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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What with my work with Slum Dwellers International, I’ve been spending inordinate time thinking about SDI’s members, which are federations of local savings co-operatives, and hearing descriptions of what they will do with money (as we’re calling it in SDI lingo, a Spend) if they get it from SDI’s in-development International Urban Poor Development Fund.  
 

I’ve got to get out of the mode of thinking digitally

SDI’s cooperatives are assemblies of enterprise, in the pure etymological sense – their grasp-between two things, in this case between customer need (their members) and potential supplier (government or private sector capital sources).  While so far the SDI members have never used the term, they are also entrepreneurs, connecting capital to property, supply to demand, programs to money.  They are entrepreneurs on a mission.

Yet they don’t think of themselves in those terms.  They speak of their members, they talk of the results they intend to achieve, they focus on recovering their direct costs.  Their pro-formas never have even a reimbursement for overhead or staff time, much less development fee for themselves. 

That’s where the profit bit me

I’ve seen this orientation before, in US non-profit community development corporations (CDCs) that are likewise culturally allergic to profit.  If their transaction makes money, they call it ‘development fee.’  If by chance they generate cash, they plow it right back into operations, or the next committed venture. 

The more we harvest, the more we can grow

That’s perfectly fine, if done as a conscious choice by a financially and administratively healthy organization.  A non-profit is bipolar – it’s a business and a charity permanently joined at the hip – and the profits it may generate are consciously repurposed back into expansion of mission.  But the non-profit’s got to make money also:

Yet a non-profit is an enterprise too.  By the law of economic gravity, enterprises have to prosper.  This applies at two levels, both the property and the non-profit itself. 

Good non-profits expect to make money in their core business area, because profit is the price you pay for competence.  The same is true of non-profits — or, at any rate, of those that last a long time.   Everybody loses money now and then, so you had best make money some of the time, to cover the losses you make some other times.

Successful affordable housing achieves dual goals simultaneously: good social outcomes, good economic outcomes.

Which end of the bridge is more important?

Balance, harmony.  Profitability and contribution, fused together.

Successful non-profits have figured out that profits and purpose are not either-or, but both-and.  Each sustains and complements the others. 

Not all non-profits are for-profits glued to charities.  But all the successful ones are.

That’s what struck me about the SDI membership – for them to succeed in their mission, they have to be successful entrepreneurs.

I’ve previously written of the developer as a person with a cell phone and a vision, using Other People’s Money to finance his or her schemes.  Every SDI leader I’ve met is never without his or her cell phone, usually wheeling and dealing.

All it takes is a cell phone and your honeyed voice

Self-motivated and self-taught in the Yogi Berra school of management (”you can observe a lot just by watching“), they’re all entrepreneurs in the grand tradition. 

Unfortunately for them – and for cities around the world – bad nomenclature (NGO v CDC v HA) has obscured fundamental similarities, preventing information exchange.  Regardless of what they are called, all these entities are mission entrepreneurial enterprises:

• Mission.  They got into the field to make positive change.
• Entrepreneur.  They achieve their results via entrepreneurship, as actors in the space, not government, taking risks, persuading established institutions to do things (approve proposals, provide capital).
• Enterprise.  However little they pay their staff, they must cover their expenses and make cash profits, else they cannot continue pursuing their mission outcomes.

MEE’s always pursue a ‘double bottom line’ – profits and social outcomes. 

Profit and outcomes run in parallel

They often feel stressed in having to choose one or the other.  

In the UK, which has essentially no for-profit permanent professional rental sector, the non-profit Housing Associations (HAs) have grown up with the field to themselves.  With that head start, many of them have become large, diversified, and highly professional, to the point where the whole sector is seen as thoroughly market-competitive.  More than any other group, UK Housing Associations see themselves as MEEs. 

So professionalized they have their very own regulator

Faithful AHI blog readers know that because of my background – thirty-plus years working in affordable housing, but always on the private side, and always in an entrepreneurial environment – I’m predisposed to see their value everywhere.  Still, when I see change being made – in the UK, the US, or increasingly in the global south – the change is coming from the MEEs. 

They’re the ones doing transactions.

They’re the ones turning resources into properties and developments.

They’re the ones organizing slum dwellers into political and economic forces.

They’re the ones whose activity changes the political environment.

MEEs are the change agents. 

In housing-finance ecosystemic terms, they’re the critters.

