Fawzia Naqvi - VP of Soros Economic Development gave an interview regarding microfinace in Pakistan during one of her trips to Pakistan. Here are links to that interview.
http://www.sedfny.org/video/ecodev1.html
http://www.sedfny.org/video/ecodev2.html
To most, microfinance means providing very poor families with very small loans (microcredit) to help them engage in productive activities or grow their tiny businesses. And most of us associate microfinance with the Bangladeshi microfinance bank, Grameen Bank.
I spoke to Fawzia Naqvi, Vice President of the Soros Economic Development Fund, who has been engaged in the microfinance field for a decade. Her work includes Pakistan and she travels there extensively from her base in New York. Fawzia's responsibilities include structuring and implementing investment strategies in microfinance, small and medium enterprises, affordable housing and other social development initiatives globally.
Q. Fawzia, I like to start interviews with asking briefly about the background and the circumstances by which you got started in the microfinance field.
A. Well, I was born in Mangla, Pakistan but then in 1980 moved to the Philippines which was home for about 12 years. I went to Mount Holyoke College for my Undergraduate degree in international relations and then obtained my Masters from The School of International and Public Affairs at Columbia University. I became involved with Microfinance while I was working with Citibank’s Financial Institutions group, focusing on Emerging Markets. Citibank was looking to find space in the microfinance field and I was coordinating the task force that examined how and what role Citibank was going to play as a banker to these microfinance institutions. And also what philanthropic role it could continue to play in this field. So at Citibank, I was still dealing with banks, evaluating the needs of other financial institutions rather than individual clients.
Microfinance was something I found very compelling because I realized how familiar it was to me and to my 10 years of training as a banking professional. Of course, I was still viewing the segment from a banker’s eyes and since microfinance was within the financial services field, I felt that my skills were very transferrable. Now, I did have to learn the peculiarities of the low income segment: how they make their economic allocation decisions, what kind of resources do they have, what kind of capital they have, what happens to it and what could be the most value added products to them. What I realized very quickly was that there is a financial apartheid that surrounds these low income segments and that they are walled in to their poverty not just by financial apartheid, but also information and justice apartheid.
Q. Which geographical areas did you focus on during your time at Citibank?
A. I focused on emerging markets, Central Eastern Europe, Middle East, Latin America, Africa and South Asia. I covered a pretty vast terrain, trying to work with relationship managers to educate them on what this business of microfinance was about, how to look for these clients and how to segment them. Clients from our perspective were intermediary institutions, not the ultimate end-user individuals. So Citibank was a banker to the banks and potentially to microfinance institutions. Along with this responsibility, I was working on relationships with other not for profit institutions. We were doing a lot of business for the United Nations and other multilateral/bilateral institutions; managing their donor flow business. Citibank managed a lot of their cash management business particularly in the Africa region. So armed with my banking experience and knowledge of the microfinance industry, I decided to pursue microfinance as my career rather than staying on the traditional banking career path.
Q. How did your next opportunity come along?
A. It was around the time that the Citibank and Travelers merger had happened, creating Citigroup and a lot of us thought this was a “fork in the road” kind of opportunity. Would we stay in the newly merged Citibank or do something else? I happened to attend a meeting which involved the Citibank Foundation and the then president of Women’s World Banking. Soon after, I got a call from WWB letting me know that they wanted me to consider an opportunity to handle their Asia business. After much soul searching, I decided to join Women’s World Banking in April 2000.
Q. Tell us about your experience at Women’s World Banking and how you were able to leverage what you’d learnt at Citibank
A. At Citibank it was consumer/institutional banking, understanding financial products, credit and risk management, basically a private sector, financial services view point. At WWB, I was focusing on Asia, East Asia included - Philippines, Pakistan, Bangladesh, Sri Lanka. To focus solely on Asia was different from focusing on virtually the entire emerging market including Latin America. I knew a lot more about Latin America than I did about Asia! Latin American microfinance institutions were very commercially oriented, understanding that they needed to become financial institutions rather than remain NGOs. However, they were very focused on tapping the capital markets to raise financing as opposed to mobilizing deposits from their clients, but that did change over the years and many Latin American institutions now provide a full range of financial services to their clients. South Asian microfinance by and large started as NGOs and grew in to even larger NGOs over time and are limited to providing credit only.
So at WWB I managed relationships with Asian microfinance institutions who were members of the WWB network. The idea was to provide services and technical assistance that would help them grow and become more efficient institutions. Many were beginning to think about transforming in to banks and needed support and advice on this transition. This is probably where my banking experience was most useful to these institutions.
