Profit Meets Dream of Obama’s Mother in Finance at Women’s World

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(BN) Profit Meets Dream of Obama’s Mother in Finance at Women’s


Profit Meets Dream of Obama’s Mother in Finance at Women’s World
2011-10-11 04:01:01.3 GMT

By Simon Clark and Margaret Collins
Oct. 11 (Bloomberg) — The blue spiral-bound book in the
Manhattan office of Women’s World Banking Chief Executive
Officer Mary Ellen Iskenderian preserves advice from a little-
known microfinance expert: President Barack Obama’s mother.
The report is as relevant now as when Ann Dunham, an
anthropologist who campaigned for financial services for the
poor, researched a rural credit program at Bank Rakyat Indonesia
20 years ago, Iskenderian says. Dunham wrote that a lender
shouldn’t refinance loans just to boost its performance, or give
customers more money than they can handle. The CEO says she’ll
heed that counsel as she leads the nonprofit where Dunham once
worked in a new direction, by starting a private equity fund.
The Isis fund, named after an ancient Egyptian goddess,
will be “a delicate balance between only a profit motive and
fulfilling a social objective,” Iskenderian, 52, says.
Microfinance — loaning small sums to the world’s poorest
citizens — is increasingly funded by international investors as
microcredit nonprofits become regulated lenders. One of them,
India’s SKS Microfinance Ltd., backed by George Soros, last year
raised 16.3 billion rupees ($348 million) in a share sale. The
Boston-based Council of Microfinance Equity Funds has 23
members, including Citigroup Inc.’s microfinance unit in London.
Muhammad Yunus, who won the 2006 Nobel Peace Prize for his
work in founding Bangladesh’s Grameen Bank, is no fan of the
evolution. “Microcredit in its true sense should be something
which will help people get out of poverty, not a source for
making money for rich people,” he says in an interview.

Only Way

Iskenderian says the only way to reach the 2.8 billion
people around the world with no access to financial services is
to tap investor capital. The Women’s World Banking fund, she
says, will help her group ensure microlenders stay true to a
mission of serving impoverished women.
The New York-based nonprofit is a network of 39
microfinance providers in 27 countries with 26 million mostly
female customers. It’s establishing the $60 million fund to buy
stakes in institutions that provide loans to people who live on
a few dollars a day.
Investors may have to commit at least $1 million and pay
annual fees of 2.5 percent and 20 percent of profits, according
to a January presentation for the fund obtained by Bloomberg. A
combination of annual fees and a share of profits are typical
terms for private equity and hedge funds.
Some terms have changed since January, according to
Iskenderian, who says she can’t provide details because of
securities regulations governing fundraising. The fund’s chief
investment officer, Christina Juhasz, who previously worked at
Deutsche Bank AG and Merrill Lynch & Co., declined to comment.

One Billion

The microfinance market may expand to one billion people
and $300 billion in loans by 2019, the fund document says. More
than 92 million microcredit borrowers now hold loans totaling
about $52.6 billion, according to Microfinance Information
Exchange, a Washington-based nonprofit that collects data on
about 2,000 institutions.
Isis will promote “responsible commercialization” as
risks of predatory lending, irresponsible pricing and coercive
collection have increased, the investor presentation says.
The industry was shaken last year by reports of more than
70 suicides in India’s Andhra Pradesh state by borrowers who
were unable to repay their loans, and the Indian central bank in
May capped microloan interest rates at 26 percent.

President’s Mother

Microcredit rates are higher than for conventional loans
because the administrative costs for many small loans are
greater than for fewer large ones, according to the Washington-
based nonprofit Consultative Group to Assist the Poor.
“The microfinance industry is at a point where it is
trying to figure out how to find a balance between helping the
poor and being a business that makes a profit,” says Asad
Mahmood, managing director of the global social investment funds
for Deutsche Bank.
Lenders won’t succeed by over-indebting clients or charging
excessive rates, Mahmood says, because “ultimately the money
you make comes from the work of the poor people.”
Dunham came to similar conclusions working with the rural
poor. In 2009, Obama acknowledged her dedication in a speech at
the Clinton Global Initiative meeting in New York.
“She championed the cause of women’s welfare and helped
pioneer the microloans that have helped lift millions from
poverty,” he said. “My mother understood that whether you live
in the foothills of Java or the skyscrapers of Manhattan, we all
share common principles: justice and progress, tolerance and the
dignity of all human beings.”

