Looking back at the formative influences in her life, Katharine McKee sees several that may have contributed to her pursuit of a career in international development, with a focus on microcredit. She traveled a little as child, loved languages (she knows French, German, Spanish, and a little Japanese), and has always been interested in other cultures. And from her mother she inherited a strong sense of social justice and a belief that it was her responsibility to do something about poverty.
A circumstance that may have had an equally strong impact, but more indirectly, was watching her mother having to go it alone, as a single parent, after her parents were divorced when she was 11. McKee believes that experience was “part of what made me a feminist.” She adds, thoughtfully, that one of the reasons she got interested specifically in providing financial services to Third World women may be because her mother lost all of her credit cards when she got divorced. “A divorced woman was not considered creditworthy,” she says, “even with a perfect repayment record.”
Perhaps her interest specifically in Third World business was related to the fact that both of her parents ended up in business for themselves. Her mother has always been self-employed, as a real estate agent and then as the owner of a sailing school. Her dad was a university professor of geology, but left to start own consulting and advising practice.
McKee is one of several speakers in a panel on the lives and work of women in developing countries that is being held in conjunction with a photography exhibit in the Bernstein Gallery of the Woodrow Wilson School titled “Work of Women in Developing Countries.” She will be speaking about the role that microcredit has played in the lives of women in underdeveloped countries. The program takes place on Monday, November 6, at 4:30 p.m. in Bowl 016, Robertson Hall.
Other participants include moderator, Jeanne Haws, assistant dean of operations at the Woodrow Wilson School; Sajeda Amin of the Policy Research Division of the Population Council; Natalie Elwell, coordinator of Action Learning Communications and Gender for the World Neighbors Program; and Margie Nea, the photographer. The program is sponsored by the Woodrow Wilson School.
A native of Seattle, Washington, McKee crossed the country to attend Bowdoin College, where she graduated in 1976 with a degree in politics and economics. She then enrolled in the Woodrow Wilson School and received a master’s degree in international development in 1978.
McKee began her career in Lagos, Nigeria, where she worked with the Ford Foundation for three years, starting programs to help low-income women make more money through their entrepreneurship. Their work was varied: growing and processing agricultural goods; selling in the market; manufacturing on a small scale; creating woven goods, baskets, and pottery; and doing intra-city and inter-city transport with minivans. McKee stayed with the Ford Foundation for five more years in its New York office, as head of enterprise finance and women’s programs around the world.
Next came a 12-year stint in Raleigh, North Carolina, where she helped another Woodrow Wilson School graduate start a nonprofit community development financial institution. Today this bank for low-income people operates all over the state and has $1 billion in assets. It supports the development of childcare and community facilities and of businesses as well as home ownership.
McKee’s next arena was the Washington office of the United States Agency for International Development, where she headed its microenterprise offices for eight years.
Very recently McKee joined the Consultative Group to Assist the Poor, which is a consortium of 33 public and private funders, based out of the World Bank.
The way most women in the world make a living, says McKee, is through self-employment and very small businesses in what is dubbed the “informal sector.” Their businesses are not necessarily registered. Some may have premises and retail space, while others sell their wares in market stalls that shift daily, by the side of the road, or out of their homes. “On a worldwide basis,” she says, “the major part of women’s livelihoods and a significant share of the overall economy in poorer countries is generated by self-employment and the informal sector.”
Often the share of the gross domestic product contributed by the informal sector dwarfs the share generated by bigger, licensed businesses. In Nigeria, for example, looking beyond the “petroleum economy,” more than 80 percent of total GNP and an even larger share of employment is generated by the informal sector, and even in countries like Mexico and Brazil, the informal sector contributes more than 40 percent of GNP.
As this informal sector is tied into the world financial system through opportunities for microfinance loans and new mechanisms for saving money, businesses are starting to get interested in poorer populations as potential markets. “You see a growing recognition that there is a lot of purchasing power at the bottom of the pyramid among low-income consumers,” observes McKee. In countries like India, China, and Brazil, with low average incomes, but lots of people, companies with products and services targeted to this market can carve out a profitable niche.
