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Microfinance
Asia Society and Women's World Banking
Annual Microfinance Conference
Stanley Fischer
Vice Chairman, Citigroup
President, Citigroup International
New York, May 13, 2003
It is an honor and a pleasure to speak at this important
meeting on microfinance – not only because the topic
of microfinance is so important, but also because I used to
work closely with Nancy Barry when we were both at the World
Bank nearly fifteen years ago. I thought at the time that
her leaving the World Bank was a loss for the Bank but a gain
for the world of women’s banking – and that was
surely right. She has become a leader among an outstanding
group of women – and men too – who are using their
time and talent to help people, particularly women, build
families, communities and societies.
The Goals of Microfinance
The chief goal of those involved in microfinance is to reduce
poverty. That may seem like an overwhelming task, for nearly
half the world’s population world lives on less than
$2 a day, and about a billion people live on less than a dollar
a day. But the task is not impossible for the best
estimate is that global poverty has been declining over the
past decades: not only has the poverty rate been
declining, so also and encouragingly has the absolute
number of those living at that level. As we contemplate
the task of assisting in reducing global poverty, we need
to emphasize both facts: not only that the extent of global
poverty is massive and daunting, but also that there has been
real progress in reducing it, for that makes the task just
a little less daunting.
It is commonly stated that microfinance institutions reach
over 50 million clients. Now this seems a far cry from the
billion people living in dire poverty, or the additional two
billion living in moderate poverty around the world. But it
represents something special, for microfinance is a way of
helping individuals take charge of their own lives, enabling
them to use their own initiative to pursue possibilities that
would not otherwise be open to them. And although 50 million
clients sounds small against the mountain of a billion living
in dire poverty, any mechanism that reaches 50 million people
has the potential to make a major dent in poverty.
In the last five years there has been a growth in both the
numbers of micro institutions serving poor communities and
the numbers of individuals and families they have reached.
The Consultative Group to Assist the Poor (CGAP), a multilateral
donor organization focused solely on microfinance, and located
in the World Bank, is a key center for research on and the
promotion of microfinance. CGAP reports for instance on a
poverty assessment of SHARE, an institution with more than
80,000 borrowers in India. The assessment found that 60 percent
of entering clients were below the national poverty line and
that 72.5 percent lived on less than a dollar a day. The study
shows that half those who entered the program in poverty and
stayed in it for some time graduated from poverty during that
period. This, together with related studies reported by CGAP1,
provides encouraging evidence that microfinance can help individuals
escape poverty.
Not only can microfinance help people emerge from poverty,
it is also an effective strategy to reach other Millennium
Development goals2, particularly those relating
to promoting children’s education, improving health
outcomes for women and children, and empowering women. Improvements
in these areas can be sustained only when households have
increased earnings and greater control over financial resources.
No doubt many are skeptical about the reported research results,
a skepticism that could be fueled by the undoubted commitment
of those involved in the field to promoting it. But there
are two fundamental reasons to believe that microfinance can
be successful: first, the poor, like everyone else, want to
improve their lives, and are willing to invest to do so; and
second, access to finance is an important mechanism enabling
them to invest. I believe in the potential role of microfinance,
for I have seen it at work when I visited my native Zambia
three years ago, and visited a remote village, where a small
microcredit scheme had raised the well-being of those engaged
in it – all of them women – in part by allowing
them to buy equipment, in part by allowing them to travel
further to expand the extent of their markets.
Microfinance is making a difference. And it does that not
only by financing investments, but also by providing a saving
vehicle for poor people. A key question is whether it is possible
to do even more, to achieve even larger scale, to impact directly
hundreds of millions of people rather than tens of millions.
It is not clear whether the economics will permit that, or
whether microfinance is rather destined to remain micro, not
only in the scale of individual operations, but also in the
overall scale on which it can operate relative to the size
of the economy. There are, however, encouraging signs of sustainable
growth, and of new innovations to enable scale to be reached.
I believe than an important part of the effort to expand
its reach should be to support the development of more market-based,
regulated financial institutions. There will continue to be
a role for smaller microfinance institutions that are supported
by charitable contributions and are non-profit in nature.
But if microcredit is to have a macro impact on growth and
development, we need many microcredit institutions to evolve
in more market-oriented ways – so that they can tap
the capital markets, increase their size and reach, and operate
more efficiently. Moving into its third phase, CGAP argues
that microfinance will evolve to include a variety of financial
institutions delivering a variety of products. In other words
– and this would be a critical development – microfinance
should become the delivery of banking services to the poor.
