Gary Goldman

Microfinance at a Crossroads: BRAC USA’s Davis on Microcredit, Then and Now

There are hundreds of active micro-finance institutions around the globe, but Susan Davis can very well remember witnessing the first extraordinary possibilities of social entrepreneurship back in 1980, when she worked for the Ford Foundation in Bangladesh. Now, as the founding president and CEO of BRAC USA, an affiliate of BRAC (which she refers to as “one of the best-kept secrets of a development success story”), she helps support one of the largest development NGOs that has touched 138 million individuals since 1972 via micro-finance, education, health and many other programs all geared toward alleviating poverty. At a time of doubt regarding over-indebted clients, and fear in the face of exploiters and “loan sharks,” Davis is adamant about remembering the original raison d’être of microfinance institutions, as well as celebrating the extraordinary generational achievements she has witnessed over the past decades. Along with David Bornstein, Davis also co-authored the 2010 book “Social Entrepreneurship: What Everyone Needs to Know.” What has been the biggest evolution in the world of micro-finance over the years?

Davis: The biggest evolution has been the scaling and commercialization of micro-finance. What was a social movement designed to help poor women get out of poverty has now become an industry. What we’re looking at in Bangladesh, with the market saturation of microfinance, is the introduction of financial education programs to help people make sure that they don’t borrow from too many sources. If they did so, they would put themselves in a situation of debt that they can’t handle. Since you started, there must have also been a clear paradigm shift, with a widespread understanding of financial concepts.

Davis: The concept of ’credit’ was always there from the moneylenders, but the concept of ’microcredit’ has now been widely understood. In fact, I would venture to say that most every household in Bangladesh knows about it. More than other countries around the world, Bangladesh has achieved a significant amount of market penetration, with almost every poor household having access to one if not more micro-lenders. While there were originally three major institutions offering microfinance (Grameen Bank, BRAC and Proshika donor consortia), you now have 500 other organizations nipping and tucking the market share of the big three with ASA replacing Proshika, each with five to eight million customers. This, I think, results in a healthy competition with constant innovations in products, as well as a much more demand-led set of services. BRAC borrowers, most of whom are women, use these loans to engage in various income-generating activities to improve their socio-economic status. Micro-finance institutions came as an essential alternative to large banks inaccessible to the BoP. Looking into the future, as the poor get richer, will micro-loans become less popular?

Davis: I don’t think that, as people get “wealthier,” there will be a decrease in demand for micro-loans. If you’re really dealing with the needs of people at the base of the economic pyramid, you’ve still got enormous demand today; not just for productive capital or capital for businesses, but for all kinds of other things. Looking back at the history of development, once countries start to prosper, people want more things, and consumer finance increases. As someone who has been in the field for more than thirty years, have you been able to follow how certain families have evolved economically and socially from generation to generation?

Davis: Absolutely, and seeing what can be accomplished with so little lights the “fire in my belly” every single day. I recently met up with a group of environmental migrant women who have been with BRAC for about twenty years after being displaced from their homes due to riverbank erosion. One of them had started working in a printing press making flyers, which is the way local candidates promote themselves before the elections – by stringing the flyers up like laundry on a clothesline. She realized that it was a pretty simple yet profitable business and decided to start her own printing press a few years later. After telling me this, her daughter arrived and I was dumbfounded: twice the size of the thirteen-year-olds I had grown accustomed to seeing in Bangladesh 25 years ago when I lived there, she was in school with the dream of one day becoming a doctor. This is what happens when children eat enough nutritious food every day. I see those changes everywhere: wealth in village communities, larger homes with sanitary latrine labs, three meals a day, and husbands that are involved in the lives of their wives and daughters. What effects do you think that the introduction of private investors in micro-finance has had on BRAC? Any negative repercussions?

Davis: It hasn’t affected BRAC, as our private investors have all been compatible with our impact-maximizing goal. BRAC decided to start a fully commercial bank to serve small and medium-size businesses in 2001. A few years ago, it went public: our IPO and listings have allowed us to attract the right kind of investment capital and increase our outreach to over 1 million customers. Now, BRAC is the fastest-growing bank in Bangladesh, if not South Asia. We went from being 30th to 4th in terms of size, and more than half of our loans are small-business loans. BRAC’s microfinance program in Bangladesh serves about 8 million clients and is still operated as an NGO program. In West Africa, two of our microfinance companies have equity investors but all others are wholly-owned by BRAC International, a nonprofit entity. This is remarkable, but certainly not true for most micro-finance institutions nowadays. What is the best way to balance social cause and financial goals?

Davis: If your mission is only to offer consumer finance, I wouldn’t call it microfinance. If your core mission is to try and defeat poverty, as well as get people on an opportunity ladder, then we’re talking. In Bangladesh, the competition has actually kept prices low and increased the range of products so that you actually have better services for poor customers. Personally, what has been the biggest lesson you have learned since you started?

Davis: At BRAC, we have learned that micro-finance alone is not enough; but if you combine it with education and health, it becomes a very powerful strategy for generational change. If you look at our story in the United States, we’re no different from these folks in Bangladesh: education and small businesses have gotten us where we are today. Do you have any practical examples to give us?

Davis: BRAC recently profiled a girl named Insana from Kalampur, Dhamrai (Bangladesh), who had to drop out of school in Grade 10 a few years ago because her family hit some bumps in the road. Luckily, she was part of a Social and Financial Empowerment of Adolescent club (SoFEA) that BRAC and the Nike Foundation supports as part of the ’girl effect’ movement, where she was taught the art of tailoring. After winning a sewing machine, she started making dresses for the community and training other girls – see, she had a great eye for design. With the additional income, she was able to successfully enroll back in school at age eighteen.

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Base of the Pyramid, microfinance, poverty alleviation