Defeating Global Poverty

One of the largest market failures has been the lack of reasonable housing options for the developing world urban poor. But this may soon be changing.

If you've been to a developing nation city in the past 20 years, you have likely observed the historically huge migration of people from rural to urban. This is driven by both the lack of opportunity in most rural areas and the relative increase in economic opportunity in the cities. The result is the massive growth of slums or so called informal or extra-legal housing. In fact, while most of the housing does not include any legal rights for the residents, an informal model has developed for buying, selling and renting which is managed through local systems which aren't part of the government. The trouble is that since this system is outside the legal system that it costs more to administrate and property cannot be used for collateral and other important benefits. Hernando Desoto has written extensively about the issue of property rights.

Recently, The Economist reported that there are new approaches to creating affordable housing starting to show up in India. In Mumbai, a reasonable size flat can easily fetch $500,000 which is way above what most Indians can afford. So, developers are now building extremely basic flats outside the city (within commuting distance) targeting price points that are affordable for many more Indians. Ashish Karamchandani of Monitor Group India notes that there are already 23M urban families in India with incomes of 60,000-130,000 rupees ($1,200-$2,500) per year who can afford these new type of flats (typically with payments of 30-40% of their income).

When I met Ashish in Mumbai earlier this year, he was very excited about this opportunity to transform India urban housing. Ashish and his team have been working with Geoff Woolley, a social venture capitalist to develop a business plan for expanding low-cost urban housing in India. Geoff told me a few months back that once the financial crisis hit that suddenly all of the housing developers who had been 100% focused on [now over-built] high-end housing and had no interest in high-volume, lower cost housing were suddenly converts to the new opportunity. Geoff has also been negotiating with some of the microfinance organizations to find clients who were ready and financially qualified for the new housing. If they are able to pre-sell the low-cost housing, then the developer can dramatically reduce their financing costs which means that much of this savings can be passed along to the buyer with still a reasonable profit for the developer. A win-win!

I think India could be a pioneer in finding solutions to this important social problem which could possibly then be "exported" to other developing urbanscapes.

Labels: housing, india, microfinance

I was recently in India and had the chance to meet with a number of microfinance CEOs, bankers and insiders in the microfinance industry including Unitus, Unitus Capital and Unitus Equity Fund staff. One of my key inquiries was how was the global financial crisis affecting MFIs ability to access capital. Accessing capital from 3rd parties is a critical issue for Indian MFIs as they are prohibited by the Reserve Bank of India of accepting deposits as a source of capital. While an increasing number of the MFIs are generating some profits, the profits are insufficient to support their lending growth needs, so they need to go to outside sources for most of their capital needs.

A few highlight observations:

• Large MFIs. The large MFIs are continuing to have access to sufficient capital for their growth needs. One large MFIs chose to slow down growth in late 2008 in order to test the new market conditions for credit, but is now operating once again growing its lending. SKS, based in Hyderabad, announced closing $75M in new equity capital late in 2008.
• Securitization. (Wikipedia definition) Spadana announced $20M securitization in late 2008. In Feb 2009, SKS successfully securitized $40M of their loan portfolio with ICICI Bank. Then just last month SKS announced a $20M new securitization deal with YES Bank which received the highest rating from credit rating agency CRISIL. Securitization has gained a notorious reputation in conjunction with the USA mortgage crisis, but implemented prudently (with strong underlying assets) it is an important and valuable financial vehicle.
• MFI Valuations. Valuations for all MFIs are down with smaller/earlier-stage MFIs being hit even harder. This is not a surprise as equity has become more expensive with the tightening financial markets, but it none the less is a shock to many MFIs who need more equity capital to keep growing. There are different responses to this. One MFI CEO I met with said that they were going to not raise equity capital right now and have made consequently made a decision to dramatically slow down their growth.
• Donor Capital. Donor capital for non-profit MFIs is largely dried up. Because of the prominent success of a number of for-profit MFIs, non-profit MFIs are struggling to raise donor capital needed for growth. This is a significant problem as MFIs need to get to a certain scale before they can be financially sustainable. I met with one MFI CEO pioneering work in a very underserved area of India who had to stop most new loan disbursements because they don't have a strong enough capital base in order to get additional on-lending capital from banks. Without getting more scale, they will not get to profitability and therefore are stuck in a very difficult position.
• MFI On-Lending Capital. The good news is that the government mandates for banks to lend a certain percentage of their loans to support the poor (called the priority sector requirement) is still in place and microfinance is still getting a large allocation of this. The bad news is that the banks are becoming more risk adverse and many are looking to concentrate their lendings to fewer larger (less risky) MFIs. This means that some of the MFIs which are most innovative and tackling some of the harder areas of India are finding it harder to raise on-lending capital.

