A Particular Strain of Microfinance DNA
I have been pleased with the wide readership my blog on the India microfinance crisis has gained, second only to my post on the Fonkoze/Partners in Health alliance. The India post, the reaction to it, and some writing I have been doing this week have prompted me to think about what distinguishes the Bangladeshi microfinance leaders (Grameen Bank and BRAC), and what they share in common with Fonkoze. (I have long been associated with Grameen, and I have recently read the definitive book on BRAC, “Freedom From Want” by Ian Smillie, which while annoying in some of its references to microfinance and Grameen, is an impressive tour de force of BRAC’s history that is refreshingly honest about some of its failures. (Another organization that could be put in this group is SEWA Bank, but that is beyond the scope of this post.)
Grameen Bank and BRAC realize that microcredit can be a powerful tool, but it is best thought of as the foundation of a holistic development strategy – one that should no more be relied upon entirely to get people out of poverty than a builder would finish with the foundation of a house and neglect adding walls and a roof. This insight led to decades of experimentation with financial products beyond credit, as well as non-financial products. Many of the latter were implemented through co-branded companies, especially in the case of Grameen. (Grameen Foundation commissioned a paper on the “Grameen Family of Companies” and their track record through 2009.)
Not all financial products succeeded, nor did all the non-financial products/initiatives/companies. A few failed miserably. But many evolved into world-class offerings to help the poor do more than they could with credit alone. CARD in the Philippines, through its “Mutually Reinforcing Institutions” or “MRI”, followed a similar course, as did Fonkoze through the establishment of the original non-profit, Fondayson Kole Zepol (Fonkoze), followed by Fonkoze USA, Sevis Finansye Fonkoze (and a related holding company, Fonkoze SA), and finally MiCRO, a microinsurance joint venture involving Mercy Corps and SwissRe. (For a thoughtful analysis of the concept of microfinance as delivery channel for other empowering products to the poor, see the Grameen Foundation white paper “Microfinance: A Platform for Social Change” by former Citibank executive Marge Magner, which is also available in Spanish.)
Another common element among these organizations’ DNA is their commitment to measuring how effective they have been so that they can ensure continuous improvement in their poverty alleviation efforts. Grameen’s Ten Indicators of Poverty was the prototype for the Progress out of Poverty Index® now available in 45 countries and that is used by both CARD (the leading MFI in the Philippines) and Fonkoze (and hundreds of other MFIs in addition to many other poverty-fighting initiatives not involving finance). Chris Dunford, who until last year was the CEO of Freedom From Hunger, made the case for the PPI as effectively as I have ever heard in a recent speech where he explained the power of combining it with other tools (such as FFH’s Food Security Index), as Fonkoze has done. For its part, BRAC has long emphasized monitoring and evaluation, as Smillie’s book describes in detail.
Finally, all of these organizations understand the importance of shared leadership. As a result, they spawn multiple companies each with CEOs empowered to make decisions and even negotiate hard with each another. I recall an instance about five years ago when I was trying to entice a Grameen Foundation donor to invest in the bank being spun off by a successful microfinance NGO. She read the business plan and declined to invest, citing the fact that the founder of the NGO was going to retain a large degree of control of the bank (and any other institutions that would be established later). She compared this model unfavorably to CARD’s, which she knew well, and how CARD has five organizations each with a strong leader.
I am writing this book on Fonkoze as someone who is involved in a governance role in one of the family of organizations. (I have served as Chairman of Fonkoze USA since November 2009, weeks before the fateful earthquake as it turned out.) This has made the job of writing a book easier, and harder, as one might expect. In my role as Chairman, and as Vice-Chair before that, I occasionally argued for establishing some kind of coordinating body to oversee the entire family of Fonkoze organizations – perhaps made up of the Chairs and CEOs each institution.
This past February, Fonkoze’s leaders in Haiti called together about two dozen senior staff, board members and investors for a retreat in Haiti. One of the key outcomes of that meeting was to set up something called the “Fonkoze Family Coordinating Committee” or FFCC. (Some wanted to call it the “Super Committee,” but I resisted that and anything that suggested that this was supplanting the other boards.) I was asked to Co-Chair the committee along with a humble, savvy and deeply religious businessman named Julian Schroeder. It has been a challenge, and an honor. One of the interesting things about the group is that it has been delegated no formal decision-making authority, but its recommendations are often adopted by the member organizations.
As one might expect, looking across all the Fonkoze organizations, some things look better than from a single organization perspective, and some look worse. The analysis the FFCC has done – based on requests made that the staff have been very responsive to – has revealed new opportunities to be seized, and new problems to be tackled. Now the challenge is to use this holistic analysis to strengthen Fonkoze as it contemplates the daunting work ahead.