An interview with Tahira Raza, ex-banker and development sector specialist'Women empowerment will prove crucial in early recovery'

Tahira Raza is a well-known Karachi-based philanthropist, focused on gender empowerment. She started her career with Muslim Commercial Bank in 1975 after completing a bachelor’s in Science from Peshawar University in 1974. Later, she joined First Women Bank Limited and became one of its founding executives. Meanwhile, she also had a brief stint at National Bank of Pakistan (NBP) and became the first women at NBP to be elevated to Senior Executive Vice President.

Tahira was appointed as the President and CEO of First Women Bank Limited in 2014 and served in that capacity for four years. During her time at FWBL, bank’s profitability was successfully turnaround, as the leadership managed to reign the high infection rate from bank’s commercial lending.

Currently, she serves on BoD of Pakistan Petroleum Limited, where she is chairperson of the Board Audit Committee and a member of Board Strategy and Finance, Enterprise Risk and Procurement Committees. She is also a director on the Boards of PPL Europe E&P Limited and PPL Asia E&P B.V.

Her areas of expertise include risk, credit and human resource management, audit, trade and finance and general banking as well as corporate governance, leadership and project management skills. Since her retirement from FWBL, Tahira is focused on developmental issues, such as community-based lending, microfinance, and gender empowerment.

Below are the edited excerpts of her conversation with BR Research, focusing on need for female access to finance to improve financial inclusion.

BR Research: Group guarantee concept was introduced during your time at First Women Bank? Would you describe it as a success?

Tahira Raza: As part of FWBL’s pioneer management team in 1990, MoF introduced a Rs25 million guarantee fund as it was venturing into a specialized market and the Rs100 million bank capital was insufficient to absorb losses.

We studied several international examples from India, Indonesia and Bangladesh, such as the Grameen Bank. One of the major bottlenecks in community-based lending is absence of a guarantor. Thus, we formed groups of women borrowers – four per group – and the disbursement was made to each woman in a step-wise fashion. Lending to the second borrower was only made if the first borrower began timely repayment, and so on. This would create a positive spill over, as peer pressure ensured that borrowers would not default. The model was found successful initially, and when NRSP was formed, it also followed in the footsteps.

However, group guarantee is no longer in use, as defaults began to trickle in later. Unfortunately, once a loan cycle had been completed, the groups did not demonstrate cohesion. But most importantly, success was diluted as the portfolio was focused on lending to women in rural areas, FWBL is an urban based institution. For microfinance initiatives to be a success, day-to-day interaction with the borrower is crucial. Our presence in those villages was through community NGOs, some of which also adopted an exploitative role.

BRR: Do you believe that’s a comment on viability of group guarantee concept, or the geographical mismatch between the bank and borrower’s profile?

TR: Even if bank had targeted urban borrowers, the model would not have proved viable. It is hard to identify clusters in urban centres. Rural communities are smaller thus peer pressure delivers because of hierarchical social structure. Moreover, vulnerable communities in urban centres are also more mobile, thus it is hard to identify geographic-centric borrowers with roots in the same community for very long periods.

BRR: Development finance market has evolved considerably since FWBL was founded 30 years ago. Considering both microfinance institutions and traditional banks’ focus on financial inclusion, is there space for a specialized women’s bank?

TR: Yes, if the structure is revamped into an urban centric institution. Existing microfinance institutions are already focused on rural lending and are not discriminatory towards women in their lending practices. Therefore, there is little business sense in cannibalizing the same target market, specially when lending is based on development goals. Furthermore, the existing brick and mortal organizational structure of the bank mainly exists in urban centres. Uprooting that to pivot towards rural market would also mean tearing down the current organizational structure.

BRR: FWBL has been a target of M&A rumours for a long time. Does the urban consumer credit market have an appetite for a specialized women’s bank?

TR:  No, the bank savers and borrower target market should not be exclusive to women; but it must retain a strategic business unit specialized in catering to that market. We have already experienced this challenge; to this day, it is asked whether man can open a depositor’s account in FWBL. That’s not good marketing, especially if dissociates you from 50 percent of the population.

Also note that financial decisions, especially ones’ involving female participation, are taken on a household/family level, and not that of individuals. As a result, we also stand to lose potential clientele of women who wish to operate a joint account.

Nevertheless, a defined percentage of the loan book should be target female customers. The Memorandum & Articles of the bank could be amended to this effect. KPIs may also be determined accordingly. In the past, bank’s strategy failed because it did not target the female market segment separately.

BRR: Does your experience indicate that the infection ratio was higher/lower for the female lending portfolio?

TR: It was higher, but the reasons are misunderstood. On many occasions, male members of the household use women borrowers’ only as a front to access financing. Thus, joint account access to funds can have perverse consequences. As a result, infection ratio of lending to women appears high, although when controlled for the variable, this is no longer the case. Where women have unrestricted access to financing, by and large, they strive to turn the business into success and make timely payments.

BRR: On that note, can concessionary loans targeting a specialized market create moral hazard? Attracting more men to use female household members as front to access financing?

TR:  Remember, subsidies and concessional loans are invariably exploited. Microfinance has been successful despite being extended on commercial credit terms. This was made possible because microcredit institutions focus on enhancing capacity of the borrower in developing their business, giving marketing and financial management training, and other enabling tools and skill set.

On the other hand, whenever concessional loans are extended, borrowers apply irrespective of interest, skillset, or marketability; simply to take advantage of the credit terms.

Moreover, prospective women borrowers lack more in terms of relevant skillset and business training. In my considered opinion, women need access to finance, not concessionary loans.

BRR: Commercial banks rely significantly on comfort with the guarantor. Given our patriarchal society, does the absence/involvement of male household member in the role of a guarantor play into lending decision of the loan/risk officer?

TR: Although this is not true generally, it is correct that some loan officers may not have the best training and skills. As a rule, FWBL considered it a strength if borrower profile was one of an independent woman striving to create a business on her own. Of course, there can be exceptions, such as scale of enterprise and loan size. We also believe that even if women were involved as a front, at least it led to fifty percent ownership for them in the asset being created.

BRR: As a philanthropist with experience in working with vulnerable segment of the population, do you see the ongoing crisis as evidence for a Universal Basic Income program?

TR: Research indicates that development goals are more successfully achieved wherever women are empowered and are made responsible for financial management of the household. For example, incidence of malnutrition decreases, while a more equitable distribution of resources among male and female members of household is achieved.

Therefore, I believe that the crisis has not only highlighted need for direct cash transfers, but to ensure that those transfers are made to female members of the household. A quicker recovery from the crisis can be achieved if women are made financially empowered.

BRR: Research remains inconclusive whether in-kind/asset transfers work better than unconditional cash transfers in achieving graduation from poverty. What is your view?

TR: Cash transfer is better because it empowers people to plan and to use the funds as and when they need. It enables them to prioritize spending on what is most beneficial for them. Providing people with necessities that we think they may need may be of little use to them. Every family will be different and should be able to make the right choice for themselves.

Currently people who want to help are unable to identify the deserving. The Benazir Income Support Program has a database of 5 Million people and is a reliable resource for the transfer of money to the deserving. Beyond this database we might not have seen many promising sources. The government needs to create a focal point where all relief efforts can be registered and recorded. The system or model needs to be developed to streamline this process that can also be beneficial in the future.