Affordable Housing Institute : US

About a month back, a friend of mine working on housing and microfinance sent me a link to a Time Magazine article with the provocative title, Microfinance: Women Being Cheated?

 

As microfinance moves more and more into the mainstream of the banking world, is some of its original mission getting lost in the shuffle?

 

Notice how my fingers never leave my hands

 

That’s the implication of a landmark study released on Thursday by Women’s World Banking (WWB), a network of microfinance institutions in 29 countries.

 

Did I agree with this, he asked.

 

So I settled down to read the piece.  It certainly starts off raising dark clouds of suspicion:

 

It was suspicious, very suspicious

 

The study examined what happened at 27 outfits as they morphed from non-governmental (typically not-for-profit) organizations into regulated financial institutions, and found that they often end up lending to a smaller percentage of women — the very people they are often started to help.

 

If one is going to slam a well-regarded icon, such as microfinance, one must first peremptorily genuflect toward its purpose:

 

Bow your head with great respect, and

Genuflect, genuflect, genuflect!

 

The WWB study did find real benefits associated with the evolution of microfinancing, which aims to help lift people out of poverty by lending them relatively small amounts of money to start and run their own small businesses. Commercialized microfinanciers, for instance, are able to reach more borrowers and offer important new products like savings accounts.  (Microfinance started out with loans largely because in most countries not-for-profits aren’t allowed to take deposits; as institutions legally become so-called non-bank financial institutions or all-out banks, this changes.) But WWB also found evidence that such growth might be pushing institutions’ interests to be more in line with those of their profit-seeking investors.

 

Please note, the boldfaced language is the reporter’s interpretation, not evidence.  But stay with the ominous narrative:

 

What’s wrong with pushing my interests?

 

The detailed study comes at a critical time for the field. In the past few years, investors have realized that making a lot of tiny loans to poor people in the developing world can actually be a lucrative endeavor.

 

The microfinance industry, which dates back decades and has historically been made up of not-for-profit organizations, has subsequently seen a flood of new money.

 

See how the narrative is woven?  For-profits might wish to use the Romulan cloak of invisibility to infiltrate the happy microfinanciers:

 

No nasty profits here

 

As microfinance institutions look to tap that capital, they are increasingly becoming regulated financial institutions, which puts them under the purview of a local banking authority.

 

WWB studied 27 microfinance groups (in Latin America, Asia, the Middle East and North Africa) that had undergone this regulatory shift, dubbed “transformation,” and compared them with 25 that had not.

 

Paired comparisons are good – that should be evidence, even if it arrives late and out of breath.

 

Your evidence, sir

 

Over a five-year period, microfinance institutions that had become more traditional commercial enterprises saw their number of active borrowers increase by 30% a year on average, compared with 15% for institutions that remained NGOs.

 

A stat!  A palpable stat!

 

A point, a point, I do confess it

 

But a more troubling finding of the study was the steep drop-off in the percentage of female clients in the years following transformation.

 

The author assumes readers are stupid, needing to be told how to interpret data, via a pushbutton adjective.

 

Violators will be excoriated

 

[M]any institutions start out with the goal of serving female entrepreneurs. … Women are much less likely than men to spend business gains on consumable goods like TV sets, and more likely to pay for health care and education for their children — investments that can help further lift their families out of the cycle of poverty.

 

The author’s right – women are the backbone of microfinance.  Among SDI’s founding principles is focusing on women – women as savers, women as borrowers, women as communicators, women as the makers of homes.  An awful lot of affordable housing involves protecting women’s ability to be economically and socially independent adult consumers – a topic about which I’ll post sometime. 

 

Sign from a community room of a renovated favela in Sao Paulo:

It reads, “when you hit a woman, you hurt a family.”

 

Here is the author’s punch line:

 

Over five years, the percentage of clients who were women moved from an average of 88% to 60%.

 

At this point, my math-meter went through the roof, so I hauled out my trusty spreadsheet. 

 

Sweeney Todd, the demon mathematician of the kitchen

 

As I lacked data on the rate at which the 88% women small MFI’s had evolved into 60%-women larger MFI’s, I assumed it changed linearly over the stated five-year interval.  Guess what?

 

 

Which group serves more women total?  The fast-growth group.  The formal group, the one that had been implicitly trashed throughout the article.

 

The article states that five years later, the fast-growth group is down to 60% women, from 88% initially.  (88% women means 8 women borrowers for every 1 man.  60% women means 1½ women borrowers for every 1 man, so women still predominate.)  Yet the fast-growth group has increased its clientele by 30% annually, whereas the other group is 15% annually.   So on the math, the fast-growth groups had 2,228 women per 1,000 originally, whereas the slow growth had 1,770.

 

For the time being, let’s go with the extreme presumption that men are entirely irrelevant to microfinance.

 

 

The faster-growing groups were serving 25% more women than the ‘purer’ slow-growing groups.  And that’s not all of their increased benefit:

 

The study also showed that transformed microfinance institutions loaned larger amounts of money — with average loan sizes that were two to three times greater than those of outfits that hadn’t commercialized.

 

So the ‘professionalized’ groups are lending to more women, with larger amounts, and probably for longer period of time.  What could possibly be wrong with that?

 

In addition to reaching more clients with loans, the transformed microfinance institutions were also able to significantly ramp up the number of clients with savings accounts — a life-changing thing for people who have never before had a safe place to put away money for the future. Over the five-year period, transformed microfinance institutions grew savings accounts by an average of 45% a year, compared with 28% for the institutions in the control group that were already able to offer such accounts.

 

I’ll leave as an exercise for the reader figuring out how much more wealth – from women – the transformed institutions were able to generate.

 

Where’s the story here?  Only in the derived statistic that the percentage of women dropped, as if microfinance was a girls-only club.

 

 

Some people in the microfinance industry have pointed to that sort of result (which has been noted in prior research) as evidence that the profit motive leads microfinance institutions to abandon their poorest clients, who take out smaller loans and are therefore less profitable.

 

Some people cannot do arithmetic.  Some people are wholly ignorant of biology.

 

Why might the percentage of women be dropping?  Simple market penetration.  Last time I checked, babies tend to get produced roughly 1 to 1, boys and girls.  As you become more visible and successful in a community, the number of untouched women drops, whereas the number of untouched men rises. 

 

(I won’t even speculate on the possibility that two-income households might for cultural or other reasons list the man rather than the women as the principal borrower; let’s just assume they’re equally divided between the two.)

 

The WWB study didn’t draw that troubling conclusion, indicating that a third variable, such as improving economic conditions overall, might be at play in increasing loan size.  

 

In fact, there’s no evidence that the WWB folks actually see the trend as bad; it’s the Time writer who’s overlaid it with portent.

 

But the authors did indicate the need for further study — not to mention increased vigilance as microfinance institutions continue to evolve.  

 

Ah yes, increased vigilance.  Who could be against that?  And who’s going to be the watchdog?

 

Who watches the watchmen?

 

“We’re very excited about the upside of commercialization,” says WWB CEO Mary Ellen Iskenderian. “But profit doesn’t have to trump social mission.”

 

Rhetoric doesn’t have to trump arithmetic.  Because it doesn’t.

 

“It has come to my attention,” notes Dilbert’s pointy-headed boss, “that 40% of your sick days are taken on Mondays and Fridays.  I demand to know the reason for this.”

 

 

Next Time, magazine, do the math.

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