Thursday, April 17, 2008 

Businesses focused on the world's poorest

I am increasingly convinced that businesses focused on serving the world's poorest 4 billion citizens are a very good investment whether you are looking for financial return and/or positive social impact return. That is, for those of us who seek to end poverty, the scale and sustainability potential of businesses focused on this "market segment" have enormous potential for doing good AND doing well. We don't live in a zero sum world.

Due to the recent increase in non-charity capital flowing to entrepreneurial microfinance banks, we are seeing continued and exciting new growth levels in access to microfinance for the world's poorest. Correctly, I would argue, most microfinance banks are focusing primarily on client base expansion with basic microcredit products. One of Unitus's microfinance partners, SKS based in India is now adding more than 100,000 new client every MONTH! This is creating a new large-scale, relatively low-cost distribution channel for delivery of products and services to the world's poorest families.

The initial benefits of having microcredit loans have been HUGE for these poor households. Even while paying loan rates similar to their middle class fellow citizens (ranging from 25-75% in various countries), most borrowers are comfortably paying back their loans with significant growth in net income. And this occurs with generally nothing more than the loan ... that is, no business training, no additional education, etc. That is, the women (most borrowers are women) are putting their existing knowledge and skills to work with a very positive income growth result.

I believe that there are at least two additional categories of significant benefit for these poor families which are on the verge of taking off: (1) products/services which increase the earning potential of the families; and (2) products/services which increase the purchasing power of the families. The first category includes many new opportunities which enable families to earn more for the same labor input and/or protect their existing assets. Examples include skills training, micro-franchises, new tools, supply chain integration, insurance products, savings products and many other products/services optimized for these families. The second category includes leveraging the aggregate demand of these families to attract the R&D, manufacturing and distribution investments to bring new, better and cheaper products to these families thereby enabling their money to purchase more. Examples include affordable mobile phones and better/cheaper food and other staples.

And when you combine these new economic growth and stabilization products/services with a the microfinance financing mechanism, you open up even more opportunities. One example would be a small scale renewable energy electricity generation system which could be operated as a business by a micro-entrepreneur (e.g. micro utility), financed by a microfinance bank and resulting in decreased cost of energy for a family in a rural village.

These new businesses serving the world's poorest have huge scale potential ... that is, an extremely large potential customer base. This means that if operated well even a small profit per customer could result in a large total profit over time. So, you've now got an attractive destination for capital combined with potential for significant social impact.

Now, I know that some people are concerned that these businesses will end up earning profits from these poor families and they feel this is morally wrong. I ask though what a better alternative is? For I think it is at least as morally wrong for us to withhold (or delay) the benefits of opportunity for these families in the name of protecting them from potential abuse.

Please post your thoughts in comments.

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Wednesday, February 13, 2008 

Is the world getting better?

Most people perceive that the world is a pretty rotten place and getting more rotten. We've got more wars/violence, more inequity, Africa getting poorer, climate change, etc.

The Economist recently published an article sharing statistics about how the world is doing looking at three categories: the underlying social condition in poor countries, poverty alleviation over the past decade and the incidence of wars and political violence. The net is that while there definitely are some rotten things going on, the net is that over all the world is a much better place for most people than it was a decade ago. Here are a few of items from the article (please read the article for more details as there are a lot!):
  • 25 years ago in China, over 600M people were living on < $1/day. Today this number is 180M ... meaning 420M+ people are now above this level.
  • Between 1999 and 2004, 135M people worldwide rose from < $1/day to above this level. This is more people, more quickly than at any other time in history.
  • In South Asia, the number of people without clean water has halved since 1990.
  • In 1975, 75% of people aged 15-25 were literate. Now the rate is almost 90%.
  • In 1970, the fertility rate in East Asia/Pacific was 5.4 and now is 2.1 In South Asia, it was 60 and now is 3.1. Overall, global fertility has fallen from 4.8 to 2.6 in 25 years. Africa has all but one of the countries with fertility rates above 5.0.
  • A World Bank study noted that every 1% increase in national income her person in an emerging country translated in 1.3% fall in extreme poverty.
  • In 2007, the global economy entered its fifth year of over 4% growth -- the longest period of expansion since the 1970's. Also, trade grew 9% despite all of the challenges.
  • Almost half of all humans lives in countries with growth of more than 7% per year (which doubles the economy every decade).
  • Inequality has risen in both rich and poor countries overall, but there are examples where this is not true questioning whether globalization is the main culprit of inequality. The Economist argues that lack of [quality] education is likely the biggest culprit.
  • In 1990, more than 25% of people in developing countries lived on < $1/day. At current rates, this will be 10% by 2015.
  • Income is not the only way to quantify improvement for the poor. Monetary measures understate the real gains from things such as lower child mortality, safer water, literacy and other social achievements.
  • A study shows that the number of conflicts (international and civil) fell from over 50 at the start of the 1990's to just over 30 in 2005. The number of international wars peaked in the 1970's and have been falling ever since. The death toll in battle fell from over 200,000 a year in the mid-1990's to below 20,000 in the mid-2000's. [The WHO has higher numbers.]
  • The number of incidents of terrorism has increased since 2001 although the number is still very small.
I am not trying to say our efforts to accelerate the end of poverty should be reduced, but simply to notice and celebrate where progress has been made.

Were many of these data points a surprise to anyone else besides me?

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Sunday, February 10, 2008 

Free malaria bed nets

A new survey by the World Health Organization on the impact of widespread distribution of free bed nets combined with anti-malarial medicines notes some very positive results. Here are some excerpts and summaries:

In Ethiopia, deaths of children from malaria dropped more than 50 percent. In Rwanda, they dropped more than 60 percent in only two months.

Zambia had only about a 33 percent drop in overall deaths because nets ran short and many districts ran out of medicine. But those areas without such problems had 50 to 60 percent reductions.

“We saw a very drastic impact,” said Dr. Arata Kochi, chief of malaria for the W.H.O., “If this is done everywhere, we can reduce the disease burden 80 to 85 percent in most African countries within five years"
He estimates this 5-year campaign would cost about $10 billion and would reduce the death rate due to malaria to thousands per year rather than millions per year who now die.

Reporting on this report in The Economist and New York Times.

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Sunday, December 02, 2007 

How to Change the World

I recently finished reading David Bornstein's book, How to Change the World: Social Entrepreneurs and the Power of New Ideas. This book is a very fun read filled with stories of innovative social entrepreneurs tackling and making large scale progress on many national and global social issues. In a world where the media focuses mostly on what's not working, it is encouraging to see what is working under the radar.

Read my full review.

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Sunday, November 18, 2007 

Microfinance 3.0

After spending time in India and the Philippines over the past few months with some of the world's most innovative and fast-growing microfinance organizations from around the globe, I have a few thoughts on the next phase of microfinance which we are about to see flourishing over the next 3-5 years. I will refer to this as "Microfinance 3.0".

"Microfinance 1.0" (M1) is the model used to start most microfinance programs in most countries. M1 is generally started as a non-profit entity which is funded by donors and primarily focuses on developing a successful model for deploying microloans to poor entrepreneurs ... which includes having a high repayment rate on loans and starting to move towards getting enough clients (scale) in order to become break-even with lessening reliance on donation capital. Most MFIs (I would guestimate 95%+) never graduate beyond M1 status.

"Microfinance 2.0" (M2) is a new phase for microfinance which is characterized by high-growth of operations combined with professionalization, systemization, access to capital markets and new product development. The credit model proved in M1 is now rolled out at a dramatic new pace ... opening new branches, hiring staff, implementing internal controls, etc. which require investments in computer systems, experienced management and access to capital which quickly outstrips the capability of donors. M2 orgs must build substantial business relationships with banks and investors who have the resources to support this new level of growth. This also means more accountability including a strong board of directors and much more detailed financial reporting to all stakeholders. Additionally, development of new and enhancement of existing financial products begins in order to better serve the clients.

"Microfinance 3.0" (M3) is the next phase that is starting to emerge. In the few mature markets for microfinance like Bangladesh and Bolivia, many of the more mature MFIs have converted in regulated banks which is one of the options available to mature, sizeable MFIs. Generally, though becoming a regulated bank is not a feasible short or medium-term option for most late stage M2 MFIs. Instead, I am seeing "mature" M2 MFIs starting to pursue the following strategies:
  • Supply Aggregation. Selling the aggregated supply of their borrowers in order to increase the income of their borrowers. As one senior exec at a large MFI in India told me ... the #1 business we are financing for our borrowers is milk-producing cows and buffaloes -- we can organize the selling of their milk for a better price than they can receive today. Another MFI is providing the raw materials to their borrowers for making incense sticks which they agree to purchase back at a higher price than they could get themselves. The MFI then sells the incense sticks to retail and wholesale purchases cutting out many middlemen who historically took most of the profit/margin.
  • Demand Aggregation. Aggregating the buying power of clients/members in order to lower prices paid for goods by clients/members. This is similar to the Costco member model in the USA where members get access to products at a lower price due to their collective buying power. A MFI senior exec told me that they are seeing many opportunities to provide both products and services to their clients which save their clients money (e.g. on food staples) and give them new benefits (e.g. health insurance) at affordable prices and with improved quality over their current choices (or for the first time.)
  • Business-in-a-box. Anyone who has visited microfinance borrowers is struck by how hard they work to run their businesses to further their livelihoods. The fact though is that many of these people are not very entrepreneurial ... that is, they are running businesses which have an upper limit to the profit potential. There are now a large number of true entrepreneurs developing very interesting self-employment (or a few employees) businesses which are like microfranchises. That is, where the business model, inventory supply, branding, portable kiosk, etc. is provided and with a little training an individual can without extraordinary entrepreneurial skills run an even more profitable mini-business.
  • Savings programs. Despite the central bank limitations of providing savings to the poor, many MFIs are actively investigating new ways to provide safe and helpful savings programs. One of the huge benefits of enabling savings is that a MFI can lower its cost of capital which they can then pass along in lower interest rates to borrowers. [I realize that savings are a much larger topic which I will expand in a future post!]
Is every market ready for M3? No. Many markets/countries are almost exclusively in the M1 stage and will be for some time. I am providing this proposed M1/M2/M3 framework to explain the evolution of financial services to the poor as it matures in specific markets over time. I am excited to see that the poor are increasingly being viewed as "investable" ... a good and reasonable investment. While this has the risk of potential for exploitation (like with payday lending in the USA), I think that there are many more upsides overall which benefit the world's poorest.

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Ebay enables investing in microfinance

Ebay recently opened a new web site called MicroPlace which enables individuals to make loans to the world's working very poor. This enables what I refer to as Socially Responsible Investing version 2 ... choosing to make a positive social impact with your investing.

Here's generally how it works:
  • You can preview the investment options ... currently there are 15 choices of microfinance institutions (MFIs) across 11 countries. The term of the loans ranges from 2-4 years and the interest rate paid ranges from 1.5-3% per annum.
  • To make an investment, you create an online address, password and then [unfortunately] a lot of personal information which they are required to capture as a securities broker.
  • You can then invest a minimum of $100. This means that almost anyone can invest which is great! You fund your investment through Paypal (another Ebay company) or directly with a checking account transfer.
  • Once you've made your investment, you can track it on their web site.
I have written previously about Kiva, another way to provide loans to microentrepreneurs. I thought it would be helpful to compare and contrast these two services.

Here's a summary comparison ... Kiva let's you loan directly to a specific borrower which is much more personalized. The downside of Kiva is that you are receiving no interest on your loan. On the risk (of getting your loan repaid) side, with Kiva you need to manage your own risk by splitting up your loans across multiple borrowers whereas you're investing in a fund with Microplace so your risk is already diversified across a group of borrowers (although typically with one MFI). Generally, Kiva loans are shorter duration. Currently Kiva provides many more countries and MFI partner options ... although because of its popularity there are often on a few borrower loans listed at any given time.

More resources

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Saturday, November 17, 2007 

The Poor Always Pay Back

I have recently completed reading a detail-filled book about the transformation of [2006 Nobel Peace Prize winning] The Grameen Bank over the past few years.

This book is titled, The Poor Always Pay Back, chronicles how the bank developed "version 2" of the widely now copied Grameen model of microfinance ... including offering loans with group guarantees, customized (vs. one-size-fits-all) loan products, insurance products, pension products and much more.

See my book review.

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Monday, November 12, 2007 

One Laptop per Child offer

I just ordered two laptop computers ... for a total of $399 plus $25 shipping. One gets shipped to me and one gets delivered to an impoverished child.

NOTE: This is a special offer which started today and goes through Nov 26th only. So, if you're interested in seeing (and supporting) what is an amazing breakthrough in bringing computers to the bottom of the pyramid, check it out @ You can also just purchase laptops for children if you like @ $200/laptop.

This is the brainchild of the One Laptop per Child (OLPC) initiative which I previously wrote about. This has previously been referred to as the "$100 laptop". $100 is still the goal, but will require more volume to achieve that level of cost structure.

Founder Nicholas Negroponte says "It's an education project, not a laptop project." OLPC's goal: To provide children around the world with new opportunities to explore, experiment and express themselves. More...

The laptop truly is a breakthrough in thinking. Read New York Times review or watch the New York Times video review below.

See more videos on OLPC at

So, do I really need another laptop? No. I'm buying this laptop so that I can be a better ambassador for this initiative. The green laptop will catch a lot of attention!

My challenge: Why don't you consider doing this as well?
Please post a comment if you take on my challenge.

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Wednesday, November 07, 2007 

Malaria solution continues to be stalled

I previously wrote about how there is growing widespread support for indoor residential (not crop) spraying of [small amounts of] DDT as the most effective (cost and results) way of decreasing malaria in many countries and especially Africa.

Dr. Roger Bate, board member of Africa Fighting Malaria, comments that "DDT is probably the single most valuable chemical ever synthesized to prevent disease. It has been used continually in public health programs over the past sixty years and has saved millions from diseases like malaria, typhus, and yellow fever. Despite a public backlash in the 1960s, mainstream scientific and public health communities continue to recognize its utility and safety."

He goes on to say, "Developing nations are skittish. Their populations have been scared by environmentalists into thinking DDT causes cancer and birth defects; and their farmers have been frightened by EU officials and segments of the Western chemical industry into believing their crop exports will be boycotted. As a result, many African leaders have delayed re-introduction of DDT, perhaps indefinitely. Over the past three years, for example, two different Ugandan health ministers have wanted to deploy DDT indoors, but fearful of Western trade reprisals, their farmers have blocked all attempts to do so."

Find out more on advocacy site

What ideas do you have in helping to overcome the misperceptions of DDT?

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Monday, November 05, 2007 

Zero defaults not good for innovation

One of the key metrics tracked closely by microfinance institutions (MFIs) is the percent of the loan portfolio at risk (PAR) after 30 days. That is, what % of the loans outstanding are in arrears more than 30 days. This is viewed as an important indicator of the "health" of a loan portfolio and the health of the MFI.

In some countries, there is a perception/expectation that 30-day PAR (PAR30) should be almost zero. For instance, in India, most the high-growth organizations have PAR30 of less than 2% and some have very close to zero. This is achieved through a number of methodology implementations including manageable loan sizes/payments, group guarantee/social capital, frequent repayments, etc. In other countries (e.g. many countries in Latin America), the typical PAR30 is in the 5-10% range. There are no absolute right or wrong levels (although getting above 10% can have some potentially very negative tipping point issues), just different models in different locales.

At the recent Unitus Leadership Summit, there was an interesting discussion amongst some of the world's fastest-growing and innovative MFIs around what the target rate for PAR30 should be. On one hand, low PAR indicates that your system is working well and you don't have to have your in-good-standing clients paying more to subsidize your delinquent borrows. On the other hand, it is very difficult to innovate in without experimenting ... and experimentation often leads to, at least, some short-term decrease in PAR as you're ironing out the process.

Some of the innovations under development are:
  • moving from weekly to bi-weekly repayments ... this is an oft-requested feature by clients as it would reduce the amount of time spent on transactions
  • individual loans instead of group loans ... essentially not using a group incentive model
  • loans to men ... most MFIs only loan to women
  • different repayment installment models ... e.g. rather than typical equal amount of principle and interest on each repayment, offer some balloon repayment options
  • agriculture-related loans ... most MFIs currently don't provide this type of loans due to the high risk of crop failures and the seasonality factors
  • higher loan size ... ramping up size of loan more quickly based on individual needs and capacities ... most MFIs have fairly similar loan size increases purely based on how long you have been a borrower in good standing
  • early repayment options ... requested by some borrowers who want to pay off early to lower interest payments and, in some cases, accelerate to next larger loan size
  • new financial products such as insurance
I think that we should encourage MFIs to be more innovative in developing and experimenting with new financial services for the working poor even if this results in some marginally higher default rates in the short-run as ultimately the innovations will provide more value/benefit to the clients.

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Wednesday, October 31, 2007 

Increasing Microfinance Productivity

Photo by me of rural microfinance center meeting near Bangalore, India in September 2007. The gentleman in the middle is the loan officer from Grameen Koota MFI. The woman to his right is the elected center leader for this group of 30 women. The others were part of our Unitus Partner Expedition trip which my wife & I hosted ... enabling westerners to get a hands-on experience of microfinance.