And if that happens, many microfinance institutions will achieve
sustainability and not have to rely on donor resources.
Citigroup’s Experience in Microfinance
At this point I would like to become more concrete about
what can be done in microfinance. To do that, I shall have
to talk about Citigroup’s efforts. As you may know,
Citigroup and its predecessor companies have been involved
in the field of microfinance for the better part of four decades.
This engagement began with our philanthropic support to ACCION
International for its work in Latin America in 1965 –
and as ACCION’s programs and methodologies evolved,
we followed with support to develop appropriate tools to manage
risk, management structures, and loan portfolios. We now provide
a wide array of services to 145 microfinance partners in more
than 50 countries including, of course, Women’s World
Banking, ACCION, Grameen, Finca, K-Rep, and others to expand
their work in North and Latin America, Africa and Asia.
Let me give you a few examples of the work we have done and
are doing in the field. I will begin with our philanthropic
and technical assistance, and then describe some of the ways
that we are providing financial services, such as cash management
and lending, to microfinance institutions.
In India we have been supporting Women’s Working Forum
for a number of years, providing funds for on-lending and,
of equal importance, providing Citibank volunteers to work
on software development and marketing outreach. We are also
jointly promoting our Citibank Management Development Program,
an intensive management course for the branch managers of
regional microfinance institutions. Citibank Kenya and WWB
will be offering a module on quality and customer satisfaction
in Nairobi this coming September.
Recognizing that MFIs may also seek further training, Citigroup
is supporting the Microfinance Opportunities program to develop
a financial education curriculum that will promote financial
literacy among MFIs. Participants may include SEWA Bank in
India, Equity Building Society in Kenya, Al Amana in Morocco
and Pro Mujer in Peru/Bolivia.
While the bulk of our work is with more established organizations
or intermediaries, we also sometimes work with new institutions.
In 2002, for example, we made our first grants to support
microfinance in West Africa, specifically in Gabon and Cote
d’Ivoire. In Gabon we are supporting a program to train
100 farmers both in growing staple products and in financial
literacy; and in Cote d’Ivoire we have been working
with Opportunities Industrialization Centers to facilitate
the start up of more than 750 micro-enterprises. And we are
doing start-up work with microfunders in Central and Eastern
Europe.
Local, local, local
Core to Citibank’s operating philosophy as a business
is to function as a very local bank in the communities in
which we operate. In practice, this means that Citigroup has
a clear interest in enhancing the economic vitality of the
local communities where we have a presence. And because we
have often been the first overseas bank to open branches in
emerging countries around the world, we have tried to build
close relationships with NGOs, local businesses, and governments
right from the beginning – in China in 1902, in Argentina
in 1914, in Indonesia in 1968, in Nigeria in 1984, in Russia
in 1994 (following a brief stay in 1917).
Wherever we go, we seek to integrate ourselves into and strengthen
the local economy. We have big, global corporate clients,
and very local business clients. We hire locally. Of our more
than 260,000 employees worldwide, more than 98% are local
to the countries in which they work. And this is one of the
key ways in which we strengthen the economies in which we
operate – for not only does one frequently find former
Citibankers as finance ministers and central bank governors,
it is also often the case after a few years that the leading
local financial institutions hire away people we have trained.
Much as we would rather most of them stayed, we do recognize
that this is good for the domestic economy.
Our operating approach is simple, but powerful in its implications:
greater community level prosperity can build strong economies.
And microfinance in turn can help strengthen communities.
Approach
So how exactly does Citigroup approach microfinance? There
are four key elements to our strategy designed to continue
to build and sustain this field:
1. Generally, Citigroup works with microfinance intermediaries
and networks to ensure that community-based partners have
access to the best know-how. We seek out the best and
the most knowledgeable intermediaries and networks in order
to expand the field. The intermediaries serving MFIs are
critically important because they are an ongoing source
of professional and technical advice and training as well
as access to capital.
2. Secondly, we work with leaders in the field to support
the emergence of uniform standards, to increase efficiency
and transparency. This includes regulatory standards,
accounting, financial statements, risk management, audit
and control. This is an extremely important point. MFIs
will not be able to attract funds from the capital markets
or donors or investors if they do not run their affairs
properly.
To foster this work, Citigroup has made a three-year commitment
to the Market Information Exchange, popularly known as MIX.
