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Source: https://sir.advancedleadership.harvard.edu/news/grameen-america-microfinancing-having-macroeconomic-impact-interview-andrea-jung

July 20, 2021
By John Esler and Deepa Krishnamurthy

Andrea Jung is the President and CEO of Grameen America. She is the former Chairman and CEO of Avon Products, Inc., where she served as CEO from 1999 to 2012, and as Chairman from 2001 through 2012. Throughout her career, Ms. Jung ranked consistently among the top leaders on lists including Fortune's "Most Powerful Women in Business," Forbes’ "Most Powerful Women in the World," and the Financial Times' "Top Women in World Business." Ms. Jung is a graduate of Princeton University. She is a member of the Board of Directors of Apple Inc., Unilever, Rockefeller Capital Management and Wayfair Inc. She previously served on the boards of General Electric and Daimler AG.

John Esler: Before we begin discussing the theme of microfinancing and macroeconomic impact, we'd love to hear a little bit about you and your professional journey.

Andrea Jung: Well it's interesting because when I look back at the trajectory of my career, I'm often asked, "Did you always know that you would end up being a CEO? Is that something you aspired to?" My very fast answer is absolutely not. I grew up at a time when there were no women in senior leadership roles, and there were certainly no Asian Americans in those roles either.

Connie Chung was my role model. She is an Asian American woman who had made it to the top in her field as an anchor and television news reporter. I always like to tell young people that a lot of times you aspire to be what you see. And there were no role models in the Fortune 500 C-suite at the time. It was a unique opportunity to break through that glass ceiling from a woman's point of view; or bamboo ceiling from an Asian American point of view; and become the CEO of Avon in 1999.

My pathway to that role was probably not traditional. I did fall in love with marketing and merchandising when I joined Avon in 1993 as a consultant. I had an interesting assignment to decide if Avon should go into the retail channel at that time. I was six weeks into the project and I thought that I would be making a very quick career move to end my career at Avon because my recommendation was that they should not enter into the retail channel. It was clear to me that it wouldn't be the right thing for the company to do. I had the courage to be bold and say “I realize this ends our consulting arrangement much earlier than we had hoped, but here's my recommendation and here's why.” I think the CEO and the Board were impressed with the lens I took on it, and came back and offered me a job running the U.S. marketing division. The rest is history.

Interestingly, I have always felt that my gender and cultural upbringing were things that I had to work to integrate and, not to change. I grew up in a traditional Asian American family whereby conflict wasn't what we were taught around the dinner table. Avoidance of conflict was how we were brought up as young children. The concept of constructively facing confrontation -- pushing back and making the difficult decisions associated with leading a Fortune 500 company, yet still remaining who you are both as a woman and as an Asian -- were things that I really had to learn and practice throughout my career journey.

But at the end of the day, I was the first woman CEO after nine male CEOs at a company that serves women consumers and women salespeople. We were the company for women in terms of our products and our commitment to the community, but it needed to be reflected in the boardroom and in the C-suite. I did feel the responsibility and the privilege of having achieved that position, but one of my mantras is “what good is it if you are the first, if you're the last?” I made a big push to ensure that we paid it forward and had women represented not just among our consumer group, but also among our management teams around the world.

Esler: Grameen America has a successful and sustainable economic model -- one that has been studied by leading research organization, MDRC, and touted as having a significant, measurable impact on reducing poverty and increasing income for its members. Can you briefly describe the model?

Jung: Grameen America is the fastest and largest microfinance organization in the United States. We are a replica model of the Grameen Bank in Bangladesh, founded by Nobel Laureate, Muhammad Yunus, with many of the same principles and structure being replicated successfully here in the United States.

There are nuances that are different, but the basic alchemy, strategy, and structure have many of the same aspects as the original Grameen Bank. I find it remarkable and inspirational that a very tried and true solution for poverty alleviation and financial inclusion in the poorest country on earth could be adopted in the United States. The question was -- could an emerging market solution really be relevant in New York City and Los Angeles? The answer, in short, is a resounding "yes."