Just as ecosystems don’t work without animals, whether acting as the plants’ reproductive system or converting DNA into more DNA (”A hen is only an egg’s device for making another egg” – Samuel Butler), without the critters, the ecosystem doesn’t work.

Further, just as parallel evolution gave us the dog and the dingo:

These two animals are not related

You’re kidding, right?  They’re not related?

MEEs north and south have plenty in common with each other. 

• Similarity of world-view.  MEE’s see themselves as acting to make change on behalf of a customer group (low-income households)
• Mutuality of interest.  MEE’s the world over have mutuality of interest – increasing government and donor funding.   They face the same growing pains, challenges of staff retention, difficulty of competing with or partnering with the private sector.

They just don’t realize it, because they haven’t been brought together. 

I need a new perspective, don’t I?

MEEs don’t recognize their cousins because their externally-imposed nomenclature keeps them apart.  In the academic literature, they’re referred to as NGOs – Non-Governmental Organizations – a terminology that I positively hate, because it’s wrong on all useful counts:

• Non.  Defines by what the thing is not rather than what it is.  Like saying a crow is a not-white bird.
• Governmental.  Defines the incumbent (literally!) and sets up the premise that change flows from government
• Organization.  Aside from being a term without meaning (one might as well call it a ‘bag’, organization isn’t what these groups are strong on!  They’re strong on enterprise, not organization.

“Marge, don’t call them NGOs!”

Indeed, to my astonishment, the role of MEEs in making change is largely overlooked in the research and theory of affordable housing and community development in the global south. 

AHI is setting out to change that.

You have to start seeing things differently

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In public-policy terms, I’m a dinosaur.
 

Large, slow-moving, and up to my haunches in the swamps

I’ve outlived about five generations of the talent updraft — the loss of our best and brightest to other sectors, and other jobs, filched away from the lure of more money.

The talent updraft is an intrinsic feature of working in affordable housing; it’s happened to many, many capable people I know in this business, and usually takes about 5-7 years for someone to move through all four phases:

People in affordable housing go through predictable phases

Phase 1: entry and intimidation. Bright, hard-working, dedicated people come out of college or graduate school, wanting not only to be professionally active but also engaged in work they find relevant.

We’re looking for relevance

Many of them are drawn to affordable housing, because they’re just encountering the apartment market themselves, and rent seems so darned expensive.  (This is why, by the way, so many college towns enact rent control; the newly graduated vote, and they vote their self-interest.)  Typically they start in government, or non-profit, non-governmental organizations (NGOs), because they want to work for ‘the good guys,’ not those evil landlords.

“I must have my rent; you may go to the soup kitchen or starve”

Affordable housing is a great business for the young graduate: it’s complicated, it’s dynamic, it’s tangible, and it’s impactful.  Do good work and people live in better housing or cheaper housing.  It gives you a warm feeling.

For myself, my first five years in affordable housing (1976-1980) were completely serendipitous, as I was thrown into the midst of a very nasty recession and a huge workout environment:

I learned this business via emergency-room anatomy:

“What’s the femur?”
“It’s that bone protruding from his bleeding leg.”
“Oh. How do we put it back where it belongs?”

It’s not supposed to look like that

Along the way, I found out some things about myself:

Very heady stuff — but for the young professional, the first few encounters with the Other Side are terribly intimidating.  They’re experienced, they’re polished, they’re faintly supercilious.  To the beleaguered young executive, they’re alternatively nice or nasty — whatever works.  Though you feel your armor is white, you fear you’re wielding your sword badly.

Phase 2: awakening.  After a few years, the young professional has seen a few deals done.  He or she has done a few as part of a deal team, or even led one or two.  (Government and NGOs are great places to get experience; you get thrown into the fray.)  Then he or she notices that — wait a minute! — these deals are really complicated, and they’re risky.  And the for-profit people she works with, even if across the table, aren’t the devil incarnate.

Yes, I have places for young people in my organization

They’re smart.  They’re hard-working.  They’re funny.  Many of them care about doing the job right.  Sure, they’re better paid and better equipped — really nice laptops, clean and organized offices, not hovels of filing cabinets and crumpled papers. 

Coupled with this gradual appreciation of the other side comes disillusion with one’s own side.  They’re narrow-minded.  When it comes to ’speaking truth to power,’ as the phrase goes, they instead protect their careers and positions.  They loaf, or reflexively say No.  They are, in short, human beings too, and cynical ones.

