For the last four years I have been part of a major project at Women’s World Banking to extend a credit product to rural areas across three countries in Latin America. My role was primarily behind the scenes, forming the early budgets and leading the team through financial meetings with donors. The project planning dominated my early days at Women’s World Banking so I couldn’t be more excited for the privilege to join one of the final trips to Colombia for a workshop with all three partner institutions. The workshop offered the opportunity to meet partners I only knew through conference calls and to meet some of the clients our work benefited, putting a face, a name and a family story to the countless pages of financial data and metrics that we developed and tracked for the project.
The workshop, hosted by our Colombian partner Fundación delamujer, was a great opportunity to understand the journey of project implementation across all three regions. We heard about contrasting marketing strategies, financial measurements and roll out complications. What was strikingly similar across all institutions were the attributes of a successful loan officer. Loan officers in these regions take on a role very different from what anyone would be used to in the U.S. The most successful loan officers tend to come from rural backgrounds, they understand the business of their clients, they quite literally make house calls to the farmer’s home and are capable of creating business plans on the fly with a client to access risk. The more a loan officer was embedded in a community and knew the margins in agro-business, the stronger the portfolio overall.
Nevertheless, microfinance is a double-bottom line business and this was reflected in another attribute of successful loan officers, that of moral responsibility. Model loan officers not only develop a thoughtful business plan with the client to secure the loan but also develop a sustainable plan so the client can meet the loan expectations in a manageable way. Last but not least, all of this had to be delicately balanced with performance quotas and PAR expectations. It’s a demanding job and it made for a complicated story, but that was kind of the point. Servicing this sector is complicated, it takes time and there is risk, but there is both a business and social good being developed.
My client meetings were fascinating: as a finance guy, I wanted to learn everything I could about these rural micro-businesses. Each client we met was a very gracious host, sharing with us the intricate details of her business, describing her supply chain and potential risks. It have been no surprise, but I was caught little off guard with how risky being a rural businesswoman really is. The margins are so tight and the risk is so concentrated with exposure to weather or livestock illness that when I did my own math on loan values I was shocked when our applicant requested a loan amount nearly double what I would have considered “safe.” I dwelled on this a lot during and after the trip eventually coming to two fundamental takeaways:
- The first is a different understanding of financial security. One client we met raised chickens. She had very little savings (about $50) and her chickens and her home were her assets. Her margin per chicken is only a few dollars, so she had to reach some level of scale for her business to be sustainable, and that scale comes with a level of risk that far exceeded her liquid savings. This is a high-risk scenario, but for this businesswoman, it is just the reality. She needed to raise enough chickens to meet her expected revenue target for the month and did not have the luxury to play it safe and build up a “rainy day fund.” This structural business reality led me to my second takeaway:
- There is still more work to be done to service the rural poor holistically. Something common in many developed agriculture markets is agro-insurance. While the need is obvious in this market, it is much more complicated on this scale. This population, with so little liquid savings is extremely exposed to environmental risk, or even poor luck. One major rainstorm could irreversibly damage the farm or an unexpected infection with the chickens could put a farmer’s entire livelihood at risk. Reducing these risks seems key to long term financial security.
There is also still more work to be done on the credit product side. The risk to the farmer translates to risk to the lender and the pricing just follows to keep the portfolio exposure in check. Still, in order to serve this market well, financial institutions must continue to re-examine risk profiles to further lower interest rates and by extension, increase margins to the client. Our partner in Peru noted their focus on reducing operating costs through technology, potentially with deeper relationships with mobile phone companies to push rates lower.
I left Colombia with a deeper understanding for the clients we serve but also a renewed energy to do more. This was the final trip for this project, and there were some certain successes in all three countries, but still so much more that can be done to continue to improve the lives of rural clients and their families.