The inequality of income and access to capital is very much alive in the United States. The issue is as deep if not deeper than some of the other nations around the world, and has been amplified over the past year with COVID-19. We've seen real need for the program over the past 15 months.

Grameen America is about to pass the two-billion-dollar milestone in terms of loans dispersed to low-income women entrepreneurs in this country. We have served nearly 140,000 women entrepreneurs. Today we have 24 locations and are adding four more cities in 2021.

Grameen America’s program benefits are four-fold. First, we give direct access to loan capital for entrepreneurs. Second, we give them required weekly financial training. Third, we help them build assets by opening savings accounts and teaching them to save every week, even if it's just five dollars. Many of our members have come through the pandemic saying had it not been for Grameen encouraging them to put a little away for that rainy day, they probably would have had to close their business.

And then the fourth component of our program is that we help them build credit. We are probably the only lending organization in the country whereby a credit score is not required to get a loan. It's not an input to the program, but rather an output of the program. After six months, our members develop a respectable credit score of 650 or higher from having poor or no credit prior to the program. Twenty percent of them actually have a prime credit score after six months.

Esler: How is Grameen's model unique and sustainable?

Jung: What makes Grameen America’s economic model unique in the U.S. microfinance landscape is its parallel to Grameen Bank’s economic model -- self-sustainability. It happens to be a non-profit with a mission-oriented focus -- what we call a community development financial institution (CDFI) -- for low income communities.

The beauty of the economics is that with a 99% repayment rate, and a high retention rate, the money cycles. The interest income earned is equal to or greater than the cost of the program in any location after four to five years.

The organization today is 100% sustainable, meaning that any new philanthropy or investment is going to expand. I'm a firm believer in Muhammad Yunus’ philosophy that "philanthropy is nice, but it is not sustainable." The only way to get scale and impact is with a true social business model whereby you have an ability to generate excess revenues. You don't have to pay that profit to a shareholder. You put it back into the program to solve societal problems as opposed to lining shareholders’ wallets.

The beauty of Grameen America is that the return on that philanthropic dollar, or the dollars lent to us by foundations or institutions, has a great return. Every dollar invested yields $12 invested into the program over five years, and we have members who keep coming back for loans. So that is the true gift that keeps giving as the cycle of our loans fuels more growth.

Our members understand and are able to articulate that every time they pay their loan, they are affording another woman the opportunity to be part of the Grameen program and get a loan to help her business.

Deepa Krishnamurthy: I see a common theme of women helping each other peer-to-peer between your experience at Avon and Grameen. How did the experience of leading Avon prepare you for Grameen, and what are the parallels and differences?

Jung: There are a lot of parallels, but I think the underlying parallel -- which is a vocational passion of mine -- is that social capital and the community are important for inspiring, educating, and progressing women. We saw this firsthand at Avon and are seeing it every day at Grameen.

I remember being in Istanbul, Turkey in 2008 at a stadium with 7,000 Avon representatives. One woman came on the stage, and she told a story about how her husband forbade her to work for religious reasons. One day there was an earthquake in their village that destroyed their home and all their belongings. She began to sell Avon products behind her husband’s back with encouragement from other women in her community, and became the number one seller in the country. She stood on stage and proudly said, “I bought everything. I replaced our home. I replaced our furniture and my husband is the only man in our village who comes home and cooks dinner for me." All 7,000 women stood up on their chairs and gave her a 15 minute standing ovation. I won't forget that. It was a testament to the power of being inspired by others – the original social network. I've been a believer in high-touch and high-tech.

At Grameen, there are many similarities to the Avon experience. Every week, we have 2,700 “call center meetings,” where groups of 30 - 35 entrepreneurs meet for training and sharing. That happened in businesses and in living rooms until March 2020 and that now happens on Zoom. We had to pivot quickly, but imagine 2,700 entrepreneur meetings going on every single week where they share with each other.

