Defeating Global Poverty

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.

Labels: poverty, social business, social investing

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?

Labels: poverty, poverty stats

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.

Labels: africa, malaria, poverty

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.

Labels: ashoka, book reviews, bornstein, poverty, social entrepreneurs

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.

Labels: demand aggregation, microfinance, microfranchise, poverty, supply aggregation

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 account...email 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

• BusinessWeek article on Microplace launch
  

Labels: ebay, kiva, microfinance, microplace, poverty, social investing

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.

Labels: book reviews, grameen, microfinance, poverty

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 @ LaptopGiving.org. 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 OLPC.tv

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.

Labels: children, computers, laptop, Negroponte, OLPC, poverty, social enterprise

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 FightingMalaria.org

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

Labels: ddt, malaria, poverty

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.

Labels: innovation, microfinance, poverty

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 passbook...loan 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.

Labels: innovation, microfinance, poverty, productivity

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!

Labels: bandhan, microfinance, poverty, poverty impact

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 ;-)

Labels: poverty, remittances

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

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

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

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

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

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

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

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.

Labels: grameen, microfinance, poverty, social enterprise, yunus

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

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

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

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

Have others out there found similar or different experiences?

Labels: empowerment, india, microfinance, poverty, women

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.

Labels: book reviews, china, poverty

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

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

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

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

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


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

Labels: grameen koota, india, microfinance, poverty

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.

Labels: microfinance, pledge, poverty, ujjivan

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

Here are a couple of things I observed:

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

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

Labels: india, microfinance, poverty, trends

I 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:

• Venezuelans Chase Dollars, Wall Street Journal, 8-27-2007
• The rise of the Boligarchs, The Economist, 8-9-2007

Labels: populist, poverty, venezuela

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!

Labels: dollar street, gapminder, poverty, trendalyzer

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.

Labels: novogratz, poverty, ted conference

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.

Labels: microfinance, poverty, poverty impact

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:

• My previous post on microfranchising
  
• Good blog on microfranchising innovations