DIVERSITY IN THE PROVISION OF FINANCIAL SERVICES By Dr. Jennifer Riria CEO, KWFT

1. DIVERSITY IN THE PROVISION OF FINANCIAL SERVICESBy Dr. Jennifer RiriaCEO, KWFT SEPTEMBER 2005

2. INTRODUCTION POVERTY STINKS • You see it, The mothers in the village including my own, carrying heavy loads on their backs, • Heavy with child in succession throughout their fertile lives – (will then have 10-12 children) • Working 18 hours a day and no voice to call for help

3. Yes, • Poverty Stinks! • It stank when I was there, walking on cold wet July days up and down the Mt Kenya Hills on bare feet – no shoes. • Wearing on worn out uniform even as my Sunday Best, sharing my bed with three of my sisters and a relative; and under the tiny bed, a bed for chicken; • Disrespected, • Lonely among many • Dehumanized by lack of access to basic necessities of life.

4. A donkey Ayah, malnourished because culture enhances it. • However, my grandmother, my mother and I did not sign any Contract with poverty; The poor do not have a Contract with Poverty. I am a living testimony to that fact.

5. Poverty cannot be addressed by cash only; financial services is just a means to an end. • There is need to break the cycle of poverty that has various dimensions: • Psychological • Emotional • Attitudinal to self • Lack of access Resource Information Opportunities • Economical • Political – no voice

6. When you are poor, you lack self esteem, voice, power, you are the underdog. This cannot be addressed by access to credit alone. THE BIG QUESTION How then do we address diversity in development, and in particular in provision of financial services?? CREDIT PLUS should be part of the new vocabulary in provision of financial services. It means that we have to be more than ever now focused on what poor people want.

7. What Poor Clients Want in Microfinance Microfinance clients want more, faster and better Value speed and convenience Want access to larger loans Want respect and recognition Care about interest rates Low income women and men define microfinance broadly Want business and housing loans Want short, medium and long term savings products Want health and life insurance Willing to pay what it costs for responsive, sustainable services Poor people prefer individual loans over group loans As their experience grows, clients of group loans want larger loans and resent the time taken in group meetings and the need to guarantee repayment by other members of the group

8. Building Financial Systems that Work for the Poor Majority 1. 2. 3. Encourage a range of institutions and methodologies: Adopt standards on performance in: Provide appropriate support modalities. Institutions that meet high standards need: • Commercial banks • Regulated MFIs • Microfinance NGOs • Finance companies • Coops, credit unions • Grassroots organizations • Outreach to poor clients • Portfolio quality • Efficiency • Financial sustainability • Financial integration • Impact • Policies, regulations and legal structures that fit what works in microfinance • Access to finance and capacity building that fit the institution’s size and stage • Ability to mobilize voluntary savings

9. Policy, Regulatory and Legal Frameworks are Needed for Microfinance Operations Key Features of Microfinance Responsive Framework Transaction costs are high Institutions need to be able to charge relatively high interest rates Clients lack conventional collateral Microloans as loan class, with portfolio Quality and lending methods--not loan Collateral—used to evaluate risk. Simple MIS, accounting Simple while rigorous reporting requirements – with microfinance standards and benchmarks Savings important to client and MFI Ability for high performing MFIs to mobilize deposits from borrowers and from the public Many small branches Ability to establish branches and agencies rapidly Loan officers not traditional bankers Flexibility in hiring, and performance-based incentives

10. Policy, Regulatory and Legal Frameworks are Needed for Microfinance Operations Key Features of Microfinance Responsive Framework Transaction costs are high Institutions need to be able to charge relatively high interest rates Clients lack conventional collateral Microloans as loan class, with portfolio Quality and lending methods--not loan Collateral—used to evaluate risk. Simple MIS, accounting Simple while rigorous reporting requirements – with microfinance standards and benchmarks Savings important to client and MFI Ability for high performing MFIs to mobilize deposits from borrowers and from the public Many small branches Ability to establish branches and agencies rapidly Loan officers not traditional bankers Flexibility in hiring, and performance-based incentives

11. PARADIGM SHIFT IN RETAIL BANKING WITH THE POOR Low interest rates Interest rates that cover costs, enable profits Low repayments Excellent Portfolio quality Low “know your customer” Understand household economies, Economic activities of the poor. Minimal loan amounts Financial products and processes that Respond to poor households , enterprises Low Sporadic, and shallow Outreach relative to demand High outreach, impact.

12. CONCLUSION

13. Outreach • Expand outreach to millions more low income entrepreneurs―by increasing MFI capacity, mobilizing mainstream banks, and building domestic capital markets Assets • Help poor people build assets―not just debt―through business loans, voluntary savings, housing finance, insurance Costs • Cut transaction costs in microfinance―new technologies and channels Culture • Build a culture among MFIs, bankers, policy makers and funders in microfinance―trust and transparency, shared performance standards, generosity in sharing innovations and lessons, mutual accountability for results • Financial policies and systems that work for the poor majority Systems Challenges for This Decade