For me, there's enormous power in that. I hopped on a meeting the other day where one member was advising another who owned a food cart that a lot of businesses in the Bronx had moved since the city reopened. She said "You have your food cart on the wrong block. You must go four blocks away because that’s where the offices are now open.” That is the boots on the ground advice and support that they give each other. That is not possible without a collaborative type of model.

There’s a lot of high-tech involved and everybody's got a smartphone, but the power of human interaction and support of women-to-women is something I've seen my entire career whether it was at Avon or at Grameen -- it's almost priceless.

Krishnamurthy: With digitization and fintech on the rise, could you also speak to the technology aspect of the high-touch, high-tech model?

Jung: The technology transformation has been remarkable. Interestingly, right now, I think Grameen America has been ahead of a lot of its counterparts around the world. The digitization of even micro-lending and microfinance has been critical. We fortunately accomplished this while the sun was shining. Long before we heard of COVID-19, we invested in a three-year digitization of the disbursements and repayment channels in order to operate remotely.

Fortunately, the program didn't have to stop when the pandemic hit. We were able to pivot quickly because our systems and the foundation had been built in a way that enabled us to disperse loans directly to people's accounts or onto disbursement cards, which are Grameen’s proprietary cards that are issued and pre-planned by MasterCard to act almost like a debit card.

There has been a lot of conversations over the years about the advancement of digital banking in countries in Africa. I think the United States was behind, but we have played tremendous catch-up for banking to lower-income, micro-entrepreneurs.

Esler: What lessons did you learn in COVID that could be adopted into a hybrid model and accelerate scalability?

Jung: The answer at the highest level is that some of the learnings from COVID have created an inflection point for scale. Necessity has been the mother of adoption and the rate of adoption to using digital tools, and virtual meetings have greatly accelerated.

Breaking geographic constraints into a more virtual assumption does change the ability to scale and expand in a different way. It’s probably not something we would have done had it not been for COVID. It’s been a massive learning experience and a big opportunity.

I think that hybrid virtual vs. physical add-on opens up a new horizon of opportunity through education -- like our financial literacy trainings -- as well as geographic reach.

Esler: Have you found that husbands and family members are joining trainings as a result of them being virtual?

Jung: Absolutely. Many of our members are running family businesses. One of the questions I am often asked is "Why are only women able to be Grameen members?" My fast answer is that every Grameen business I’ve visited is a family business.

We focus on giving the loan itself to the woman in the family because she is disproportionately disadvantaged without a credit score and without any understanding of asset building. Our focus on women is also key to our 99% repayment rate.

If you go back in the history of microfinance and even Grameen, women and men's repayment rates were very different -- often 40 points lower for men. A big reason for that is men were lent many loans. They were not shut out of the financial system. It was one of six accesses to capital. The loyalty to a loan depended on where it fell on the tree of loans and who’s getting paid back in a given week.

No other organization trusts women like Grameen. Their loyalty to us is so strong because they are grateful that we trusted them, and they know we will be there in the long run. It is that gratitude that is the biggest factor in the 99% repayment rate.

I would argue that the same woman getting a fintech loan for $20,000 online would have a very different repayment rate than the woman getting her loan from Grameen, whereby she comes into weekly meetings and has a relationship manager coaching her through the process of building up credit.

Gratitude and relationships are the two reasons Grameen has a repayment rate that I think most banks would kill for.

Esler: What is the average loan size and loan range?

Jung: The average loan size is approximately $4,000. A first loan is $2,000 and they go up to about $20,000. A common question is “what can you do with $2,000?” My response is that I can tell you 140,000 pathways out of poverty stories that started with a digestible, repayable loan that helps rather than overburdens.

