Why 1 billion women are excluded from the financial system

Transcription:
Penny Crosman: (00:03)

Welcome to the American Banker podcast, I'm Penny Crosman. An estimated one billion women are excluded from the financial system worldwide. Why is that and what is being done about that? With us today we have Mary Ellen Iskenderian, president and CEO of Women's World Banking, a global nonprofit devoted to giving low-income women access to financial services, who has a new book out called There's Nothing Micro about a Billion Women. And we have Janet Truncale, who is EY America's Financial Services Organization vice chair, and regional managing partner. And she is the chair of Women's World Banking. So thank you both for joining us today.

Mary Ellen Iskenderian: (00:50)

Thanks for having us.

Penny Crosman: (00:52)

So let's start with you, Mary Ellen, why are a billion women excluded from financial services?

Mary Ellen Iskenderian: (01:01)

Well, it's a complicated sort of almost three tiered sets of barriers and reasons. Some of it is really with the women themselves who are much less likely to be both financially and digitally literate. And when we talk about digital, they are far more likely to be without digital cell phone technology, specifically an internet enabled phone or a smartphone, there's about a 15% gender gap globally. That's on average. So some regions are much higher with women owning phones versus men. One issue that we are seeing unfortunately arise, even in the context of the current Ukrainian crisis, a refugee crisis, is women are much less likely to have identification and the proper documentation and even less likely to have anything digital. And we're seeing that even if women are able to get across the border, they're finding it very hard to access their bank accounts back in Ukraine.

Mary Ellen Iskenderian: (02:12)

And I was surprised to learn, it's not just European, Western European banks, not honoring accounts in Ukrainian banks, but even I heard a story about BNP in Poland, not honoring a BNP account in Ukraine because the woman didn't have that digital ID. We're seeing refugees making it to the UK. There was a study released that that's the number one issue that they're facing about not being able to tap into their money. So that issue of identification is super important. And particularly so for women, I'd say the second order of barriers with financial service providers themselves, they just don't think there is a business case very often to serving this population. And one reason is that they are far less likely in many countries to capture data on a gender disaggregated basis. So they really don't know how women might be using products differently, or which products that that they're using.

Mary Ellen Iskenderian: (03:12)

And even if they have to collect the data for a regulator or something, they don't use it when they're making decisions. And then finally the third barrier really is at the policy level. In many countries, the legal and credit infrastructure for extending loans is very, very reliant on physical collateral ownership of land, ownership of real estate, which frankly poor men are often not likely to have as well, but women are in many countries that we're working in systemically unable to inherit land or own land in their own names. So there's some really, almost easy policy fixes that governments could make that would just take some of these systemic or policy barriers out of the way.

Penny Crosman: (04:01)

And when we think of a billion women, that's a lot. Do you know what the number is for men?

Mary Ellen Iskenderian: (04:09)

That's actually a great question. I know the percentage is that 72% of the men in the world have a bank account and that's actually a really low bar just having a bank account. It doesn't say anything about their actual usage of it or any other financial services. And on average 65% of women around the world. So there's that globally 7% gender gap in the emerging economies. And that may not sound very big. It's just very, very unbudgeable. It has been that same number for as long as we've been collecting these statistics, well, over a decade, there's been that 7% gap, even as digital technology has made financial services so much easier, we haven't been able to address that gap.

Penny Crosman: (05:00)

Well, so that's interesting because there have been some efforts over the years, as you know, the Grameen Bank years ago famously had these microfinance loans that they made to women in African countries where the women kind of backed each other up and were held accountable for each other for these loans to these small business owners and we've seen some development of loans made over smart phones and so forth. What are some of the best efforts happening today and why haven't they made an impact yet?

