NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Editor’s Note: Pamela P. Flaherty is President and Chief Executive Officer of the Citi Foundation, which is NextBillion’s first Sponsoring Partner. She is also Director of Corporate Citizenship for the company and a member of Citi’s Senior Leadership Committee.

NextBillion: For those readers who may not be familiar with the Citi Foundation, could you explain its core mission?

Flaherty: The Citi Foundation is committed to the economic empowerment and financial inclusion of individuals and families, particularly those in need, in the communities where we work so that they can improve their standard of living.

NextBillion.net: How does the Citi Foundation prioritize which initiatives to pursue?

Flaherty: Globally, we work collaboratively with a range of partners that can help us efficiently reach scale in moving unbanked and underbanked segments of the population into the financial mainstream in sustainable ways. This includes Microfinance, Enterprise Development, Youth Education and Livelihoods, College Access and Success, Financial Capability and Asset Building, and, in the U.S., neighborhood revitalization. In addition, in our Microfinance and Enterprise Development portfolios we seek to support programs and innovations that contribute to environmental sustainability.

NextBillion.net: Could you describe what the foundation’s “More-than-Philanthropy” approach means in practice?

Flaherty: Absolutely, we recognize that while philanthropic investment is important our business capabilities can help to increase our impact much more significantly and sustainably. Our most meaningful engagements with partners go beyond check-writing. Our business capabilities help our partners to realize scale often through market-based solutions. Therefore, we support collaborative problem solving, program development and skill-based volunteering that leverages the breadth of expertise of Citi and its employees and maximizes grant resources so we can fulfill our mission.

NextBillion.net: Last year, the Citi Foundation launched a results-oriented measurement system to track the effectiveness the programs it funds. How has this impacted the way the foundation operates?

Flaherty: The results-oriented measurement framework allows us to ask our partners the kind of focused questions that result in an honest and thorough program evaluation. What positive gains will accrue for individual participants, communities or organizations? How will your own organizations be different and what will this enable you to do better? How will your work inform change on a macro-level, including influencing policy or changing practitioner practices? By fully understanding what we are learning from our investment, we are well positioned to define more clearly the results we seek from our partners.

NextBillion.net: How does the foundation approach microfinance?

Flaherty: We recognize that a lot has changed in the 30+ years since we began funding microfinance and microenterprise activities. We are proud of the work that Citi and the Citi Foundation has done to help build the sector, move microfinance into the mainstream, and attract the capital markets. Broadly, more than 100 million people now have access to basic financial products and services which can help to provide security, stability, and economic opportunity. This, however, is not enough. Philanthropic investments continue to need to be made in measuring impact and building organizational capacity to drive responsible growth. This is why the Citi Foundation continues to invest in industry-building efforts such as the MIX Market and The Banana Skins Report which serve as important guideposts for the industry.

NextBillion.net: Has that approach changed in lieu of the recent microfinance crisis in India?

Flaherty: Neither our approach nor our commitment to expanding microfinance have changed because of the discussion about microfinance in India. Last year, we embarked on a broader financial inclusion agenda which embraces the approach that appropriate financial products, made easily and affordably accessible and paired with consumer knowledge, can transform lives. So, we’ve made investments in building knowledge, promoting innovation and driving systems-changing thought-leadership that helps the sector better understand the balance of this equation.

NextBillion.net: Financial education in developing markets of course is key to expanding inclusion to low-income people. Where has the foundation focused in this area?

Flaherty: In 2004, Citi made a 10-year, $200 million commitment to meet the growing financial capability needs of the communities we serve, which we completed in 2010, well ahead of schedule. In assessing this commitment, we realized that while increasing financial knowledge and skills is important, helping low income consumers establish positive financial behaviors through ongoing coaching and access to appropriate financial products and services is critical to achieving long-term, sustainable results.

This is exactly why we not only changed our strategy but we changed the terminology we use from “financial education” to “financial capability.” It’s more than just providing a lesson plan. Today, we support programs that work directly with low income consumers to help them develop and maintain forward-looking financial behavior. We help build the capacity of community partners to adopt new financial capability approaches, reach more people and, as with all of our investments, measure results. We also invest in innovations and research that provide policy makers and the sector with a deeper understanding of the role that financial capability can play in bringing more consumers into the financial mainstream.

NextBillion.net: Finally, In terms of fostering micro-enterprise development, what foundation strategies have been particularly effective in your view?

Flaherty: We look at support for micro-enterprise development in two ways-locally and globally. Locally, Citi country offices make direct philanthropic investments in organizations that support the development of micro-enterprises. We want to help create quality jobs and enhance income, so we concentrate on supporting organizations that build local capacity through financial training or access.

Globally, our strategy is to support sector-building initiatives like ANDE whereby an entire sector can benefit from a single investment. Similarly, we like to invest in innovative organizations that change the way the sector operates which was the case with our initial investment in WRI’s New Ventures Program more than 10 years ago. New Ventures was an innovative model of blending business with social and environmental impact. Today, that may seem relatively commonplace, but back then it was a real breakthrough. Ultimately, we see market-based solutions as the way to scalable, sustainable economic development.

We believe that our philanthropic investments, not only in enterprise development, but in all of our portfolios, should be catalytic. Some of the results are immediately clear while other outcomes may not be seen for years, but we are confident that the best way to achieve our goals of financial inclusion is to engage individuals, give them the tools they need to build robust financial profiles, and show our commitment to helping them get on a path to success.