In her early days as a young professional at the World Bank, Nancy Barry traveled to Bangladesh, Sri Lanka and India. She observed micro-venders everywhere — selling farm produce in villages or whatever they could in the streets of cities. “I became obsessed with finding ways to build out to the bottom 50 percent of the economy,” she recalls.
Armed with an MBA from Harvard University, she pioneered lending to small enterprise at the World Bank in the late 1970s, before microfinance was known among development professionals. Barry went on to write the World Bank’s policy on small enterprise lending, design projects in Africa, Asia and Latin America and lead expansion of the Bank’s small business portfolio from zero to $3.3 billion in 10 years.
While at the World Bank she joined the board of Women’s World Banking (WWB), a network of women-led microfinance institutions. In 1990, Barry left the World Bank to dedicate herself fully to WWB as its president and CEO. Over the next 16 years, the WWB network of microfinance institutions grew from 20,000 to 23 million clients in 40 developing countries, and the network’s total portfolio rose to more than $8 billion, with average loans of $400.
Barry’s vision brought the WWB network’s locally based MFIs to the forefront. WWB network members shared best practices, launched efforts to set industry-wide standards and pressed authorities to create more microfinance-friendly regulations. “Nancy’s approach was fundamentally anti-colonial. It was about local empowerment” of network members, recalls a former WWB colleague, Nicola Armacost.
Today, Barry leads Enterprise Solutions to Poverty (ESP), the organization she founded in 2006. ESP mobilizes the talent and resources of domestic and multinational companies in China, Colombia, India, Kenya and Mexico, as well as 200 MBA students from eight top universities to create new business models that make low-income people suppliers, distributors and consumers of products. At ESP, Barry is building from microfinance to markets, with her sights still squarely fixed on those in the lower half of economies. “I think I’ve spent the last 34 years on inclusive finance,” she says.
Recently reporter Lucy Conger, on assignment with the Center for Financial Inclusion at Accion, spoke to Barry. An edited transcript follows.
Conger: How did you first get interested in microfinance?
Barry: It was in Peru, after graduating from Stanford, when I worked with a Peruvian team on building water, sewerage, electricity and small businesses in the slums of Chimbote. I saw that poor people were not pobrecitos (helpless). Rather, most poor families had more initiative and more capacity to do more with less than most of us.
I was able to take the Peru experience and my experience working with my dad in small businesses in California to get the World Bank to see the potential in supporting small business. I saw how difficult it would be to get commercial banks to want to serve low-income entrepreneurs. And, as a member of the Women’s World Banking Board in the 1980s, I saw that specialized microfinance institutions — such as those emerging as Women’s World Banking affiliates in Latin America, Asia and Africa — would need to show the banks how to bank with the poor.
Conger: What do you consider the most important accomplishments of the Women’s World Banking network in developing the microfinance industry?
Barry: The first landmark was pulling together the leaders in the microfinance industry in 1995 to form the UN Expert Group on Women and Finance and the International Coalition on Women and Credit at the UN Conference on Women in Beijing. Thirty global leaders from SEWA Bank, Grameen, Accion, Finca, WWB and donor leaders from USAID and other organizations, came together to develop the architecture to build financial systems that work for the majority. We built the performance indicators and standards for the microfinance industry, and then got the donors to adopt them.
Conger: What was the unique WWB network contribution to this group effort?
Barry: WWB was a leader in promoting the systems approach — how to build the policies, regulations and legal structures that facilitate financing low-income clients and how to engage mainstream financial institutions as well as MFIs. At the core were the beliefs that financial systems needed to work for poor women and be efficient, responsive and profitable, and that financial services needed to be reshaped if they were to serve the poor majority. For example, we argued that savings was as important as credit, both as a service and a funding source. We believed we needed a range of methodologies, products and institutions to serve the hundreds of millions of low-income entrepreneurs and households who needed and warranted access to financial services.
WWB went on to work with network leaders and other practitioners to shape the microfinance industry in countries as diverse as Colombia, India, Kenya, the Philippines and Russia. We were able to have this influence because the WWB network included leading MFIs in all these countries. This I view as our most important contribution to the microfinance industry.
Conger: What other contributions did WWB make to the evolution of microfinance?
Barry: Another key development was the engagement of mainstream banks in microfinance. In the 1980s and most of the 1990s, commercial banks did not want “poor, dirty, unbankable” people in their branches. In those years, WWB engaged the banks through partial loan guarantees to provide wholesale loans to MFIs. By the late 1990s, some banks — Bank Rakyat Indonesia, Santander, Citi and Deutsche Bank — were seeing microfinance as retail or wholesale markets. Microfinance institutions had built solid microloan methodologies and shown that microfinance did better than corporate finance in good times and in bad.