Last week, I was in the Philippines for the Unitus Leadership Summit, an annual gathering of some of the globe's top social entrepreneurs running many of the most innovative and fastest-growing microfinance institutions in some of the poorest areas of the world. It was a privilege to listen in on sessions where they shared what was working, what wasn't, their challenges and their aspirations. While some of them are considered competitors, they shared very openly about the experiments they were doing in areas such as mobile banking, product development, increasing operational efficiency, raising capital, high-capacity staff recruiting and training and more.

One of the most fascinating topics was their focus on innovating to increase the productivity of their largest group of staff, loan officers. Loan officers are the front-line staff who directly provide financial services (including microcredit) to their bottom of the pyramid customers and make up 70%+ of their staff count. If they can increase loan officer productivity, their whole cost structure goes down and ultimately they can pass the savings on to the customer in the form of lower interest rates. So, this is a very important metric!

Many MFI's are happy if a single loan officer can serve 300 clients at a time. [Remember the loan officer goes to the client and often they meet once per week with every client, so the number of touchpoints and travel time is significant.] The conversation started off with how they were not satisfied that 750 (!) clients per loan officer was the maximum productivity. Many of them are now reaching this level of productivity. They get to the 750 number as center groups of 50, 3 center meetings per day and 5 days per week. Of course, there's the recruitment of new members, new member training, follow-up on members, data entry, various paperwork, etc. which also needs to be done.

So, we had a brainstorming session on ways to further increase productivity without overloading a loan officer. Here are some of the ideas that came up:
  • Reduce the maximum radius to client location to 10km (usually now further)
  • Collections every 2 weeks (half the # of trips/meetings)
  • Deploy handheld/wireless devices to loan officers to reduce paperwork and cash-handling time and cost of float (and reduce group meeting time)
  • Create pre-printed stickers to put in client passbooks (rather than having to handwrite each entry in each officer has to do this as most women are illiterate)
But then the discussion went in a different direction ... rather than focusing on the # of clients per loan officer as the productivity metric, why not focus on margin generated per loan officer? This has a number of implications and issues including:
  • This would encourage innovation around offering additional products to clients so that meeting times have a lower relative transaction cost. e.g. if you also provided insurance products or health products in the same client meeting, there is a much smaller incremental cost as the meeting is already scheduled.
  • Would loan officers be able to handle a broader range of products well?
  • Would this type of focus increase or decrease client retention long-term?
  • Will loan officers then seek to focus on less poor clients who have capacity for say larger loans with more margin?
So, there wasn't any silver bullet and with every attempt to innovate there is going to need to be experimentation and refinement. But, I really liked the continuous improvement attitude that they demonstrated and the willingness to challenge the current status quo thinking.

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Bandhan helping the poor move ahead

I had the opportunity to visit microfinance superstar Bandhan in Kolkata (formerly Calcutta), India last month and then had the opportunity to catch up with C.S. Ghosh, Bandhan's CEO last week in the Philippines. Mr. Ghosh handed me a pamphlet highlighting some of their latest progress.

Bandhan one of the world's largest AND fastest growing microfinance institutions. This is usually an oxymoron as most the larger microfinance organizations are growing very slowly. Here are a few of their stats: over 750,000 clients, over 400 branches, over $120M disbursed, over 2000 staff. And they are growing at something like 30,000+ clients per month!! Five years ago they didn't even exist and now they're serving 750K families or about 3,750,000 people!

But, what I found the most interesting was a study of the impact of microfinance services on their clients by Mr. Ranesh Buswas and Mr. Soumik Ghanta of the Indian Institute of Forest Management, Bhopal, India, April-June 2007.

Here is a chart of the impact on their clients through 3 loan cycles (each 1 year)

Here are a few of my observations:
  • By the third loan almost all of the women (90%) have access to a savings facility (critical to help with unforeseen or special expenses)
  • 100% have reduced their dependency on moneylenders by the 3rd loan (moneylenders charge at minimum 100% and often 300-500% interest with daily repayment required)
  • 90% have increased their income by the 3rd loan (meaning that they've pretty much all figured out how to run a business which provides enough income for them to repay their loan plus interest and have surplus)
  • Many (60%) of them have started to grow their liquid assets by the 3rd loan (owning productive animals are one of the key methods for doing this)
  • Some (30%) are starting to be able to acquire (or buyback) more land by the 3rd loan, but it will take longer for the majority.

What do you observe? [post a comment]

Oh, and a bonus... a short video I made while visiting a group of Bandhan borrowers in September. Look at their beautiful saris!

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Remittances top foreign aid

A couple of weeks back at the International Forum on Remittances, a study was released which reported that global foreign remittances in 2006 totaled three times all aid provided by donor nations to developing countries (as reported by OECD). Global remittances totaled more than $300B while donor aid was $104B. Remittances even topped foreign direct investment in developing countries which totaled $167B (reported by the Institute of International Finance).

Remittances are the money transfers that foreign workers in developing countries send home to their family and relatives. Most of the transfers are between $100 and $300 at a time.

Remittances to India topped the list at $24.5B, followed by Mexico at $24.2B; China, $21B and the Philippines and Russia, $13.7B each.

And, guess what is growing the fastest? Your right, remittances!

This tells me that even if foreign does rise, it is likely to become an increasingly smaller contributor to capital transfer to developing countries and can never match the growing impact that migrant workers are having on the shifts in global capital.

How about we encourage easier, more secure and better priced options for people to send money back to their home countries? For many people, an ATM or Paypal or a mobile money transfer option would be a welcome solution.

I first read about this in the Philippine Daily Inquirer. Yes, I was in the Philippines last week ;-)

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Friday, October 19, 2007 

Affirmative action for the poor

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?

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Thursday, October 18, 2007 

Grameen update

On Tuesday, I participated in a dinner event sponsored by the Seattle International Foundation featuring Nobel Laureate Muhammad Yunus, founder of Grameen Bank and author of Banker to the Poor.

Professor Yunus shared a number of updates and answered questions. Here are some of my notes...

On Grameen Bank in Bangladesh:
  • Now serving 7.5 million clients (avg. family size of 5 => 35M+ people)
  • 27,000 staff
  • Now 80% of poor in Bangladesh are offered microfinance (all MFIs) and targeting 100% coverage by 2012
    • Most poor countries have 5-10% with the best being 15% coverage of microfinance for poor, so lots of work still to do
  • Bank is owned by borrowers
  • All capital loaned out comes from savings of the poor (and bank staff)
  • Each branch must drive their own savings for capital to loan out ... require that each branch become profitable and capital self-sustaining within 1 year
  • Microfinance is very empowering for women ... often first time in their lives that they have anything of their own. Borrowers (women only) decide who will inherit their savings if they die. Interestingly, most women choose their youngest daughter as she has the least opportunity.
On other Grameen-spawned businesses:
  • Grameen Phone is largest mobile operator in Bangladesh with 16M subscribers
  • Grameen Energy is focused on bringing solar energy solutions to the poor ... reached 100,000 households so far and now aiming for 1M. Cost of solar panels continues to slow down growth of this business. There is great hope that some technology breakthroughs will substantially lower the cost and enable them to accelerate deployment.
On social businesses:
  • Yunus continues to be a strong proponent for social businesses ... that is, businesses which exist as commercial entities AND have a mission to have a strong positive social impact
  • I think he is right and this is a great new opportunity for entrepreneurs
On microfinance in China:
  • China has very little supply for microfinance and, next to India, has the largest unmet demand for microfinance
  • Yunus recently met with senior people in China's central bank on their request to hear about his ideas on microfinance
  • Central bankers were initially quite defensive ... holding up their cooperative model as being quite effective in channeling financial services to the poor
  • Yunus said that that was quite interesting and that China must be doing something quite differently as in Bangladesh there was also a long-term cooperative system which was widely promoted by the government, but is completely ineffective due to corruption, bureaucracy and lack of relevance.
  • This caught the central banker leader off guard and she surprisingly agreed with his assessment and said that they would no longer rely on cooperative model as the cornerstone of China's financial services provision for the poor.
Additionally, Grameen America was formally announced. See my earlier posting.

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Saturday, October 13, 2007 

Empowering Women Through Microfinance

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?

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China Shakes The World

I recentedly read an interesting book on the economic rise of China called China Shakes The World: The Rise of a Hungry Nation by James Kynge, the Financial Times Chinese Bureau Head for 17 years. Kynge uses stories of entrepreneurs and others from within China and from people outside of China who have been impacted by the emergence of China as an economic powerhouse.

See my book review.

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Wednesday, October 03, 2007 

Microfinance center groups

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

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Microfinance pledge

As I noted in previous post, I just returned from 2 1/2 weeks visiting high-growth microfinance institutions (MFIs) based in India. I visited many group meetings where staff of a MFI would meet with clients to transact business ... generally, receiving loan payments, group savings, etc. and distributing new loans, withdrawals, etc. At the beginning and end of each meeting, there were pledges said by the MFI staff and the borrowers to state their commitments and values. I couldn't understand what they were saying as they were usually speaking in the local language, so we asked for a transcription of the pledge from one MFI, Ujjivan, an urban microfinance startup based in Bangalore.

Here are the pledges:

Customer Pledge
We will use the benefits of our loans to eliminate poverty.
We will repay our loans promptly.
We will save regularly for our family.
We will educate our children.
We will stand by our group in good times and bad.
We will work to build a long and mutually beneficial relationship with Ujjivan.
God is a witness to all our acts and deeds.

Staff Pledge
We will work with poor women towards eliminating poverty.
We will work without discriminating caste, creed or religion.
We will be truthful in all our activities.
God is a witness to all our acts and deeds.

I thought these were very powerful pledges! Wouldn't be great in other companies/organizations had pledges which they recited in front of their customers! I know this sounds so "out there", but it would surely help keep their values front and center.

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India microfinance

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!

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Tuesday, August 28, 2007 

Populist redistribution isn't working

I remember reading an article in The Economist sometime last year (I can't remember the exact issue) which was reviewing the impact/results of the various populist political movements in the past 50 years which have cyclically swept through Latin American countries. They all generally followed a similar model ... an elite group was governing politics and enriching themselves and their friends through corruption ... a charismatic leader arises promising to shift the power (and wealth) back to the average poor citizen to right this wrong ... this charismatic leader is swept into power based on their promises of nationalizing important industries and progressive redistribution of wealth back to the people. Eventually, the charismatic leader gets caught with their hand in the cookie jar and loses power back to a more centrist or right wing politician.

What The Economist was interested in was whether the working poor were actually better off after this process. They were actually expecting to find a mix of results. What they found was that in 100% of the cases that the working poor were actually worse off after these populist cycles. That is, while some of the working poor were helped out temporarily by the hand-outs, ultimately they (as a group) were not better off as the unsustainable welfare services were scaled back.

This is happening again in Venezuela. Chavez is funneling increasingly nationalized oil industry money into food and other subsidies for the working poor. He is instituting price caps on certain food items which is resulting in empty store shelves and a thriving black market. The currency is now trading at 50% of its official exchange rate on the black market. All of this is causing inflation ... which hurts the poor the most as they have the fewest options to hedge inflation. Wealthy and middle class people are converting their wealth to physical assets and even borrowing in bolivar currency to buy more assets/dollars through various schemes ... increasing their wealth.

There is also widely-recognized decline in oil production (although not admitted by the government) as Chavez pushes out the skilled oil company management replacing them with his cronies plus a decline in adequate oil infrastructure investment (due to his funneling of oil incomes to other schemes.) Chavez's policies are currently achievable because of the high price of oil. But, of course, this is not sustainable long-term and because oil revenues are not properly being invested in the country's infrastructure, there will be no pay-off at the end ... especially for the poor.

For more of the details:

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Monday, August 27, 2007 

The seemingly impossible is possible

In my quest for facts about poverty ... here is very edutaining video by Hans Rosling demonstrating how developing countries are pulling themselves out of poverty. He shows us the next generation of his Trendalyzer software -- which analyzes and displays data in amazingly accessible ways, allowing people to see patterns previously hidden behind mountains of stats. (Ten days later, he announced a deal with Google to acquire the software.) He also demos Dollar Street, a program that lets you peer in the windows of typical families worldwide living at different income levels. Be sure to watch straight through to the (literally) jaw-dropping finale.

Also, check out the GapMinder web service (now run by Google) ... incredibly interesting!

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Patient capital

Good video on the concept of patient capital from TED conference.

Jacqueline Novogratz is pioneering new ways of tackling poverty. In her view, traditional charity rarely delivers lasting results. Her solution, outlined here through a series of revealing personal stories, is "patient capital": support for "bottom of the pyramid" businesses which the commercial market alone couldn't provide. The result: sustainable jobs, goods, services -- and dignity -- for the world's poorest.

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Sunday, August 26, 2007 

Is microfinance really helping the poor?

Very good question from KT on post of my recent interview ... just the kind of questions I like to ask! We need to have an open dialog on the outputs/results we are expecting/hoping for.
Dave, in the interview you mentioned: "microfinance has demonstrated, and it’s one of the few tools that I’ve been able to find historically that has had a large impact on actually lifting people out of extreme poverty on a sustainable basis and at a large volume". Do we have any hard evidence of that? In 2006, Economist magazine concluded that while "heart-warming case studies abound, rigorous empirical analyses are rare". Bangladesh is not one of the development success stories by any standards. Out of 7,000 MFIs around the world, fewer than 100 claim self-sufficiency.

I am not trying to criticise microfinance as such but it looks like the claims that it as a successful development tool are really exaggerated.
Here are a few thoughts:
  • There have been a dirth of studies documenting the long-term impact of microfinance. I did write about one I read titled Measuring the Impact of Microfinance commissioned by Grameen Foundation. This has some data.
  • I think there are a few reasons that there are few studies on microfinance impact:
    1. Microfinance is a relatively new service. There have been a few organizations offering microfinance for 30+ years, but the huge growth in microfinance has occured in the past 5 years and so long-term results aren't available for most of MFIs.
    2. Most of the successful (in terms of # of clients) MFIs have focused on growth, not impact research. For many of them the impact is just obvious to them on a daily basis as they see their clients' assets growing and lives improving. They'd rather invest their resources in opening new branches, raising more and cheaper capital and improving their internal efficiencies than running impact analyses.
    3. Long-term impact studies are expensive with little return-on-investment value for the MFIs. Increasingly, the large MFIs have access to non-subsidized capital, so they aren't required by capital sources to invest in these kind of activities, so most don't.
  • While I agree that ultimately for microfinance to help the poor long-term it needs to be sustainable (see my definition/criteria) ... and as you note most MFIs are not currently financially self-sustaining ... I'm not sure this has as much impact/relevance in the short-term. The reality is that there is subsidized capital available for many of the MFIs and so they are able to provide microfinance services for some time while running at a loss. Some might call this a "bubble" in financing.
  • Ultimately, I think that for-profit microfinance is going to win-out and this will require sustainability. Today, most of the highest-growth MFIs are organized as for-profit. These larger, more efficient MFIs will absorb the smaller, less efficient ones and so it is likely that the financial services will have continuity.
Here is another post I wrote on a critique of microfinance impact.

I think that the most likely sources of impact analysis are:
  • Independent specialized NGOs (or government anti-poverty agencies or university-related research initiatives) who care about this and are funded to do this kind of analysis and reporting.
  • Emerging credit ratings services which are greatly needed to improve the efficiency of credit granting ... primarily to reward those who have proven themselves as credit worthy. There will be enough value that these can be run on a commercial basis.
Please post comments on what you think.

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Microfranchising opens new earning opportunities

Fast Company magazine writes an interesting article, Unplanned Obsolescence "exposing" the decreasing attractiveness of being a village "phone lady" in Bangladesh. FC is following up on a story they wrote almost 10 years ago when they first wrote about Grameen Phone, a wireless mobile service, and interviewed Laili Begum, the first woman to receive a loan to buy a mobile phone. Begum rented out her mobile phone on a per minute basis to others in her village at a mark-up over her per-minute cost. She became the first of now more than 280,000 phone ladies who are now almost ubiquitous in Bangladesh villages.

Initially, Begum was able to earn upwards of $800 profit per month which is more than 24 times what the current average Bangladeshi earns. Today she earns about $22/month profit from her mobile phone due to competition from almost 300 other close-by phone ladies plus the decreased cost for individuals to own their own mobile phone (about $30.) Overall, phone ladies now are typically earning about $60-100 of net profits per month after paying financing for phone and cost of air time.

So Begum and other phone ladies are having to operate additional business ventures to earn sufficient income. Here a summary of her status:
A decade later, instead of begging on the streets and sleeping with cattle as she once had done, Begum shares a two-room brick house with her husband, two sons, a daughter, a television set, and a refrigerator. Next door, she has built a barn, shops, and temporary housing that she rents to five poor families. Today, her banker estimates her net worth at $145,000, which may be more than everyone else in her village combined.
All I can say is "wow!" Begum was able to jump start her business with a lucrative new microfranchising business opportunity and then she took the profits and diversified into additional businesses. Very smart, indeed.

