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Speech Excerpts from the Microcredit Summit +5

Plenary Session: Ensuring Impact

International Year of Microcredit

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Plenary Session: Ensuring Impact

Questions and Answers for Plenary Panelists

Question #1, read by plenary Chair Susan Whelan: With regards to cutting absolutely poverty in half by 2015, do you agree that it is the responsibility of donor agency microfinance specialists, to show when and where institutions they invest in are reaching people who started at less than a dollar a day and show that these people are moving above a dollar a day before their bosses can see the pivotal link of microfinance in cutting absolute poverty in half?

Elizabeth Littlefield: Absolutely, is the short answer to that. I guess you are looking for something longer than that. Unfortunately, many of the donor agencies are reducing those very focal points that are so critical to their ability to perform and to do the kind of work you are talking about. As donor agencies focus at a higher and higher level of more broad sectoral reforms, the microfinance specialists within those agencies are asked to do many, many more tasks, so unfortunately, the expertise in those donor agencies that is so critical to doing exactly what we are talking about, is on the decline. And that I think we should all urge our fellow donor agencies to really recognize the importance of technical expertise within an agency in order to direct their support to those most worthy institutions.

As far as transparency is concerned, yes, certainly CGAP absolutely supports the idea that more transparency is required about the poverty levels of clients reached by different institutions, and more tools to enable us to measure them.

Similarly, I think the question also refers to tracking social impact over time. And there too we are in the process of trying to establish common social indicators that microfinance institutions could track over time, so that we can fill up a database of impact across the countries.

Question #2, read by plenary Chair Susan Whelan: We have a few of the questions which I’ll put together...

Do you see that .... microfinance has a role to play in a conflict situation and when you advocate reaching out to the poorest, are you considering people with disabilities and are there strategies to offer them. The majority of the poorest live in rural areas, how can microfinance institutions reach financial sustainability while serving the poorest clientele in remote rural areas?

Anton Simanowitz: ...Certainly lots of organizations are working with people with disabilities, and I think that really highlights the issue that we shouldn’t prejudge who microfinance can reach—who can benefit from microfinance. Why should we exclude people with disabilities just because they’re disabled? Why should we judge that? And lots of organizations do successfully provide services to people with disabilities. Perhaps there is a need to approach it in different ways—to understand what are the real needs of those people, how we can work with them. Obviously, we are not going to go and work exactly in the same way that we do with these other programs. Maybe we don’t want to have a center where people have to travel long distances. Maybe we have to set them up in different ways but it really illustrates the need to understand the needs of the people we are going to work with and to design programs which meet their needs.

Similarly, with the questions in terms of microfinance in conflict areas. Many organizations do work with conflict areas—again, the circumstances where it works, or it doesn’t work, it’s just going to be very dependent on that local condition.

Lennart Båge: I think the author of the paper gave a very good answer in saying that there’s no one answer to this, it’s a challenge for us all and conflict after all, may take many different shapes and forms. We see acute conflict in the shape of war and clearly that destroys very much so there the potential is, of course, very slim, but it’s different as he notes that there are low intensity, long term conflicts that erupt, and where there is an opportunity to work, and I think we are going to focus on it. Actually the road of strong, well functioning microfinance institutions is the road to conflict prevention in the sense that it gives stability—adds to the new stability in the local setting for smoothing over the difficult situation that may be the triggers for conflict. So in that sense, it has a strong potential over time to strengthen resilience, strengthen security, strengthen stability and also be part of the panorama of action that moves local institutional frameworks to very, very important although they are often not always visible, ties between people and community that would at least be a counteracting forces for conflict, violent conflict. But clearly this has to be assessed in each specific situation because the context is so important.

Elizabeth Littlefield: Yes, I'd like to add something on microfinance and conflict situations. First I'd like to just perhaps specify that microfinance in conflict situations doesn't make a lot of sense. Clearly, stability and security are the two preconditions for microfinance to take root in a post-conflict situation. That said, I think it's entirely appropriate in many post-conflict situations but looking at a situation like that ...you need to look at the use of grants. [Afghani] farmers whose fields have been bombed, don’t need microcredit first. They need grants, first. So many donors too often have seen microcredit as the solution to all situations and in many circumstances, the hasty creation of little microcredit programs may undermine and really poison the water for the future establishment of strong microfinance institutions. So I think we need the community to look harder at when we need grants and when we need credit.

Question #3, read by plenary Chair Susan Whelan: Can you explore the relatively large difference in the interest rates among the MFIs and specifically to Mr. Kumar and Ms. Grandi, how do you handle the contentious issue of charging sustainable interest rates to your poor clients, in order to be financially self-sufficient?

Evelyn Grandi: In most of the places that we serve, our programs are in very rural areas—there are no other financial institutions, and the [local money lenders] charge more than three times what we charge in the interest rate. Then we have the same flat interest rate in all the programs, so we cross-subsidize interest rates. In the very urban areas where there are many more institutions, one of the main reasons that we are still there, is because we focus, we start with the poor, we [always] start with a very small loan. In the urban areas, in the big city, there is access to banks, and other institutions, but with huge amounts, they ask for ID, and sometimes they ask for collateral, and the people have to go to the office and fill a lot of forms, so the clients do not feel like that is an alternative. But CRECER is much more friendly, because we go to their home and allow the women to make their own groups and share information about health, [how to] take care of children..., and so it is quite different between CRECER and the other institutions.

Musuku Udaia Kumar: Interest rates are a topic which are of great interest because the client would not like to pay a bigger interest rate and interest rates normally range between 15 percent to 20 percent. And this interest rate includes the cost of money, it also includes the non-financial services that are provided to the client, providing services at the doorstep of the client. In the case of SHARE Microfin Limited, this is a community-owned financial institution. The equity is paid up by the [clients] and the profits that are generated go back to these women So that way, we are able to see that the benefits of the institution again go back to the individual. Now if interest rates are brought down, what actually happens? When interest rates are brought down, the resources and surpluses of the institution will not grow. And when the institution’s resources and surpluses do not grow, normally bankers do not get attracted and you cannot sell your balance sheet to social investors, investors or bankers. So even if you slightly charge more, because it is the community’s own institution, the benefits are again given back to the people themselves—that way when a company, which is community owned, is able to declare dividends, you know, people look at it with credibility—and that’s how you attract your investors....

Question #4, read by plenary Chair Susan Whelan: How should a microcredit financial institution develop the corporate cultural focus on the poorest?

Anton Simanowitz: I think a key thing is that a poverty focus, the culture of poverty, needs to be something that [extends] right through the organization and to the client. So from the board level, senior management, branch management, field staff, client. And it needs to be something which is at the top stated clearly in the mission of the organization and when the organization thinks about performance, thinking about evaluating performance, that message about "are we reaching the poor," "are we having impact on the poor," needs to be there and needs to be asked at board meetings, it needs to be asked at management meetings, it needs to be asked at branch meetings—and that culture, really once it’s there in the staff, then that becomes part of the organization.

Elizabeth Littlefield: ...It’s about one thing, and really one thing only—and that’s vision. We see over and over again that microfinance managers that absolutely are committed to getting and becoming commercial, manage to get there. And microfinance institution managers that are absolutely committed to reaching the poorest people, do so. And microfinance institution managers who are committed to getting sustainable and reaching the poorest people, manage to do that too.

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