Steering credit to the third world--for women

How do small businesses run by women in less developed countries obtain credit?

They usually don't.

It is Michaela Walsh's dream to remedy this situation.

Ms. Walsh, a former partner of a Wall Street brokerage house, has begun a private banking organization to try to provide credit to women entrepreneurs in third world countries.

To accomplish this, Ms. Walsh's organization places deposits with local banking institutions, which in turn lend the money to small businesses that fit a requirement of at least 50 percent ownership by women. By putting money in the local bank, she helps offset part of the risk in making the loan.

Ms. Walsh's organization, known as Women's World Banking (WWB), has already attracted financial support from the governments of Sweden, Norway, and Uruguay. And it may receive money from the US Agency for International Development (AID). WWB's board of trustees is packed with an international array of experts who deal either directly or indirectly with third world problems. Notes Nancy Barry, an American who is on the board and specializes in small industries in South Asia for the World Bank, ''Michaela is very good at tapping into people who have things to offer.''

Since its founding in 1979, WWB has made only two loan guarantees to local banks, in India and Colombia. In the next six months, however, Ms. Walsh expects to complete talks with officials in such countries as Uruguay, Haiti, the Dominican Republic, Kenya, Ghana, and the Philippines. And, although the deposits placed by WWB have been small--in the $10,000-to-$30,000 range--these should grow in the next few years as WWB's capital fund expands. Most of the loans have been in less developed countries, but she hopes to begin making similar commitments in the United States by the end of next year.

One of the Women's World Banking tranactions was in Cali, Colombia, involving Financier Del Valle SA, a local bank partly owned by First National Bank of Chicago. The Cali bank agreed to make $150,000 in loans to women entrepreneurs, and WWB arranged for a letter of credit worth $10,000 to be available as a loan guarantee.

One of the first such loans went to Bicicleteria Montenegro, a local bicycle shop, which was 50 percent owned by a woman. As part of the Women's World Banking program, the owners went through a training program with Amigos del Women's World Banking de Cali, a local affiliate, which also acts as a local guarantor of the loan and a management consultant, teaching the company how to improve on its efficiency. The $5,000 loan, which was made at a 26 percent interest rate, allowed the shop to expand and by January of this year, sales were up 50 percent and employment 20 percent.

Thus far WWB says it has suffered no loan losses. Ms. Barry noted, ''In small business, the smaller clients are more reliable repayers, since they don't have access to credit and take it very seriously. Also, they can't play one bank against another like a larger company can.''

John Hammock, a Boston-based consultant to WWB and former executive director of Accion, a nonprofit organization that provides assistance to the private sector in Latin America, says, ''I've been amazed at the level of response to WWB's program.'' He thinks similar programs would help other small businesses in Latin America--not just those run by women.

The positive response Mr. Hammock has noted in Colombia has occurred in part because of the active role of women in small business in that area. Ms. Barry calls the Cali women ''dynamic,'' adding, ''They have proved that women can take a leadership role in small business.''

At the moment, making such loans is not Ms. Walsh's top priority. Rather, she is trying to round up funding for her own organization, to increase the size of the guarantees, and set up local affiliates. She now has affiliates, called Friends of Women's World Banking in the US, Haiti, the Dominican Republic, Colombia, Uruguay, India, Kenya, and Ghana. The affiliates provide management assistance to borrowers and provide local contacts for Women's World Banking.

Funding so far has come from central banks and foundations. Ms. Walsh has sold $335,000 of 8 percent debentures to the Norwegian Royal Ministry, $300,000 to the Central Bank of Uruguay, and $500,000 to the Swedish government. According to Geir Grung, a spokesman for the Norwegian government in Oslo, the government has contributed to WWB because ''it's in line with Norwegian support for the UN voluntary fund to support the decade of development for women.'' He added, ''We think the employment of women, particularly those in developing countries, is very important, since they are often the ones who support the families.''

The US AID program is contemplating a contribution of $359,000 for three years. Sarah Tinsley, acting deputy coordinator of the Women in Development Office of AID, comments, ''The mandate of our office is to get women into the economic mainstream.'' She adds, ''One of a woman's worst problems is to get access to credit.'' The United Nations Capital Fund is likewise considering a proposal by Ms. Walsh.

She says her goal is to sell $5 million of the debentures, which are considered private placements, and to obtain $5 million in gifts from either individuals or foundations.

The catalyst for her idea came when she was working for Merrill Lynch and traveling in North Africa and the Middle East. She noticed that aid given by such countries as the US was not reaching the grass-roots level, where it could help the most.

Still later, in 1975 at the United Nations International Women's Decade Conference in Mexico City, she listened as many of the 8,000 women--many of them entrepreneurs--complained about not having access to credit and other business opportunities. At that point, she resolved to do something about it and began organizing WWB. It is incorporated in the Netherlands as a ''Stichting,'' which she says gives her the flexiblity of being a nonprofit foundation which can also act as a financial institution.