The article chooses to focus on lamenting about the lower margins available to phone ladies today as somehow pointing out the the Grameen Phone program is a failure in helping women earn their way out of poverty.

I take away a very different message and learning. Here are a few thoughts:
  • As with every business, high margin businesses are always going to attract more capital and competitors, so (a) take advantage of them while you can, (b) build barriers to entry where you can; and (c) particularly if (b) is difficult, start diversifying into other businesses with which have more sustainable margin. Begum did this like a pro!
  • So often, micro-borrowers are very uncreative with their business choices. The vast majority of them just do more of what they've always done or someone else is doing which can result in low or modest margins, but rarely high margins. This is why I think that there is such a huge new opportunity for microfranchise businesses ... essentially one-person pre-packaged businesses which provide an attractive product/service which is differentiated and can result in higher margins. Grameen Phone used to be this.
  • Cash loans are so much better than specific business programs. Think if Begum had gone down the path of building her future purely around the Grameen Phone program. She would have been locked into a declining business model. Instead, she had a loan from Grameen Bank, a bank for the working poor, and she could choose over time which business ventures she wanted to invest in.
I'm going to write more about microfranchising in the future. Here are a few resources to get started with:

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Thursday, August 16, 2007 

Interview on microfinance

I was recently interviewed by Levi Hug, an economics student at Eastern Oregon University. Here’s a sampling of the Q&A...

Levi: What do you see that’s particularly special about microfinance, when compared to other forms of development?

Dave: I write a blog ( and one of the things I’ve been particularly interested in and been doing a lot of research on is things that can help people get out of poverty on a sustainable basis, versus simply putting bandages on situations—helping someone through a short-term thing, but not necessarily helping them long-term. These things aren’t bad, there are lots of needs for people to be given relief in dire circumstances. But, ultimately what’s much better is to have people be sustainably out of poverty.

Number two, I’m really interested in things that have the potential for scale. One of my heroes is Muhammad Yunus, and one of things he talks about in his book is how some people haven’t liked his approach in pushing for very high volume in serving people. Some people say, “small is beautiful.” And, Yunus’ response is, “well, the reality is that small is small.” Helping five or ten or even 100 people is fine and good, but it’s still small impact. If you want to help a village, an area, a state, a community, a country, whatever scale you’re thinking of, that’s going to require something that can scale. So, microfinance has demonstrated, and it’s one of the few tools that I’ve been able to find historically that has had a large impact on actually lifting people out of extreme poverty on a sustainable basis and at a large volume. So, I’m really interested in things that meet that criteria and microfinance is one of the most interesting ones that I’ve observed. But, there are other things that are starting to be experimented with and are starting to show promise that may have the same characteristics.

Read full interview

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Thursday, July 26, 2007 

The Caste System in India Lives

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!)

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Tuesday, July 24, 2007 

Working Poor 1, Anti-Wal-Mart Coalition 0

A month ago, Wal-Mart announced that it was finally entering the financial services business. I say, finally, because an unlikely group of anti-Wal-Mart collaborators ... big banks threatened by Wal-Mart's commitment to low-cost financial services and the traditional anti-Wal-Mart folks (populist politicians, union organizers and a range of other interests) ... had successfully blocked Wal-Mart from getting a federal banking license.

What is puzzling to me is why so many people are against more financial services for the working underclass/poor from the company which has brought them non-fee ATM access and the lowest cost option for check cashing. Wal-Mart claims that that users of their current financial services save on average $450/year or about $40/month. That's not chump change and reduces the poverty tax!

OK, so how did Wal-Mart get around this obstacle? They chose to partner with GE Money and Visa to offer a debit card ... or what they call a MoneyCard. You don't need to setup a bank account, nor do you require a credit check. Customers will be able to directly deposit checks onto their card, check balances online and get balance updates over their cellphone. In many cases, customers can greatly reduce and even eliminate check-cashing and other bank fees they would otherwise incur. Sounds pretty good to me. [Yes, there are fees which some critics have argued should be lower.]

Why does this matter? Wal-Mart reports that 20% of its customers (about 27 million people) don't have bank accounts. The MoneyCard and associated financial services provided by Wal-Mart enables these customers to have a virtual bank account with the convenience of both in-store Wal-Mart service hours (better than most banks) plus convenience of a standardized payment/cash card. I wouldn't be surprised if a large number of their customers who have bank accounts will move over to the MoneyCard as their preferred "bank account".

Please understand ... I don't think everything that Wal-Mart does is right. I think the issue of health insurance benefits for workers is a tough issue that we need to figure out on a state or federal level. Their record of dealing with some of their vendors also has some major issues. What I am calling for though is to give credit where credit is due. Wal-Mart has a strong track record of delivering value to their customers who are predominantly the working lower-income population. Let's get behind company initiatives which provide beneficial services like this.

More references:
New York Times article
USA Today article
Wal-Mart's official introduction info
Get your own MoneyCard today

Your thoughts on this? Post a comment.

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Sunday, July 08, 2007 

DDT works to prevent malaria

Uganda health experts are asking the developed world to allow them to strategically deploy DDT-based products to fight malaria.

Here are some stats on malaria:
  • Over 10 million Ugandans are infected each year
  • Up to 100,000 Ugandans die from malaria each year
Using an inferior product (more expensive, lasts shorter duration and costs more), Icon, Uganda was able to reduce a 100,000 local population carrying the disease (a key factor in long-term impact on malaria) from 30% to 3%! This investment more than paid for itself in lower healthcare costs and human productivity let alone human suffering.

The issue is that DDT has been banned by western governments since 1972 and international aid requires that receiving countries also ban DDT. There is no plan to use DDT for agriculture (which is why it was banned), but simply for household use to help kill the mosquitoes carrying the malaria disease. While the research now is very clear, G8 environmentalist still are against any uses of DDT.

See full article in WSJ, Give us DDT.

UPDATE 8-20-2007: New York Times article, A New Home for DDT, refers to new research that DDT has the added benefit that mosquitoes which are immune to DDT are still repelled by it making it an extremely effective indoor malaria (and yellow fever and dengue fever) prevention technology.

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Why government jobs aren't the solution

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?

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Sunday, May 27, 2007 

Globalization -- Good or Bad?

I continue to be very interested in better understanding whether the globalization movement is having a net positive or negative impact on our economically disadvantaged brothers and sisters. I have a growing reading list on poverty-related literature from a wide variety of viewpoints. Bhagwati in In Defense of Globalization (read my review) argues for the net positive conclusion while pointing out numerous negatives. Sachs in The End of Poverty (read my review) argues that without a financial aid "jumpstart", globalization will continue to bypass many people.

One of the best articles that I seen written on the impact of globalization was published on the front page of the Wall Street Journal on May 24, 2007 entitled "Wealth of Nations: Globalization's Gains Come With a Price".

Here's the summary ... 100's of millions of those living in extreme poverty have been lifted out of poverty in the last 25 years AND the wealthiest 10% of the world's citizens have grown proportionately richer in that same time.

One of the most astonishing stats is that between 1981 and 2005, more than 450 million people in China (alone) stepped out of extreme poverty (based on UN's definition of < $1/day using purchasing power parity methodology.) Since China has received very little international aid, this is almost all attributable to globalization. "From 2000 to 2005, per capita income of the bottom 10% of urban households in China rose 26% ... while those in the top [10%] saw gains of 133%.

The net is that on an absolute basis, globalization has had a truly phenomenally positive impact on reducing poverty (especially in the historical context). Yet on a relative basis the wealthiest people have increased their wealth faster.

The results in Latin America have been more mixed with positive results for the extreme poor in El Salvador, Chile, Ecuador and Costa Rica while negative in Mexico, Colombia and Peru [see chart at top.]

The article also tells the story of the impact of globalization of a family in Mexico which helps personalize globalization and explain some of the complexities as new emerging markets compete for the new global economic opportunities.

Please respond in comments to this article. Is this a fair/helpful/accurate report?

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Tuesday, May 08, 2007 

Chicago Microfinance Conference

Sounds like an interesting gathering to review the state of microfinance in Chicago on May 25th. Both keynotes are very knowledgeable on the state of microfinance. Vikram Akula is CEO of SKS Microfinance, one of the world's largest and fastest growing MFIs. I saw Vikram a couple of weeks ago at an event in Seattle where he shared about how SKS is leveraging global capital markets to maintain an incredible client growth rate. Elizabeth Littlefield is CEO of CGAP and has considerable insight into microfinance industry and where things are heading. I was on a panel with her at the USAID microenterprise event last summer.

More details

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Monday, April 23, 2007 

Empowering Women

Unitus has provided a great way to honor women who have empowered those around them. You can create a tribute to an empowering woman you know ... upload a photo, write a small tribute and then donate to empower more women with opportunity through a microcredit loan in a developing country. Every $5 you donate empowers a woman ... and her family ... and much more! You can empower 10 women for $50.

What a great mother's day gift!

View more tributes...

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Sunday, April 01, 2007 

Innovative Microfinance Equity Fund

Unitus announced last week that they’ve raised a US$23 million private equity fund to invest in microfinance. I was able to catch up with Chris Brookfield, Director of Unitus Equity Fund, last week to find out more about this announcement.

Dave: What is Unitus announcing today?
Chris: Unitus is announcing the closing the Unitus Equity Fund (UEF). UEF is formed just like the other venture funds I have been a part of. The difference is that UEF is committed to investing into sustainable microfinance enterprises. It is our hope that by demonstrating that microfinance can scale rapidly and produce returns for investors that much greater amount of investment capital will follow. By increasing the capital available to microfinance companies, we increase the number of borrowers that can be served. So each new investment dollar in will translate to a new opportunity for a poor person to become an entrepreneur.

The 'close' means that we have exceeded our goal and will now be focused 100% on finding new MFI's to invest into. We closed on $23 million.

Dave: What are Unitus' key objectives for UEF?
Chris: We have 5 key objectives:
  1. Demonstrate that non-profit microfinance banks can transform into sustainable commercial companies.
  2. Show that 'professional' investors are willing to invest in microfinance.
  3. Begin the formation of microfinance as an investable asset class.
  4. Attract larger, upstream investors to the space, and
  5. In the end, show the microfinance is a dynamic, high growth business and that the poor are an attractive market for future investment.
Dave: What is unique and ground-breaking about this announcement?
Chris: There a couple of firsts (as far as we know):
  • UEF is the first equity fund in microfinance to be financed 100% in the private market. Most others have capital provided by development agencies and the like. This distinction is important because of the UEF's more 'professional' the investors, our results will have better demonstration effect and be more relevant to other professional investors.
  • We are taking a unique venture capital portfolio approach. Our intention is to partner with the best managers in microfinance and encourage them to innovate and grow rapidly.
  • The UEF is global in scope, but focused on India, Mexico, Brazil, Indonesia and Pakistan.
  • The UEF is a pioneer in creating a hybrid socially responsible investment vehicle that is also managed for risk appropriate returns.
Dave: How are the UEF monies going to be invested?
Chris: The UEF will invest in 8-10 microfinance companies and allocate $2-3 million per company. More than 50% of the companies will be in India, with the rest spread amongst other countries.

Dave: UEF has already made some investments. Can you please describe a couple of those and what impact you are expecting?
Chris: Our investees are SKS (India), Ujjivan (India) and Credex (Mexico). Overall, Unitus has chosen to partner with these MFIs because of the potential for very high growth. You can see some of the detailed goals on Unitus’ web site.

Dave: Who are the investors in UEF and why they have invested?
Chris: The UEF investors break out into roughly 4 groups each contributing about 25% of the capital:
  • Unitus board members and friends.
  • Omidyar Networks, the investment vehicle of Pierre Omidyar.
  • Professional investors who are leaders in technology VC, private equity and health care.
  • A group of socially responsible investors managed by Abacus Wealth Management.
Dave: Some people think that for-profit microfinance is (or can be) predatory or immoral ... that is, earning returns for wealthy investors from the financial services provided to the working poor? How do you respond to this?
Chris: I believe that investors of all types need to practice the highest ethical standards in all that they do. The investors in UEF, its management and our Investment Committee are deeply committed to sustainable investing that will create ongoing opportunities for people in all of the markets we invest.

To this end, UEF places a strong emphasis on valuing its investment on a basis of the long term health of the underlying customer bases. Our banks can only do well they customers and communities do well. That's really our bottom line.

Profits means that microfinance is sustainable in the long term. Not hostage to the whims of political agenda or the grace of donors. If microfinance can continue to grow sustainably, then it will be able to attract investment from the global capital sources. This is the only way microfinance will be able to serve the 2 billion people who need it.

Dave: Why do you like working with Unitus and the UEF?
Chris: This has been one of the most rewarding challenges of my life. It is not easy to raise money for an industry most people have never even thought exists or to make investments in multiple countries. While my international travel regimen is quite grueling, I am very energized. I can't wait to see how the story of microfinance develops and what role our investments will play.

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Monday, March 19, 2007 

Funding the Entrepreneurs

A recent Economist article, Time to take credit, critiques the philanthropic supporters of microfinance for focusing on the slower-growing, profitable, larger microfinance institutions (MFIs) instead of supplying capital to the entrepreneurial startup MFIs who are pioneering access to microfinance in areas which are un/underserved.

Why are they doing this? Well, for one thing it is less risky. These MFIs are making impact with increasingly little risk to the investors so it is easy to provide a "good report" on social return. In some cases, these funders invested in microfinance when it was unproven (and risky) and they haven't moved on. It is hard for philanthropic investors to know when it's time to leave and move on to the next challenge even when their "children" outgrow them (and more importantly, their mission.)

There are two major "elephants in the room" with microfinance: (1) less than 20% of people who qualify and could benefit from microfinance have access to microfinance services; and (2) in most situations, most MFIs are effectively quasi monopolies which limits the quality of microfinance products and services available. The only way to materially impact these issues is to support entrepreneurial efforts to start/expand small MFIs much like the venture capitalists make risky investments in new business ventures in other industries.

One organization which is focused on the venture investing model is Unitus. Unitus is willing to take risk in order to dramatically accelerate small MFIs with entrepreneurial leadership teams to bring access to microfinance to underserved markets and to create microfinance products (loans, insurance, savings, etc.) which serve the working poor. We need more investors like Unitus which are taking the risk to bring the redemptive power of quality microfinance services to those that need them.

Please post comments about other organizations who are taking this venture capital approach to microfinance.

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Thursday, February 22, 2007 

Business to the Working Poor

Those of you who are interested in applying your business skills to help the working poor might be interested in an upcoming conference called Business with Four Billion: Creating Mutual Value at the Base of the Pyramid on September 9-11, 2007 in Ann Arbor, MI.

This conference is aimed at the growing interest in enterprise-based strategies for serving the four billion poor at the base of the economic pyramid (BoP). One of the keynotes is C.K. Prahalad, author of the well-researched BoP book, The Fortune At The Bottom of The Pyramid. Here's Prahalad's summary of the opportunity.

One of the conference objectives is to develop the new organizational capabilities required to achieve both business growth and poverty alleviation. This should be a very interesting discussion as so often these are viewed as incompatible objectives.

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The world's smallest yogurt factory

I heard about 6 months ago about the ingenious idea of Muhammad Yunus, founder of Grameen Bank and recent Nobel Peace Prize winner, to build a new yogurt business in Bangladesh.

The first factory just opened near Dhaka as part of a new venture called Grameen Danone Foods. The mini-factory produces a yogurt called Shakti-da (which means "yogurt with strength") which is fortified with vitamins to address malnourishment. And each yogurt helping with be inexpensive ... about 7 cents per cup ... which affordable even for the poor.

The story I've heard goes something like this ... Danone (major yogurt maker) CEO Franck Riboud was sitting next to Yunus at a lunch in Paris in the fall of 2005 and had asked Yunus to explain to him about microfinance and the Grameen Bank. At the end of the conversation, Riboud asked Yunus, "how might I help you?" Now this is a very dangerous question to ask Yunus! Yunus responded, "I'd like you to send your chief yogurt factory designer to Bangladesh to meet with me." Riboud agreed. A short while later the Danone factory designer chief showed up at Yunus' office in Dkaha to find out how he could help. Yunus said, "I'd like you design and build the world's smallest yogurt factory to operate here in Bangladesh." The factory designer said, "But, I design the world's largest yogurt factories, not the smallest." Yunus responded, "I need you to design the world's smallest one. I'll be here if you want to go off and think about it and come back later." So, the factory designer left and went back to his hotel room. A little while later, he appeared back at Yunus' office with the sketchings for an idea. And the venture was born...

This is setup as a for-profit, social enterprise joint venture between Danone and Grameen Bank. Danone is contributing $500,000 of seed capital. The plan is to re-invest all profits with the exception of paying back Danone their initial seed capital. The factory will buy milk from Grameen Bank microvenders (who've been financed by Grameen Bank to buy cows) and microentrepreneurs will sell the yogurt door-to-door. Each factory will employ 15-20 women directly and up to 1,600 people in an area. And the enterprise is designed to environmentally friendly using biodegradable cups made from cornstarch, solar panels for electricity generation and rainwater collection vats. If the first factory is successful, they have plans to launch 50 more in Bangladesh and then who knows where.