But few MFIs, even those “transformed” into regulated, for-profit entities, were moving quickly into savings, insurance and the range of products and services that low-income entrepreneurs need. WWB created the Global Network for Banking Innovation in Microfinance (GNBI) which included a range of regulated institutions — ICICI and SEWA Bank in India, Citibank globally, and FINCOMUN in Mexico. WWB leveraged these mainstream leaders in microfinance to engage other bankers in Latin America and India to pursue retail and wholesale microfinance. Those leaders became salesmen as WWB worked with the Federation of Latin American Banks (FELABAN), holding workshops with bank leaders in Brazil, Mexico and Peru, to show why financial services to the poor majority is good business, and how to do it.
Conger: Has WWB worked in other ways with international policy-makers?
Barry: In 1996, WWB convened a meeting of 90 ministers of finance and central bank governors and heads of donor organizations, co-hosted by Manmohan Singh of India, then finance minister. In a small discussion group including Singh and Jan Pronk, then foreign affairs minister of the Netherlands, we argued about interest rates. I rolled out the technical arguments about why interest rates needed to be high enough to cover the high administrative costs of small loans and generate a reasonable profit to build capital and help fuel growth. Pronk said, “We subsidize the rich in Europe. Why shouldn’t we subsidize the poor in developing countries?” Finally, I needed to say to our main funder, “Mr. Pronk, you and other governments are too unreliable as a long-term source of funding.” He agreed. These 90 finance officials and donor leaders joined WWB in signing a report, “The Missing Links: Building Financial Systems that Work for the Majority.” More importantly, Singh implemented liberalized interest rates for MFIs in India. We had moved beyond the world of hobby NGOs, with policy-makers seeing microentrepreneurs and microfinance as a vitally important part of the financial systems of their countries.
Conger: What is the glue that holds together the WWB network?
Barry: The WWB network is rooted in a set of shared beliefs: in the value of focusing on low-income women entrepreneurs, in building responsive, sustainable, locally controlled microfinance organizations, in the power of lateral learning among practitioners, and in the importance of being change agents, individually and collectively. WWB built and reinforced the shared mission, vision, principles and ways of working together through annual regional and global meetings of network members, and through consensus-building processes. When we built minimum standards to remain in the WWB networks, these carried the moral weight of all the network members. When an affiliate leader went home to Kenya, India or the Dominican Republic, she felt empowered to mobilize others to make changes.
WWB found that our bottom-up performance standards were an important push for affiliates to grow their services and expand their contributions to the microfinance industry and movement. In this age of hyper-commercialization of many MFIs, most WWB affiliates remain deeply committed to building excellent financial institutions that work for poor women, sharing what they know with potential competitors, and working together to shape the industry. That builds the industry and lifts the whole boat. None of those things can be done as a head office with some affiliates. It has to be co-owned.
Conger: How did WWB promote investment in microfinance?
Barry: WWB saw as key the development of domestic capital markets — savings, bond issues, equity, local currency loans — to avoid exposing relatively small, young MFIs to foreign exchange risk. As external investors became interested in funding top microfinance institutions, we knew that we needed to influence them. Beginning in 1999, WWB had annual Capital Markets Workshops. We invited the leaders of the new investment funds and the raters, MicroRate and Moody’s, and the 30 or 35 WWB affiliates and associates who represented about one third of the world’s investible institutions. We did not schmooze the investors. They presented their offerings, and WWB told them that if they did not find ways to lend in local currency at more attractive terms, this group of leading MFIs was not going to borrow. We asked these investors to develop local capital markets through bond issues, equity or securitization. The first to respond were Deutsche Bank, Oikocredit, and Triodos, with Blue Orchard following. These workshops are held every year. In 2010, the investment funds still active after the global financial crisis complained that MFIs were not taking their money. In fact, in most major emerging markets, deposits, local loans, bond issues and internal returns had become the dominant funding sources for most leading MFIs.
Conger: What is the focus of the organization you founded, Enterprise Solutions to Poverty?
