a box” franchise model for distributing consumer staples, health care treatments, and money-saving devices such as solar lanterns. The audience, however, pushed for more information about the “how” and “what next,” and much of the second half of the session focused on a combination of prognostication and advice for would-be innovators.
Themes included setting criteria to identify worthwhile problems and solutions to put energy into, designing delivery mechanisms, and experimentation. While Sean Foote exhorted the audience to “get started,” the presenters were full of cautionary advice not to be just another technology inventor “in search of a problem.” Simultaneously, James Magowan of Housing Microfinance urged innovators to “embrace failure.”
Chuck Slaughter laid out Living Goods’ strategy of identifying “really big problems” with cheap solutions that can also be tested cheaply. Kathleen Stack spoke of the importance of market research – understanding the community to be served by talking to both individuals and groups and assessing needs, wants, and capacities. “Know the client, know the client, know the client,” she emphasized, reinforcing Bill Abrams of Trickle Up’s message to “have a crystal clear idea and a lot of discipline about…the population you are serving and what their needs are.”
Sean Kline of Reach Global agreed. He told the audience that it’s important to “make mistakes as quickly as possible,” by doing experiments over and over. He also specified that testing needs to be done in actual target communities – for example, not a well-developed city in India like Bangalore, but in a very poor area with connectivity issues and with realistically challenging labor pools.
When asked, all panelists agreed that execution was more critical than the concept, and there was much discussion of how to execute for scale. Magowan reminded the audience that acceptance and distribution were often the major problems, and that it’s important to take your ideas and see whose work you could piggyback on, rather than necessarily building something on your own. Kline declared that “improving on sales is inherently innovative. It may be a small, incremental adjustment” that brings transformative change. Sean Foote cheered the crowd on in their endeavors, declaring that “innovators are often shameless replicators.”
Naomi Baer is Director of Microloan Review and Translation at Kiva. Since launching Kiva’s Community Translation Program in 2006, she has built the program to include over 400 active volunteers who edit and translate over 80,000 loan profiles per year for the Kiva website. With over 15 years of experience in the translation field, Ms. Baer first became involved in microfinance at Kiva, working to remove the language barrier between MFI staff and Kiva lenders. She enjoys learning more each day about how microfinance works and believes that volunteers become more engaged and dedicated as they gain increased understanding of how their contributions make an impact.
The second plenary session at Microfinance USA 2010 focused on wealth creation opportunities for low income people. “Is Saving More Important than Credit” was the title of Andrea Levere’s opening address and the subsequent panel she moderated. Through her work at the Corporation for Enterprise Development (CFED), Ms. Levere helps disadvantaged communities build financial assets through matched savings programs and advocating public policy initiatives that create products for low income households.
The U.S. government spends upwards of $367 billion a year on wealth building policies such as home mortgage interest tax deductions, 401k retirement savings plans and, more recently 529 college savings plans and health savings accounts. However, these initiatives primarily benefit the rich with over 45% of the benefits going to households earning $1.25 million per year. In her speech, Ms. Levere outlined a more balanced, three point approach for assisting the less “well-heeled” build their financial assets.
Matched Savings. Savings is an essential anti-poverty tool and according to Ms. Levere, the poor will save at “unimaginable rates” with the proper incentives. Saving encourages the poor to aspire to own their own homes and send their children to college. It was noted that homeowners with Individual Development Accounts (IDA) were two to three times less likely to have faced foreclosure during the recent recession and that children with savings accounts were seven times more likely to go to college.
Matching Sources and Uses of Funds The key to business success is having access to the right kind of funds for differing business needs. The well-to-do can start businesses with equity raised from friends and relatives; the poor need equity grants or the “patient capital” that come from such funders as Opportunity Fund, one of the sponsors of the conference.
Eliminate Barriers to Scale Ms. Levere stated that microfinance institutions in the U.S. must learn to use the internet more effectively to build scale for micro-savings products. She mentioned SaveTogether.Org as one US-based social business working to do just that.
Microfinance is not a “silver bullet” that will single handedly eliminate poverty but is a critical tool for solving this very complex issue. Now is the time, Ms Levere declared, to get the public policies right for creating better options for the poor to build their assets and become as productive as they can be.