There is a good write-up of the story in Fortune magazine called Saving the world with a cup of yogurt.

Please post comments about other social enterprises you have heard about.

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Grameen comes to the USA

Grameen Trust, the Bangladesh-based charitable arm of the Grameen Bank, is starting up a microfinance business in the USA called Grameen America. [I couldn't find a web site for this yet although there is a job posting for a CEO.] Grameen Bank has been a pioneer in microfinance and recently was awarded the Nobel Peace Prize along with its founder Muhammad Yunus.

Here are some of the highlights from a business plan overview I have seen:
  • It will be a for-profit social enterprise business setup as a joint venture between Grameen Trust and a large financial institution [likely to be H&R Block] with Grameen Trust having a controlling interest. They expect positive cash flow in 4-5 years.
  • A long-term Grameen executive, Prof. H. I. Latifee [see his recent whitepaper], the managing director of Grameen Trust will head up the initial "build, operate and transfer" team to setup and then hand-off operations to a USA team. The thinking is to transfer the know-how and DNA of Grameen Bank to seed this organization.
  • The business plan references the Association for Enterprise Opportunity which estimates that there are more than 750 existing microfinance organizations/programs in the USA. Most of them are characterized as "social welfare programs" and none are financially self-sustaining [without donors] with the best running at only 70% cost recovery.
  • Their initial focus will be on recent immigrants who have an entrepreneurial spirit. Micro-business loans will start at $500 and grow from there based on a positive repayment history. The borrowers will support one another in groups although they won't guarantee each others loans.
  • It sounds like the focus is going to be on urban areas with the first test market of New York City. They are planning to take advantage of credit cards to simplify credit access and lower transaction processing costs (for borrower and themselves).
  • They expect to later offer a number of membership benefits including networking, member discounts, visa and citizen information, credit establishment and more.
  • They are hoping to ultimately create a lot of grief for the credit services for the working poor offered in the form of payday loans, loan sharks and other unscrupulous bottom feeders who prey on the vulnerable.
I am a big fan of introducing more competition and reasonable credit choices for the working poor in the USA. Grameen America has a lot of the right thinking on this including starting with a business (=sustainable) mindset, establishing a beach head with a likely-to-succeed client segment, partnering with a deep pocketed financial services company and taking advantage of technology to enable scale and cost containment. I think that the challenges of business licensing, regulations and tax reporting will likely require more of an incubator-type structure, but this is something that can evolve over time.

What do you think?

Reference: previous post on Microfinance in the USA

Update: Here is Grameen America's web site.

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Monday, February 12, 2007 

India, the superpower?

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.

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Saturday, February 10, 2007 

The Trouble with Africa

The Trouble With Africa: Why Foreign Aid Isn't Working by Robert Calderisi is a very interesting read for anyone interested in getting more insight into the complexity of seeing a better future for Africa. Calderisi has 30+ years on the ground with international development and shares many stories about his personal experiences as well as behind-the-scenes issues of dealing with various Africa projects and leaders over the past 20 years. Even though he was a World Bank executive, he provides plenty of critique of the World Bank and the complexities of dealing with international politics.

Calderisi concludes with 10 bold and contraversial recommendations for re-directing African international aid towards the better governed countries in an attempt to deliver some helpful long-term beneficial results.

Read my full book review

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Monday, January 01, 2007 

Leveraging Children's Curiosity

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:
What do you think?

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Saturday, November 18, 2006 

Is charity the wrong approach?

Muhammad Yunus, the recently announced 2006 Nobel Peace Prize winner and founder of the Grameen Bank in Bangladesh, did an interview that was recently published in Ode Magazine. Here are a few of his quotes:
"What all these pop stars and politicians want, is the usual recipe: charity. But charity is not the way to help people in need; it is not a healthy basis for a relationship between people. If you want to solve poverty, you have to put people in a position to build their own life. Unfortunately, this is not how the aid industry works. Western governments and development organizations think they need to offer permanent charity. As a result, they keep entire economies in poverty and families in an inhuman situation."

"The approach [many take] to poverty is thwarted by our fixed convictions. Poor people are helpless, unhealthy, illiterate and thus stupid, they have nothing, they know nothing, we must take care of them, we must give them food… It is completely wrong to think like this. I am convinced that poor people are just as human as anyone else. They have just as much potential as anyone. They are simply shoved into a box marked POOR! And it’s written in giant letters so that everyone simply treats them the way poor people are treated, because we think this is the way we should treat them. This means it isn’t easy to get out of the box."
This is definitely a very different way of thinking than the current establishment players/experts who claim to serve the poor -- e.g. Jeffrey Sachs, the U.N., Bono, Clinton, Blair and many others. Yet Yunus' success in building one of the world's most successful banks for the poor gives him the authority to challenge the status quo thinking. Yunus is by no means some neo-conservative touting some theory that sounds great but has no on-the-ground substance. Rather he is a practitioner who is much more interested in ways to actually bring opportunity to those who have been denied it by the current powers and systems.

I find this thinking very personally challenging as some much of the lens that I look through towards solving poverty (however incrementally enlightened I may have become in the past few years ;-) still includes a large dose of charity thinking. I keeping thing, "yes, but..." Hmmm... good food for thought and implications for the road forward.

Read the interview and share your comments.

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Monday, November 06, 2006 

The Microfinance Revolution

I made a microfinance presentation on Saturday at Off The Map's Revolution Conference. As requested by participants, here are the Powerpoint slides I used to for my session called "The Microfinance Revolution".

A few other references I made in our discussion and links on microfinance:
Please posts comments here on feedback on this session.

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Thursday, November 02, 2006 

Mobile bank accounts

The Economist published a report on how mobile phones are starting to become banking tools for the poor. In South Africa, 16 million people, over half of the adult population, have no bank account. Yet 30% of those people have mobile phones almost all of which are used on a pay-as-you-go basis.

You might think -- why do poor people need/want bank accounts? The report highlights Andile Mbatha, who owns a hair salon in Soweto. He used to have to travel more than 2 hours by minibus to send money to relatives ... a personal delivery. He also used to have to keep what ever cash he had on hand at the salon or with him as he travelled. He now uses a new mobile banking service called Wizzit which enables him to instantly transfer money to his relatives for a very low fee which enables him to spend more time earning money. He also now receives payment for services at his salon via mobile phone from more than half of his customers which means that he doesn't have to manage a lot of cash.

The reality is that the poor, with by definition fewer resources, have needs (often more so than wealthier people) to transfer their monies to support other dependents and family members who out of necessity live significant distances from each other. Without bank accounts, the transaction cost of making these payments (recurring ones are often referred to as remittances) are very high ... even higher than what it costs wealthy people to transfer even much larger sums. This is often referred to as the the "poverty tax" where the less well off pay a premium because they are not able to use more economical service options due to their economic and/or social status.

I am a big fan of scalable models like this which provide valuable services to the poor at a price point that works for the poor. This enables increased productivity and therefore enables more earnings capability which is a core element in increasing wealth (another way of saying decreasing poverty levels).

And, I'd like this kind of service too!!

See NPR story on Wizzit.

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Tuesday, October 24, 2006 

College Students Support Microfinance

Last week, I made a presentation on microfinance at Bellevue Community College to a group of about 50 college students and a few faculty. The room was packed! Most of the students were 18-22 age group and were very ethnically diverse which I was excited about (having presented to mostly middle-age+, white audiences previously). The Business Leadership Club sponsored the event and has done a fantastic job of setting up and promoting a fundraiser for Unitus microfinance throughout the campus. To make it fun and to lower the barrier to entry, they are running a raffle with some great prizes that they secured as donations from businesses.

I led off with some of the stark facts of global poverty – 4 billion people living on < $4/day. We then watched the Unitus Introduction to Microfinance video which helps the audience connect with individual humans struggling to overcome poverty. Then we discussed the big problem with microfinance – it works to defeat extreme poverty, but less than 15% of the people who could benefit from microfinance actually have access to it. And, finally, the innovative approach which Unitus is taking to dramatically accelerate access to microfinance for the unserved 85%.

Here are a few observations and takeaways:

  • I was surprised at how few people in the room knew that Muhammad Yunus had just received the Nobel Peace Prize for his work in microfinance. I guess a lot of younger people just don’t watch or read international news. I thought the Nobel Peace Prize might have more resonance/interest with younger people.
  • Microfinance requires multiple layers of explanation – ranging from the personal impact that access to financial services has on individuals, their families, their extended families up through to their community/village and even regions and countries. That is, microfinance has both micro and, over time, macro economic impacts. This is hard to explain concisely!

Overall, I was excited to see the interest and engagement of this age group in learning about microfinance ... what's working, what the challenges are and how they might participate. These are our future leaders!

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Sunday, October 15, 2006 

Microfinance gets recognized

If you have seen the news in the last few days, you will know that Muhammad Yunus (along with Grameen Bank, which he founded) has been awarded the Nobel Peace Prize for his pioneering work in microcredit. This is a very powerful statement about the power of the microfinance revolution to help address one of the root causes of war ... hopeless poverty.

Here are some of the things that impress me about Yunus:
  • He is an innovator. The Grameen Bank has continued to re-invent itself and lead the way in developing improved products and services which serve the poor AND are sustainable through generating profit.
  • He is an advocate. Yunus uses his access to powerful people to speak on behalf of the needs of the poor. He continues to frame his ideas, issues and questions in plain language which challenge the typical techno-speak of the international development community.
  • He is generous. Yunus has generously given of his time, knowledge and influence to help others learn from what they are doing at Grameen Bank in order to implement best practices to help the poor in other areas of the world.
Here are a few (of the many) articles written this past week:
Good Read: Yunus' biography, Banker to The Poor

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Thursday, October 05, 2006 

Getting reading glasses to the poor

Scojo Vision is a social enterprise. They sell hip reading glasses at first-world prices in developed countries and more basic versions at very low cost through a micro-franchise type network in developing countries. Scojo Foundation was recently recognized as a Fast Company 2006 Social Capitalist finalist (good overview of what they do and how they do it.)

The Problem: It is a physical fact that everyone eventually needs reading glasses ... no matter where you live. Can you imagine trying to live a productive livelihood when you can't read written material or do things with your hands (sew, cook, fix things, count money, etc.) ... especially when it's your source of income?

Scojo's Approach: Scojo Foundation has two primary sets of clients: Scojo Vision entrepreneurs and their customers. Scojo Foundation trains Scojo Vision entrepreneurs to successfully operate micro-franchises selling reading glasses to the poor which more than doubles their monthly income. This newfound income enables them to invest in their families. And the poor clients now can see again and have untold improved quality of life.

I particularly like a number of things about their approach:
  • They are driving down the price of reading glasses for the poor by using their buying power and an efficient distribution network
  • They are increasing the distribution (availability) of affordable reading glasses to the poor even into far flung rural areas
  • They are selling reading glasses to the poor at prices the poor can afford (things people pay for are utilized much more effectively than gifts) at non-subsidized prices (expansion to new areas is subsidized; glasses aren't)
  • They are creating new jobs for reading glass micro-retailers in developing countries
  • They are taking some corporate profits from their first world business to underwrite expansion of micro-franchise business network in developing countries
  • The foundation expansion is not just funded by Scojo Vision, it is a 501c3 non-profit which raises money from other companies, foundations and individuals so that there is more capital and participation. [Many company-attached foundations could learn a lot from this!!]
The bottom line is that the Scojo Vision founders are building a social enterprise which creates products that people want at prices they can afford. This is a very scalable and sustainable approach to helping the poor ... which is why I like it! I made a donation to Scojo to help them expand their distribution network. You can participate too!

Also check out the Foundation's reference library on selling to the poor.

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Monday, September 18, 2006 

In Defense of Globalization

Jagdish Bhagwati, a prominent international economist, wrote a book called "In Defense of Globalization" published in 2004. This book has become one of the definitive textbooks arguing that globalization is providing immense benefits to the poor ... both economically and socially.

Bhagwati is not shy about critiquing bad practices and abuses of globalization and advocating for reform in order for the benefits to be distributed more equally.

Read my full book review
Dave's Defeating Global Poverty Reading List

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Sunday, September 17, 2006 

Climate change ... seeking the whole story

If climate change is happening and if these changes result in impact on humans, then most people agree that the poor will be inproportionately burdened with the negative impact of climate change. So, this is my interest in this blog.

I say "if" because there is disagreement on climate change ... particularly on how much of it is caused by humans and how to predict both future changes and their consequences. Al Gore is clearly angling for people's fears with his An Inconvenient Truth movie. Others are "fighting back" with other facts (conveniently left out?) like this article published in Car & Driver magazine (conflict of interest?). Climatologist, Richard Lindzen argues in his testimony to congress that there are some agreements on a few facts, but there are huge differences in the interpretations of those facts.

Why is it that people are so eager to share selected facts, but not those which are in contradiction to their conclusions (and interests)?

Last week's issue of The Economist published a pretty indepth survey on the topic of climate change. Their conclusion is that there are enough indicators that climate change might be happening and that it is worth some investment as "insurance" against the possible implications. But they are clear to say that in reality very little is known about climate change and talking in terms of certainty of where things are going and what the results are is intellectually dishonest.

What frustrates me the most is that there appear to be very few people who are willing to tell you the "whole story" about what is known about climate change and to OWN their own biases (which everyone has). So, I encourage you to get smarter about this topic by reading the range of opinions ... not just the ones that you're inclined towards.

If you are going to refer to other links in comments, PLEASE don't refer to one-sided, simplistic, I-know-everything-and-here's-what-you-do arguments on this very complex, nuanced and potentially very important topic.

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Monday, September 11, 2006 

Land titles necessary, but insufficient

I wrote previously about an insightful book by Hernando de Soto called The Mystery of Capital which argues for the importance of legitimizing land rights for the poor as a key in breaking poverty. By not having legal right to property, the poor people's property is effect "dead capital" as it cannot be used as collateral, sold or inherited.

The Economist recently published an article called The mystery of capital deepens which follows the progress of an interesting land rights situation in Argentina. On the outskirts of Buenos Aires, a number of squatters outlasted various governments until a new government expropriated the land and gave it to the squatters. But some of the squatters didn't like the terms, so there are now two groups side-by-side -- land owners and squatters.

Summary of results: [Here is a more in-depth study.]
  • secure land rights encourage the poor to improve their residences/living conditions
  • [poor] titled landowners have no better access to financial services
This demonstrates the continued need for alternative financial services for the poor -- e.g. microfinance. The large, traditional bank sector continues to have little appetite for serving the poor.

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Wiring Rwanda

Greg Wyler, an American tech entrepreneur, is investing his own money in bringing Internet services as a business to Rwanda. His company, Terracom Communications is for the first time offering cellphone coverage, Internet access and television to unserved parts of the country. Terracom is hooking up schools to the Internet and opening Internet cafes throughout the country. They are even starting to offer high-speed laptop mobile network services like Verizon/Sprint EVDO service!

There are lots of questions about whether this business will ultimately succeed, but at least he is trying!

Read the WSJ story

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Wednesday, August 30, 2006 

About my journey

I have supported global poverty reductions since I was a kid. This included sponsoring children through World Vision, sending money for relief efforts on many disasters, funding people volunteering their time to go on mission trip projects to help people with building projects and in many other ways.

While much of this felt good, I have always wondered in the back of my mind whether my contribution were making any long-term impact. Hey, survival-oriented initiatives are important, but they are just that, survival centric, not long-term in their mission. It seemed like for all of our money (multiple trillions of dollars) and good intentions we were making very little impact on poverty … and I was right.

In 2002, my father introduced me to microfinance. My father has been a long-time volunteer board member for World Vision – both on the Canada board and the international board. He often traveled to areas where World Vision was doing their development work to see firsthand how things were going meeting the local World Vision staff, board and clients being served. Being a business person, he immediately was attracted to the new microfinance services organically developing in the local World Vision projects. Today, he is the chairperson of Vision Fund, World Vision’s microfinance arm.

So, I was almost instantly intrigued by the concept of microfinance because of my experience in the venture capital-intensive high-tech business world and my degree in business. I had lots more questions about how microfinance worked and whether it might be having a long-term impact. I began an intensive learning process reading many books on microfinance and scouring around on the Internet for information about how microfinance was developing. I was invited to join an inside strategic planning summit with World Vision where I learned a lot more about the inner workings of microfinance from a business and operations standpoint.

Later I discovered Unitus, a very innovative microfinance organization staffed by socially-minded business people who are attempting to dramatically reduce the number of people in poverty by dramatically accelerating access to microfinance by leveraging global capital markets and applying proven management consulting practices for high-growth businesses. I really liked the Unitus people and I really liked their innovative commercial approach and entrepreneurial culture. I almost immediately volunteered to join with the Unitus team on potential partnership due diligence trips to Argentina, India and Mexico. I joined the Unitus board and then helped facilitate a leadership conference for senior management of some of the world’s most entrepreneurial microfinance institutions (MFIs) in Malaysia. I was continuing to learn about microfinance and using my skills in leading and managing high-growth businesses in return.