Mary Ellen Iskenderian: (05:45)

So I wouldn't want to leave your audience with the idea that they haven't made any impact. It's just, there's still work left to be done. With the traditional microfinance model of women borrowing individually and then counter-guaranteeing each other's loans, that accomplished one incredibly important thing. And that convinced the world, that convinced banks, that the poor were bankable, those old Grameen institutions. And other organizations that Women's World Banking worked with had extraordinary repayment rates. They had nearly 99% repayment rates. These women recognized how rare that credit was and they took it very seriously and they repaid. And I say women intentionally because women had higher repayment rates than men. But if you think about it, even in your own life, Penny, if the only thing your bank gave you was a small unsecured loan, there's so many other services and products that you need to live a full financial life. Affordable payments insurance to protect the the hard won gains. The number one contributor to poverty is the death or long-term illness of a breadwinner in a family. And you just see everything wiped out when that income isn't coming in and there's been no insurance to protect against that long-term illness. And women will often their first interaction with a formal financial institution and maybe not a microfinance institution or not banking under the tree, as you were describing is actually a safe place to save. Women really value a place to save that's confidential, that she doesn't necessarily have to tell her friends or her family, her neighbors that she's saving or why she's saving. So it's really the ability to have more than just that small loan that I think makes a woman truly financially included and on the path to greater empowerment.

Penny Crosman: (07:56)

Now, now you mentioned, I think that there are sort of systemic issues here where in some countries, women don't or can't own property or even open an account in their own name, do you see those kinds of cultural and systemic issues changing?

Mary Ellen Iskenderian: (08:17)

Well, if there is one silver lining of this pandemic, it would really be around some of the issues you mentioned in that it really was, don't let this crisis go to go to waste. In the financial inclusion area in countries where it was very difficult very often for woman to own a smartphone in her own name, take India, for example, you had the largest gender gap in smartphone ownership in India. Prior to the pandemic, the government there made the initial round of COVID relief payable only to women and only through digital accounts. So you saw literally in a matter of weeks, 25 million new bank accounts, almost exclusively by women and on a phone that they owned. So there were some real exciting leapfrog events made possible through through COVID. And I frankly think now it's up to those of us in the financial services industry to keep those newly included women in the system and start to provide products that meet their needs that are designed for them. And we've included them, now let's keep them.

Penny Crosman: (09:30)

And, and among the microfinance institutions that your organization works with, what are some of the efforts you've seen during the pandemic? Have they also gotten a little bit of a headwind from that?

Mary Ellen Iskenderian: (09:43)

It's an interesting question you asked because to be very candid, the microfinance industry as an industry was very, very slow to adopt digital technology. And frankly, we've been very fortunate. Women's World Banking is also a gender lens investor and the microfinance institutions in our portfolio have performed magnificently, even in the face of most countries imposing credit moratoria and just very, very difficult to, to pay. But for those institutions that didn't adopt any aspect of their operations digitally, they are still really suffering. We we're seeing some real solvency issues throughout the microfinance industry, but where we are quite excited is with fintechs. And today Women's World Banking works with a network of 62 financial institutions around the world. Fully 30% of them are fintechs that are serving women, low income women that have a very inclusive mandate in their work.

Penny Crosman: (10:48)

Can you think of an example of one that's doing something especially innovative or interesting?

Mary Ellen Iskenderian: (10:55)

So there's a company we're looking at on the fund side of our operations called NDA Pago in Mexico and Peru. And what they'll do is work with small shopkeepers, primarily women owned shopkeepers, and instead of lending to the woman in order to buy inventory, they'll work directly with the distributor. So they'll actually disperse a loan to the distributor for delivery of goods to her, but they'll report her repayment and sales data through to the credit bureau. So she gains sort of credit worthiness points, if you will, even though she's not directly on the hook for the actual loan. So you're just seeing the fintech's ability to use data to get inside a company's operations. And it protects them. It allows them to make unsecured relatively, in some people's eyes, risky loans to very small businesses, but they're doing it in a way that's, that's actually quite safe since it's based on the sale of products.

Penny Crosman: (12:12)

So Janet, you've been very patient. When you look at the United States and the state of financial inclusion, is there the same gender gap or is it just a problem overall for low income people?

Janet Truncale: (12:27)

Well, it's certainly not as severe as what we see in the emerging markets, but it's been interesting. And I have had a front seat to the work that, Mary Ellen and her team has been doing for so long. And, you know, during COVID, we, as a board even turned our eyes towards the us, uh, recognizing that, you know, all was not perfect, um, in our own backyard. And, and I think that's really kind of, uh, raised, you know, some, some of those same questions that you have. And, you know, if we look, um, at the us, you know, the numbers are certainly, uh, different than what Mary Ellen was quoting, but if you look at, you know, probably 15% of our population, um, in the us has limited banking. And, you know, I think, you know, the latest we looked at almost 20 million, um, of our, um, us, uh, folks are, are unbanked in, in totality.

