Defeating Global Poverty Reading List

A Billion Bootstraps: Microcredit, Barefoot Banking, and the Business Solution for Ending Poverty

by Phil Smith and Eric Thurman

I think this the best book that I've read so far which provides an introduction to microcredit which is designed for a non-industry expert and, more specifically, for someone who is looking to get involved in microfinance.

It is genuinely co-authored with each author writing alternating chapters. Eric Thurman is the industry expert having previously led two leading multi-country microfinance organizations, Opportunity International and HOPE International plus Geneva Global, an interesting group which advises/supports philanthropists in international giving strategies. Phil Smith is a successful oil industry entrepreneur who tells his story about learning about microfinance and how and why he is now such a passionate investor.

A couple of highlights from my reading:

• They argue that we should expect higher returns on our philanthropic $, not less than our financial investment returns. They note how people invest philanthropic $ too much with their hearts rather than their minds and that's why there is such little impact usually made by those investments. Accountability to quantified results is needed in philanthropy.
  
• Their rule of thumb is the capital required to help a family out of poverty through microcredit is approximately the level of average annual income per capita of the borrower's country (GNI per capita).
  
• Microcredit has dramatically lower cost-per-life (CPL) impacted "return" than any other kind of investment they could find. They estimate that this could be as little as 1% of per capita GNI based on 20 loans cycles (1 every 6 months for 10 years) and an average family size of 5. Even if you conservatively discount the impact, it likely not more than 10% of per capita GNI.
  
• In the Democratic Republic of Congo, the average income is $120, so the CPL would be 1-10% of that or $1.20 to $12. Wow! It is an order of magnitude (10x) more expensive in middle income countries (e.g. Eastern Europe) and two orders of magnitude (100x) more expensive in developed countries. So, if you are looking for maximizing your CPL...low income countries are the best investment by far.
• They present the concept of "microcredit plus". They prefer the term "microcredit" over "microfinance" as they see the credit piece as the driver and everything else that is added on is part of the "plus". They are strong supporters of the "plus" services that can accompany and complement microcredit ... but leave that up to you to decide what matters to you.
  
• They provide a list of some of the major international microfinance organizations along with some very good advice of how you need to do your own due diligence to find out what their true overhead is. Eric, the industry expert, says it is not unusual to be 50% or more!
• They provide a list of ways you can invest/participate in microcredit. This is a good summary of your general options ... although you'll still need to do a bunch of homework.
  

What I think is missing from the book:

• There continues to be too much focus on telling the stories of how the exceptionally rich are doing philanthropy ... the Gates, Buffetts, Omidyars, etc. which while maybe inspirational is frankly pretty irrelevant to the rest of us. Then there's the only very rich examples of ex-bankers, etc. We need people who are telling more stories of ordinary individuals like the rest of us making a difference.
• This book is very focused on supporting the impact of microfinance through donations even though they extensively use the "investment" language to describe your donations strategy. They do note that some people are making loans to provide capital for microfinance, but this is more of a side note. I think that there needs to be more written about helping people take a more holistic approach to "investing" in social impact which includes both philanthropy (donations/volunteering) and investing with the opportunity for capital return (and possibly a profit.)

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Labels: microfinance, poverty

Creating a World Without Poverty: Social Business and the Future of Capitalism

by Muhammad Yunus

I have written a fair amount on Muhammad Yunus, Nobel Peace Prize winner and his first book, Banker to the Poor on my blog. Yunus is an incredible innovator and one of my current day heroes who has made a huge impact on addressing global poverty. So, I was eager to read his new (and second) book.

While I do recommend reading this book, I would call this less of a book and more of a collection of stories and speeches on topics with a little more detail thrown in than a speech generally allows. So, don't be expecting something "integrated", but a bunch of Yunus' current thinking and favorite topics.

Social Business. The centerpiece of this book is Yunus' concept of a social business. His argument is that humans are actually interested in more than self-interest ... they are also interested in helping others. Traditionally, there are 3 primary organization types: (i) for-profit businesses; (ii) non-profits/NGOs and (iii) government. He is proposing the need (and opportunity) to launch a new entity, a social business, to serve the needs of the world's poorest citizens.

Yunus has a rather specific and narrow definition of the term/concept of a "social business." Yunus defines two kinds of social businesses: (a) a business which is owned by the poor; and (b) a business where investors are only allowed to receive back their capital invested (that is, no additional return whatsoever.) He primarily focuses on (b) where the primary objective of a social business is a specific social objective plus it must be self-sustaining (i.e. generate financial surplus) in order to provide on-going and growing fulfillment of its social mission. Type (a) social businesses can be pure profit-making machines with the benefit to the poor provided through the profit surplus. Or social businesses could be both type (a) and (b) like Grameen Bank.

Yunus sees no room for businesses with owners/investors (other than poor people) which earn a profit (he calls them profit-maximizing) calling themselves social businesses or having any long-term potential for delivering much social benefit to the poor. He believes that the profit motive will always win-out and these hybrids will ultimately not serve the poor. He also assesses other examples of organization formats to help the poor including coops and NGOs. [See separate response to Yunus' social business concept.]

Social Entrepreneurs. Yunus defines social businesses as a subset of the larger social entrepreneur segment. That is, all social business operators are social entrepreneurs, but not all social entrepreneurs run social businesses. That is, what they do is either not run as a for-profit/sustaining business and/or it doesn't meet his criteria for a social business per above.

The Grameen Bank Story. There is a whole section/long chapter dedicated to succinctly telling the story of the Grameen Bank. For those of you who who haven't read Banker to Poor, this hits many of the story high points (and some later additional points) in much fewer words.