As I got interested and involved in microfinance, I started to bump into a variety of thinking and ideas around how to sustainably defeat poverty. One of the common themes was that unless poor people were enabled to increase their income (an economics issue), the poor would stay poor. The interesting fact is that the #1 activity which is leading people sustainably out of poverty is the much maligned and misunderstood globalization movement. Globalization is literally resulting in 100’s of millions of people stuck in generational extreme poverty to start on a new positive cycle of hope. Yes, there is need to fight disease, reduce corruption, create physical infrastructure, more & better education opportunities … all of which are tied to economics and generating more income for poor people.

And so, now I write this blog … read about why I write this blog.

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Why I write this blog

I write this blog because I don’t think that people are destined to live in poverty. I believe that everyone has a God-given right to have the opportunity to live in dignity. I am most interested in ideas, activities and approaches which result in sustainably lifting people out of poverty. I’m interested in practical solutions which are highly scalable … that is, once refined and proven can be economically rolled out to help millions if not 10’s or 100’s of million people.

I continue to learn. But learning about ideas, experiments, successes/failures of this nature is very difficult and time-consuming. There is a lot of spin and PR which hides the facts … the “whole truth” as I’ve come to call it. I continue to be frustrated by the lack of transparency and accountability in the so-called “international development” government and NGO sector. So much energy is focused on inputs (e.g. we fed 100 people) and very little on results (e.g. 50 people cross the poverty line and are still there after 5 years.) I’m finding that so much of the interesting high-potential break-throughs are coming from smaller socially-driven organizations (both for-profit and non-profit) which are cash-strapped, but entrepreneurial-minded.

So, I write this blog to share what I’m learning so that you can benefit. And, my hope is that you will challenge my assumptions and conclusions and help me get smarter and become more effective. (BTW, that’s what “add comments” feature is for ;-)

How did I get here? Read about my journey.

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Tuesday, August 29, 2006 

Kiva -- the microfinance marketplace

Last week, I met up with Kiva founders Matt Flannery (his blog) and Jessica Jackley Flannery at a presentation they were making to the staff at microfinance innovator, Unitus. I have blogged before about my positive experience in using the Kiva service. In a nutshell, Kiva is building a marketplace for microfinance ... matching up lenders (mostly from developed countries) with microentrepreneur borrowers (mostly from developing countries.) They have made a lot of progress since I last reported and I also found out about some of the enhancements that they have in-the-works. Here are some of my notes:
  • Marketplace. Kiva wants to evolve into a microfinance lending marketplace ... similar in some ways to what Prosper is doing in the USA for larger loans. They want to match up borrowers with lenders much like Ebay matches up buyers with sellers. They will be introducing community features like the reputation of borrowers with ratings (like Ebay stars) and last loan repayment info. They are already starting to see some borrowers who are using their repayment record on as a credit worthiness indicator for other kinds of transactions.
  • Stats. Kiva now has 4,000 lenders. Average lender is lending $68 (may be over multiple loans.) Kiva lenders have disbursed > $250,000 since they began in October 2005. For comparative purposes, to reach 4,000 lenders, Calvert took 10 years and GlobalGiving took 5 years.
  • Income. Today, Kiva receives all of their income/funding from donations. Yes, they are a registered 501(c)3 charity. They have no income (e.g. interest income or loan fees) for loans which they facilitate. It is not that they are philosophically against income related to loans they facilitate/manage, they are working through regulatory issues. Here are some of the ways they may generate income:
    • loan fee to MFI (maybe 1-2% ... still incredibly low cost of capital!)
    • optional lender fee (in the 1-2% range)
    • interest earned on float (could be substantial)
    • loan insurance (e.g. 1% fee pays off loan in case of death)
  • Interest rates on loans. Their MFI partners (identified with each loan application) set the loan interest rates and fees. Today, these rates and fees are not disclosed on their web site. They are planning to expose these going forward in order to provide more transparency and encourage interest rate competition.
  • Earning interest. Today lenders are paid no interest. Going forward this is going to change once Kiva sorts through the various regulatory issues.
  • Loan size & admin. They now have a minimum loan size of $600. They do this for a number of reasons including (a) overall higher transaction processing effort for Kiva loans (e.g. have to post update to Kiva system as well as the MFI's system); and (b) generally means that this is not the borrower's first loan, so higher qualification for borrowers = higher liklihood of repayment. MFIs are typically paying loan officers a fee of ~$10 for each Kiva loan they administrate.
  • For or not-for profit. Today they are a non-profit. Their business plan says that they need an additional $1.5M of capital in order to get to break-even in 2009. One (key) benefit of being a non-profit today is that Paypal charges them no fees on transactions ... which is a substantial cost savings based on their high # of transactions.
Kiva is continually upgrading their web service. I really like how they are now more concisely listing businesses with graphical stats in many places. Also, they have made an easy way for anyone with a blog/webpage/space to promote loans ... you simply paste a snippet of HTML (shown at the bottom of every business loan profile) into your web page and a very nice promotion is presented. I've done this on the right column of this blog just after archives section. Very cool!

Also, see recent Business Week article on Kiva.

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Monday, August 21, 2006 

One laptop per child

The project to create an affordable laptop for every child in developing countries which I wrote about earlier, has recently spun out into its own non-profit called One Laptop per Child.

They have made a lot of progress in moving forward this project for concept to reality and will soon be rolling out the first test units in Thailand. They have a map of where they are planning further pilots and where governments have shown interest in purchasing the product.

They have also have hired/appointed a pretty serious management team to take this idea to market with Nicholas Negroponte continuing as chairman.

Check out the One Laptop Per Child wiki site to follow and discuss the progress.

One section I found particularly helpful is their Design Decisions FAQ where they answer some of the critics biggest questions about "why laptops for every child."

Do you think this is a good initiative?

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Sunday, August 20, 2006 

Help the Next Billion is an interesting an organization dedicated to helping the "next billion" -- the next billion poor people rise from the base of the economic pyramid (BOP) as participants in healthy economies, and the next billion in profits for businesses, from multinational to microenterprises, to earn by selling to underserved markets.

They describe themselves as " brings together the community of business leaders, social entrepreneurs, NGOs, policy makers, and academics who want to explore the connection between development and enterprise."

This site has many interesting stories of how poverty is being defeated through enterprise. is a project of World Resources Inc, an environmental think tank ... what an interesting association!

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Saturday, August 19, 2006 

Guns, Germs and Steel review

I recently finished reading Guns, Germs and Steel by Jared Diamond. This is an interesting book tracing human development and exploring why societies developed differently. I wrote a brief review in my recommended poverty reading list.

Review of Guns, Germs and Steel
Dave's Defeating Poverty Reading List

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Share your computer to defeat malaria

I am always interested in practical ways that most people can contribute to defeating global poverty. It seems like so often the ideas coming our way are so indirect ... through one or more intermediary whom you give money to and then it passes down the chain and trust that it actually benefits the needy recipient.

Africa@home (modelled after SETI@home) is a collaboration between the Swiss Tropical Institute, CERN and a group of universities to develop a long-term model of malaria epidemiology which can be used to test different ways of combatting the disease. You can donate extra cycles on your PC to help solve malaria at In fact, they have had so much interest that they've temporarily stopped accepting computer cycle donations!

I think that this kind of response demonstrates a desire for people to help out with what they have. I hope that this will encourage other grid computing projects to help defeat poverty!

Please post comment if you have other sources for this type of program.

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Are Children Learning?

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

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Africa mobile handset market explodes

This article was pointed out to me by my friend Harry Veihmeyer... The number of people with mobile phone subscriptions in Africa is projected to explode to 378M by 2011 increasing penetration levels to nearly 50% by then. From there its one small step to internet connectivity for the mass of Africans.

Mindbranch's African Mobile Handset Market Analysis (2006-2009)

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Saturday, June 24, 2006 

The White Man's Burden

I recently finished reading an interesting new book by William Easterly called The White Man's Burden: Why the West's Efforts to Aid the Rest have done so Much Ill and so Little Good. This book has a wide range of strong responses and even an oped piece in the New York Times. Easterly is an Economics professor at NYU and previously an "insider" to the international aid community as an economist at the World Bank.

Easterly argues that our Big Push approach to jumpstart poor country economies has no historical foundation for how countries have escaped poverty in the past. In fact, he argues that our current top-down approaches (much like colonial activities before) are doomed to failure and worse they will likely delay the emergence of sustainable long-term economic growth in these countries.

Read my full book review

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Wednesday, June 21, 2006 

Implications of For-Profit Microfinance

Recently, I wrote about the advantages of for-profit microfinance and why I believe that having this governance structure resulted in more poor people being served and served better in the long-run.

I want to highlight some of the implications of for-profit microfinance for donors and investors as there always are implications to whatever path you take. It is important to take a reality-based view of what is likely to happen so our expectations are properly set upfront.

1. Impact studies aren't valued. For-profit microfinance institutions (MFIs) don't make impact analysis (e.g. how much am I really helping my customers improve their lives) a high priority. MFIs are focused on growing their client base and maintaining their relationships with existing clients -- all while earning a return for shareholders. Implication: as a social donor/investor, you may not get a lot of impact reports.

2. Customers are at the center. Successful for-profit MFIs are going to be very customer centric. Finance services is a service industry. If you are not serving your customers, someone else will. Market research becomes very important ... what do our target customers want/need? You can't have condescending attitudes to your clients (MFIs, pay attention to this!) ... as they will migrate to your competitors who treat them with more respect. Implication: employees, shareholders, donors and other stakeholders are not #1 and although important need to realize their priority.

3. Some people will get rich. If for-profit MFIs are successful, some of the major shareholders (which often include the management team and investors) will earn a windfall return -- possibly becoming millionaires. Many of these organizations were first started as non-profits and were donor funded. The shareholder value is being created from profits made from offering financial services to the poor. Implication: Investing in MFIs is a "package deal" ... you are betting on your money being highly leveraged in sustainably helping a lot of people out of poverty and there will be shareholders who participate in the value being created.

4. Many MFIs will and should disappear. The reality is that when there is a huge gap between demand and supply that there are lots of opportunities for many MFIs to open shop. The barriers to entry for a new MFI are very low in the current market. When the market for microfinance services becomes more saturated, there will naturally be significant industry consolidation. The least efficient/strong MFIs will either be bought, get out of the business or go out of business. Implication: You may invest in a MFI which fails or gets absorbed into another MFI down the road. If you want to be more diversified, then you'll want to invest through an intermediary (like Unitus) which will spread your investment across multiple MFIs.

5. For-profit MFIs need professional management. Operating a MFI when you have to do almost no marketing (customers basically line up for your products), you have no competition and donors/investors continue to fund your losses for the sake of growth is not sustainable. MFIs need to build an institution which can endure the inevitable crises and become a high-efficiency (using low cost) supplier. This requires management talent which knows how to operate a growing business and to manage the expectations of the various stakeholders -- investors, employees, business partners, auditors, government regulators, politicians, etc. Implication: Look for for-profit MFIs to build a strong senior management team beyond their initial entrepreneurial team.

What are some other implications of for-profit MFIs? Please post as comments.

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Tuesday, June 13, 2006 

Achieving Sustainable Poverty Reduction

The core mission of the microfinance movement is to contribute to a material decrease in global poverty by providing helpful financial services to the world’s poor currently not served by the mainstream financial sector. That is, to help the poor become the non-poor. The assumption is that quality microfinance services are enabling the poor to earn their way out of poverty. The outreach results tracked by organizations like Microcredit Summit are very encouraging with an expectation that the cumulative client base of microfinance institutions (MFIs) was around 100 million in 2005. Grameen Foundation USA recently released a comprehensive review of the various impact studies on microfinance which overall indicates positive trends.

I’d like to propose that the goal of poverty reduction is to attain sustainable poverty reduction. I’d like to define sustainable with a high bar – that is, that a non-poor person/family is not easily pressed back into poverty due to a crisis event including death/illness in family, natural disaster, bad weather, economic turbulence, crime, etc. While I view this as a high bar – I think it is an appropriate high bar to strive for. The reality is crises do happen in everyone’s normal life so to have a plan that ignores them is not a plan. If all we’re doing is helping a poor person become temporarily non-poor, then I question whether what we’re achieving is much better than most hand-out aid programs (with the possible exception of being a higher-efficiency approach.)

I’ve noticed that the terms “microfinance” and “microcredit” are often used interchangeably with the latter term more popularly recognized as result of programs like the UN’s 2005 Year of Microcredit. I view microcredit as one of the components of the larger microfinance concept which represents a possibility of a wide range of financial services designed and optimized for the unbanked poor. To date microcredit has been the prevalent microfinancial service offered to the poor and for good reason … there is immediate demand from the poor for loans.

What is needed in order to sustainably lift and keep the poor out of poverty? I believe that that there are three core steps which must be made available in a highly scalable and efficient way:
  1. an opportunity for the poor to generate more income using skills they already have or can easily develop in a self-service manner;
  2. a safety net so that crises do not result in return to poverty
  3. hope that their children will have even better opportunities to participate in the global economic system
The first objective to break the poverty cycle is to enable stabilization by enabling the poor to generate more income. If there isn’t more income, then everything is a crisis and there are few options for the family to begin focusing on longer-term benefits and activities. This is why productive microcredit – loans directed to business activities not consumption activities – are often the most effective jumpstart tool. Once income is starting to increase, there is the need for a safety net to protect the assets of the family. There are many needs here including various insurance and savings products which provide a buffer/cushion from the impact of crises. Finally, an important third step is that the poor (maybe now non-poor) adults have hope for the generational cycles of oppressive poverty to be broken. While many of these formerly poor adults will likely not become wealthy or achieve even middle income, they can start to see the opportunity for their children to climb even further towards a better future in a global economy.

I think the microfinance movement is overwhelmingly focused on the microcredit front (what I call the microcredit ghetto) and needs to start making more investments immediately in safety net microfinance products. See The Microinsurance Centre web site for some good resources. Finally, I think the microfinance movement will need a strategy for connecting their local clients with the global economy. This is going to need some more creative thinking.

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Why Equity Matters to Microfinance

In a previous post on for-profit microfinance, I summarized some of the benefits that I see for the poor in the trend for microfinance institutions (MFIs) to become for-profit entities rather than the traditional non-profit entity model. One of the key aspects of a for-profit entity is the ability to sell ownership shares to investors to raise capital.

I caught up (via email) with Geoff Woolley, a very experienced venture capitalist (Dominion Ventures, European Venture Partners, MACC Private Equity and more) and an early pioneer in microfinance equity. Geoff currently chairs the Capital Markets Committee on the board of Unitus, an innovative global microfinance accelerator. He was very involved in setting up the Unitus Equity Fund ... one of the first private-money-only private equity funds exclusively focused on investing in start-up MFIs.

Dave: Geoff, first, what is your background related to investing equity capital in companies?

Geoff: I have been a venture capitalist all my professional career and founded both a US and European private equity firm. Through myself and my firms, I have invested in hundreds of growth companies ... both start ups and expansion stage companies.

Dave: What experience have you had in making equity investments in MFIs?

Geoff: Investing direct equity rather than making grants or giving loans to MFI’s is relatively new. My experience has been over the last few years with assisting in structuring the financing of the Unitus partners. With the new Unitus Equity Fund, we work exactly as most private equity firms. My “non profit job” and my regular job are almost alike except with Unitus I know my efforts help thousands of poor women and their families in a small way.

Dave: It seems like there is still a lot of confusion about why MFIs need equity investments. Why not just give them donations/grants or give them loans?

Geoff: The key word is sustainability. Essentially, if an MFI does not learn to become profitable, most donors will grow tired over time of supporting their financial needs. The best way to think about MFI’s are as small start up banks. If a wealthy bank founder provided all initial capital and continues to support the bank without taking equity or a loan note, potential new lenders or investors would not be able to assess the banks profitability or sustainability. This “free capital” would never appear on financial statements. By treating an MFI like most start up companies, lenders and new investors will more easily understand the MFI and its progress. With MFI’s, profitability is a measure of effectiveness rather than strictly making money. Capitalism and social purpose are well aligned.

Dave: How do MFIs grow their equity base?

Geoff: The same way as banks do. They raise more equity (by issuing and selling shares) or reinvest profits from their operations. In MFI’s that are licensed to collect savings from clients, these saving accounts help increase the MFI’s capital base which enables it to borrow less from outside lenders.

Dave: There is talk about some MFIs reaching the limit of how much they can borrow. What are those limits and how does equity impact lifting those limits?

Geoff: Reaching borrowing limits could relate to either market saturation or an inadequate capital base. In most microfinance markets, the need of the poor for capital is far from saturated. I hope someday to see the "problem" of oversupply of capital for the poor since it means poverty will be reduced significantly. Most MFI’s reach limits based upon their equity or capital base. Both banking regulators and an MFI’s lenders set limits in terms of the amount of debt that a MFI can have outstanding in proportion to the amount of equity they have built up on their balance sheet. For example, if an MFI wanted to borrow $5,000,000 from a state bank to make its small $100 loans, the lending bank might require $20 of equity for every $100 of loan it will provide to the MFI. This would be a 5-to-1 capital base requirement and the MFI would need $1,000,000 in equity or capital to borrow the requested $5,000,000. With many MFI’s expanding their number of borrowers by more than 100% per year, more borrowing and proportionate equity is required.