Janet Truncale: (13:20)

So that's, that's still a problem. And, and I don't have the number specifically, but clearly women are at a disadvantage compared to the men. And what I worry about is that the alternative to the financial institutions and the traditional products that we all know is alternatives such as payday, um, lending check cashing services that, that are often predatory or under-regulated. And so that's what we worry about. And, you know, in the last two years with the COVID pandemic, you know, everybody has had their eyes on women. Right. You know, and those are the groups that have been more severely impacted staying home, losing jobs, leaving the workforce, and that's something that we are focused on because that's just gonna set us back even more so our backyard, we're not perfect.

Janet Truncale: (14:10)

But the same things that provide some optimism that Mary Ellen is talking about is what we see optimism here. So first and foremost, all of our financial institutions are focused on this and their stakeholders are demanding more in terms of transparency, clarity in terms of what we're doing around financial inclusion, both here and abroad. And Mary Ellen said the fintechs have really provided alternatives to those in the U.S. as well. And I think the use of data analytics, the disaggregated information that is hopeful, that we are all hopeful that these fintechs are going to continue to offer products both here in abroad to close the gap. So very excited about that.

Penny Crosman: (14:53)

But in a way it's amazing that that number is still around 20 million. Because you think of the United States as a pretty advanced society, developed nation. What do you think are those barriers to financial inclusion? Is it mainly, some people think it's because banks don't tend to have branches in the poorest neighborhoods and therefore people don't see traditional banks. What they see is a check casher or some kind of payday lender. And so that kind of keeps them in that zone, even though there are digital alternatives, it's sort of what's in their neighborhood. Do you think that's a big factor or do you think there are other factors that, that outweigh that?

Janet Truncale: (15:35)

I do think there still is a level of distrust in certain underserved communities that exists. And all of our institutions have to continued to work against some of those misconceptions or concerns on the trust spectrum. And you're seeing a lot of organizations do that. And what I'm happy to say is that a lot of financial institutions here in the U.S. are very much focused on financial literacy, focused on financial health and wellness programs, not only for their own employees, but for the underserved communities. And you're seeing that with a number of banks here that are very much focused on that as part of their purpose. And so I'm very encouraged by that. But I think overall, I think it's a little bit of distrust and I think it's about financial literacy and understanding of what's available, what's important. And I think a lot of banks are focused on that now with a greater focus on ESG, here in abroad, but Mary Ellen, I'm sure you have additional thoughts as well.

Mary Ellen Iskenderian: (16:39)

No, the trust was right where I was going to go. We certainly see and so much more for women than for men. There's this real sense of just sort of emotional distance from the organization that the phrase we hear time and time again is, that bank isn't for me. And I think that that's maybe not in such simple terms in this country, but I think that that's underlying much of it. have not been all that engaged in financial inclusion in this country, but in writing this book, did take some time to really try to understand some of the dynamics. And I hadn't appreciated just how much the pay gap in this country drives. So many of the other elements that factor into being unbanked, you know, women, women have so many fewer assets than men do on average, and that number goes even lower.

Mary Ellen Iskenderian: (17:38)

When you start adding race and ethnicity into the conclusion they are rejected for housing loans more frequently. That's the biggest store of wealth in this country. They are much less likely to have investment accounts. There is a lot of research. Fidelity has done some fantastic research. Women ask more questions, need a longer time to get comfortable with the idea of investing and a lot of the models that then the organizations that they're approached by, or that they approached are just not available to kind of meet them where they are and answer their questions in the way they need to be answered. Women have a much bigger burden of student debt, which we know is a ballooning problem in this country. And then the pay gap allows them to retire. Less of it every year, the income group that's going below the poverty line, fastest in our country are women over the age of 60, because they've kind of come in and out of the workforce for childcare, elder care, whatever reasons they earn less while they're working and they live longer. So a lot of triple whammy dynamics that just, they may be banked, but they are certainly not experiencing financial equality,

Janet Truncale: (19:03)

Mary Ellen. It's interesting. You and I talk about this all the time, but financial inclusion is not only the right thing to do, but it's good business. And we talk about, if the banks really focused on this population, there's money to be made. And when you talk about financial inclusion, it's always about the social benefit of it. But again, it's good for business and the numbers are staggering. We look at just bank accounts, loans for small businesses. The numbers are staggering. If there's a focus on this underserved population, both here in abroad, right. And so it goes back to when it's good for communities, but it's also good for business as well.