My net: Overall, microfinance in India is continuing to expand despite the global financial credit crisis. Much of the citizen sector which microfinance reaches are still not connected to the global financial markets and so are less affected by the macro issues. My hope is that MFIs will continue to have discipline in lending in order to keep repayment issues to a minimum in order to continue to provide these valuable financials services to the next village and the next slum.

Labels: india, microfinance, securitization

A recent article titled The Rise of the Underground by Patrick Barta in the Wall Street Journal, examines how the informal economy in India (and other developing markets) is providing an important alternative form of income for workers laid off from jobs connected to the global economy. Without an informal economy, many of them would be destitute as there is very little social safety net in these countries.

I was in India's Assam region earlier this month and once again saw the power of microfinance to empower women with working capital to expand their micro businesses. I was able to interview a number of the women in this picture about how their businesses were going and what they were doing with their profits. The #1 priority they told me was to ensure their children were able to go to school.

Labels: india, informal economy, microfinance

The Economist recently wrote about (article: With reservations) the current debate within India about whether the existing affirmative action (called "reservations" in India) quota legislation for the poor should be extended from higher-education education and government jobs to private companies.

First, there are a variety of viewpoints of who should get affirmative action benefits. Historically, these benefits have mostly been allocated to dalits (aka untouchables) and tribal peoples. Some now advocate that these reservations should also apply to the [much larger group of] lower caste peoples (some estimate at 500M+ in India) and non-Hindu poor including Muslims. There are many complicating factors and opinions on this due to the significant political partisanship of many of these groups. See my post on the India caste system for more details on this.

Second, there is a significant difference in attitude to caste within urban environment (where caste is discriminated against less) and rural (where it is still very strong). This makes it difficult to create laws which have the intended benefits of removing discrimination while not unhelpfully propping up those who don't need the help and abuse these guarantees.

Third, the article notes that another confusing factor is that low-caste Indians are getting less poor at almost the same rate as the general population. The statistic they note is that between 1983 and 2004, the low-caste Indians spending power increased by 26.7% compared with 27.7% for the average Indian (source: National Sample Survey Organisation).

Fourth, there are also regional differences. In northern India, they note that for historical reasons that commerce is dominated by members of a few business castes, while in south India the business community has been more open to members of non-business castes.

So, does it really make sense to extend affirmative action quotas en masse to the private sector? Is this the right approach and priority to helping the poor? What do others think?

Labels: affirmative action, caste, dalits, india, poverty

In my recent trip to visit microfinance programs in India, I had the opportunity to meet with a number of microcredit borrower groups in both urban and rural environments.

One of the most interesting experiences I had was observing the personal confidence and empowerment of women who were engaged in ongoing microfinance borrowing. I met with a number of borrowers who had been borrowers for 3, 4 or more years. This means that most of them were on their 3rd, 4th or later loan cycle (as loan cycles are typically 1 year). These women were demonstratably excited to have us "foreigners" sitting down with them at one of their weekly center meetings. After they finished their formal/normal business or interacting with the microfinance loan officer, we had the opportunity to ask them questions through a translator. They were very eager to respond to our questions ... telling us [proudly] about their businesses, their challenges, what they were able to do with their profits, their new business ideas, what they would do with larger loans, etc. We were talking very much like peers--business person-to-business person--which I really enjoyed.

I contrast this with another group of borrowers I met with who were about 6 weeks into their first loan cycle. This group was very shy and would not offer us much in response to our questions -- even just simple ones about their needs, their families, etc. Now part of this is probably attributable to how early they were in being able to leverage their loans and drive results. I wondered if some of this was cultural ... were we meeting with women who were poorer, of a different religion or other cultural differences which would account for this difference in response? The loan officers assured us that this group was almost identical in their background to the other groups with the exception that they were newer to microfinance.

I had heard about how microfinance empowers women. Now I have seen it. The loan officers we met with say that they see this again and again as women grow in their confidence and self-worth as they continue to run their businesses, pay back loans and earn additional profits which they then get to invest in their families and to further expand their business efforts. But there's nothing better than experiencing this firsthand!