Dave: What are some of the additional benefits to MFIs of having equity infusions?
Geoff: The most important positive factor for a MFI is independence and being the masters of their own destiny. Management can plan for the future without outside factors such a grants being cut or reduced. Being able to plan and understand your resources is key to the success of any growth companies including MFIs.

Dave: Are there any downsides to MFIs in taking outside equity capital?

Geoff: Even in the US, we practice a “modified” capitalist economy where regulators, investors, voters and many other constituents impact and constrain the market system. Similar "guardrails" are required in microfinance to ensure it keeps its focus on the unbanked sector. Social guidelines and priorities need to be prioritized against pure profit decisions. For example, the cost to transact a $100 loan versus a $500 loan is the nearly the same. Therefore, a MFI could become more profitable if it moved to making $500 loans to increase profits. In such a case, the social benefit of making loans to the poorest women should be prioritized before maximizing profits. For instance, these social safeguards are outlined and documented in Unitus Equity Fund's equity investments to ensure MFI management keeps their focus on the targeted unbanked poor. A balanced approach of social good and sustainable operations is key to the Unitus mission.

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Saturday, May 27, 2006 

MicroFranchising -- Another Income Generating Tool?

One interesting (at least to me) emerging idea for defeating poverty is to make it easier for a poor person to start a very small (micro) business.

Does microfinance have a limited market? Some of the critics of microfinance have argued that most humans (including the poor) don't have what it takes to be an entrepreneur who can successfully start a business from scratch and then continue to grow it. The critics have pointed out how so many of the poor who take microcredit loans are starting copycat microbusinesses with low profit margins and therefore questionable sustainability. The advocates of microfinance recognize this as one of the results of a free market system where you have a bell curve of success -- some are very successful, most are moderately successful and some fail. All this said, mechanisms, systems and approaches which increase the likelihood of success for a business entrepreneur are welcomed by all.

Kirk Magleby, a defeating poverty activist, has done substantial research into a way to "lower the bar" -- making it easier -- for the motivated poor to generate more income. He refers to this as MicroFranchising. Think about how the ubiquitous Subway franchises have sprouted up so quickly across North America ... and then downsize this to the size of a stall or a very small storefront and you'll get the idea of the "micro" version of franchising.

The reason that franchises can spread so rapidly is that the purchaser of the franchise is buying a well-proven system for setup and operating a business so they have to invent less themselves. They simply go to the training course, read the manual, pay the start-up fee, find their location and then setup the store/stall according to the manual. And, presto, they're in business. Yes, they often have to buy products and supplies from the franchise owner (single source supplier) and they also pay them a percentage of your gross sales. But often this is a worthwhile trade as the franchisee has instant brand recognition, an operating business and many other risk factors are reduced as they follow the system and services provided by the franchise owner.

So, the idea is to "encourage" both national and international established corporations to more aggressively downsize their franchising model to enable a motivated poor person to run a microfranchise. If a franchise model is micro-sizable to a minimally educated poor entrepreneur, then the large companies should be expected to rapidly adopt this model as a lucrative new sales channel.

How would the poor person pay the upfront costs to setup the business, buying inventory, etc? Often the franchising company will over finance the setup and working capital as it is a highly profitably business for them beyond just the financing. The other most promising financing source is local microfinance institutions (MFIs.) MFIs should be very willing to finance these type of operations for their quality clients as these type of businesses have much less risk than financing a similar completely independent business. This is why I view microfranchising and microfinance to be highly complementary services.

Magleby identifies a vast number of potential microfranchising businesses including almost anything that is purchased by consumers and businesses. One example where microfranchising has been successful to date is for mobile (cell) phone franchising. Here is one Vodafone example in South Africa which Magleby references.

Further reading on Magleby's ideas:
Please post comments on this idea and any other examples of microfranchise attempts -- both positive and negative.

Update: Here's a new blog on Microfranchising

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Monday, May 15, 2006 

For-profit microfinance

There is a major positive change starting to ripple through the microfinance industry ... the trend towards running microfinance institutions (MFIs) as for-profit businesses rather than non-profit charities. Today, The Wall Street Journal ran a front page article on this trend highlighting a for-profit Indian MFI, SKS, which I have visited in Hyderabad last October. Unitus, a microfinance venture capital non-profit, was very instrumental in enabling this new direction for SKS and is an early equity investor in SKS.

This trend is incredibly good news for the poor! Why? Here are a few reasons:
  • For profit MFIs are much more likely to continue operating for the long haul ... which means that they will continue to be servicing the poor when the donated funds for non-profit MFIs move on to the next interest.
  • For profit MFIs are forced to operate efficiently in order to create a profit. This means that they need to create an ongoing operational efficiency culture. Over time, (sometimes even short-term) this means that the cost savings can be passed along to their poor clients in the form of lower interest rates or fees.
  • For profit MFIs are forced to be more transparent with their governance. Generally, this is forced upon them by regulation and their investors who want to see how their money is being used and to reduce the possibility of fraud and mismanagement. A more transparent, healthy MFI is likely to receive better rates on loans from banks which lowers their cost of capital which over time can (and will due to competitive pressures) be passed along to poor clients.
  • For profit MFIs can accept equity capital. That is, investors can buy shares in a MFI. This provides very inexpensive and flexible capital for the MFI which enables them to make forward-looking investments in staff, systems, expansion and other things which enable them to grow and expand. And, unlike loans, the MFI doesn't have to pay back this capital or pay interest! Additionally, equity capital can be leveraged to enable them to borrow more money from banks which is then lent out to poor clients. So, the net benefit to poor clients is more loan money at lower interest rates.
  • For profit MFIs are much more likely to focus on their poor clients as "customers" vs. beneficiaries. That means that they will care about things like customer service and creating financial products which work best for their poor clients in order to retain their customers over the long-term and help their customers be successful. This potentially is one of the greatest benefits to poor clients as their needs change and evolve.
What are other benefits of a for-profit vs. non-profit? What are the downsides of a for-profit? Please post as comments.

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American Generosity

Some people have given me a bad time about my "over abundance" of posts on Jeffrey Sachs approach to defeating poverty and my quotes from not-so-centrist New York Times. As I state upfront, I'm not taking a liberal or conservative philosophy to defeating poverty. Rather I'm looking for what works and what scales up to sustainably lift people out of poverty. This is about trying to round-up the facts which can help me (and hopefully, you) make smarter decisions about where to invest your time and resources.

This past week, the Wall Street Journal posted an interesting op-ed piece called American Generosity. They quote research from the Hudson Institute which seeks to quantify the true level of international giving to poor nations by Americans from all sources. They note the often quote official development aid of $19.7 billion from USA government in 2004 is about 25% of the total of at least $90 billion given to the developing world by Americans. The difference is $71 billion donated through schools, religious institutions, companies, foundations and families.

The largest single item is at least $47 billion in remittances "sent home" by immigrants and temporary workers. This remittances have very little or no overhead and generally go directly to the poor to help with basic needs.

This is by no means a reason for US aid to be decreased or not increased appropriately. But it does indicate that transfer of wealth can and will happen on multiple levels and that the government is increasingly a smaller player in actual wealth transfer. I don't think this is a surprising story in an increasingly global financial world. Many of my posts are about how you can directly invest in defeating poverty.

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Friday, April 28, 2006 

Applying technology to defeat poverty

Sevak Solutions is a non-profit which is researching practical means of using the latest technologies to improve the feasibility of delivering sustainable financial services to the rural poor ... especially needed in places with lower population densities.

Microfinance has mostly flourished in higher-density rural and urban environments and has struggled to develop in lower population density locations. This is due to the critical need to keep the operational transaction costs low in order to keep the microloan interest rates low. Operational cost management is a critical issue when you are dealing with small loan transaction amounts on a high volume. Think how much more work would be involved in servicing a single $100,000 loan to one business (with monthly payments) vs. 1,000 loans of $100 each (with weekly payments.) Over a period of 90 days, the single larger business loan requires 4 customer interactions (1 loan disbursal and 3 loan payments.) Over 90 days, the microloans require 14,000 customer transactions (1,000 loan disbursals & 13 loan repayments for each of the outstanding loans.) So, you can imagine the need to keep the cost of each customer interaction/transaction as low as possible for microloans!

Sevak Solutions has been building what they call a Remote Transaction System which uses wireless technology (think: cell/mobile phones) to turn individuals into mobile ATMs and bank branches. This would allow a bank employee (or an agent) to interact/transact with customers in remote locations in a seamless manner. I understand that Omidyar Network has funded a trial of this technology in Africa to prove its viability.

I think that mobile technology, while initially gaining interest for low population density scenarios will also be invaluable as it is applied to other higher density market segments.

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Monday, April 17, 2006 

Questioning the Impact of Microfinance

I am very hopeful for the potential impact of microfinance in helping the poor sustainably earn their way out of poverty. I am also a fan of listening to constructive and thoughtful critique on my ideas and perspectives. Previously, I reviewed a study which concluded that microfinance was having a generally positive impact on defeating poverty.

Another study by Thomas Dichter, long-time practitioner in the international development industry and author of "Despite Good Intentions: Why Development Assistance to the Third World Has Failed," takes a critical look at the microcredit movement and argues that it has done more harm than good.

A few highlights of arguments that Dichter makes:
  • Many microfinance institutions (MFIs) are over-hyping their impact (using unrestrained superlatives) in order to continue to raise donated capital.
  • Very little impact assessment of microcredit on poverty is actually being done because it is too expensive and complex to perform.
  • It has become standard practice for many/most development-related projects to now have a microcredit component in order to be cutting edge and get funded even if a microcredit component makes no sense or is ill-conceived.
  • He notes that incoming smoothing and empowerment are the only benefits consistently delivered and wonders if this justifies the cost of (monies invested in) microcredit.
  • Why do we expect to find so many entrepreneurs in poor countries when (he asserts) we have so few successful entrepreneurs in developed countries?
  • He argues that there are other more structural issues which need addressing (e.g. stable governance, less corruption, better schools, better infrastructure, etc.) before business credit capital can be used well.
He concludes with the following:
To move forward the best operators of microcredit need to become banks, move more seriously into savings mobilization, and learn to deal with banking policy and other (institutional) aspects of the enabling environment. And they need to come to terms with the constraints imposed by political correctness - by being unafraid of lending to real businesses, and unafraid of abandoning the subsistence activities in the informal sector.
My response:
  • I think that many of these are fair criticisms of the industry.
  • I think he is right that microcredit is by itself insufficient and wholeheartedly agree that the provision of broader financial services for the poor are required.
  • From what I have observed, entrepreneurship is a matter of degree and scale. When you're talking about growing something into a large business, few people have the genes. When you're talking about running a one-person/family business which enables you to earn enough for basic necessities, I've seen almost everyone in a developing country able to succeed at this as failure = perishing.
  • I don't think a MFI has to abandon the poor clients (and just serve wealthier clients) to succeed long-term. Many MFIs are now demonstrating business sustainability in serving even the extreme poor.
  • MFI's run as NGOs and without the customer service, financial and operational discipline required of real businesses are going to quickly be eclipsed by a new breed of MFIs functioning as customer-driven banks for the poor ... and the poor are going to benefit!
  • Finally, I think that this article is severely lacking in detailed examples to back up incredibly broad generalizations. I look forward to reviewing a more substantive set of objective objections ... the same challenge he is making about microfinance.

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Tuesday, April 11, 2006 

Doing What I Talk About

Our family recently decided to put some savings to work for social good ... more particularly for helping out extremely poor entrepreneurs. We made two investments. Yes, investments, not donations. We didn't get a charitable contribution receipt and we expect to get our investment monies back with earnings.

1. Unitus Equity Fund (UEF). This is a very innovative private equity fund just launched by Unitus -- the global microfinance accelerator. UEF recently made the first close of US$9 million on an expected US$20 million fund. We chose this fund because it is the first (that I'm aware of) equity fund which has the following combination of characteristics: (a) raising purely private monies, (b) focused exclusively on equity (not debt) investments in microfinance institutions (MFIs), and (c) focused on very high-growth MFIs (= providing microfinance to the poor who are not currently served.) The fund is structured like a venture capital fund so your money is locked up (providing immense poverty impact) for up to 10 years and they're targeting a return of 8-12% per annum ... not bad! Our hope is that UEF will be successful as a demonstration effect for social investing and encourage more private capital to flow to social enterprises. I'll write in a separate post about why equity investments are so critical going forward for MFIs.

2. MicroVest mPower Investment Program. MicroVest was founded by three non-profit institutions: CARE, MEDA and Seed Capital Development Fund to focus on capitalizing microfinance institutions. They have setup shop with Calvert Foundation to administer a debt fund called mPower. You make an investment (min. US$1,000), pick a term (1-10 years) and then pick an interest rate (0-3%) to be paid each year. This is a lower risk type investment (more like a bond.) The monies are then lent out to MFIs who in turn lend these monies to poor entrepreneurs. The entrepreneurs then repay their loans to the MFI, the MFI repays MicroVest and then MicroVest repays you, the investor. It is amazing to think that your savings can actually be put to work helping poor people in another country whom you will likely never meet!

So, finally, we've put our money where our mouth (really, heart) is.

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Tuesday, March 28, 2006 

Socially Responsible Investing v2

There has been a lot of interest in the so-called socially responsible investing (SRI) approach to investing. One report I saw [can't remember source] is that 10% (or $1 out of every $10) is now invested with this philosophy representing north of US$2 trillion.

Almost all of this money to date is invested in what I'll call "version 1" of SRI (SRIv1). SRIv1 adheres to the philosophy of avoiding investment in companies which violate certain ethical or moral standards held by the investor. It is similar to the supposed philosophy of Google -- "don't do evil." So SRIv1 investors are refusing to invest in companies which do "bad" things ... e.g. gambling, pornography, polluting, manufacturing armaments, bad labor practices, cigarette business, etc. There are many options to choose from ... some have a shorter or longer list of these "negative screens."

Much of the SRIv1 monies have come from charitable foundations and individual investors who have clearer/simpler ways of determining what "bad" is. Unfortunately, it is difficult to find an investment screen which fits exactly with your values. I tried and gave up. And, frankly, while I'm interested in these negative screens, I'm more interested in doing good.

Socially Responsible Investing version 2 (SRIv2)

There is a new emerging class of socially responsible investing opportunities which focus on doing good (vs. not doing bad.) I call these "version 2" types of SRI. That is, investing in ways which help make the world a better place ... whether it be less poverty, better environment, better health[care], less war/crime, etc. There are a growing number of companies which enable you to invest your money, earn a return and have your money used to do good. Yes, these are financially viable businesses which have also have a social mission built-in.

One promising category of SRIv2 investing for lessening poverty is in the microfinance (also referred to as microcredit) business. Microfinance starts by providing small loans to poor entrepreneurs to help them build a small business generating profit to both repay the loan and to help themselves out of poverty. Read previous blog entry on this for examples.

I think that SRIv2 while small today has an even larger potential than SRIv1. I think that "doing good" is a superior motivator than "not doing bad." In many ways, SRIv2 is a double win -- you don't invest in doing bad and you actually do something positive!

Now the challenge is getting out the word on SRIv2 initiatives!

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Friday, March 24, 2006 

Productivity tools designed for the poor

KickStart, a non-profit based out of Kenya and San Francisco, is taking an innovative approach to fighting poverty by inventing tools optimized for delivering productivity for the world's poor.

I met KickStart's CEO and Co-Founder, Martin Fisher, a few months back at an education event sponsored by Seattle Social Venture Partners. Martin has spent most of his career living in Africa working with various different NGOs focused on development initiatives with Africa's poor. He became very frustrated that despite working very hard and trying to be creative, he just didn't see any material results in their efforts helping the poor out of poverty. He came to the conclusion that the development community was missing out on the basic fact that for the poor to become independently and sustainably non-poor that they needed to be able to earn income. No income = continued poverty. Handouts, while often life-saving in the short-term, aren't a long-term solution. And development agencies are addicted to handouts.

KickStart's first invention was a very efficient, low-maintenance, low-cost manual water pump which they named the MoneyMaker. This pump was designed for micro-farmers (the majority of farms in Kenya are less than 2 acres) at a low enough price point (a couple of hundred dollars) and an incredible return-on-investment ... up to US$5,400 profit in the first year! How is this possible? Basically, the manual pump enabled micro-farmers to feasibly irrigate their fields resulting in a transformation from a single, subsistence crop per year to 3-4 "cash" crops per year. They have since introduced improved versions of the pump which enables farmers to reach deeper wells and to irrigate larger fields.

They claim that your donation of $200 will help one family out of poverty permanently.

I challenged their assumption that they needed to subsidize their products so much. If there really is such an amazing (only 1-2 crop) payback, why don't they finance the full cost of the pumps with microfinance. Martin said they are looking into this possibility.

I think this is a very interesting social venture enterprise. I'm impressed with their focus on building (and selling) helpful products to some of the world's poorest in order to help them help themselves out of poverty.