Daniel Kreps is an experienced international banker focused on creating access to financial services for the poor. View Daniel’s blogs at bankingonthepoor.blogspot.com
By Joyce Klein, “Funding U.S. Microfinance: Why Now?” panelist
Many of those who gathered in San Francisco last week wondered why there was a donors-only session on the agenda. While the session organizers (the Microenterprise Funders Group and Silicon Valley Community Foundation) well understand the attraction of being in a room full of donors and investors, we also know through our work in donor education that there are some issues and questions that donors can discuss more freely when only their funding colleagues are in the room – questions such as: What directions are you thinking to move in with your grant-making? How do you evaluate the budgets your grantees are presenting? How do you interest your trustees in this issue?
The group of donors and investors that gathered for this session reflected the diversity of those who support microenterprise in the United States: individuals engaged in giving circles, family foundations, city government, financial institutions, regional and national foundations. As we had hoped, some in the room were long-time funders of U.S. microenterprise programs, and some are just considering whether and how to support this work in the United States. And while some are providing grant support, others are providing investment capital.
I started the session by providing some basic information about the U.S. microenterprise field, some of which was based on the results from FIELD’s recent field-wide survey. Amanda Feinstein described the Walter and Elise Haas Fund’s support for microenterprise development; the Fund has been supporting a number of Bay Area programs for several years as part of its economic security program. Ash McNeely then shared her recent experience in educating herself and her trustees about microenterprise development, as part of the Sand Hill Foundation’s recent entry into the field.
We then moved into a lively discussion about some of the questions and challenges faced by donors, such as: Are you expecting the microenterprise lenders you fund to become self-sufficient? How do you evaluate the costs and cost structures of the organizations you fund? What size grants and investments are you making?What’s more important – providing general operating funds or support innovation? To stay true to the intent of the session, I won’t share the answers here. But it was clear that the funders in the room valued hearing each others’ experiences and perspectives, and we look forward to continuing these conversations with donors, both new and established.
In the session on “Innovations in Microfinance Worldwide,” Bill Abrams of Trickle Up mentioned that a recent study in Mali found that many poor people were choosing to use increased income to acquire a cell phone before putting money into things like roof repairs or farming equipment. This speaks to the desirability and power of mobile technology, which was one of the interesting threads in the session on “Proven Technology Trends for the Developing World.”
According to Menekse Gencer ofmPay Connect, 1 billion people are unbanked, yet still have mobile phones. By the year 2012, the number of unbanked mobile phone users will rise to 1.7 billion. So, offering services through mobile phones makes a lot of sense.
Meyer Malka of Bling Nation made the point that ten years ago, we carried in our wallets pictures of family, credit cards, phone numbers of family and friends, and cash. Now, mobile phones have replaced most of those things. Ten years from now, he said, payments will work very differently, and the changes will not come from the traditional players.
It looks like the developing world is going to be the leader in this space over the next ten years. In Kenya, about 40 percent of the adult population uses the mobile phone money transfer service M-PESA. Building on the success of M-PESA, a savings product, M-Kesho, has also been recently introduced. And these services are just the tip of the iceberg. Peter Bladin of the Grameen Foundation said that mobile technology can also help bridge the gap between the haves and the have-nots by providing information on topics from health to farming.
Providing these services is not without its challenges, of course. To reach a large segment of the population, it’s necessary to have both a mobile infrastructure and a mobile payments infrastructure. Kenya meets those conditions, but in Uganda, for example, efforts to put into place something like M-PESA have not worked. Harold Solomon of RentBureau explained a key difference: Uganda had no dominant mobile carrier, whereas Kenya does, so the number of people who could use the system wasn’t big enough for it to scale. A take-home point that has come up again and again is that there is no one-size-fits-all business model.
Will users someday be able to avoid ever interacting with a human being, and just get all their services through their phones? On the contrary, the panelists repeatedly stressed the importance of the human element. So technology is not something to replace the “high-touch” model that seems to be such an important part of microfinance. Rather, an important role of technology is to reduce costs so that organizations can grow. Menekse Gencer shared a prime example: Syngenta Foundation for Sustainable Agriculture, which uses mobile technology to provide crop microinsurance to farmers, a service that would be too costly to provide without such technology. Another benefit of reduced costs, and one I hope to see in the future, could be lower interest rates.
Patricia Wada has just completed an eight-month internship in Kiva’s Review and Translation Team, working with the staff and the more than 400 editing and translation volunteers who facilitate the posting of microloan borrowers’ profiles on Kiva’s website. She previously worked in the publications department of the Asian Development Bank Institute in Tokyo, Japan. A believer in the importance of microfinance for poverty alleviation, Patricia is continually inspired by the stories of microfinance clients all over the world.