Have others out there found similar or different experiences?

Labels: empowerment, india, microfinance, poverty, women

In my recent trip to India (see other recent posts), we had the opportunity to visit a number of microcredit borrower group meetings. At Grameen Koota, a rural MFI partner of Unitus based in the outskirts of Bangalore, they meet weekly with the borrowers in what they call a "center meeting." Each center meeting consists of women borrowers from the same area (usually one village) who know each other and consists of 4-8 sub-groups of 5 women (so total of 20-40 women in a center.) There is one women elected the leader of each 5-person group and then one women is elected as the center leader by the entire group.

At each center meeting, the agenda is as follows and generally takes from 30-60 minutes:

• Speak pledges
• Take attendance (if more than 10% of center members are not present, then no loans can be disbursed that week)
• Borrowers make loan payments (principle and interest) which is recorded in their passbook. If anyone cannot make the meeting, they send along their payment with some who is attending. If someone cannot make their payment, the group must cover.
• New approved loans are disbursed.
  
• Loan officer requests any need for emergency loans and then disburses if approved by the group.
• New loan applications are collected for later review.
• General discussion on any issues/questions.
  
• Speak pledges again

I took some videos of our group of Americans visiting two center meetings. We had the opportunity to ask the women any questions we wanted through a translator and they were eager and excited to respond. We asked questions about their businesses, how they were using the profits, about their challenges and what other services they would be interested in.

Video: A center meeting in a rural, very poor village near Bangalore


Video: A center meeting in a small rural town near Bangalore

Labels: grameen koota, india, microfinance, poverty

I just returned to Seattle from 2 1/2 weeks in India focused on microfinance. I was traveling on behalf of Unitus as a board member and chair of portfolio committee to visit a number of Unitus's microfinance partners based in India. I visited a total of 8 MFIs (Unitus now has 12 MFI partners in India) based all over India. It was quite a whirlwind trip (7 cities/areas) and thoroughly interesting to see so many talented entrepreneurial teams building social enterprises to provide extremely poor working women/mothers with useful financial services.

Here are a couple of things I observed:

• Continued focus on women clients. The women are better at repaying loans and have demonstrated again and again that they invest the profits in their family's best interest.
• Two distinct models emerging. 4 of the MFIs I met with have found great success in taking a very grassroots approach to hiring inexperienced first level field staff (generally, loan officers) and then promoting (to branch manager, area manager, district manager, etc.) exclusively from within as the field organization grows. The other 4 MFIs are taking much more of a traditional startup business approach hiring strong professionals to lead areas of the operation. Both of these models are working to drive extremely high growth and sustainability.
• New product development. There is a lot of effort being put into developing new and better financial services products beyond the basic productive loan offering. Examples include health insurance, a variety of specific purpose business and consumption loans, remittances, individual loans (no group involved) and savings-like products (note: traditional savings products are prohibited by India's central bank outside of chartered banks).
  
• Products to drive more profit margin or "livelihood". There are some great ideas for providing a "business-in-a-box" type product with built-in franchise-type branding/product and/or access to distribution channels. One example is that rural women are provided raw materials for creating incense sticks or clothing and there is a buyback of finished products to a large retail channel eliminating the middleman and therefore increasing the women's profits substantially. Another example is the creation of an optimized "dairy unit" consisting of 7 cows/buffaloes which is financed and operated by a group of borrowers which both doubles the yield of milk produced per day per animal and has built in profits through buyback with a dairy cooperative.
  
• Variety of entrepreneurial talent. I visited and interviewed many women clients across various rural, peri-urban and urban sites in India. Some of them had a lot of entrepreneurial and others had very little. Often the lower expectations were based on lack of transportation options/infrastructure limiting their markets to their local village. Most clients said that there lives were improving with access to financial services, but some were definitely improving faster than others.
• Urban starting to take-off. There is almost no urban microfinance in India. Unitus has partnered with three entrepreneurial MFIs who are pioneering the work to serve the urban slum dwellers. This is still early, but there are some positive indicators that this segment is primed to grow rapidly.

I am excited about what I saw and experienced. India still has some 100M extremely poor households without microfinance and another 100M of low income households with no access to financial services. So, there's still a lot of opportunity and work to do!

Labels: india, microfinance, poverty, trends

I recently blogged about how the caste system was being lived out on the streets of India in the life of one very poor dalit woman.

