Bryan Farris

Charting the Future at Women’s World Banking

Editor’s Note: Recently, Bryan Farris spoke with Mary Ellen Iskenderian, President and CEO of Women’s World Banking, one of thought influencers and industry leaders in microfinance with a focus on female entrepreneurs and customers in 27 countries. As WWB notes, the organization not only provides women access to financial services but “also control over their assets.” This post is the among of several topical discussions centered on the many financial, cultural and societal issues facing women in developing markets. (Earlier posts can be found here, here, here and here.) So, if you could start a new business in the microfinance sector tomorrow, what would it be?

Mary Ellen Iskenderian: Actually, Women’s World Bank, after 30 years, is starting a new business as an owner/operator of microfinance institutions as we speak.

Frankly, we’re not going to be focused on group lending as much; instead we want to deliver a multi-product service to individuals. We find that the default rates tend to be a little bit higher, but not so much that it outweighs the benefits and increased flexibility it provides our clients. Without having a group to create that peer-collateral, if you will, how do you ensure individuals will re-pay?

Mary Ellen Iskenderian: Essentially, cash flow is the key. If you can assess how much cash flow a household has and whether their income warrants the loan size they are trying to take out, then you can make smart lending decisions. In the case of group lending, loan officers relied on the group to make that assessment for themselves.

Therefore it is true that lending to individuals does require loan officers with slightly higher training and the ability to evaluate a family’s cash flow situation and inherent risk. However, loan officers can achieve this training with time and without a major impact an MFI’s costs. All of this requires having a team in place. How do you reach scale in the near term, especially in areas where the infrastructure just isn’t in place?

Mary Ellen Iskenderian: We’re going to be very careful as we expand-we wouldn’t go into a new country without getting a strong feel for the nuances of that market and that particular country’s regulatory atmosphere. It needs to be clear that the market is ready for the kind of microfinance we want to offer.

When it comes to the issue of scale, I think if you’re not afraid to buy an existing institution, there is a huge need for consolidation in the space. There are way too many MFIs, I believe its something like 5,000 that report to the microfinance summit. I would say that at least 80 percent of them are, frankly, too small at present to be sustainable.

In some cases, like in rural Mexico, we are looking to partner with or acquire small “mom & pop”, if you will, MFIs that just don’t have the capital or institutional knowledge to really grow.

There is a double quandary: on the one hand, there is huge unmet demand, and on the other the institutions on the ground are not really strong enough to move up to meet that demand. Very interesting point-consolidation would also do a lot to reduce risk exposure and would almost certainly bring the average interest rate down as cost savings are realized as well.

Mary Ellen Iskenderian: Exactly.

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financial inclusion, microfinance, scale