Grameen Companies. Yunus provides one of the first overviews (that I've seen) of the 24 (!) companies/entities that Grameen Bank has launched in the last 25 years. He describes what they are doing and identifies some as successful and others as work-in-progress. All of them are intended to help the poor in Bangladesh with just one, Grameen Trust, which is seeking to help the poor outside Bangladesh today.

The Grameen Danone Story. Yunus tells in detail the story of how the new Grameen Danone venture in Bangladesh transpired. [I wrote about it here a while ago and got it mostly right ;-)] This is Yunus' posterchild example of a social business (except it does pay 1% dividends). It is a very compelling and interesting story of how Danone, the world's largest yogurt company created a new JV with Grameen in Bangladesh to deliver nutritious food products to the poor of Bangladesh. Their first product is a tasty, healthy yogurt product aimed at children which is priced right and is run as a business. Grameen Bank borrowers provide the milk through the cows they have financed. Danone designed a new micro-yogurt factory that supplies a local area and is sold door-to-door by women entrepreneurs from Grameen Bank in their villages. This is a great example of a social business.

The Poor Lack Capital. Yunus has a strong belief that the first place to start with helping the poor is to provide capital. He argues that at the core of poverty is that the poor lack capital so "the poor work for the benefit of someone else who controls the capital." He says that "poverty arises from the fact that they cannot retain the genuine results of their labor", so "the poor work for the benefit of someone else who controls the capital." Sounds like Marx, huh? Yunus is very much a democracy advocate and capitalist though and encourages a business (not socialist) approach to addressing poverty. In fact, he is quite negative about the ability of non-profits/NGOs and government to provide much help to the poor without the contribution of business.

Microcredit Interest Rates. Yunus has a very simple test for whether interest rates charged for microcredit are fair. He grades interest rates that are up to 10% above cost of funds as "green" (best), 10-15% above as "yellow" (warning) and >15% as "red" (he calls them "moneylenders"). He then has a few footnotes which admit that there should be some exceptions. While I agree that philosophically that there should be more transparency and accompanying scrutiny on interest rates charged by MFIs, his formula is very centric on Bangladesh and other like countries like India and are not reflective of the realities of the cost of doing business in most other emerging market countries. So, unfortunately, I think his test is more the exception than the rule.

International Capital for Microfinance. Curious to me, Yunus picks a fight and argues that international/foreign equity and debt capital for bad for MFIs. Some of this comes from his perspective that these investors have for-profit objectives (counter to his social business criteria) and some from the additional cost due to currency risk issues. He argues for national, subsidized megafunds to provide the capital to MFIs along with urging governments to authorize MFIs to collect and then re-lend savings (currently prohibited in most countries with Bangladesh being a notable exception.) I think his first point is too restrictive as there just isn't enough subsidized capital to go around. I am fully in support of his second point on savings and think that this would be a huge benefit to the poor.

Technology for the Poor. Yunus is a big proponent of the power of technology to transform and uplift the poor. Grameen Bank has launched companies which have brought cell phones and internet services to villages across Bangladesh. And yes, the poor have very productive means of taking advantage of these services. He encourages the development of new technologies which are targeted at the poor. Probably his most interesting idea is a handheld device which provides simultaneous translation so the poor can more easily communicate with the globally important economic languages.

So, quite a bit to chew on from an economist from Bangladesh!
UPDATE: Here is Grameen Foundation's blog on this book

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Labels: grameen, microfinance, yunus

The Poor Always Pay Back: The Grameen II Story

by Asif Dowla and Dipal Barua

If anyone is interested in seeing inside one of the world's most innovative microfinance organizations, this is a fantastic documentary of the huge transformation that Grameen Bank (founded by Muhammad Yunus) went through over the last few years to deliver "version 2" of the Grameen approach to microfinance.

This book is written by practitioners for practitioners. So, there are lots of details, examples, explanations and market research data presented ... including some which is not all that positive (e.g. that borrowers don't uniformly increase sending their daughters to school). This book is a must read if you're in the microfinance field and want to see how the next generation of microfinance is being rolled out.

The book starts off with a detailed review of the first generation of the Grameen methodology now called "Grameen I" or Grameen Classic. It explains the issues/challenges faced with the Grameen Bank using this model and how many of the learnings from their approach naturally drove them to adapt for an improved model. Then it describes the new Grameen II model in detail including the open-access savings, flexible loan products, a range of deposit products, self-reliance at the branch level, no need to access donor funds, their ability to keep interest rates very low, insurance products, pension products, education loans, elimination of group loan guarantees and more.

There is also a very good chapter on how Grameen Bank is intentionally starting to serve the poorest of the poor who are generally not serviced by microfinance because they are often surviving through begging. Grameen's beggar's program is built into the core of staff incentives to ensure that no one is being left out of access to financial services.

My only critique of the book is that it is a bit dry. You need to approach this more as a textbook and research document. I'm glad that the authors and others involved took the time to write this up to give us an indepth look at the Grameen story!

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Labels: grameen, microfinance, yunus

Banker to the Poor: Micro-Lending and the Battle Against World Poverty

by Muhammad Yunus

Yunus is probably the most well-known microfinance practitioner having started The Grameen Bank in Bangladesh in the 1970’s and led it ever since to its current state where it serves millions of micro-entrepreneurial women across Bangladesh and, through replication, in many other countries. Yunus is very much a practitioner, a continuing innovator and activist for practical solutions to putting poverty to where it belongs ... a museum.

Grameen update
Grameen and Yunus win Nobel Peace Prize
Grameen now lends to beggars
Yunus: Statesman for the poor
Yunus bio

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Labels: grameen, microfinance, yunus