Mary Ellen Iskenderian: (19:43)

Exactly.

Penny Crosman: (19:44)

So last question for both of you, what would you like to see? Like if, if financial institutions could do your bidding, in the U.S. and around the world, what are some of the things you would like them to do or maybe do more of?

Mary Ellen Iskenderian: (20:00)

Well, I know Janet knows what I'm going to say.

Janet Truncale: (20:05)

I think I've asked you this myself.

Mary Ellen Iskenderian: (20:07)

I do. I feel so strongly that there still remains a tendency to think of unbanked and underserved women in this country and internationally as charity cases, I really encourage financial service providers to not put it in CSR. Do the humanitarian work in CSR, but approach this as a business. When Women's World Banking designs products for financial service providers around the world, we don't leave until we make sure there's a positive CLV, positive customer lifetime value. And we're starting to see emerging, there's a higher CLV for women with digital products. Women we know are very loyal financial service providers. In this country, they are much more likely to be a client of your financial institution five years after initiation that a man is. They don't bounce checks. They're all of the things you'd want in both a retail and a business customer. W=omen amply prove that they should be your customer. Don't think of them as charity or as something that you have to do out of the goodness of your heart. There is money to be made, serving this population and meeting them where they are with their needs.

Penny Crosman: (21:34)

Can I just ask one little follow up on that as you were talking, I was thinking how every now and then you see a bank or a company do some kind of promotion for women and it'll be pink and they'll be ribbons . And I always feel like I don't want that. I want a good product. I didn't want something that's feminine. I want something good. You know what I mean?

Mary Ellen Iskenderian: (22:03)

There's this line, if you want to make it for women, you pink it and shrink it. And it hits me the same way. I think it does you, Penny. What we see is there's quite an irony. So many products are really designed for men and then perhaps there's a pink wrapper put on something and we call it a woman's product. But it's the same product when we go in and design for women. So women really, really value confidentiality or women are just much less likely to have a lot of documents. In Bangladesh until 2015, girls' births were not registered. You could not ask a Bangladeshi girl for a birth certificate. As of documentation, they don't have documentation. So when banks go in and dramatically simplify their credit approval process, the men love it too. It's really literally the opposite design for women and everybody really likes the product.

Penny Crosman: (23:09)

All right. Thank you. So, Janet, uh, what would you like to see? What would you like to see banks do or good corporate citizens do for this whole problem of financial ex exclusion?

Janet Truncale: (23:22)

So for me, it's focusing on the S and ESG and again, I go back to, here and abroad, continue to focus on financial and digital literacy. I think there's so much more to go in that area. And you can make numerous inroads just with expansion of financial and digital literacy programs. And then don't be afraid to set goals and measure. I think that's really important, hold yourselves accountable. And then the last thing I'm going to go back to some of the fintechs and disruption, data is key here. I think it's going to open up new opportunities for products, for different ways to underwrite loans and the whatnot. And I think, again, harnessing the data that they have to make sure that women are front and center. Those would be the areas that, that I would be really focused on and keen on in the U.S. and abroad.

Penny Crosman: (24:18)

All right. And that could be a whole other podcast, how to use data better and which data to use, et cetera. That's a really big topic. Thank you both so much, Mary Ellen Iskenderian and Janet Truncale. It was a really interesting conversation. I thank you all for listening to the American Banker podcast. I produced this episode with audio production by Kellie Malone. Special thanks this week to Mary Ellen Iskenderian and Janet Truncale. Rate us, review us and subscribe to our content at www.americanbanker.com/subscribe. For American Banker, I'm Penny Crosman and thanks for listening.