Innovations in Microfinance: Interview with Jorge Puerto Ramirez – General Manager, EMN

Jorge Puerto Ramirez started working for the European Microfinance Network (EMN) as General Manager in April 2012. After working with EMN for over a year, Ramirez says that he finds the position of General Manager challenging, but he is excited to be working in such an active and interesting field. “It’s really challenging this job, particularly because we have such an amount of members from all across Europe,” Ramirez told Microfinance Focus Europe.

He added, “In each country you can find a totally different framework, especially if you look at microfinance in the Eastern European countries or a Western European country, or if you look at microfinance in an Anglo Saxon country, or a Latin country. So it’s quite challenging, but at the same time that makes it very interesting. I’m trying to find the common interest.”

During our interview, I spoke with Ramirez about the importance of finding common interests among MFIs within the EU, and the platforms that the EMN creates to help bring individuals and organizations together, such as EMN’s upcoming conference in Stockholm. We also discussed what Ramirez believes are the biggest challenges and successes for European microfinance, and what the word “innovation” really means for microfinance.

MFF Europe: As General Manager, what are your goals for the European Microfinance Network?

Jorge Puerto Ramirez: ”The main role we do in the EMN is to enhance the coordination of the members. We have approximately 100 members from very diverse backgrounds, from big banks to small NGOs, consultants, universities, public projects, organizations that have been working for 20 years, and organizations that were just created this year in 2013. So, we need to make a big effort and try to pull them all together, so they can share ideas and enhance knowledge transfer.

“For me, the most important role of EMN is to set up platforms and activities, like workshops, conferences, seminars, publications, to bring together the members€¦We have to find a common voice for the sector, try to find these common grounds and make sure that the European Commission can hear this voice clearly.”

The theme of the 2013 EMN conference is “innovative pathways in microfinance.” With this in mind, what do you hope will come of this year’s conference?

“The theme this year actually came from last year’s conference in Bucharest, which was all about building sustainable microfinance in Europe. To make microfinance sustainable in Europe, one of the main conclusions was that we need to do microfinance in a different way. We need to find new business models, new funding sources, and new technology tools to do microfinance.

“Let€™s think of new things. Let’s put together, for example, new business models. We have among our members several MFIs with particular business models, who have achieved great success. We need to understand why these models were successful in their respective countries. Is it because of the environment, or is it a flexible business model that can adapt?

“The sector needs to change, or else it risks being insignificant in Europe, particularly in Western Europe. The number of microcredits in Western Europe is still very low, and considering all the discussions we have right now in Western Europe in general about unemployment, microfinance for many reasons has not yet been the tool. It’s not doing all the potential that it could.”

How is innovation about more than just technology?

“Yes, exactly. That’s the direct link, thinking that innovation is about technology, but for us, technology is only one of the four legs of innovation in the sector. It’s also about creating new business models, new ways of MFIs to be set up via partnership with other financial sectors, other banks.

“We also need new ways of raising money, of diversifying the funding sources for MFIs€¦We need to consider MIVs, hedge funds, maybe philanthropy could be successful. Crowd-investing, peer-to-peer, could they be an alternative for MFIs to finance part of their projects? This is innovation, the way an MFI finances itself.

“Another very important type of innovation is the products that providers are giving to the client. That is why one of the things we are doing at the conference is an innovation race, in which 20 clients of European MFIs are going to meet in Stockholm and have a brainstorming managed by one of the professors at the University of Stockholm who specializes in innovation. They are going to try to find out, from the point of view of the clients, what is needed from the microfinance sector€¦This will be a very interesting exercise, and will facilitate the outreach from microfinance providers and make their products closer to the clients.”

What would you say is the biggest challenge facing microfinance in Europe?

“It’s unsustainable. To achieve sustainability we must reduce dependency on public funds. There are big differences between Eastern and Western countries in Europe. In Eastern European countries, microfinance is a more traditional activity. They work pretty much like financial operators, like banks. Actually, many [Eastern European MFIs] become banks themselves after some years of activity.

“But in Western Europe it is very difficult. The regulatory framework makes it difficult to transfer the costs of microcredit to the clients. This creates a gap that is paid too often by public authorities, and that is very dangerous, particularly right now when public authorities in Europe are cutting their budgets. So that is the main challenge right now, particularly in Western Europe, how to become sustainable by themselves with their own activity, rather than dependent on sporadic grants or pensions from public bodies.”

What would you say is the biggest success for European microfinance?

“I’ve seen some MFIs change their business model radically. They were flexible enough to come from more a traditional oriented model based on face-to-face contact, based on social links, and developed into a more technologically oriented MFI. This is a bit risky, because sometimes, when you are working with socially excluded people, these people are not going to be able to have a proper relationship via online. But these MFIs have succeeded in finding segments of the population, either for entrepreneurship loans or consumer loans, who can be trained with very simple mechanisms online€¦which dramatically reduces operative costs.

“Some MFIs in Western Europe have been able to achieve sustainability in 4-5 years, which is actually a success. They have the knowledge to redefine microfinance. In Europe, microfinance is < 25,000 euros, but maybe we have to revise it. I can see that many members for instance are giving consumer loans for 500 euros, but some other members have redefined the rules of microfinance, offering loans for 30,000 or even 35 or 40,000 euros depending on the needs. It€™s a re-adaptation of the concept of microfinance, and I think it has been successful.

“Every year, 10% of our members drop out, because they fail. But every year, 10% join our network, and this is because there is a very high turnover in the European microfinance sector. A lot of new organizations with new ways of doing things, new business models and new ways of dealing with technology are being set up constantly. Everyone is looking for the silver bullet, the perfect way of doing things. It is a very active sector, and I hope that we see more success stories in the coming years.”

By Annie Brown for Microfinance Focus Europe