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Gates Foundation on global poverty

I heard Raj Shah, Director, Strategic Opportunities at the Bill and Melinda Gates Foundation speak this week at a public conversation in Seattle on local and global poverty. He made some interesting remarks and shared some data they use at the Gates Foundation.
  • Gates Foundation has a vision on basic human rights ... that every person should:
    • have a shot at a healthy full-length life
    • have an opportunity for a basic education
    • be able to provide for their basic needs
  • Top things that developing nations have missed out on preventing them from benefiting from wealth creation enjoyed by developed nations:
    • Massive agricultural productivity increases
    • Industrial revolution
    • Knowledge revolution
  • Gates Foundation estimates poverty breakdown as follows:
    • 1 billion people live on <$1/day
    • another 2 billion people live on $1-$2/day
    • another 1 billion people live on $2-$4/day
    • for a total of 4 billion people living on <$4/day
  • To provide context for these income levels ...
    • the USA federal poverty level for a family of 3 is set at $16,000/year
    • this is equivalent to ~$15/person/day or almost 4x what 4 billion people live on
    • many people think that the USA poverty level should be 2x of $32,000/year for a family of 3
  • 11 million children under the age of 5 die each year of which 50% could have been saved with proper vaccines at the cost of about US$0.12-0.13 each.
  • 430 million people have been able to escape poverty in the past few decades because of an agricultural innovation (which improved the productivity and resiliency of certain crops) known as the green revolution
  • Monsanto has developed a drought-resistant gene which could have significant benefit for many countries crop output -- especially those which haven't benefited from the green revolution
I looked up the World Bank's latest statistics on global poverty in their 2005 report. Due to their research cycles, the latest data is from 2001:
  • ~1.1 billion people live on <$1/day
  • ~1.6 billion people live on $1-$2/day
  • for a total of ~2.7 billion people living on <$2/day

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Thursday, March 09, 2006 

Does Microfinance Impact Poverty?

There have been a lot of studies conducted on the impact that microfinance is having on reducing poverty. Recently, Grameen Foundation USA commissioned Nathanael Goldberg to research all of the relevant studies on microfinance in an objective manner. The summary of his research is published in a free report called Measuring the Impact of Microfinance: Taking Stock of What We Know.

Goldberg does a good job of summarizing the highlights of many impact studies so even though this is still a long read (56 pages), it focuses our attention on the core findings. He covers the criticisms of various studies and doesn’t shy away from the contradictions between studies or the negative or inconclusive results. The reality is that measuring impact on poverty – especially long-term, sustainable impact – is a very challenging research task. It is very difficult to carefully select a good control group to which you are comparing and to isolate the impact of microfinance itself (vs. other factors) on poverty reduction.

Here are a few highlights:

  • Two major studies strongly suggest that microfinance works better for the poorest than the less poor. Other studies don’t find this distinction.
  • There is strong evidence that female clients are empowered, though the data on increased adoption of family planning is less clear.
  • Quite consistently loans provided to women (rather than men) have a significantly greater impact on poverty reduction. Often loans given to men do not help with poverty reduction.
  • Even in cases where poverty reduction is not observed, having loans helps to smooth cash flow enabling improvements in quality of life (e.g. year round money to buy food.)
  • There are many indications that poverty reduction goes beyond the borrower families to the larger community … that is, there are secondary local, positive impacts on poverty reduction in the immediate village/area.

Goldberg's Net: There is a wide range of evidence that microfinance programs can increase incomes and lift families out of poverty. Access to microfinance can improve children’s nutrition and increase their school enrollment rates, among many other outcomes.

Read the full paper

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Tuesday, March 07, 2006 

Helping Small Entrepreneurs Grow Tall

Dave McClure writes an articulate article (and appeal) for us to invest in microentrepreneurs just like we invest in entrepreneurs in the developed world today.
The working poor all over the world who live on $1-2 a day. Pound for pound, rupee for rupee, they're the world's tiniest yet most powerful entrepreneurs. But they're not in Silicon Valley; the hotbeds of microfinance are in India, Latin and South America, and Africa.
Dave recommends Unitus as one of the most leveraged ways which you can invest in these microentrepreneurs. As of December 2005, Unitus works with 7 microfinance bank partners to serve over 500,000 microentrepreneurs and their families in 3 countries around the world. By the end of 2009, Unitus intends to grow their reach to over 3 million working poor. Read full article.

More details on how to support Unitus

[My family also actively supports Unitus with time and money.]

PHOTO INFO: Photo above is of a microentrepreneur running a tea stand business in a village outside of Hyderabad in India. She used her microcredit loan from SKS (microfinance partner of Unitus) of ~$100 to purchase her tea stand equipment. She paid a bit more for the stand to be mobile (it has wheels) so that she could re-locate as needed to busier areas of her village. Earnings from her tea stand business now now funds her children going full-time to school amongst other things.

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Tuesday, February 28, 2006 

Personalized Development Donations was setup as a grassroots organization to match small-scale donors with entrepreneurs addressing social problems in developing nations. They describe themselves as an "online marketplace for international giving." They address projects in categories including healthcare, the environment and education. Donors can browse and select by geography. Global Giving is a non-profit, so gifts are tax deductible.

Global Giving (along with Kiva -- read my previous post) claim that they have on-the-ground partners who are vetting the projects and people requesting funding to give you (the donor) confidence that your gift is being used for what it is intended and that the project is genuine.

Listen to Public Radio International's The World Micro Finance Report which interviews the leaders of Global Giving and Kiva.

As you can tell from many of my other posts, I believe that microcredit (providing loans vs. handouts) is proving to be a more effective in creating long-term, sustainable improvements in developing nations. The reality is that microfinance in certain countries currently needs to be subsidized until the microfinance institutions gain scale.

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Monday, February 27, 2006 

Micro-inventions for the poor

A recent article in Business 2.0 revealed what Dean Keman, inventor of the Segway, has been working on ... a solution for not one, but two of the world's biggest issues -- clean water and electricity. An estimated more than 1 billion people don't have access to clean water and more then 1.5 billion have no electricity.

His prototypes (they are not yet being manufactured in volume) are each the size of a washing machine. The water purifier uses small amounts of electricity to produce 1,000 liters of pure drinking water each day. You can input any kind of water including raw sewage. The electricity generator will burn anything (including cow dung) to generate 1 kilowatt ... enough to power 70 efficient light bulbs. The target end-user cost is $1,000-2,000 per machine.

While the benefits of clean water are obvious, the core benefit of electricity is increased productivity in being able to do activities when it's dark outside. This includes reading, doing homework and working. One of the biggest challenges for the poorest children is that they don't have electricity in order to study at nighttime.

Keep the innovations flowing!

Read full article

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Microinsurance making headway

Microinsurance is a relatively new financial service designed as affordable insurance for the poor ... typically in developing countries. In concept, the microinsurance products are similar to regular insurance products except they are typically providing benefits on a much smaller scale requiring a different approach in order to be feasable and sustainable. Microinsurance products can cover health, life, disability, crops/weather, housing, capital equipment and almost anything else which can be insured.

Increasingly, microfinance institutions (MFIs -- banks for the poor) are experimenting with new microinsurance both as a benefit to their clients as well as a method to reduce risk. One of the top reasons that microloans fall into arrears is due to health issues (including death) of the borrower or in their family. Many MFIs already have required life insurance built into their microloans so that if the borrower dies, the loan is automatically paid off and surplus can be used by the family to pay for funeral arrangements and give them some time to start earning again.

I just got back from participating in the Unitus Leadership Summit in Malaysia. I wanted to highlight examples of two innovative pilots of microinsurance which were discussed.

Grameen Koota, a MFI based in Bangalore, India has been piloting a health insurance program in 2 branches for the last year for their microloan clients. They have priced this program at about $3/person/year so a typical family of 5 can be insured for less than $1.50/month. For this fee, they are able to provide free outpatient services, free surgeries, significant discount on generic drugs and 3 hospital day stays per year. The clients are able to use convenient, designated local hospitals for health services. They are expecting that they will need to charge a small co-pay for outpatient services (less than $0.25) when they roll out the program more widely into other areas.

Jamii Bora Trust (JBT), a MFI based in Nairobi, Kenya is now serving more than 130,000 members with microloans and other financial and social services. When JBT experienced some microloan repayment issues in 2000, they researched and found that the #1 reason was health issues with a family member. In over 80% of the cases, borrowers were paying hospital bills first and therefore were not able to make loan repayments. JBT did research and found the cheapest commercial option they could provide to their members would cost $100/person/year which was way too expensive for their clients. They found a local Catholic hospital group which agreed to partner with them for a cost of $15/year to insure a borrower plus up to 4 children! Even at this amazing low cost, JBT has run this health insurance program at a surplus every year while providing good, basic healthcare services to their members.

These innovations are pioneering new models of affordable and sustainable healthcare solutions for the poorest of the poor. Credit is important in providing opportunity to generate new wealth. Insurance is a key tool in providing the important safety net from calamities/misfortune which otherwise might wipe out all assets (and earning potential) and place victims back into desperate poverty. Please post comments on other experiments and progress in microinsurance that you are aware of.

Other resources:

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Wednesday, February 22, 2006 

Microfinance Leadership Conference

Unitus, the global microfinance accelerator, is hosting the Unitus Leadership Summit in Malaysia. This 3-day event brings together CEOs and senior management from 11 high-growth microfinance (MFI) banks based in developing countries including India, Mexico, Kenya & Philippines were participating. I am onsite for this event. I am blogging more details on the Unitus blog.

The focus of this summit is peer learning. On average, these organizations are growing at 70-80% per year. With this kind of growth comes major challenges in outgrowing systems, people and capital.

Mixed in with these entrepreneurial leaders are a group of talented business leaders from other industries who are presenting lessons learned from high growth and how to think about creating a high performance organization. Executive have experience from high-tech, consumer products, organization development and venture capital. This process of having an intimate environment of multi-industry executive interaction and learning is very unique as most microfinance conferences generally involve only MFI-insiders. This is another example of the innovative approach that Unitus is taking to helping the microfinance industry break-out of its overall less-the-stellar growth (based on the market demand.)

Full disclosure: I recently joined the board of Unitus because of how impressed I am of their innovative approach to accelerating microfinance.

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Sunday, February 12, 2006 

Personalizing Microfinance

I discovered a new microfinance service called Kiva which is attempting to truly enable person-to-person loans between a loan provider in developed countries and a low-income borrower in developing country.

I am very interested in these kind of innovations because there are currently very few options for middle-class North Americans to invest (not donate) their money in helping very low-income microentrepreneurs start or expand their microbusinesses in order to grow their income and break cycles of generational poverty.

Kiva is using technology to keep the costs of this kind of personalized service to a minimum. Here's how it works. You go to web site and browse through a selection of pre-reviewed loan applications. You get to read an overview of the borrower (including photo), what business they want to invest money in, what size of loan they are requesting and how much they have raised so far. Once you've found someone you'd like to make a loan to, you can instantly (using Paypal) make a loan for a portion (minimum $25) or all of the remaining loan ask size. All of the money is managed by Kiva's web service with human intervention so it is very cost efficient and scalable.

Once the borrower has received a full funding of their loan, then they are actually given the loan typically with a 6-12 month repayment (with interest) period. All of the pre-screening and on-the-ground loan management is outsourced to local Kiva microfinance partners. The partners assign a loan officer who is responsible for posting all of the loan "application" information on the Internet and to write journal entries (essentially a blog) along the way as there is new information to report. All of this information is available for easy access by loan providers (and anyone else who is interested) through Kiva's web site. Additionally, loan providers are emailed with updates when there is a new posting with one of their loans.

I tried this out. I made a loan of $50 as part of a $500 loan for Steve Ogondo (see his picture on the right.) Steve needed working capital for his new butchery business he called "Gracious God Butchery" based in Tororo, Uganda. Steve has now raised his $500 and now has received his loan. You can now follow his progress on-line. You can also post comments back to him. An assigned loan officer, Moses Onyango, handles all of the translation and communication. I did my research and issued my loan all in about 15 minutes via their web site! And I received an email on Feb 3rd when his loan was granted.

This reminds me of the highly successful (and still innovative) approach to personalization which World Vision International provides with child sponsorship. By putting a face, a name, some individual details and an ongoing communication, both parties benefit from the human connection despite the geographical and cultural differences. World Vision has been able to sign-up the masses for just $26/month ... something very doable for most westerners.

There are lots of questions that this approach brings up like:
  • how do you know the money is really going to the person in question?
  • will you get paid back?
  • is this ever going to be operationally sustainable because of the high cost of having the loan officers providing these updates?
  • doesn't this cause privacy concerns?
Kiva attempts to answer these questions in their FAQs. The reality though is that many of these issues will take time to work out. Kiva is functioning as the "trusted intermediary" and are seeking to use open communication to facilitate this trust.

Kiva is also not yet (and for the foreseeable future) paying any interest back to loan providers ... the most the you can get back is the amount lent. They are using the interest income generated to pay for operating cost which are substantial. Kiva is therefore a non-profit and is still heavily subsidized. This is a reasonable strategy. Most people won't care about getting interest on a loan of $25-100, so this works fine. In the worst case of the loan not getting paid back, your loan becomes a charitable gift.

All of that said, I really do like the concept and innovation of this approach. Using web technology (and probably mobile technology shortly), there are amazing new possibilities for connecting people to make a social impact. Being able to personally be involved in helping someone in a far-away place with the opportunity to improve their lives is very powerful.

Please visit Kiva and consider making a small investment today.

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Friday, February 03, 2006 

The India Caste System

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

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Bono @ National Prayer Breakfast?

Bono posted a transcription of his remarks (or watch video) at the recent National Prayer Breakfast. OK. Hold it there a second. Bono was speaking at the NPB? President Bush was there along with lots of members of Congress, other political leaders and, of course, religious leaders. So, what the heck was Bono doing at this event let alone speaking?

Then I read his speech. I was inspired. Now I understand why. Bono is very self-deprecating about this privileged lifestyle and he uses humor to set people at ease. Bono demonstrates the ability to connect with people from lots of backgrounds. He reminds us that he grew up with a Protestant mother and a Catholic father ... in Ireland. He smiles out loud about the diverse group of people who are turning their hearts and attention to the "least of them."

He calls us beyond charity to justice and equality. He reminds us about how equality is such a hard thing for us to address as the job is never done.

He praises the President for his increases in support for defeating poverty in Africa. And then he reminds us that the job is far from done. Then he focuses on a very simple ask ... 1% more of government budget to be spent on defeating poverty ... a tithe of a tithe.

I continue to learn from Bono on how to approach the complex challenge of defeating poverty.

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Thursday, January 12, 2006 

A Poverty-Free World

Muhammad Yunus, founder of Grameen Bank, shared a very compelling vision printed in a recent article in BusinessWeek:
My mission is to create a poverty-free world. I believe that human beings are created to contribute to all other life forms, including their own. But poor people too often spend their lifetime just taking care of themselves because the struggle has been so hard for them. I strongly believe in the unlimited potential of all human beings, not just a privileged few. All kids, when they're born, represent the same unlimited potential in any circumstance.

Poverty is absolutely meaningless and unnecessary in the world. It was just indifference to poverty that created and sustained it. It's not created by the poor. It's created by the system. Once we fix the system in the right way, poverty will disappear.

I'm encouraging young people to become social business entrepreneurs and contribute to the world, rather than just making money. Making money is no fun. Contributing to and changing the world is a lot more fun.
Bono, lead singer of U2 and poverty fighter said "Our generation wants to be the generation that ended extreme poverty."

Now those are visions worth living for!

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Sunday, January 08, 2006 

Outsourcing healthcare in developing nations

We think our healthcare system in the USA is pretty messed up with the 100's of billions of dollars we're spending each year with so many people still un-insured. Some are advocating for the USA to pursue a more nationalized healthcare system like Canada and most of western Europe.

An interesting experiment was reported on in today's New York times in an article called "A Cure That Really Works: Cambodia Tries the Nonprofit Path to Health Care" which describes how outsourced healthcare is resulting in significant improvement in healthcare services delivery for the average, poor citizens of Cambodia.

The Cambodia Situation ... As you'll recall, the Khmer Rouge led a reign of terror in Cambodia in the 70's with a particular focus on mudering the educated including the medical professionals. It was only 1998 when the war eventually ended living the country in shambles and, not surprisingly, poorer with little working infrastructure. The government was paying doctors and nurses poverty-level salaries, so most of them spent their time operating private hospitals in order to survive. Most of the hospitals were stripped of all of their usable medical equipment such that even if there were people willing to work at the hospitals, there weren't even basic things like thermometers let alone electricity to support their work. To add to that a minimum of 40% (often 100%) of government allocated hospital monies were being siphoned off by the rampant corruption.

Finally, the government was convinced to give health services monies directly to some international health care nonprofits (including Health Net and Save the Children Australia) to provide an outsourced management of health care delivery. The nonprofits "are paid based on their performance in improving services, like childhood immunizations and the proportion of women getting prenatal care and delivering babies in a health center." Now (with some additional international support), this approach covers 1 in 10 Cambodians. And the cost (government AND donors combined) is a whopping $4 per year per person!