Equity Stakes

The Isis fund will invest in Women’s World Banking network
members as they become for-profit regulated enterprises and in
other microlenders, the January document says. Investors will
pledge their money for the 10-year life of the fund, according
to the presentation.
Equity stakes in microlenders will give Women’s World
Banking a greater say in how they are governed, and help them
focus on women, says Roshaneh Zafar, founder of Kashf
Foundation, a microlender in Pakistan, and a Women’s World
Banking board member. Some microcredit institutions have steered
their business away from women as they grew and became regulated
banks, according to Women’s World Banking research.
“Having a role in the governance, the mission and the
vision as a key minority stakeholder is important,” Zafar says.
“The fund can help spread the message faster.”
Another goal is to encourage the microlenders in which Isis
invests to sell services — such as savings accounts or
insurance — that may generate revenue and help pay for the core
duty of loaning money, Iskenderian says.

JPMorgan, Gates

“If you start to layer in other products, you can still
very, very profitably maintain a focus on women,” she says.
Isis could also boost her organization’s own finances, she
says. “We see it as not only an important way of maintaining
our relationships with our network and keeping them very focused
on women and their original mission but also helping the
sustainability of our organization, which right now is entirely
reliant on donations.”
The group, whose funders include JPMorgan Chase & Co. and
the Bill & Melinda Gates Foundation, has a budget of $10.7
million. It provides technical advice and loan guarantees to
affiliates, which have $7 billion in loans outstanding and $3.5
billion in savings. The average network member’s loan is $1,200.
Women’s World Banking started in 1979 to promote financial
services for women in countries from Kenya to Colombia.

Sewing Machines

“Many women in developing countries didn’t have access to
a bank without a man’s signature,” says Michaela Walsh, the
group’s founding president and a former Merrill Lynch broker.
Targeting women is the best way to reduce poverty because they
tend to spend more on their families than men, she says.
Studies of countries as varied as Bangladesh, Brazil,
Canada, Ethiopia and the U.K. suggest that women generally
devote more of the household budget to education, health and
nutrition and less to alcohol and cigarettes, according to
Isobel Coleman, a senior fellow at the Council on Foreign
Relations and author of “Paradise Beneath Her Feet.”
In the Dominican Republic, Milagros Inoa de Perez was one
of the first borrowers at Banco Adopem, a Women’s World Banking
member. She used microloans to buy sewing machines for a
children’s clothing business.
“Each loan has helped us to expand,” says her daughter
Marcia, who works as an accountant in the business, which now
has 42 sewing machines. Profits helped pay for Marcia and her
two sisters to go to university, she says.

Javanese Blacksmiths

Obama’s mother, who died in 1995 at 52, worked at Women’s
World Banking in 1993 and 1994 to promote microfinance before a
United Nations conference on women in Beijing. “My personal
interest is achieving greater impact,” Dunham said at a 1994
meeting, according to records kept by former Women’s World
Banking colleague Niki Armacost. Dunham said she wanted to find
ways to “affect the lives of women by a much larger factor.”
Her interest in the field was spurred during research in
the 1970s and 1980s in Indonesia, says Michael Dove, a Yale
University anthropology professor who knew Dunham there.
Her doctoral thesis was on the entrepreneurship of peasant
blacksmiths in Java, and he says she found they were as
entrepreneurial as Americans, just without financing to expand.
Dove says he isn’t sure Dunham, whose mother was a banker
at the Bank of Hawaii, would endorse the Isis fund.

‘Pragmatic Woman’

“Ann would distinguish between an initiative whose primary
goal is to bring the poorest of the poor into a banking economy
and an initiative whose primary goal is to reap high profits,”
he says. It “inevitably creates a different risk-reward ratio
for the poor.”
Still, Maya Soetoro-Ng, Obama’s half-sister, calls their
mother “a fairly pragmatic woman.”
“She definitely thought of the idea of diversifying sources
of revenue,” Soetoro-Ng says in an interview, “and of securing
support from non-traditional places as a way to move forward.”

For Related News and Information:
Top stories: TOP
For microfinance news: NI MICROFIN

–With assistance from Jason Kelly in New York. Editors: Anne
Reifenberg, Lisa Kassenaar

To contact the reporters on this story:
Simon Clark in London at +44-20-7673-2059 or
[email protected]
Margaret Collins in New York at +1-212-617-8925 or
[email protected]

To contact the editors responsible for this story:
Melissa Pozsgay in Paris at +33-1-5365-5056 or
[email protected];
Rick Levinson in New York at +1-212-617-3377 or
[email protected]