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| Volume 4, Issue 1: May 2006 | ||||
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In This Issue Panel discussion on the paper Building Better Lives: Sustainable Integration of Microfinance with Education in Child Survival, Reproductive Health, and HIV/AIDS Prevention for the Poorest EntrepreneursA
Billion to Gain Global Microcredit Summit 2006 Archived Issues Vol 4 Iss 1 May '06 E-News Information |
A panel discussion on the paper Building Better Lives: Sustainable Integration of Microfinance with Education in Child Survival, Reproductive Health, and HIV/AIDS Prevention for the Poorest EntrepreneursQuestions and Answers:José Antonio Olavarrieta: …And now the success of this session will be up to you and your questions. Let me break the ice and ask Mr. Dunford a question after his marvelous presentation. I believe there always are three important criticisms of microcredit’s mechanism as understood by the banks. And this occurs because bankers are only focused on banking-related transactions without having to deal with areas unfamiliar to them such as education and health. I think that it is a common criticism from those who have not been properly trained in microcredit. In addition, there are arguments about employees of banks and saving accounts regarding their lack of training and expertise in leading technical discussions about issues that are not the institution’s specialty. Also, those specific issues are highly sensitive in some countries, such as reproductive health or AIDS’s prevention. Chris Dunford: This question is one that’s addressed to me at every one of these sessions when we present the paper. It’s … the notion that, why would you have people who are highly trained experts in financial services, waste their time trying to be something that they are not? Perhaps the most important answer to this is that most of us who got involved in microfinance, especially in their earlier years did not start out as bankers. While being able to mimic the practices of bankers is very, very important for the sustainability of an institution providing financial services, it’s also important that we not be bankers in totality. After all, it was the banking community that left the poor out for so many decades. Therefore it seems ironic that we should mimic their behavior in every way, so that we can just repeat the market failure of the past for the poor. When we create the infrastructure, as John used the term, to reach people who have not been reached by any services, it is important as human beings interacting with human beings to respond to the wider range of their needs. I don’t mean that every institution has a moral obligation to respond because institutions are free to specialize as they think is best and make their contribution in a way they best can. But those people who are actually interacting with the poor, they themselves feel a moral obligations to reach out to them as fellow human beings. It’s almost a shame for many of the people involved in microfinance, credit officers who are out there interacting with the poor, especially when they go to the communities of the poor, they see that there are so many other needs and they feel such a compulsion to do something more than just give a loan and then insist on repayment. So in some ways, to the extent that it does not threaten the financial sustainability and institutional viability of the institution that the person works for, integrating with other services equips them with the opportunity to do more of what they really feel compelled as human beings to do. To reach out and to be helpful in as many ways as they can when they make that contact with the clients. José Antonio Olavarrieta: Do you have any cost indicators and benefits from non-financial services? For example, your overall costs and efficiency, the marginal cost of education, overheads on services, benefits, health and education program indicators, especially in terms of coverage and impact comparisons with similar corporations with similar clients over time? Neisa Vásquez: …Of [Pro Mujer’s] total operating costs…27% goes to human development services, and 73% goes to financial services. Sixty percent of the 27% (that goes towards development services) is being paid for by our clients through a special discount, approximately 30% is being paid by private donations, and ten percent by Pro Mujer. So, we are working a lot on this matter...Pro Mujer’s philosophy is not to give our clients human development services for free. We want our clients to value this service and therefore contribute to it. Regarding issues associated with impact, we have had several studies, including some that were done internally. Currently we are working on these services with Finrural. There is an exclusive panel to evaluate the impact and we have seen important changes in women’s lives. We compared a group (of women) who had worked with Pro Mujer with a control group, and we saw that the women belonging to Pro Mujer, who had worked with the organization for several years are leaders in their communities. Our partners’ children have also shown positive changes, especially through our computer services where kids develop communications skills and are much more stimulated. José Antonio Olavarrieta: …[This] question is for Mr. Dunford. Those who work with women living in extreme poverty have always known that access to credit is one of their most desirable steps towards attaining freedom and dignity. So, why do we keep focusing on the importance of financial sustainability? That is my first question. My second question is also for Mr. Dunford, do you think that introducing health education as a service could actually make institutions somehow inefficient? Chris Dunford: First, the issue of financial sustainability. Why do we insist in the microfinance world on financial sustainability. There’s perhaps two main reasons to emphasize. First, because the government is not providing services in perpetuity it’s left to the market place to provide these services. Or to charitably supported organizations. And the disadvantage that’s been pointed out over and over again about a charitably supported organization or movement that depends substantially on charity is rather limited in its scope. It can’t really expand to meet the need. And the hypothesis which I think is well-founded, is that if the market place, the private sector can make money by providing these services, it is likely to not only be sustainable, but actually expand to cover more and more of the clients who are willing to pay the prices that are being charged. So it’s really the motivation to try to reach more poor people and to the extent that you can create a financially sustainable institution in one area that will sustain itself, you can then move on to new areas and create either new institutions or expand existing institutions. You have that opportunity. Whereas a charitably-supported institution has to keep raising money just to maintain itself in one place. That’s just the fundamental reason. There is another reason that’s peculiar perhaps to microfinance or to microcredit. And that is, one of the main reasons people will pay back, especially since there’s no collateral involved in most of these schemes for the very poor … is to maintain their credit worthiness to have access to new loans. That credit worthiness to the poor person who is borrowing from an institution, is only as good as their belief that that institution will be around next week in order to give them that new loan. So sustainability, giving at least a very strong impression that you’re going to be around for a long time, increases the chance that you’re going to repay as a borrower. If the borrowers get the sense that the institution is about to go out of business, then the motivation to repay, is substantially reduced. Okay the second question, regarding inefficiencies. Actually, when you are asking an institution to multitask, you actually can see increases in efficiencies as far as the operations for providing financial services. Just perhaps a somewhat whimsical example. I’ve noticed that women who have children, professional women, before they have children, they wonder how they can get everything done. Then they have children, and I wonder how they can get everything done. But they do. They have to become more efficient because they are now multitasked. Take that for what it’s worth.
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