Financial Exclusion or Social Exclusion?

> Posted by Lisa Kuhn Fraioli, Vice President, Latin America, Freedom from Hunger

This post is part of the Center for Financial Inclusion’s Expert Exchange: Building A Movement Toward Financial Inclusion by 2020, cultivating conversation around the goal of reaching full financial inclusion by 2020. For further questions about this series, write to Sonja E. Kelly, Fellow, Center for Financial Inclusion at Accion.
A few weeks ago, I found myself in Loja, Ecuador leading a delegation of board members, supporters, and their families in a visit to some of Freedom from Hunger’s newest partners. We were visiting a client who was part of a special credit program for families with disabled children.
The first woman that we visited lived in a semi-rural area.  She had a tilapia farm, various fruit trees, herbs, and a whole variety of small-scale agricultural projects. Our delegation, which was very business-savvy, asked many insightful and detailed questions about her investments and returns on each of her activities.  As is common, her answers were not very precise and somewhat contradictory.  But, when they asked her for her vision for 5 years from now, her answer was clear—“I don’t want to have to worry as much.”  While this might not have been much of a business plan, it was guiding her choices every day.
It made me ask myself some important questions: “What are we doing to contribute to this goal?”  “Are we contributing to the alleviation of worry or creating more worry through debt?”  “How can we contribute more?”  I asked a similar question out loud to her.  She indicated that though the credit was helpful in expanding and diversifying her economic activities, the most helpful contribution of the MFI was advice.  What kind of advice?
It turns out that the MFI is sending a “promoter” to help the woman connect to support services available for assisting her in caring for her disabled child.  She is also receiving visits from an agricultural advisor who advises her on the tilapia as well as her other projects.  Her biggest worry going forward? How to provide for her child after she is old and can no longer work.  It seemed like a reasonable worry to me.  What could the MFI do to respond to this worry?  Had this question ever been asked before?  Was the MFI even aware of this worry?
It was a good reminder for me that each of our clients has a unique story…and that they are the protagonists in their own stories—not us.   And if we wish to achieve financial inclusion, we must start by understanding the world from the perspective of the people whom we wish to include.
The microfinance industry is quickly moving beyond one-size-fits-all financial services, but how often do we stop and truly attempt to see the world as the poor and excluded do?  Too often, our questions center around whether people like or dislike what we want to offer.  We ask how we can make our offerings better, but these are still primarily supply-led questions.
Financial exclusion has a high degree of overlap with social exclusion.  Do we really understand the factors that lead to social exclusion?  Do we understand what holds people back?  Do we see our clients and potential clients as people with hopes and dreams as well as barriers, fears, and challenges?  Do we understand what drives their behavior?  Their choices?
Although I always have been a strong advocate for client-centered product and service design, I, too, find myself more often than not coming at it from the institutional perspective.  I find myself wanting to engineer a systemic solution to the problem of poverty and social exclusion.  Of course, it makes sense.  The only way that billions of people are going to move out of poverty for good is if there is systemic change.
Yet, just as with the client I met, each of those billion people has a unique story.
As we visited more clients in Loja, Ecuador, we learned that the MFI was offering much more than credit.  I listened to a woman working in a formal association of other mothers of disabled children to do sewing of athletic clothing and uniforms for local schools and teams.  Most of the children in the program are developmentally disabled but some also have other birth defects.  These defects are primarily linked to the unsafe use of pesticides and other chemicals. As she talked about the way that most of the women had been abandoned by their husbands as soon as they had an “abnormal” child, it was clear that their association was much more than just an economic activity.  It was a support group as well.  Some of the women’s children worked in the workshop with them.  The children received therapy in the home.  Since the workshop was also located in the home of one of the members, this solved one of the biggest problems facing women with disabled children—they are often tied to their homes with few opportunities to work or socialize outside the home.
Whether or not they were the poorest of the poor, they were excluded in every sense of the word. But no longer.
I heard from a woman who was single-handedly farming a plot of land in the mountains while caring for a disabled child and a husband newly disabled by diabetes and a stroke.  She is now spending much of her limited resources to hire someone with a tractor to help plow her land because she cannot turn the soil alone.  She sees credit as an opportunity to create a new enterprise that will allow her to sell her land so she can live and work closer to the support services she needs.  Her determination is admirable, but I can see the road ahead brings great risks as well as hope for a better life.
Will the MFI be there for her if she stumbles along the way?  One thing that the MFI will be offering soon is both financial education and education on preventing and managing chronic diseases like diabetes.  Perhaps the diabetes education is too little too late for this woman, but how many others could it help avoid similarly devastating crises?  Is the MFI aware of just how vulnerable this woman is?  Is there anything that it can do to help her manage her risks more effectively?
These were just a few of my insights from a single morning spent really listening to clients.
Certainly, a systemic and institutional perspective is necessary.  We cannot provide individualized solutions and service packages for each client, but how could seeing the world from our would-be clients’ perspectives help us shape better service packages that are a success for our clients as well as commercially?
It was clear to me from the morning’s conversations that these women would never have accessed formal credit—even though it was offered to them—without the connection to other support services. What most caught my attention was that the service package offered came from an understanding of the factors driving the social and financial exclusion of this particular population.
There is a subtle but powerful distinction between seeking to understand how our clients use financial services and seeking to understand their world and the role that we and financial services might play in that world. Financial services are at the heart of our world, but not theirs.
Financial exclusion is not going to be solved by financial services alone.  To achieve financial inclusion, we must be committed to understanding and tackling social exclusion.  Occasionally adopting this different way of seeing just might lead us to some extraordinary breakthroughs.  Microfinance institutions, often with deep roots in the community, are in a powerful place to do this.
For more information, sign up for updates from the Financial Inclusion 2020 campaign.

Lisa Kuhn Fraioli is Vice President, Latin America, for Freedom from Hunger. Before joining Freedom from Hunger, Lisa worked as a gender and microfinance specialist for Opportunity International, specializing in product design and research. She has also worked for FINCA International.
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