This post is part of a series produced by The Huffington Post and The World Economic Forum to mark the Forum’s Annual Meeting 2015 (in Davos-Klosters, Switzerland, Jan. 21-24). Members of the Schwab Foundation for Social Entrepreneurship represent a select community of social entrepreneurs who are engaged in shaping global, regional and industry agendas in ways that improve the state of the world. Read all the posts in the series here.
By Rosario Perez, Former President & Chief Executive Officer
In the last 20 years, more than 70 million women in Latin America have joined the work force, reducing extreme poverty in the region by 30% in the past decade alone. Low-income women, particularly those with very small businesses in the informal sector, have been participating in the labor force at much higher rates in the last 10 years than higher-income women. Despite these advances, many challenges persist, and the region continues to have one of the highest rates of inequality in the world.
These realities underscore the important role that women, especially low-income women, must play in the economic growth of their communities. Any actions to ensure their financial and social inclusion need to be multidimensional and market-driven if they are to be sustainable, and must include the support of a cross-section of committed partners. Most importantly, we believe that women hold the key to their own development, and they must have a strong voice in that process.
Many of the women we serve are indigenous, have not completed primary education and have experienced domestic violence. They live in poor communities in urban and semi-rural areas and are heads (or de facto heads) of their households. They work tirelessly to raise their children and provide for their families, primarily as vendors in the informal sector, without social benefits or safety nets. They are at very high risk of chronic disease but do not seek preventive healthcare services because every minute away from work takes out of pocket the money they need to survive.
In 2014, in an effort to better understand these needs in light of rapidly changing social, political, economic and technological contexts, we conducted independent research and interviewed 1,000 clients and non-clients in Peru and Mexico. The results provided five key insights and challenged many long-standing assumptions about the circumstances, behaviors and values of our clients. Organizations like ours often avoid this kind of research because of limited budgets or capacity, but we have found it to be invaluable in reshaping our approach.
- Clients are not all the same
This might seem obvious, but in day-to-day discourse, it can be easy to forget that clients seek out microfinance and development for different reasons and at different stages of their lives. Research made it possible to identify three distinct client types: occasional users of credit, seasoned customers and regular Pro Mujer clients. Occasional customers use credit to solve small crises and work to become debt-free as quickly as possible. Seasoned clients are savvy in comparing their options and use loans strategically to circumvent small household and business emergencies and to repay other loans. The final and largest group consists of women who are frequent and long-term Pro Mujer clients. They often stay with us not because of the loans themselves, but because of the sense of solidarity they feel with their communal bank peers and the emotional support they receive from Pro Mujer staff. Poverty is complex — a one-size-fits-all approach does not work. As a nonprofit, mission-driven organization, we believe we must continue to develop more diverse products and services to address client needs.
- They have options…
The assumption that low-income women are passive recipients of development interventions is outdated. Though access to credit was once not available for these three kinds of borrowers, for-profit microfinance institutions are now filling the traditional banking void. Even some traditional banks have begun adapting their business models to reach these populations and potential revenue streams. In fact, in the two countries where the study was conducted, credit is abundantly available, particularly in urban areas. According to a 2012 MixMarket report, 53 microfinance institutions were operating in Peru, serving more than 3.6 million people with a gross loan portfolio upwards of $10.7 billion. In Mexico, 3.8 million clients work with 40 institutions that have a gross loan portfolio of more than $3 billion. The ubiquity of these institutions translates into more access and more options for clients.
In addition, it is often assumed that low-income women have no access to technology because of a lack of formal education. We have seen, however, that their children, who often work very closely with them in their businesses, are bridging this technological divide. They learn how to navigate the Internet at school and are helping their mothers become more connected with the outside world. This means that microfinance institutions need to do a better job at differentiating and marketing themselves across a wide variety of channels in increasingly crowded markets.
- …but clients are becoming more dependent on financial institutions
Though more skilled in terms of choosing their options, clients are also becoming more dependent on these financial institutions. Over-indebtedness as a result of taking out multiple loans from multiple lenders is a major risk. Predatory lending has exacerbated and low-income women can easily find themselves vulnerable to risky loans. This means that Pro Mujer must increasingly provide training and support to help women navigate not only our loans, but also others that would place them at increased risk of falling behind and deeper into poverty and indebtedness. This also threatens the health of lending institutions and the microfinance industry overall, at a national level, and can have a negative impact on economic growth in the countries of activity. Responsible lending practices and adhering to client protection principles are paramount to mitigating these risks.
- Marginalization and scarcity influences decision-making
Price, disbursement speed and customer service are the key drivers in our clients’ decision-making processes. This is because they often find themselves experiencing four conditions, three of which place them at tremendous risk and vulnerability: 1) poverty, which means that they rarely have the money they need to feel secure, and therefore, price matters first and foremost; 2) a state of recurring emergency, in which they are consistently vulnerable to the next emergency that can be caused by a day out of work, a sick child, a leaky roof, all demanding speedy disbursement; 3) marginalization, isolation, neglect and at worst, abuse, which means that they want to be treated with respect. The fourth condition is a positive one: the low-income women surveyed are driven, proud and industrious. They do not take well to hand-outs and accept that they have a role to play in turning around the situation of their family.
This feedback challenges the long-standing assumption that providing low-income women with access to services is enough to keep them as customers. Instead, research shows that they want high-quality service that helps them address their financial needs in a quick, easy and price-competitive manner, and that they are committed to paying for the privilege of good services. Clients value — and pay for — added-value services such as affordable healthcare and business training. However, these services are availed of only if marketed and explained to clients in a way that addresses the conditions of their lives (as opposed to something that is “good” for them). Finally, services must be delivered in an easy and convenient way, without disruption to their lives and itinerant responsibilities, such as arriving at work on time, making a living, repaying loans and caring for their families.
- Women want more than a mere transaction
This was clear from women from all walks of life in both countries of research. They seek a relationship based on mutual trust and respect that recognizes their capabilities and supports them on their journey towards greater agency and empowerment. The centers are safe and supportive environments where women can interact with others in similar circumstances, addressing another dimension of the scarcity of their experience by granting them respite from the daily stresses of life.
Study results indicate fundamental shifts in many long-standing assumptions. Our research will extend to clients in other markets to help expand approaches and offerings so that clients can own not only their own businesses but also their destinies.