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.)