Microfinance, Short-Cuts, and Fonkoze
A natural question people in or close to the microfinance movement could ask me is, “Why write a book on Fonkoze when there are so many outstanding microfinance institutions in the world?” There are many plausible answers.
It is operating, with considerable success, in a so-called “failed state” and working with very poor people – at a time when many question whether microfinance can be effective in either context, let alone both. Furthermore, it is populated by some fascinating people and its history is punctuated by dramatic events. And as noted in an earlier post, it is a women-led organization in a sense that goes far beyond who the CEO is, and extends to who occupies the vast majority of leadership posts and, not unrelated, who defines the cultural norms.
For me, the most interesting aspect from the perspective of a microfinance professional is that Fonkoze has avoided most of the traps that I would broadly categorize as “taking organizational short-cuts” that stunt long-term performance, especially (but not only) social impact outcomes.
Earlier this year I wrote a paper that will be part of a book published by the Microcredit Summit Campaign and be the basis for a plenary discussion at the Campaign’s meeting in Spain in November. (Anne Hastings will also deliver a major address there.) The paper was about how microfinance field staff could help solve the proverbial “last mile problem,” especially in terms of bringing clean/renewable energy solutions and actionable information about agricultural and health care best practices to the poor. (Fonkoze does a little of the former and a lot of the latter, but it is not a major focus of my paper, which his titled “Towards Reinventing Microfinance through Solving the “Last Mile Problem”: Bringing Clean Energy Solutions and Actionable Information to the Poor. There is an advanced draft online.)
In an effort to create some urgency for MFIs to provide new products and value in these areas, I prefaced the main part of the paper with a discussion of what was wrong with microfinance today. The first of five examples I listed was that MFIs’ “products are poorly designed and overpriced, and oftentimes limited to credit.” This represents one of the common microfinance short-cuts.
It is also an area where Fonkoze excels. First, it complements credit with other financial services – savings, insurance, money transfers and foreign exchange conversion. Importantly, it continues to add new financial services – and to refine old ones – to better meet client needs. Second, it has different bundles of financial products for four different sub-segments of the poor, as their needs and opportunities are not the same (though many MFIs behave as if they were).
Here are some other short-cuts I jotted down this morning:
- MFIs often don’t take the time to develop products (and provide related training to staff) that take advantage of the frequent contact points between clients and front-line employees, in order to maximize client benefit and loyalty.
- Clients are not adequately consulted about the direction of the organization.
- MFIs under-invest, if they invest at all, in social performance metrics and performance that can ensure accountability to “social bottom line” goals and improve product design.
- Especially in India, MFIs have seemingly raced to add clients and secure “market share” in ways that compromised the quality of service provided.
- Though this is slowly changing, client protection measures, designed to ensure that MFIs “do no harm” to their clients, have been paid lip service but not much else.
- MFIs bypass the lowest-income groups and those who live in the most remote areas in an effort to reduce short term costs and increase revenue.
Mostly due to its own values and culture (rather than as a result of external pressure), Fonkoze has taken a different approach on each of these issues:
- Fonkoze aggressively bundles adult education modules with its financial services, on topics ranging from basic literacy, children’s rights, environmental stewardship, disaster preparedness and maternal and child health. The curricula are developed by adult ed experts and front line staff members are provided training about how to deliver them. In addition, clients receive other services as resources permit. When I was in Okay branch in June, we observed children receiving vitamins during a center meeting. If anything, Fonkoze bundles too much with its financial products and does it in a somewhat fragmented way.
- Clients and their elected representatives have multiple opportunities, especially through branch level and later national assemblies, to participate in the process of governing Fonkoze. This, along with the availability of “bundled services” that are generally of good quality, helps ensure strong client loyalty despite increasing competition and occasional breakdowns in the quality of financial services provided.
- Fonkoze has a well-earned reputation as a leader in social performance measurement and management. They use an international standard tool, Grameen Foundation’s Progress out of Poverty Index, enhanced by additional survey questions that are linked to organizational goals for client benefit. The data is used in serious and creative ways and flows back into product design. Social impact monitors work throughout the branch network to audit and advise branch directors.
- While Fonkoze has grown steadily over the years, fragile information systems, risk management, concerns about the need to further refine products, lack of trained middle managers, and overall organizational culture has militated against rapid growth.
- Fonkoze has long had a culture where there are frank discussions about how to avoid the “dark side” of microfinance. Once a global campaign was launched by the Center for Financial Inclusion to standardize a code of ethics (also known as consumer protection standards) for microfinance, Fonkoze was asked to serve on a global steering committee. Fonkoze’s rapid integration of the evolving code/standards has made it a “poster boy” (or, more plausibly I suppose, poster girl) for client protection in microfinance.
- As mentioned above, Fonkoze has specially designed programs for the poorest people, programs that are clearly priorities of senior management. Their employees go to great lengths to reach isolated communities (as anyone who has ever done a field trip with Fonkoze can attest).
Don’t get me wrong. Fonkoze has many problems and deficiencies. (What organization doesn’t?) But even before you take into account the harsh environment it works in and how that impacts talent recruitment and development, loan portfolio performance, and a myriad of other factors, Fonkoze’s “take no shortcuts” approach makes it an impressive and important case study for how to take the concept of “microfinance with a social purpose” or “double bottom line microfinance” to the next level.