Sometimes, the maturing professional realizes, the for-profit guys are right.  Sometimes the government is wrong.  Sometimes the government’s team leaders have feet of clay.  And the private guys get the deals done.

Say, who’s the enemy here?  Is anyone the enemy?

Phase 3: rationalization.  By now the initial thrill of doing something has worn off, as has the naivete about policy.  Transactions are complex, urban development means tradeoffs, and the world is altogether a more challenging place.  Meanwhile, a little peer-group separation is occurring — those who went to work in other professions seems to be achieving more. 

Rationalization creeps in.  Okay, so maybe we don’t make as much money as our friends.  So what?  The work we do is more important, and it’s less profitable, and it’s harder.

We’re hard pressed to keep up

By the way, all of that is true.  Reminiscent of the old joke about Ivy League football players, “we may be small — but we’re slow too,” compared with conventional real estate development, affordable housing is harder to do, on smaller transactions, for less money.

All this can be rationalized, as serving the cause — but then comes the spouse, or the house, or the children, and the executive wonders, Tell me again why I’m doing this?

Phase 4: temptation.  Now comes the pitch, in the form of a colleague from the Other Side. 

That big deal we were bidding on?  The one I told you about?  The one that will change the whole neighborhood.  We got it.

Wow, congratulations.  [Shake of the head.]  That’ll really make a difference.  What an opportunity!

Actually … we’re so busy over here we really need a capable executive to take charge of it.  [Pause to size up the executive.]  Would you be interested in working here, as Senior Project Manager? 

[Suspiciously] At what salary?

How about 50% more than you’re currently making? — And an incentive bonus, naturally, equal to a percentage of our development fee?

[Looking down at his or her drink.]  Let me think about it.

And there it is.

The fruit of the tree of the knowledge of good and evil? 

Oh, nonsense, what’s corrupting about pots and pots of money, anyway?

Or the beginnings of maturity?

                  I can resist anything but temptation.  – Oscar Wilde.

I also cannot resist having my picture taken

Either way, temptation is often irresistible, if not at the first offer, then the next.  For once a non-profit has nurtured a budding talent, the for-profits will always keep calling.

What are the talent updraft’s consequences?  It influences the entire dynamics of the non-profit and NGO sector:

1.         For-profits use non-profits as the developmental leagues.  Even more than freshly minted graduates, smaller non-profits are a proving ground for young talent, and a developmental league for for-profits.  Part of why Boston has been an affordable housing leader for forty years is the breadth of its non-profit sector, which attracts many from the graduate schools into affordable housing, and then is itself picked over for development talent by the for-profits and financial institutions.

2.         The NGO sector is usually thin on talent.  Twenty years ago, I described a non-profit developer, whose latest transaction I was syndicating, as “one executive-director elopement away from insolvency.”   Even today I see far, far too many non-profits that are similarly thin on talent.

But you can be talented even if you’re thin

3.         Non-profits are undermanned in negotiations with for-profits.  The for-profit teams are deeper, more experienced, better prepared, better represented, and overall better staffed.  The negotiations are unbalanced, with the for-profit side always having better players.

Why do I feel outnumbered?

(The same thing is true of government-to-for-profit negotiations.)

4.         Non-profits are vulnerable to exploitation.  When the other guys are better players, you can get less than you deserve.

5.         First-hand affordable housing experience is a precious commodity.  In addition to a talent updraft from non-profits to for-profits, there’s a talent out-draft, where people who learn real estate via affordable housing migrate into the conventional arena.  Both phenomena mean that smart people who have long experience in affordable housing are rare.

People like me stand sentry at the Museum of Science

6.         You’re always training the next generation.  Both non-profits and those who think they’re important to the ecosystem must be constantly reinvesting in training for the next generation of leaders, recognizing that in a non-profit, a generation is only about five years.  A non-profit is a for-profit joined at the hip with a charity, and if it wants to compete with for-profits, then its benefactors have to fund its continuous training and turnover costs.

The talent updraft is part of why I founded AHI.  There aren’t many of us who make it to this age (in development years, that is) still anchored in affordable housing.

I opened this post saying I was a dinosaur; actually, I’m a coelacanth; old, experienced, and still swimming in the same oceans.

Ugly, but still swimming with the sharks

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