The article describes how Health Net made some significant economics-related changes. First, they realized that they'd need to raise wages for hospital staff, so they immediately used some of their contracting fees for this. Additionally, they instituted small end-user fees -- e.g. 25 cents to see a doctor and 75 cents to stay in hospital for a day -- which generated additional funds for wages. With these higher wages, they demanded better results from their staff including punctuality, 24x7 on-call and service-level targets. In addition, they paid clinics and staff "bonus" fees for recruiting women to use the hospital services vs. traditional, higher-risk options. The result in one district noted is now 50% of women give birth in clinics vs. 10% for Cambodia overall. And the patients are viewed as customers who are to be treated respectfully!

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Thursday, December 22, 2005 

Microfinance in USA

Most of microfinance is focused on providing small microcredit loans to very low-income micro-business entrepreneurs in developing countries. The model has proven to be very effective in helping people help themselves to earn their way out of extreme poverty.

The New York Times profiled some microlenders experimenting in the USA. They note that in 2003 that there were 246 known microlenders most of which were non-profits. These lenders are providing an interesting service in providing credit to very small businesses which generally sit below the level that the federal Small Business Administration is optimized for. These microlenders are able to move more quickly and provide more flexible products which are often critical for entrepreneurs who are often very time sensitive in their needs. Accion USA, a pioneer of microcredit in Latin America, is one of the leaders in this new experiment with average loan sizes of about $5,600.

While it is encouraging that pioneering efforts to help low-income American residents are underway, this article does not point out that none of these microcredit programs are operationally sustainable and I'm not aware of any of them which even have a plan to get to sustainability. Please let me know if anyone is aware of a program which has developed a model in USA or Canada which is on route to sustainability.

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Friday, December 16, 2005 

Bureaucracy stifles developing nations exports

Tim Harford wrote an OpEd in today's New York Times about the myriad of "self-imposed" export bureaucracy that most developing nations still have in place. The context and timing is related to this week's Hong Kong WTO meetings where the rich nations are unwilling to move forward in reducing agricultural sudsidies which hurt exports of developing nations.

He explains that even if 100% of agricultural subsidies were eliminated, there would be still huge barriers for third world farmers to get their crops to export markets. In Central African Republic, it takes 116 days and 38 signatures for bananas to get to ships for export! On average, sub-Saharan Africa exporters face delays of nearly 50 days for each shipment and require some 20 signatures on at least 8 separate custom forms. (Source: Doing Business in 2006: Creating Jobs publication of the World Bank.) Can you think of a better situation for encouraging a culture of corruption?

An exporter in India requires 22 signatures on 10 documents placing India in the bottom 20 countries in the world for entrepreneurs wanting to export. Brazilian exporters require 39 days to get their produce onto a ship which means that some agricultural products are just not feasible to export.

In comparison, China can get exports moving in 20 days, the USA in 9 days and Denmark in 5 days.

Tim Harford is a columnist for The Financial Times and author of The Undercover Economist: Exposing Why the Rich Are Rich, the Poor Are Poor.

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Saturday, November 19, 2005 

Investing in Poverty Reduction

A number of people have asked me about whether there are options available for people to invest their savings in ways which are helping to defeat poverty. Investment is different than making a donation. The assumption with an investment is that there is an expectation (although not without risk) that your capital is returned and possibly with some extra earnings. You don't get a tax deductible receipt for an investment like you usually do with a donation.

There are a growing number of what are called "socially responsible" investment fund options. For instance, you can find mutual funds which explicitly don't invest in the "sin industries" -- tobacco, alcohol, pornography, armaments, etc. These funds utilitize which they call " investment screens" which are requirements that a company must pass before they qualify to be invested in.

In my searching so far, I've only found one investment option* which explicitly focuses on fighting poverty ... the mPower Investment Program run by Calvert on behalf of MicroVest. MicroVest was founded by CARE, MEDA and the Seed Capital Development Fund. This fund takes invested monies and loans them out to microfinance institutions (banks for the poor), so these banks can make more loans to the poor. This is a debt fund where you loan (minimum $1,000) to the fund for a term of your choice between 1-10 years and an interest of your choice between 0%-3% per year. Essentially, you're expecting to get paid back your loan with the selected level of interest.

I have not been able to find any public funds (basically mutual funds or similar) where you can buy shares/units. I expect that this is because of the restrictions on mutual funds needing to be highly liquid (that is, you can sell at any time) and the lack of liquidity for investments that the fund would make in poverty-reduction businesses (like microfinance institutions.)

You might ask why I am interested in investment options for defeating poverty? Should we really think in terms of "making money" while defeating poverty? Why not just make a donation? The reason is that there just aren't enough donated dollars to fund the initiatives required to defeat poverty. Unitus estimates that only 14% of the people who could benefit from microfinance currently have access to those services. It is only when we start tapping into the capital markets (which means your and my savings/investments) that we reach the capital needs for the one sector of microfinance.

*NOTE: There are an increasing number of private funds being raised for microfinance ... both debt funds and equity funds. The issue for most people is that you have to be a "qualified investor" (read: very wealthy) in order to participate in these options. So, they are really not options for most people.

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Saturday, November 12, 2005 

Intro to microfinance

Here are some good introductions to microfinance:

Wikipedia on microfinance

Unitus, a microfinance accelerator, has produced a very good quality, concise 14 minute free online video (requires free RealPlayer) which describes the basics of microfinance.

Unitus also has a good text intro to microfinance.

Muhammad Yunus, founder of Grameen Bank, has also an intro to microcredit.

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The hidden wealth of the poor

The Economist has a very good article summarizing the state of the global microfinance industry. They take a very broad look at what's working, what the top issues/concerns are and how the microfinance industry is evolving. And their "net" is very positive! This is a significant endorsement as The Economist has a reputation of being very tough in doing their due diligence and is very skeptical of unsustainable or long-term irrelevant economic phenomena.

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Sunday, October 23, 2005 

75 million India poor helped in 10 years

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

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Healthcare insurance for the extreme poor

An article in the Sunday Times of India called Healthcare for a billion by Kiran Mazumdar Shaw reports that rural indebtness caused by illness is far greater than that caused by crop failure. The problem with this kind of indebtness for the poor is that often they have to go to moneylenders charging often 10% interest per day(!) to pay these bills resulting in long-term (or possibly lifetime) indebtedness and resulting extreme poverty.

She highlights a couple of success stories both governmental and private sector driven. The government in the south India state of Karnataka (capital is Bangalore) has a program called Yashaswini Health Insurance under which various co-ops receive insurance coverage for a range of surgical procedures for 60 rupees (about $1.50) per year. A private initiative, Arogya Raksha Yojana is a more comprehensive insurance program covering surgeries, hospitalization, medical consultations and medicines for just 120 rupees (about $3.00) per year.

She ends with a quote from Winston Churchill: "Insurance brings the miracles of mathematical probability to the rescue of the masses."

If this statistic is accurate, then health insurance needs to be a top priority for the growing microfinance sector.

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Wednesday, October 12, 2005 

Sachs on ending poverty

If you don't have time to read Jeffrey Sachs book "The End of Poverty", here is an interview on "Can we end global poverty?" with John Cassidy of The New Yorker where he lays out some of his arguments.

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Shantytowns in transition to cities

Interesting article in recent Fortune business magazine called How Shantytowns Become Real Cities* by Robert Neuwirth highlights his experiences in living in shantytowns (basically, slums) on the outskirts of major 3rd world cities. These are people who are moving from rural to urban environments and having to setup their homes/shelters as squatters. He estimates that there are currently about 1 billion squatters and is increasing by 70 million per year.

He suggests that De Soto's suggestion of focusing on establishing legal title for these people is not the right priority and might even be negative right now. Instead, he advocates for two things: (a)
"security of tenure"—confidence that they will not be arbitrarily evicted; (b) access to politics—some way to participate in the larger city.

He describes a success in an area on the outskirks of Instanbul, Turkey called Sultanbeyli where people began colonizing undeveloped land in the 1970's with the usual lack of running water, electricity and sanitation. Today, they now have a city with a mayor who "
presides over an amazing squatter establishment: a planning department, a department of public works, a sanitation department, and a municipal bus service. This squatter city of 300,000 people has stores, offices, restaurants, banks, Internet cafés, and a post office in its bustling downtown. Almost every home has access to legal electricity, water, and sewers. The community is exploring ways to compensate claimants who held earlier rights to its land. And it has even created rules to rein in its own growth, thus protecting adjacent forests that are crucial to Istanbul’s water supply. Sultanbeyli has done all this without title deeds."

How did this happen? Turkey has a law that when there are 2,000 inhabitants, they are legally able to
apply for recognition as a municipality, which gives the residents a chance at self-government.

*I've noticed that seems to make access to archive article available only for paid subscribers after a certain amount of time.


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Saturday, October 01, 2005 

A Teaching Mid-Term

Teach for America is an interesting program which recruits highly qualified non-education major college grads for two-year stint as teachers in under-achieving US schools. Many of the recruits are not planning a teaching career and return to post-graduate schools afterwards. This program is getting a lot of interesting corporate and private foundation sponsors because of its innovation.

Read article in New York Times.

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Thursday, September 29, 2005 

Laptops for the poor

Very interesting idea for a $100 laptop which could be distributed widely to school children in developing countries is being championed by MIT Media Lab's Nicholas Negroponte.

"Power for the new systems will be provided through either conventional electric current, batteries or by a windup crank attached to the side of the notebooks, since many countries targeted by the plan do not have power in remote areas" said Negroponte.

There is also the possibility of selling to consumers at say $200 of which $30 would be contributed towards distributing more the $100 laptops to poor school children.

Very interesting initiative which could help accelerate education.

Update: New non-profit organization setup to carry forward this mission.

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Sunday, September 25, 2005 

Debt forgiveness grand experiment

The New York Times reported today that the G8 finance ministers have come to an implementation agreement on eliminating up to $55B in multi-lateral debt owed by 18 poor countries. Essentially the G8 have contractually committed to cover the World Bank's dollar-for-dollar cost of this in ADDITION to their regular contributions. In reality this is worth closer to $18B in near-term dollars ... significant nonetheless. This also sets a model where additional countries (up to 35 in total) can qualify to participate for even more debt cancellation.

This debt cancellation has been connected with requirements that "sound" economic policies and meet reasonable standards for good governance [details still tbd.] This is the [amazingly relatively new] concept that aid [in this case, debt cancellation] is contingent upon governments investing funds in ways that help alleviate poverty. Obviously, the devil is in the details on whether these requirements are "reasonable" [historically, some requirements have not been] and, more importantly, helpful in ensuring accountability for spending.

This is an amazing breakthrough and, frankly, a grand experiment in a new approach to aid proposed by a number of economists and anti-poverty activists including Jeffrey Sachs. Why a grand experiment? Because it hasn't been proven that these kind of monies will be directed to help the poor. There is so much pressure (and historical precedent) for poor incumbent governments to take windfall monies and invest them ineffectively. It is understandable (although not excusable) that governments are tempted to spend money on short-term, non-sustainable activities (e.g. welfare, high-profile pet projects) which are politically popular but which are not building up the long-term infrastructure (human and physical.) And then there's the unfortunately not-too-uncommon cronyism which favors the wealthy over long-term public interest.

In the spirit of Bono, though, I won't succumb to being a skeptic. This is a needed experiment which we should all watch closely to ensure it is successful.

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Wolf #2 has a new war

It is interesting how many anti-poverty supporters were against Wolfowitz (former US deputy secretary of defense) being placed as president of the World Bank. The New York Times reported that Wolfowitz is already pressing the US publicly to step up and commit more specific budget $ long-term to anti-poverty goals including the Millenium Development Goals. He is also promoting an approach to modernizing agricultural practices in Africa (to benefit from the rest of the world's so-called "green revolution" -- basically using better seeds and modern ag techniques.) He is also advocating for infrastructure projects like Jeff Sachs recommended in The End of Poverty.

Frankly, I think having someone who has the tenaciousness to run a military war may have what it takes to drive a war on poverty. The jury is still out on Wolf #2, but there's some interesting early promise in his priorities.

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Wednesday, September 21, 2005 

Yunus: statesman for the poor

I had the opportunity to hear Muhammad Yunus, founder and director of The Grameen Bank, earlier this week speaking at an event in Seattle.

Yunus is very much an activist for practical solutions to defeating poverty. He recounted his story of starting The Grameen Bank, now one of the largest banks in Bangladesh with now over 5M micro-credit borrowers. They also launched a mobile phone company in Bangladesh called Grameen Phone targeting the rural poor which has now become not only the largest phone company in the country, but also the largest company and tax payer! More than 200,000 micro-entrepreneur "phone ladies" are now operating in villages all over Bangladesh renting out phone minutes to fellow villagers. This is a significant service to the rural communities, a profitable business for the phone ladies and a profitable business for the phone company -- a triple win.

The Bonsai People

Yunus is very much an advocate for the potential of the human spirit in every person. He believes that people are poor not because of their own actions but because of the systems that have denied them the ability to reach their potential. Yunus provided the analogy of the bonsai tree. He said that you can take a seed from the largest tree in the forest and put it in a small pot, limit its water and it will grow up as a dwarf tree. Yunus said that this is a good analogy for how potential is not realized by poor people.

Dream Your World

Yunus was asked about how he would talk with well-off children about poverty. He said that we should encourage our children to dream about the world they want. Then we should encourage our children to pursue making that world. Wow!

Social Entrepreneurs

Yunus was asked about what he saw as the next major movement. He talked about a new kind of business person who was building a business to make a profit (for no business will survive without profit) but also to equally value providing a social return. This contrasts with the Wall Street approach of focusing exclusively on maximizing profitability. He envisions an industry developing around social capitalism to run alongside the traditional profit-only focused industry.

Previous post on Grameen and beggars

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Tuesday, September 20, 2005 

Bono is not a skeptic

This past Sunday, James Traub did an impressively insightful cover story on Bono: The Statesman in New York Times Magazine about Bono's journey along the path of advocating for the poor.

Here are some of the highlights I liked in the story:
  • Bono knows how to “ask big” and celebrate partial progress. Bono praised Chirac at a U2 Paris conference in spite of Chirac’s incomplete support. Guess who called him later and asked to work more closely with him?
  • Bono knows how to align himself with both the left and the right. He appeals to different people in different ways for the sake of the “emergency” of poverty.
  • Bono thanks people – big and small. He signs every item fans extend to him to sign. He thanks major leaders for their actions and the impact that they will have. Bono praised the Bush administration for the commitment to the Millennium Challenge Account (for funding AID relief in Africa) even though it had conditions attached to it that he didn’t approve of. Notice, he thanked people, not the program.
  • Bono trusts people taking them at their word. When Condoleeza Rice privately made a verbal committed that the Bush administration would later make a historic commitment to fight AIDS, Bono trusted her and gave them his support even though that promise was not made public. Rice delivered.
  • Bono likes to sing his messages. When asked why he preferred a goal of canceling all of the debt in Africa instead of the, then current, 2/3’s cancellation, he said that you can’t sing about two-thirds of something. Instead, “it has to feel like history … incrementalism leaves the audience in a snooze.” Singing for Bono includes speeches and press conferences.
  • U2 has always stood for something positive. Rock for stopping bad things and Rock in favor of good things. Compare that with other rock bands.
  • Bono loves the world – he isn’t full of angst. This is so opposite to the angry words so many advocates have for others.
  • Bono likes to hear the whole story. After meeting with Jeffrey Sachs to hear his opinion, he asked Sachs to find him an academic who opposed his perspective.
  • Bono speaks unspoken dreams. “My generation wants to be the generation that ended extreme poverty.”
  • Bono say “yes and yes.” He calls for responsibility for the aid recipient as well as the aid donor.
  • Bono calls on everyone to be their best. Nothing less, nothing more.
  • Bono is in for the long haul. He decided to go low profile last week in New York for UN summit on Millennium Development Goals because of America’s focus on Katrina. Do you think that his quietness reflects any less passion for the MDGs?
Traub says that it isn’t Bono’s belief in the issue [of eliminating extreme poverty] that is so effective; it is his belief in others.”

And most importantly, Bono is not a skeptic. Yeah, I'm really tired of skeptics!

Oh yeah, and Bono like Brunello ;-)

UPDATE: Bono also answered questions in the New York Times. He’s asked about microcredit and talks about his meeting with Dr. Yunus. Bono offers this quote: "Give a man a fish, he'll eat for a day. Give a woman microcredit, she, her husband, her children and her extended family will eat for a lifetime."

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Friday, September 16, 2005 

Is the world flat again?

Friedman, the New York Times foreign affairs columnist, has written another must read book for people interested in global economic trends. This book builds on his popular The Lexus and the Olive Tree: Understanding Globalization to describe what he calls Globalization 3.0 which started around 2000 and replaces Globalization 2.0 (the industrial revolution) as the defining economic driver for the 21st century. Friedman describes how the world has become more “flat” as people and countries have been connected through the Internet and a massive global supply chain. He also explores the challenges for some of the world’s 3 billion people in the “unflattened” world and how we need to help them participate in the benefits brought by globalization.

Read full book review

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