Kiva connects lenders and borrowers all over the world. Normally, though, the connection both starts and ends on the Internet. That’s why meeting three Kiva borrowers in the flesh was a rare chance and truly one of the highlights of the Microfinance USA 2010 conference for me. Serena (a personal trainer), Tasneem (a professional photographer), and Gloria (a mail and shipping center owner) are clients of Kiva field partner Opportunity Fund. A total of 494 lenders contributed to funding their loans on Kiva’s website. At the meet up, we learned what the borrowers thought of the Kiva experience.
Serena, Tasneem, and Gloria shared their experiences with Opportunity Fund and Kiva
A common theme was that knowing that there was a group of people who believed in them, from the Kiva lenders to the staff at Opportunity Fund, made them believe more in themselves. When Serena saw her profile on Kiva showing the pictures of all the lenders who supported her, she said, she felt a connection and didn’t want to let them down. Tasneem knew exactly how many people had lent to her: 172. She appreciates that goodwill and said, “It makes me feel really good that there are people who want to help us get our dreams started.” And Gloria emphasized that her business could not have started or survived recent dips in demand without the support from Kiva lenders, Opportunity Fund, and other organizations like Urban Solutions and Renaissance.
A few of Tasneem's lenders from her Kiva profile
An interesting question came up, shifting the focus momentarily from one side of the connection to the other: Why do Kiva lenders fund these loans? A number of audience members had answers, all unique. I just want to help. Good karma. The satisfaction of re-lending the same money again and again to reach multiple people. Another thing that struck me was the pride that each of the entrepreneurs showed in her business. Serena says she is showing her son that you pursue an education to have a career that you love. Tasneem says that she enjoys the ability to run with her own ideas and see the fruits of her own efforts. Talking about their work, and telling the stories of how they got started, they couldn’t help but smile. And they all agreed that although running their own business isn’t always easy, they wouldn’t have it any other way. Asked whether she would go back to working for someone else, Gloria quipped, “I can only go back if I’m the CEO.”
Are you a Bay Area local? If so, you can support these amazing entrepreneurs! Take advantage of Gloria’s neighborhood mail and shipping center at Parkside Postal in San Francisco. Contact Tasneem through her business, fotoClara* in San Jose, for your photography needs. And get in shape with Serena at Noxcuses Fitness (that’s “no excuses”) in Palo Alto. *Note: Tasneem’s website is undergoing some improvements and should be up in a couple of days. For now, bookmark it!
Patricia Wada has just completed an eight-month internship in Kiva’s Review and Translation Team, working with the staff and the more than 400 editing and translation volunteers who facilitate the posting of microloan borrowers’ profiles on Kiva’s website. She previously worked in the publications department of the Asian Development Bank Institute in Tokyo, Japan. A believer in the importance of microfinance for poverty alleviation, Patricia is continually inspired by the stories of microfinance clients all over the world.
Take a room full of young, highly motivated college students with a desire to help others, mix in microfinance and entrepreneurship, and you have a combination that could change the world. Or at least a part of it.
At Microfinance USA 2010’s panel on student led microfinance clubs, Erica Dorn from ACCION USA led a conversation with student leaders and a faculty adviser as to what is happening in microfinance at a variety of college campuses:
Melissa Paulsen, professor at the University of Notre Dame, discussed how she worked with the small entrepreneurs in her community to find out what support they needed. She then built a two-semester undergraduate course, which includes an internship opportunity providing technical assistance to micro-borrowers. She’s learning that many business owners need legal, which her students are unable to give. So, she’s starting to engage the law school at Notre Dame to provide pro bono support.
Alex Dang of Global Brigades said, “The Kiva experience is not enough for college students. This group wants to go further.” He advocated for getting stores into the hands of alumni who can help with providing funds for various projects.
So many entrepreneurs are busy working IN their business that they have no time to work ON their business. This is where the campus clubs can step in and make an impact. Rohan Mathew of The Intersect Fund, and Paloma Pineda, a student, are both from Rutgers University. Rohan struck out on his own, and since has made 19 microloans through his organization. Paloma talked about the club at Rutgers’ work consulting with the town businesses and making loans.
A key take-away from the session was that lending isn’t the only way for students to be involved. For schools in communities where it might be more difficult to make loans, it was advised to look into raising awareness on campus, helping at high schools and middle schools, offering lectures and guest speakers, and prepackaging loan materials to send on to microlending organizations.
The final message? Students can evolve and help change their communities through microfinance clubs AND skills to their resumes.