During my tenure at Citibank, I had met Marguerite Robinson, a leading expert on commercialization of microfinance and she became my mentor. Marguerite taught me a great deal about savings and the importance of savings and asset building for the poor. And why it was critical for microfinance institutions to become financial intermediaries, to mobilize deposits and what they needed to do to get there. She is a financial anthropologist and she really influenced how I think about this business and what needs to be done. You and I take for granted that we can open a savings account pretty much wherever we choose. We’ll earn interest and make our capital work for us. Low income households simply do not have that option. They keep money under the pillow or in-kind where chances of theft or damage are huge. They virtually have no option to build financial safety nets or build any assets. They cannot make their capital work for them. And that is why in my estimation, the deposit taking side of microfinance is far more critical than the credit side. In many ways calling it microfinance is a misnomer. It is still largely microcredit. So Marguerite was very influential in educating me that microfinance was essentially about providing a menu of relevant, accessible and efficient financial services to a particular client segment. It was no different from what I had done as a banker, except for a different client segment.
Q. What was the women angle to your work?
A. A majority of the clients of the institutions we supported had to be women. The staff, management and board of WWB were majority women; the institutions that were allowed in the inner sanctum of WWB network were led by women who had at least the majority of their board as women. The idea was to promote women’s leadership at all levels at which WWB operated.
Q. Could you specify how you were helping these institutions?
A. We basically provided technical assistance on products, services and processes. We also acted as management and organizational consultants. Often we helped facilitate dialogue between commercial banks and microfinance institutions regarding credit lines. Later on, WWB did get more involved on the investment side and the commercialization side and was helping these institutions meet with investors who were interested in putting in equity or doing debt transactions. So we set up a lot of introductions, helped the institutions understand what they might be getting into as they grew and expanded their capital and debt structures. We also helped these institutions negotiate commercial bank lines and try and see if we could provide a guarantee facility to unlock commercial capital. And that was one of the hardest things to do as banks weren’t willing to lend without serious collateral. Part of the reason they gave was that there was a lot of donor money available so they didn’t see why they should get involved, part of it was their own strict credit processes and another critical impediment was that they simply could not understand the financials of the microfinance institutions and how the numbers and performance ratios were being derived.
It was important to be able to help microfinance institutions raise capital and operate like a proper financial institution if they really wanted to be part of the mainstream financial system. That is what we were doing and the trend of the microfinance industry was also moving in this direction.
Q. What was the state of microfinance in Pakistan? What was your involvement there?
A. Well as you know, there had been several NGOs operating in the country, mainly the RSP’s- NRSP, AKRSP etc. and Kashf Foundation well before the advent of microfinance banks. There was also the World Bank financed Pakistan Poverty Alleviation fund, a wholesale institution which was established in 1995 and given an initial $100 Million to provide subsidized credit to institutions like Kashf for their expansion. Microfinance banking was introduced in its most recent form in 2000 with the assistance of Asian Development Bank which established a comprehensive legal and policy framework for microfinance institutions.
So the government at the time went to work with ADB and with a $150 million loan, they created the legal and policy framework under the State Bank of Pakistan. From this emerged Khushhali Bank, this is supposed to be a public/private partnership. So Khushali Bank came online in August 2000 under the ‘Microfinance Ordinance’. And then in 2001, a ‘Microfinance Institutions Ordinance’ was passed under which the First Microfinance Bank was created having absorbed the Aga Khan Rural Support Program portfolio. The framework that has come about is one of the best in the world. It is essentially a ‘Greenfield banking model’ which permits the creation of specialized microfinance banks regulated by the State Bank under a separate microfinance prudential regulation. These microfinance banks are regulated differently from commercial banks and the regulations reflect the peculiarities of microfinance such as the use of soft collateral or social collateral. At that time, there was a lot of criticism for the high capitalization requirement but the vision was that these institutions were expected to mobilize significant deposits, and are expected to finance themselves from deposits of clients.
More recently the State Bank of Pakistan approved the “Branchless Banking regulations” which allows financial transactions to be conducted from points other than a bank branch- so a grocery store with a point of sales device could serve as an “agent” of a microfinance bank and a client could use the POS device in that store to make a remittance payment, deposit funds, pay a loan or pay a bill. This is an area which the Soros Economic Development Fund has been involved with in Pakistan and we are very keen to see this succeed because it will make a huge structural change in the financial services arena by integrating millions of low income clients who to date are locked out of the financial system.
If leveraged and successfully implemented this could play a catalytic and exponential role in expanding access to financial services throughout Pakistan, even to remote villages where no bank exists and where it is extremely expensive for microfinance banks to set up a bricks and mortar branch. The next set of regulations hopefully will cover the use of mobile phones to transfer funds. So in this aspect, Pakistan certainly provides a very exciting and innovative environment. I am hoping that soon we will say that the story in Pakistan is not microfinance but how microfinance clients transact!
My initial involvement in Pakistan microfinance policy was that I supported the work of the ADB and State Bank and provided input into the regulations, and some of the subsequent framework that was put in place. I was very fortunate that they gave me the opportunity to have my say and it was also an incredible learning experience since I had the platform to work at both an institutional and policy level. Over time, 6 microfinance banks have emerged, but with mixed results. I would have to say that in Pakistan the regulators and policy makers were much further ahead than those who were planning to be in the industry. So there is a gap between institutional capacity and policy. And there is always the danger that if there is one or two disasters, the regulators may decide to pull the plug on the whole program and reallocate resources.