About a month ago, (yes, I'm behind on blogging) the Wall Street Journal wrote a front-page weekend edition piece called "Caste Away" about a dalit (aka an Untouchable) who has attempted to break into the fast-growing, professional IT business in India. The article tells the story of how Mr. Thoti was been discriminated against throughout his attempt to build a career. There are moments of hope when he finds hiring managers who are color-blind to the caste system, but this is the exception rather than the rule. Even the chief economist of the Royal Bank of India (equivalent to USA central bank), another rare dalit success story, still faces discrimination.

If you are interested in further reading, there is a book written over a century ago by Mahatma Phule called Slavery which argues that India's caste system is similar to the slavery issue faced by the USA.

The India Caste System Overview

At the top of the caste system are the brahmins ... historically the priests and by far are the current ruling class (almost every institution) in India today. Then their nearest high-caste cohorts are the kshatriyas (warrior caste) and vaishyas (merchant caste). The vaishyas overwhelming oversee the banking and financial systems in India. The Sudras are the low-caste peoples ... numbering over 500 million in India! ... who are identified with a particular occupation (e.g. potter's caste, shepherd's caste, buthcher's caste, etc.) And then below the caste system are the dalits or untouchables.

Here is a picture of the caste hierarchy.

What is interesting is that the dalits, while still overwhelmingly extremely poor, are often better off than the low-caste peoples. Part of this is due to the affirmative action setup for dalits.

Have you experienced the caste system? Please post a comment (and please include your caste name in your comment!)

Labels: caste, india, poverty

Warning ... this video is not for those with a weak stomach. But it does seem to be an authentic day-in-the-life video of a dalit woman in India.



The dalits (aka Untouchables) are at the bottom of the caste ladder in India. Many people describe the caste system in India as an apartheid or slavery system (see my recent book review on Slavery by Mahatma Phule) ... at least as powerfully entrenched as historically in South Africa and the USA respectively.

I asked a friend ... why do the local people continue to defecate on the street when there is a free nearby toilet? He said that they do this because it is a way of showing their superiority knowing that this woman will clean up for them. The caste system is not just about the high caste abusing the lowest castes, but every level of caste abusing those lower in the hierarchy.

So, this woman has a job. She earns 3,000 rupees per month or about $2/day. She has an outstanding debt (most likely from a money lender) of 10,000 rupees (about $200) for which she pays 1/3 of her income for interest only (10% per month interest!) ... and no principle. She likely had a family medical emergency/tragedy/wedding which forced her into debt and now she is basically a slave to this debt seemingly indefinitely.

You can tell this woman to simply quit her government job, but unless she has some other method of earning income, she will be even worse off. She appears on statistics as "employed", but I don't think many of us would consider this viable (and certainly not sustainable) employment.

My friend said ... "this is why India so critically needs more microfinance." Microfinance would provide this women with a small loan to use her industrious spirit to earn more take-home money and allow her a path out of her debt enslavement and likely death from the hazards of her government job. Maybe providing better government jobs would help some people, but that seems like an insufficient response.

I agree with him. What do you think?

Labels: dalits, government jobs, india, poverty

Good article in Fortune magazine titled: India, The Superpower? Think Again by Cait Murphy.

She points out that India has done a marvelous job in building a revenue (and tax) generating IT sector employing 1 million people, but it has only 7 million employed in the formal manufacturing sector vs. 100 million people in China. The bottom line is that India is not generating enough jobs for the 10+ million Indians who enter the job market each year.

Other economies in Southeast Asia have successfully developed ahead of India "by being relatively open to trade; by investing in primary and secondary education; and by building pretty decent infrastructure (not only roads and ports, but health clinics and water supplies). India has begun to embrace one leg of this triangle - freer trade ... As for the other two legs of this development triangle - education and infrastructure - these are still badly broken. About a third of teachers fail to show up on any given day (and, of course, are unsackable); the supply of both water and power is expensive and unreliable."

Other key areas which India needs to focus on before boasting about being a superpower: an unreformed state banking sector; labor regulations that actively discourage hiring; abstruse land laws (and consequent lack of land titles); misshapen subsidies that hurt the poor; and corruption that is broad, deep and ubiquitous.

It is a very good thing to have a free press which publicly calls out these kind of issues.

