NB Financial Health
Good Intentions Are Not Enough: How Microfinance Can Truly Serve Low-Income Women Entrepreneurs
Low-income women entrepreneurs in Egypt, as in many developing countries, face multiple obstacles to securing small-business financing. They seldom hold legal title to the kinds of assets (e.g. land or home) that could serve as collateral for a loan. Their businesses also tend to be smaller (often home-based) enterprises more compatible with family duties. Smaller businesses require smaller loans, which are generally less practical or profitable for a financial institution to deliver.
The Egyptian microfinance market has thus focused heavily on group-lending approaches for women. Methodologies vary, but in general, group lending reduces transaction costs by shifting the administrative burden onto the group. The microfinance institution makes one lump-sum loan to the group whose members then divide that amount among themselves, and assume responsibility for collecting and recording individuals’ repayment installments. Group lending also solves the collateral problem by requiring all group members to pitch in to cover the loan of anyone who defaults. Group lending, in other words, solves the major problems for the institution—but it’s not always ideal for customers, many of whom would prefer the privacy and customized terms of an individual loan product. With support from MetLife Foundation grantee Women’s World Banking, that is what Egypt’s Lead Foundation set out to design and deliver.
Tailored specifically to low-income women entrepreneurs, Lead Foundation’s Women’s Loan features smaller loan sizes and fewer collateral requirements compared to conventional individual loan products. But product design is just one tactic in Lead’s strategic effort to expand and improve service to women customers. Their approach stresses intensive training for customer-facing staff, a marketing plan to educate existing customers and attract new ones, and creative branding. The results: Lead’s percentage of women clients has increased from 26 percent to 51 percent since December 2014, and the number of loans disbursed to new women clients rose from 797 in September 2015 to 20,935 by March 2017, an increase of more than 2,500 percent.
Meet customers where they are
The heart of the strategy is simple, if not easy: Meet customers where they are. Clients at every income level can be confused or intimidated by financial product information, as anyone who has applied for a mortgage or struggled to understand her 401(k) options can attest. In Egypt, low-income women entrepreneurs can be savvy businesswomen, yet lack formal education. According to Egyptian government statistics, more than one-third of Egyptian women (compared to 19 percent of men) cannot read or write. This places an extra responsibility for customer care on institutions like Lead Foundation to ensure that their low-income women customers, potential and actual, understand how to access credit, differentiate among various loan options, choose the best one for themselves, and manage it effectively.
Lead worked with Women’s World Banking to integrate best practices about marketing to women into their operation. Women’s World Banking is a New York-based organization that since 1976 has supported financial services providers all over the world with research, product design, marketing strategies and other technical assistance to serve female customers better. For Lead Foundation, the Women’s World Banking’s approach included hiring a female marketing manager to develop and implement the marketing and communications strategy; creating an internal communications strategy to build the connection among the head office, branches, and field staff. The approach also included developing marketing materials, in clear and simple language appropriate to customers’ level of financial literacy, to support branch-level marketing efforts.
Women’s World Banking also helped Lead launch a training department to teach loan officers and loan coordinators the skills to deliver the new individual loan product to women effectively and responsibly. The comprehensive training program includes sales training, loan assessments and portfolio management—all with a focus on meeting the unique needs of women entrepreneurs. Loan officers, supervisors and branch managers all participate.
Changing the fundamental approach
Finally, Women’s World Banking helped Lead to embrace the power of data. Many institutions don’t disaggregate their client data by gender, so they don’t know what percentage of their clients are women. Without that information, it’s difficult for an institution to know how well it’s serving women. Women’s World Banking worked with Lead to build their capacity to analyze client databases, segmenting not only by gender, but also by business type and other criteria. By developing key indicators and automating the process, data is now available at the push of a button. This allows Lead to identify which client segments are not being served well and to adapt their sales, marketing and service strategies accordingly.
Serving low-income women customers well requires persistence and commitment—good intentions are not enough. What Lead Foundation recognized from the outset was that getting the Women’s Loan product design right, important though that was, could not be the whole story, or even the most important part. They understood that they were changing their business approach in fundamental ways that would affect every function in the operation. Lead’s top executives championed the change, committing the resources and the leadership to guide their institution to a new more data-driven model that keeps a steady focus on the needs and preferences of low-income women entrepreneurs.
Given the results that Lead Foundation has experienced in Egypt, this approach to change management is one that other financial services providers may wish to consider in serving low-income women entrepreneurs.
Alejandra Rios is director for product development (credit) at Women’s World Banking.
April Hawkins is an assistant vice president of MetLife Foundation, which has a global focus on financial inclusion.
Note: MetLife Foundation is a sponsoring partner of NextBillion Financial Health.