Sustainability is the key in microfinance : Princess Máxima

By Vikash Kumar,

Microfinance Focus, May 18, 2010 : Microfinance Focus took an Exclusive Interview with Her Royal Highness Princess Máxima of the Netherlands at the Africa-Middle East Regional Microcredit Summit 2010, which was held in Nairobi, Kenya on April 7-10. She spoke widely with us on her experiences and views on the Microcredit Summit, her previous work in microcredit, and the way forward for microfinance with regards to client protection, women’s role, and future challenges.

Photo from the field visit of Princess Máxima to a biogas project in the north of Rwanda the beginning of April 2010, which is partially financed by a Microcredit. Photo Credit: Bill McCarthy.

Prior to her involvement in microcredit in 2005, Princess Máxima worked in the financial sector with major institutions such as HSBC, Dresdner Kleinwort Benson and Deutsche Bank. Her rich experience in banking led her to be appointed as a member of the Advisors Group to the 2005 International Year of Microcredit. During that year, she visited Uganda, Kenya, Brazil and Argentina to see microcredit in action, and also met with government, business, and NGO representatives.

In 2006, she joined the UN Advisors Group on Inclusive Financial Sectors, which addresses the issue of wider access to all financial services for poor and low-income households and micro and small entrepreneurs. She was a member of the Group’s Executive Committee and chaired its Working Group on Advocacy. Through her, dialogues were held with businesses, donors, legislators, supervisors, development partners, microfinance institutions and international organizations that discussed the role they could play in giving individuals and small businesses more access to the financial sector.

In 2009, she was appointed by UN Secretary-General Ban Ki-Moon to be his Special Advocate for Inclusive Finance for Development. Together with IMF Managing Director Dominique Strauss-Kahn, she launched in October 2009 the “Access to Finance Project,” that was aimed at developing high-quality, cross-country data for policymakers and researchers.

Here are the excerpts from the exclusive interview with Microfinance Focus:

Microfinance Focus: From being on the peripherals of financial markets, microfinance has now reached the centre-stage. How do you see the growth of this industry?

Princess Máxima: This has been mixed in different countries. But it is very exciting to see countries like Rwanda, where access to financial services is still quite limited. 14% of the people have access to banks, but 7% have access to MFIs and this is the sector that has been growing the most. So I think microfinance sector has really given people a huge opportunity for more access to financial services.

Microfinance Focus: Closed sector coordination is often proposed as an ideal condition for the growth of the microfinance industry. So what do you see happening in the real world, and what is the importance?

Princess Máxima: This is so essential. I think that we shouldn’t be looking just at the microfinance sector alone. It’s about the multiplicity of delivery channels. That means we have to really partner to get to the last client at the most effective cost we can, so that he can actually afford it. That means partnering with shops, mobile companies, banks as well. It is also not only about microentrepreneurs; it is also about small and medium size enterprises (SMEs). Sometimes we only focus on microentrepreneurs, but then what happens to the SMEs? It is the missing middle. The microentrepreneurs are buying and selling products to the SMEs. It is very important that we can also finance the value chain, because only by doing that can we get to the next level.

Microfinance Focus: With this growing expertise, microfinance has become very aggressive, and experimental There are newer ways of raising funds, such as IPOs, debts, etc., and their growth is very rapid. Do you think that it is a concern that commercialization is creeping up on the sector?

Princess Máxima: I think sustainability is key. Without sustainability we won’t be able to help the millions that need help. That means covering your cost and having some profits to invest and get to even more clients in future. And in that line, I think tapping into international capitals is also a key element.

But this is not the only thing. I think there is too much focus going on to tapping international markets, while we are not tapping into the national capital of the country in terms of savings. Savings is not only a way for these MFIs to finance themselves, but is also a product that people need – and sometimes more than just credit. Some preliminary findings have shown, Kenyan women for example, that after having had access to a savings account, after 6 months, they were able to increase their expenditure of general goods by 37%, and expenditure on food by 14%. I actually received some evidence that in the case of health problems, they haven’t had to kill the cows for their livelihood so they can actually meet these expenditures. That shows the strong social and economic impact of saving. So what I think we are still missing in this whole discussion is the role of savings and the importance of savings.