And we are very far from having done away with the desire to put out subsidized credit with no proper or defendable client analysis accompanying the loans. We need to move away from government institutions doling out loans and trying to gain political mileage from this business. And we need to change the mentality where we want to lend at heavily subsidized rates which can never help institutions get to sustainability let alone profitability. And who even cares if the money comes back! There’s nothing like healthy competition to bring down pricing fast and furiously. And poor clients win when institutions compete. So we need to avoid creating government institutions that will become white elephants.
Q. So what made you leave WWB?
A. Well, I stayed with WWB for 5 years. Let me flip the question around and say what made me stay? My colleagues were some of the most amazing and talented people I had come across. Some of my closest friendships emerged from there. But professionally I have to say - overall I would call it a mixed experience. I learned a great deal but encountered a culture clash or culture shock making the transition from the corporate world to a pure non-Profit organization. I was probably never able to successfully make the transition or change my own very corporate mindset or way of working. A bit ironic since I was trying to convince institutions to change their mindset. But the learnings were incredible and I met amazing people whom I otherwise would not have met and traveled to places I wouldn’t have otherwise traveled to. But by the end of my five years, I felt drained. I really needed a break since I had been working continuously since 1989. So in the summer of 2005, feeling exhausted, I took a short leave of absence, then resigned and then decided to take a whole year off!
Q. So how did you end up at Soros?
A. Well I have to say that all my friends and my sister were looking out for me and that the timing was right. I had heard about the Open Society Institute’s and Mr. Soros’s interest in Pakistan and I had certainly been a great admirer of his work elsewhere. I think my current boss must have received my resume from eight different people. I think that’s the first thing he did say to me when he called me in for an interview.
By then I had taken time off for about eight months which was a huge risk – both financially as well as career wise. I had wanted to take off about a year to recharge my batteries and figure out what I felt deeply passionate about. And by the time this opportunity came along, the timing could not have been better. I highly recommend that if one can afford it financially, to really take some time off as there is nothing worse than taking baggage from an old job into a new one.
Anyway, in 2006, almost a year after I left WWB, I joined the Open Society Institute and specifically the Soros Economic Development Fund (SEDF) which is the social investment vehicle for OSI. The Soros Economic Development Fund, was one of the first social investment funds created in 1997. SEDF is also focusing on microfinance in Pakistan and I feel lucky to be here as I feel that this job rounds me off – not only does it focus on economic development activity in Pakistan, but it also lets me get involved in civil society work which is a real passion for me. Issues of human rights, justice and media rights are very big in my heart and so you can imagine what life was like for me and for many other Pakistani-Americans I know, especially after November 3rd, 2007. It was 24/7 activism and involvement!
But it is a real honor and comfort to be working in an organization which shares my values and where everyday I can speak with well informed and like minded colleagues. Pakistan is not just a headline news item or some far away, remote and troubled country for OSI, its part of what we think about and discuss every day, whether its about an investment in microfinance or helping the education sector. For this reason and for so many others I often call OSI my “safe haven.”
Working here has been enormously gratifying because I can contribute to Pakistan both personally and professionally.
I feel I have finally come to a point in my life where I can be helpful to Pakistan – by utilizing the knowledge I have been fortunate enough to acquire, by leveraging my professional expertise and my network in both countries. And I am convinced that its now or never- either I make a difference, however tiny now, or forever hold my peace. And I truly feel that I can make a difference. I used to often lament being caught between two worlds, living in limbo but now I see it as an asset, a real opportunity to help facilitate a healthier dialogue between Pakistan and the United States at all levels. In fact we can help create conversation where it’s never happened before precisely because we walk and talk in both worlds. Sometimes simultaneously. This is where the Diasporas can become really instrumental in change should we choose to.
Q. What advice can you give to our readers?
A. Well, first I would say that do not compromise on education. Focus on the best education you can get and if you are going to be interested in development, social investing, or microfinance, spend at least 5 years in the private sector, understand how the business side works. One message I would like to bring across is that folks should be very aggressive about seeking mentors and that without ego or hang-up, you should seek different people who can mentor you about different aspects of your life. No one person can provide all answers so you need a few different people to build up your support system. If I am in doubt about a key decision I make sure I pick up the phone and call the person I think can give me the best advice- not the person who will tell me what I want to hear but the person I feel has the most experience in the area and who is watching out for me- and that means honest advice. Especially women, they need to have mentors, not just women mentors but also male mentors. The real world is made up of both men and women. Find those people who know a lot, know others who know a lot and for whom your best interest is at the core of how they guide you.
My journey thus far has been absolutely wonderful, but it has not been easy. But two years ago I landed my dream career and I feel very honored.
Thank you Fawzia for taking the time to talk to us today.
Till next time, Khuda Hafiz, Aaliya