Barry: ESP now works with about 130 leaders of emerging market corporations and multi-national corporations in China, Colombia, India, Kenya and Mexico. They are leading the way in engaging large numbers of poor people as suppliers, distributors and consumers of products and services that build assets. ESP catalyzes and supports companies like China Mobile to enter into financial services using its one million village agents. It helps Jain Irrigation, now the world’s largest irrigation company, learn how to serve small farmers. And it works with banks in Brazil, Colombia, Mexico and Peru that use banking agents to broaden the products those agents can provide — beyond payments. ESP is also working with industry leaders of India and Colombia in major fruit and vegetable initiatives, and with Novartis Arogya Parivar in its massive, profitable rural health system. Many emerging, for-profit entrepreneurs are engaged, showing the way on building innovative business models in agri-business, health, training and alternative energy.
ESP engages over 100 MBAs a year from Harvard Business School, Wharton and leading business schools of our focus countries, working with corporations and banks on these initiatives. This opens the eyes of these future leaders to the opportunities to make a difference through inclusive business and finance.
Conger: How could the microfinance industry learn from these business experiences?
Barry: Microfinance has shown the way on inclusive business. We need to look at some of these leading companies in emerging markets who get it. The mantra of Jain Irrigation is that if we make poor farmers rich, we will do OK. Everything about Jain is about adding value to small farmers. Leading global CEOs convened by Harvard Business School in 2008 concluded that private companies have a role in addressing prickly problems such as global poverty and climate change. Their role, the CEOs said, is in building inclusive business — not CSR or philanthropy.
It is important that the microfinance industry learns from the sea change that is beginning to happen in inclusive business. Credit is important — particularly if it is combined with access to markets and better production methods. But a focus on mono-credit offerings alone does not get poor people out of poverty. Microfinance needs to learn from companies and banks that are succeeding at inclusive business. It can learn how to build customer-focused databases, how to engage the clients in product and channel design, and how to cross-sell a coherent set of financial products.
Virtually all corporate leaders see the growth in the next 20 years coming from emerging markets. Many understand that to operate successfully in countries such as Brazil, China, Colombia, India or Kenya, companies need to find new business models and ways of working that engage the poor majority.
Conger: What is your perspective on the debates over measuring microfinance impact?
Barry: We can criticize the methods of the randomistas (randomized statistical evaluations), but they filled a hole that we left in not tracking the contributions of MFIs to outcomes for poor people. We need to make sure that we care about the futures of poor clients, and then measure what we care about. Consumer protection measures, which may unfortunately be necessary now, will not be sufficient. It is ironic that many of the social performance indicators of MFIs are about not harming clients. The microfinance industry should be measuring its impact on income, health, education of children, housing, and dreams of poor people. Microfinance should not do big impact studies. It takes 10 years to understand the dynamics, and one cannot create “with” and “without” scenarios for the myriad of product offerings to existing clients. But we could add 10 questions to our Management Information Systems and track outcomes.
MFIs should seek to get the mental model of the women clients. We can do systematic customer satisfaction surveys, and focus groups for product design. All of this needs to be done with a focus on improving operations for the clients and the institutions — not for providing scientific proof to academics or donors. If at WWB we had built a shared database on what became of 20 million clients, asking the same 10 simple questions of clients during 20 years, we would have learned so much about how to better serve these clients. Like others, we relied too much on anecdotes. Over 90 percent of WWB’s clients surveyed in Colombia in 1999 said, “My life will be better in five years and my children’s lives will be better in five years.” This was a time when all feared civil war, the middle class was departing, and the country was in a collective depression. We used the survey data to show that low-income women were the base and backbone of Colombia.
Conger: What are the leading challenges for microfinance today as an industry?
Barry: Microfinance is at a critical juncture. Many of us grew up with microfinance being seen as the panacea — and many of us allowed microfinance to become the darling of development. One segment of the microfinance industry went hyper-commercial, charging exorbitant interest rates, overlending and engaging in abusive collection practices. The name of the game became growth and profitability, fueled by external commercial investment capital. Then came the financial crisis, some funds dried up, and some began to question whether some MFIs were looking too much like Wall Street. And the randomistas came to town, showing that microcredit was not getting the results advertised.
This is a time for taking stock. Can the microfinance industry refocus on how to build value for low-income clients? Can it ask what combination of loans, savings, insurance, micro-pension, mutual fund, financial literacy products different segments of low-income clients need to make them less vulnerable, to fuel their household economies, and to help them build income and assets? This is the core business of microfinance, and should be at the center of inclusive finance.
We need to build real, genuine social capital in the microfinance industry. We in microfinance know people “at the base of the pyramid”. We need to get centered again on the core goal of microfinance: to help poor people build income and assets. We need to think about structures and alliances that help low-income entrepreneurs and producers gain access to finance, technology and markets so that microentrepreneurs and their daughters can build a future beyond selling oranges in the local bazaar. This is good business. This is the business of the future.