The purpose of MIX is to address one of the key challenges
to the continued growth of the microfinance industry: the
lack of reliable, comparable and publicly available information
on the financial strength and performance of Microfinance
Institutions (MFIs). Donors, investors, lenders, depositors
must have access to data that can support and encourage their
decisions to supply capital. Such data is also critical to
improving and stimulating MFI performance
3. Third, we seek to support MFIs to achieve greater
scale, outreach and financial self-sustainability.
Just to be clear, this means that we define microfinance
not by the size of the institution, but by the size of the
loans and other financial services provided to customers.
Only if MFIs achieve greater scale can they grow enough
to make a significant impact on poverty reduction –
and at the same time, only then are we likely to be able
to work with them on a market basis. It is for these reasons
that we are particularly interested in MFIs that either
are or intend to become, regulated financial institutions.
Our provision of financial services to these organizations
will support their entry into the capital markets so they
can expand.
For example, we just joined the newly formed Council of Microfinance
Equity Funds to address issues related to providing equity
to regulated microfinance institutions. Over the coming months,
the Council will address the issues of equity capital in microfinance
arising out of the growing number of MFIs that are operating
as commercial, regulated financial entities and that require
equity capital to support their growth.
4. And finally, we try to use our strengths to help
establish deep, multi-faceted relationships with microfinance
institutions and networks. We believe that we can be
mush more effective if we establish true partnerships with
MFIs and use as many of our capabilities as possible in
the relationship. Our senior executives are on boards, advisory
committee and loan committees of many of our microfinance
partners. We also provide both grants and technical assistance.
We actively encourage our employees to share their banking
and management knowledge with MFIs around the world and
particularly encourage their engagement with those organizations
to which our Foundation has given grants.
Microfinance as a Business Opportunity
But, not less important, we also believe that MFIs are
a business opportunity. It is important for microfinance
to be viewed in this way, not least because this is the only
way the industry can become large enough to make a true global
impact.
Indeed we are beginning to see the emergence of microfinance
as a business opportunity. Global financial institutions such
as Citigroup are now providing specialized underwriting services,
wholesale credit facilities and other financial instruments
that are currently most helpful in developing the microfinance
field.
In July 2002, Citigroup’s bank in Mexico, Banamex handled
the sale of a “first-of-its-kind” 100 million-peso
bond (US$10 million) for Compartamos, a 13-year provider of
microcredit. A Standard & Poors mxA+ rating backs this
bond issue, the first bond issue to be guaranteed strictly
by the MFI’s financial strength rather than by its loan
portfolio. This is truly a breakthrough.
As another example, Citibank-Peru issued a US$6 million bond
on behalf of Mibanco. This bond issuance will help Mibanco
obtain medium-term stable funding sources from the local Peruvian
market, and is the latest step in what has been an ongoing
business relationship with Mibanco – Citibank-Peru has
offered Mibanco a range of local cash management, asset-based
financing, and guarantee and trust services.
In 2001, through a partnership with USAID and the Access
to Microfinance and Improved Implementation of Policy Reform
Program, Citibank developed a $6 million facility in Jordan.
This facility enables Jordan’s USAID-supported MFIs
to obtain low-interest loans from commercial banks. Citibank
acts as the escrow agent, and also issues guarantees to the
commercial banks providing the credit to the microfinance
groups.
Let me repeat that the notion of microfinance institutions
as business partners is an important one. For that is the
way to ensure that the role of microfinance institutions grows,
and that is an important route to helping raise the living
standards of the poor around the world. And if from our own
viewpoint, the more they grow, the more business we will be
able to do with them, that is merely another illustration
that Adam Smith was right, and that market interactions typically
benefit both sides.
Conclusion
Let me end where I started. Microfinance has proved that
it can help individuals, particularly women, improve their
families’ living standards through their own work. The
challenge, and it is also a question, is greatly to increase
the scale on which microfinance operates. The only way to
discover whether that can be done is to try to do it. Progress
is being made thanks in large part to many of the people here,
and the many others who work with you, and we at Citigroup
will continue to work with all of you to that end.
Thank you.
1In CGAP’s January 2003
Focus Note.
2They are to (1) eradicate extreme poverty and
hunger; (2) achieve universal primary education; (3) promote
gender equality and empower women; (4) reduce child mortality;
(5) improve maternal health; (6) combat HIV/AIDS, malaria,
and other diseases; (7) ensure environmental sustainability;
and (8) develop a global partnership for development.
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