Lessons from Penn Microfinance Conference

microfinance-1024x440What kinds of lessons can providers of microfinance services in the U.S. learn from microfinance practices overseas? Three experts from the microfinance industry addressed that question during a panel discussion at the eighth annual Penn Microfinance Conference, whose theme was “Microfinance: Beyond Its Roots.” In addition, keynote speaker Elizabeth Rhyne, managing director of the Center for Financial Inclusion, discussed how the microfinance industry is moving beyond its reliance on lending into multiple new directions, including innovations in the health care sector.

The three panel experts were Julie Siwicki, a research associate at the Financial Access Initiative and a research associate at U.S. Financial Diaries; Vanessa Carter, executive director of Lend for America, and Alexandra Fiorillo, principal at GRID Impact.

Siwicki began the discussion with an overview of U.S. Financial Diaries, a research project tracking more than 200 low- and moderate-income households across the U.S. and collecting highly detailed data about their financial activity. The project is a joint effort of New York University’s Financial Access Initiative, the Center for Financial Services Innovation and Bankable Frontier Associates. According to Siwicki, her organization interviews the households every two weeks to see what their expenses are and what kinds of loans and credit they are using. Her research team has begun to analyze the data and has published some preliminary findings. (Additional results will be posted as they become available on the web site www.usfinancialdiaries.org.)

 One of the project’s key findings is that there is a lot of overlap between the microfinance needs of businesses and individual households. For example, Siwicki discussed the case of the Garzas, a young California family whose lifestyle exemplifies a set of common challenges. Their income is difficult to predict. The husband has a job, but the family also depends on food stamps, she noted. “What contributes to [their income] volatility is that the wife is self-employed — she takes orders from customers and orders products [on their behalf]. [Her work] is very sporadic, and she never knows how much she will make in a month,” Siwicki said.

How do families like the Garzas deal with these challenges? “By borrowing, using credit, savings, insurance — all of these things are highly connected,” Siwicki noted. The Garzas also use informal networks. “Both the husband and wife are part of rotating savings groups — a system where people come together every two weeks, and everyone brings in ‘X’ [amount of] dollars. They contribute to the pot — and they rotate around until every member has received the pot. This is an informal way of borrowing and saving at the same time.” When it comes to microfinance, Siwicki said, “it is very important to think outside of the borrowing box.” In addition, for low-income people in such communities, “a ton of money is coming in from family and friends, and we tried to quantify all that in our research.”

Beyond this array of informal tools, the Garzas also use formal financial tools, she added. They have four credit cards, which they juggle to make ends meet. Even among many low-income people in the U.S., “credit cards are very accessible…. Credit in the U.S. is prevalent, and it is culturally accepted…. It is necessary in a lot of ways. To buy a house, own a car or to get a job, you need a good [credit] score.” Unlike the case in many developing economies, “credit is widely available in the U.S., even if it is [only] available from a payday lender or a pawn shop.”

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Originally Published April 23, 2014, by Knowledge@Wharton.