Entrepreneurship is hard. If you don't have a support system and a coach to do it, you end up with someone not utilizing the loan properly. Support systems are critically important. We would rather give you $20,000 over the course of six months so you can build a credit score, feel confident and come back for more, as opposed to giving it all at once and leaving you alone.

Krishnamurthy: Grameen is not just providing loans but is also financial literacy and emotional stability around finances -- something these women have never experienced. What has the role of financial literacy and emotional stability played in helping these entrepreneurs realize their full potential and be successful?

Jung: Grameen has the only randomized control trial of a microfinance program in the United States with MDRC, who conducted a multiple year program which we are about to publish in the fall. The early findings show statistically significant evidence of not only business revenue growth, but also savings.

Financial well-being, sense of confidence, and sense of community also have a direct impact on trust, which is instrumental to the Grameen program’s success.

One of the biggest issues in the financial inclusion dilemma is trust. Distrust in financial institutions is exacerbated and amplified by small print fees and big banks taking advantage of low-income communities. So how does an organization like ours rebuild that trust through community? That really comes from the model’s strategy of women recommending each other.

The reason it works is that one woman is not going to recommend another who doesn't have a strong business plan. If that person comes into the Grameen program and then fails, Grameen may not end up staying in that community.

Collaboration can create the best underwriting in the world because they know the women who have the great little businesses on Main Street USA, and which ones aren't there for the right reasons. They bring each other to the program by word of mouth -- which is the best form of vetting.

So this is where you've got to combine high touch and high-tech. For me, the social and life satisfaction benefits are the priceless outcomes of the model in addition to the hard metrics of the capital return on investment.

Esler: I just got excited about the power of the entrepreneurial and social responsibility example that mothers are setting for their children.

Jung: Yes, I was up in Harlem before the pandemic in a restaurant and a young teenager said “It’s so cool that Mom's the boss.” That goes so far generationally, right? The role modeling has an impact on the family structure, as well as the business income itself. The ripple effect is huge.

Esler: The last question, Andrea, is just about your amazing success navigating the COVID-19 crisis. Grameen adapted its model to support its members (0% interest until 6/30/20, 0 digital repayment cost, loan extensions, recovery loans) and launched the Grameen America Economic Relief and Recovery Fund ($72 million goal). What are some of the success stories that resulted from these COVID relief efforts?

Jung: This past year has been one of such extremes for the organization: on the one hand heartbreaking and on the other hand inspiring. Heartbreaking, of course, in that the virus had a disproportionate impact on the communities we serve. We lost over 60 of our members, and 40% of them said that someone in their family had been affected directly. 85% of them in March/April of 2020 were concerned that their businesses wouldn’t survive to the fall. Some 45% were also facing food insecurity, such that we supported community organizations that gave them access to food banks.

The word that I would use to describe the Grameen community during COVID-19 is "resilience." We had a 99.6% repayment on all of those recovery loans starting in August 2020. Frankly, we were anticipating that members would have difficulty remaining current, but the dedication and the resilience of these entrepreneurs across the country was nothing short of inspiring. We have stories of people who were sick, but got back on their feet to reach out and help other members.

One thing that is part of this community story is how members deeply support one another. As soon as they could get a haircut, who did they go to? Another Grameen member. As soon as somebody's restaurant was open or they needed to do this, that or the other thing, they were there to support each other. There was a dedication to collegially help each other recover literally, financially, and emotionally. That is something we saw city after city.

Esler: Well, I am so grateful to you for how you've led this organization through this period of tribulations.

Jung: It’s been a remarkable year, but as I said what's inspirational is the entrepreneurs. I think robust entrepreneurship speaks to the whole recovery of the American economy. We talk about that on a lot of different fronts, but I am a big believer in entrepreneurship that is not dependent on employment levels. This is not dependent on getting an unemployment check. This is dependent on “I need to restart my tiny little business and the aggregate of all these tiny businesses” in every community across the country. That’s how this country recovers.