In the spring of 1987, Alex Counts, a student at Cornell University, wrote to Muhammad Yunus, founder of Grameen Bank, and expressed his interest in working with one of the world’s first microfinance institutions.

“God bless him, he wrote me back,” says Counts. That was the beginning of a career in microfinance that led Counts and other friends of Grameen Bank to the 1997 founding of Grameen Foundation, an independent organization that collaborates with microfinance organizations around the world to deepen services provided to the poorest and more remote communities.

As a college student, Counts focused on the biggest questions:  How can the world’s most pressing wrongs best be righted? What kind of social action will have the greatest impact? The people he considered role models were protesting against nuclear weapons and the conflicts in Central America. Counts saw things with a different slant:  Increasingly, he felt that the many dimensions of injustice were rooted in economics. “Poverty — not being able to make ends meet at the household level — seemed to be linked to so many other problems,” he says.

Going Beyond Bangladesh

When Counts first heard of microfinance, it struck him as a potentially powerful tool for alleviating poverty; hence his letter to Yunus.

Counts worked under Yunus for six years with Grameen Bank in Bangladesh. What he saw there made him eager to spread the Grameen model and message. “Ultimately, my vision was to take this outside Bangladesh,” says Counts,  who is currently president and CEO of Grameen Foundation, and a member of the Advisory Council of the Center for Financial Inclusion (CFI) at Accion.

Recently, reporter Lucy Conger, on assignment for CFI, spoke to Counts by telephone. An edited transcript follows.

Alex Counts:  There’s a real opportunity to re-engineer microfinance so it will work better for people living on less than $1 a day, and to develop units or whole organizations that specialize in that group. The challenge is to adapt products that have been successful with the moderately poor for use by the very poor. “B-O-P (Bottom of the Pyramid).“

The lesson for me, and confirmed by observations and my take on the research, is that groups living below the poverty line need some version of “microfinance plus.”

Conger:  Microfinance plus? Can you elaborate?

Counts:  The TiKredi program of [Haitian microfinance bank] Fonkoze is an example. It re-engineered every part of its product mix, changing the standard six-month loan to one-, two- and three-month loans to build confidence and be digestible for clients. The bank created a ladder of financial products, and provides a simplified financial literacy program. For the ultra-poor, the products carry a heavy subsidy; for the extremely poor, less subsidy; for the moderately poor and above; no subsidy. I support this kind of “graduation” program where you use a grant element and subsidy with clients, and mainstream them into microfinance. You give more loans in the same time, and though costs are greater, you can see the products for the poorest as a “loss leader.” That’s the way to go for organizations that want both to make a profit and have a social result.

Conger:  How can lenders finance these subsidies for the poorest?

Counts:  Several ways. Fonkoze uses grant funding from donors. There can be a cross-subsidy model if the organization is earning a profit. The organization can view the subsidies as an acceptable cost of client acquisition.

Conger:  What are the essential elements that make for a good MFI?

Counts:  Microfinance consumer protection work is important — “do no harm” is important — but you can’t stop there. Not all poor are created equal.  We must evaluate on results, not on intentions. In microfinance now, all organizations say that from the perspective of poverty reduction they’re top-class and, frankly, no one is in a position to dispute it. On financial performance, there are standards. We want to have standards or levels in microfinance for poverty reduction.

Conger:  How would those standards be set?

Counts:  Thinking is coalescing around the idea of a “seal of excellence” for MFIs. Assessment would be based on how well you create a positive transformational experience for clients. The seal would signify ascending levels of excellence in microfinance poverty reduction — gold, silver, and bronze, for example.

Conger:  What role should philanthropy play in further developing microfinance?

Counts:  Philanthropy should focus on what the market can’t or won’t do. For example, grant money can be deployed to develop public goods such as research, compilation of best practices, designing a business case for microinsurance, or for MFIs and banks to take deposits with low balances, or developing the concept and implementation plan for a credit bureau. Also, philanthropy can focus on pushing the frontiers of microfinance to reach out to people and countries that are still excluded.

Conger:  Grameen Foundation promotes partnerships with the private sector. How can such partnerships best advance the work of microfinance?

Counts:  We have many vibrant private-sector partnerships.  The best of these are true partnerships based on the principle of rough equality between the parties.  We have a “Bankers without Borders” program that links professional volunteers to projects and organizations to support microfinance and technology development. The program focuses on eight areas with the most to bring to microfinance: finance/banking, accounting, management consulting, the legal field, technology/IT, marketing, research, and human resources. There is no need for MFIs to reinvent best practices from these sectors. Bankers without Borders can be volunteers or companies providing pro bono services who act as advisors, helping MFIs adopt or adapt best practices from banking, technology, law, and management.

Conger:   You advocate use of microfinance as a platform for promoting other development efforts. Would you explain?

Counts:  The most valuable things MFIs have are trusting relations with tens of millions of poor families and real market knowledge of their realities. MFIs have staff and branches within 10 miles of their clients; that infrastructure for service delivery is paid for. You can put adult education or microbusiness education through that infrastructure; you can offer clients healthcare, renewable energy, education scholarships, and financial literacy instruction. This is “microfinance plus” — going beyond pure financial transactions to produce good business and social outcomes at a fraction of the cost of service-delivery infrastructure built from scratch.

Conger:  What other important concepts or new directions should be developed further in the microfinance industry?

Counts:  Here are three ideas we are working on.  First, micro-franchises, especially those that are technology-enabled, have great potential. Micro-franchises are like conventional franchises, but the cost to franchisees is low and the services or products they distribute and sell are accessible to the poor. For example, Grameen Foundation, in partnership with technology and telecoms firms, plus local microfinance and non-governmental organizations, has helped to take mobile phones to many small communities in Africa and Asia.  This created more than 25,000 Village Phone micro-franchises and vital income for operators working in poor communities, and built a platform for our current work, which focuses on providing information services via those phones. Second, we believe there are huge efficiencies to be gained through bringing in modern human capital management approaches, while also increasing MFI long-term sustainability and investor confidence.  Finally, bringing clean energy solutions to the poor and middle class through microfinance channels can help address health, energy, environment, and climate change issues.

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