The challenge that policy advocates like McKee and the nonprofits and businesses she works with face is “to find ways to get financial services to people too poor to pay for them in the traditional delivery models,” she says, explaining that with lowered cost, there would be many willing clients. She describes some recent approaches to reaching this informal sector with financial services:
Cell phones that deliver financial services. In South Africa and the Phillipines cell phones are being used to deliver financial services — including saving, receiving remittances from abroad, and transacting business on a day-to-day basis, which are making it viable to lend money to these businesses.
McKee explains how the cell phone system works: “If you are a woman business owner and have a loan from a microfinance institution to support working capital for your business, you can transfer money from an account attached to your cell phone to pay off the loan over time and to transfer money to family members on different islands and overseas.” The cell phone companies are in alliances with retailers who have a point-of-sale device, and they are hooked up with a bank that does back-office processing.
Say it’s Monday and a small-scale entrepreneur has a loan payment due. She has a password-protected way to key into her cell phone, access an account held for her in a bank, and transfer funds to another account, which could be another cell phone. She would get a text message confirming that funds had been transferred and the recipients would get one that funds had been received.
“It’s handled in about 30 seconds,” says McKee, “rather than take time to close the stall, shlep to the market, get cash, take it to a vendor, and wait in line.” It also avoids the danger of carrying money and being robbed. “This is an innovative example that can improve productivity,” she says.
Banking without branches. “In almost every country, at the moment, a bank has to be involved to do the clearing function,” says McKee, “but in the near future we may be licensing other entities to create and manage accounts for people.” The challenge in poorer countries is that the banks don’t have the capacity to reach out and put up branches in more remote locations. Instead, banks are linking up with local retailers, maybe the local seed and feed shop, or the dry goods store, and providing them with a point-of-sale device so that they can serve as a banking agent.
“In Brazil banks have linked up with a network of thousands of local retailers and lottery outlets,” says McKee, “and are able to bank several millions of Brazillians who were previously unbanked and to offer them a convenient, close way for them to be saving.” These retailers provide the informal businesses with a lower-cost alternative to an ATM, and at the same time the retailers themselves don’t want to have too much cash on hand — it’s unsafe, so it is attractive for them to be dispensing cash throughout the day.
Experts in international development like McKee are also offering these informal businesses new ways to increase productivity.
Sending text messages with information about market conditions and farming techniques. This is another cell phone application, in which small farmers who belong to cooperatives get text messages with price and technical information. With prices from different markets, the farmers can choose where to take their produce to get the best price. Other text messages may inform farmers, for example, that it is time to apply a certain kind of fertilizer to the particular type of beans they are growing.
Encouraging them to form coops and sell to processors. “How do we help these businesses make more money and be not in dead-end trades but linked into markets that offer more opportunities?” muses McKee. “If you go to any market in developing countries, you will find a row of ladies lined up with pyramids of tomatoes for sale,” she says. If, instead, they can link up with the local tomato processing plants and learn how to meet their quality specs, they can make a lot more money.
Similarly, if they form a coop, and then perhaps use a micofinance loan to invest in a modest chilling facility, even a large refrigerator, they might be able to build up enough volume to procure a better selling price from a larger processing plant, perhaps in the capital city. The result, says McKee, is that they are increasing the value from their production and not just competing for customers on a daily basis. “They are adding more value to the economy and getting more money for themselves in the process,” she concludes.
Nonprofits have for many years been trying to figure out the best ways to address development challenges in poor countries. The field of microfinance, which is now 30 years old, is beginning to include commercial players who are realizing there are opportunities to not only break even, but to generate profits. These include investment bankers, international banks, local banks, commercial information technology companies, and others. Another development is that the original nonprofit players are converting into for-profit, regulated financial institutions, so that they can offer deposit services that will generate more funds to lend. Otherwise, they have had to borrow from banks to finance growth, which is far more expensive.
The World Bank and other groups are encouraging international investors and banks to get involved, but McKee says that in the long term the most important sector to involve is businesses within the country. It is also important to encourage more private individual investors to take equity stakes in overseas microfinance banks. “If a microfinance institution gets a million-dollar equity investment,” says McKee, “it can use that to support $10 million in loans.
Although microfinancing may not be as profitable as other investments, it provides valuable services to poor people, and with repayment rates above 98 percent, the loans pay for themselves. “The great thing is that they can operate on a profitable basis,” says McKee, “and there are not many development activities you can say that about.”