Microfinance Focus: World over, women are the main beneficiaries of microfinance. What kind of challenges do you think we’ll face in cultural variations and how do you see the women in microfinance?

Princess Máxima: I think it’s very important. I always say, if you develop the woman, you develop the whole family; if you invest in a woman, you invest in a whole family. Definitely we see the impact of providing social services to women is really very important. Initially this was really focused on women, but we need a little more than financial services as well. We also need land, land registration issues, we need improvements on inheritance laws, girls need to go to school, etc. Financial services are definitely helping these and should keep on helping that.

Microfinance Focus: Last year you launched the IMF “Access to Finance Project”. Are you going to be involved in any more such projects, or are there any new projects in this line?

Princess Máxima: That was a data project which I think is very needed to get more data about what is the untouched demand, and what is the supply, and I think to get those to meet at one point in the future, we need to get the data now so that we can plan for the future. These projects are going to take some time until they deliver the data. In the meantime, something that is very exciting is the G20 group, there is a working group on SME finance, and one of the big issues is the lack of data on the SME finance side. I think that is probably going to be the next, on the data side, promising step.

Microfinance Focus: So what made you decide to be a part of the UN finance programme?

Princess Máxima: I do believe that access to financial services is a means to an end, not an end in itself. By providing that, you enable the people to buy the things that they actually need, which is education, health, water and sanitation, income, empowerment, and above all dignity, because I really believe people can help themselves. By giving them a few tools, they can help themselves without actually having to receive help from others.

When I was in Rwanda yesterday, I was speaking to this farmer who had microfinance credits. He told me how his cattle has been growing – he went from one cow to four cows – and all their children are going to school – one is even going to university – it was just amazing. So I asked him, ‘If there is one thing you would like to have, what would that be?’ And I think he thought that I was offering some help, and he looked at me and said, ‘I have everything that I need, I just want people to keep on believing in me.’ So that summarizes for me the fact that it is so important to believe in people, to trust them with the right tools that they can do the right things to improve their lives.

Microfinance Focus: In the years to come, what are your expectations of the microfinance sector and what are some of the challenges that you think will emerge?

Princess Máxima: I think the challenge is to keep the growth pace in a sustainable way. We’ve had very ambitious growth figures, but at the same time some negative things have been allowed to happen to get this growth. What do I mean by that? I mean over-indebtedness. Giving clients the products they need, giving credits that the client can repay, I think that’s a very important issue. Go back and see what are the reasons we’re giving products to these people, and we assess that credit is not the only best way to service these people. Sometimes a savings product is much better. So I think those are the types of reshuffling that needs to be done in the sector, insurance for example, and payments systems.

Another thing that will need to happen is that MFIs will have to work with a diversity of other service providers – and not always financial service providers – to ensure that we’ll get to the last client at an affordable price. Getting to the rural areas where 70% of the poor population lives – that’s the biggest challenge and is a much more costly enterprise. For that we need to partner with as many delivery channels as possible. I think that and client protection are the biggest challenges in future.

Microfinance Focus: Beyond this, do you have any expectations for Africa from this Summit?

Princess Máxima: I think it’s very important that they’re holding it in Africa because we need to boost the financial inclusion in Africa very strongly. It’s really our duty to do it. Asia has demonstrated very good growth figures, but Africa is a different continent with a different density in population with different patterns of urban settlement, and we need to find new and different ways to get through to them.

Microfinance Focus: What should be the strategic approach for Africa?

Princess Máxima: I’ve been talking about it. It’s partnering with the different delivery channels because it’s a very different thing in Asia so we really need to partner with as many as possible. We see the example of M-PESA, here in Kenya – an amazing example to follow. We’ve been seeing correspondent banking in Brazil, which is another good example of how to partner with not just microfinance institutions but financial institutions as well.

Microfinance Focus: Any other comments regarding the Summit?

Princess Máxima: Certainly when we get to rural areas we need to think about what are the types of products that these people need and I’m very happy to see in the program of the MicroCredit Summit that a lot of attention has been given to rural products – agricultural, savings products, credit products, and other types of things that can potentially help farmers better use financial services. So I think that’s also one of the challenges that need to be addressed going into the rural sector.

*************

© 2010, Microfinance News. All rights reserved. 2008-09