Labels: india, poverty

There is a very interesting experiment going on for the past few years in New Delhi, India called Hole in the Wall. Free-to-use [Windows-powered] computer kiosks with Internet connections are placed in and around a number of slums. The PC's are designed to be industrial-strength with plexi-glass on the front and plastic covered keyboard and a touchpad for a mouse function. They have built in battery backup (for the frequent power outages) and are connected to a satellite receiver on the roof of the building to provide broadband Internet connections. These are public access computers.

The research project (and now NGO) is named so because the first of these kiosks was literally put in a hole in the wall near the office of physicist Sugata Mitra who heads research efforts at New Delhi's NIIT, a fast-growing software and education company. Mitra setup the first kiosk just outside his office and then watched through a webcam as local illiterate children started investigating this new contraption.

What he discovered:

• Children figured out how to use the computer without any assistance ... completely driven out of curiosity
• Children figured out their own "sharing rules" for the computer usage
• Children increased their proficiency in reading (English) and math

Mitra's provocative conclusion/opinion ... that education improves when there are fewer teachers! He contends that children have the innate drive to learn and just need tools (like access to computers) to help them explore and exploit their curiosities.

Here are some additional articles on this research experiment:

• Pulling Themselves Up By Their Keyboards, Ode Magazine
• A "hole in the wall" helps educate India, Christian Science Monitor
• Interview with Sugata Mitra, GreenStar.org
• Some videos, from PBS/Frontline

What do you think?

Labels: children, computers, india, poverty

In July 15th issue of The Economist, there was an interesting article on whether the money being spent on education in developing countries was resulting in children actually learning. Globally, the World Bank alone has spent over $12 billion on primary education since 1990. Pratham, an India educational charity, reported that less than half of children ages 7-14 could read a simple passage in their native language.

One of the most successful programs to date in increasing school enrollment is to not only make primary education free, but to actually pay parents (cash or free meals) if they keep their children in schools. In Nicaragua, a pilot program like this has raised enrollment rates by 22%.

It seems that donors are more interested in school-building than they are in schooling. That is, focused on the inputs -- # of buildings, # of teachers, # of text books, etc. -- rather than the outputs -- are children learning.

Pratham has found one educational experiment that has worked well ... hiring balsakhis (which means "children's friends") who are unqualified high-school graduates to provide remedial education to students falling behind. These mentors were cheap, quick to train and could work in hallways or under trees reducing the need for more buildings. The result in Mumbai is that it raised the chances of fourth-year pupils grasping first-year math by almost 12% and second-year math by almost 10%.

Read article

Labels: children, economist, india, learning, poverty

I recently finished reading an interesting book by Narendra Jadhav called Untouchables: Family's Triumphant Journey Out of the Caste System in Modern India. If you want to understand India and how to be effective in accelerating impact on poverty there, you need to understand the caste system and how it affects how the vast majority of people think in India.

If you think the India caste system is dead, all you need to do is open up any Indian newspaper and turn to the classifieds section for people seeking marriage partners. Almost all of the ads are explicit about the caste system of the ad buyer as well as the caste requirements of the spouse they are looking for. The explicit caste recognition is less front-and-center in other social spheres, but it is very much there under the surface and affecting how people think about themselves and each other.

This book is a biography of a dalit family living through The Great Depression, the India independence movement and up to today. Dalits are also known as the out-castes or untouchables. They are lower than the lower-castes as they are below the caste system. It is a story of triumph and yet a call to continue to fight to break the caste slavery system.

Read my longer book review

Labels: book reviews, caste, india, poverty

I attended the official launch event of the new partnership alliance between microfinance leaders Unitus and Accion in Bangalore this past Friday. This is a unique partnership of two experienced and innovative organizations who are turning their expertise and resources to bring massive acceleration of access to microfinance to India, a country with 1/3 of world's poorest and to date significantly underserved with the empowering help of microfinance services.

The alliance has set an extremely ambitious goal of serving 15 million poor households in India by 2015 estimating to touch conservatively 75 million people (assuming 5 people per household.) This would represent a massive impact on global poverty in addition to being a transforming process for India.

Unitus will be focusing on "scaling up" innovative, early-stage/start-up Microfinance Institutions (MFIs) and Accion will be focusing on helping large, traditional banks in India "down-scale" to start providing relevant financial services to the poorest. Unitus has a good start with current partnerships with 5 very promising MFIs who are demonstrating significant progress already.

An overview of Microfinance

Labels: accion, india, poverty, unitus