Some interesting reports/studies have been recently published. This was brought to my attention by Microcapital.
Microfinance's Midlife Crisis from the Wall Street Journal , Assessing the Role of Microfinance in Fostering Adaptation to Climate Change by Shardul Agrawala and Maëlis Carraro, and Microfinance and Inequality by the Macrothink Institute written by Hisako Kai and Shigeyuki Hamori.
A number of studies and articles have been appearing since last year questioning the impact of microcredit - microfinance. One of the most recent reports "Does Microcredit Really Help Poor People?" written by the seasoned microfinance expert Richard Rosenberg provides an excellent overview of the studies and his view on this subject. According to this report the claim in doubt is whether microfinance (or the microloans) is the cause for the economic improvement (increase in income and consumption, moving people out of poverty) as well as positive impact in health, education and social empowerment. The problem being that scientific testing of the impact of microcredit is very difficult (and therefore proving the claims are difficult). Rosenberg ends the report with the following words;
"Small one-time subsidies - leverage large multiples of unsubsidized funds - producing sustainable delivery year after year of highly valued services that help hundered of millions of people - keep their consumption stable, finance major expenses, and cope with shocks - despite incomes that are low, irregular, and unreliable.In retrospect, it is very likely that in the past years the rising popularity of microfinance and its impact had become over-blown. Proponents of microfinance (including this author), in their quest of raising awareness of this powerful and effective tool to improve the life of the BOP, have been too enthusiastic and most likely also helped create the overhyped state. So the recent critical articles are deflating the overly high expectations that were built on microfinance and its impact. This is a healthy sign. I thank David Roodman and his excellent open-book blog which has been providing a critical view on the many issues surrounding the impact of microfinance.All and all isn't this a pretty impressive value proposition, even if we eventually find out that microfinance doesn't raise income the way some of its proponents have claimed?"
Today's NY Times article on Kiva describes the recent online debate started a month ago by David Roodman's blog titled "Kiva Is Not Quite What It Seems" which criticized Kiva's misleading marketing on person-to-person microlending. Matt Flannery, Co-Founder of Kiva responded and reacted (by updating and improving on how Kiva explains itself to its user) to David's blog and to the NY Times article in an admirable way. As a supporter, promoter and lender to Kiva I believe that these online debates are healthy as it promotes transparency and makes innovative enterprises like Kiva an even stronger organization. Kiva has been a poster child for social entrepreneurship and in only 4 years have been able to create a platform that facilitates individuals (over 580,000) of all ages to participate in alleviating poverty with USD 25 (just recently crossed the USD 100 million mark). The phenomenal growth and its success also attracts attention. Constructive criticism is healthy, bad PR is harmful. I believe and trust that Kiva will emerge stronger from these controversies.
On Oct 31st, Kiva lender loans surpassed the USD 100 million mark! Congratulations to the Kiva team especially Matt and Premal for achieving this milestone. That is a lot of 25 dollar bits. I went back to check my first entry on Kiva when I congratulated them on getting their 501(c) status which was in Sept 2006 . Kiva has achieved so much in 4 years inspiring more than half a miilion people in the world to get engaged to empower people in developing countries.
Jacqueline Novogratz is founder and CEO of Acumen Fund a very successful and fast growing nonprofit venture capital firm for the poor that invests in sustainable enterprises bringing healthcare, safe water, alternative energy, and housing to low income people in the developing world. She founded Acumen Fund in 2001 and by the end of 2008 this firm had approved more than $40 million on investments in 40 enterprises serving the poor, creating through these enterprises 23,000 jobs providing basic services like water and life saving malaria bed nets to millions of low income people around the world. Her book The Blue Sweater -Bridging the Gap between Rich and Poor in an Interconnected World-is an inspiring memoir of a woman who left a career in international banking to spend her life on a quest to understand global poverty and find powerful new ways of tackling it. Many important lessons can be learned just by following her heartbreaking and hilarious stories of starting a microfinance institution and a bakery in Rwanda. Also the book is packed with examples that teach us humility and that good intentions alone are not enough as described through some failed programs of traditional charity that have left the poor people in the same or worse conditions. One also learns about the Rwandan genocide through the stories of the survivors that Novogratz had worked with. The book is inspiring, educational, entertaining and a must read for everyone and especially for those who aspire to make a difference.
Prof. Yunus, Nobel Laurete and founder of Grameen Bank gave an inspiring lecture titled "A Framework for a better future: the promise of social business" on May 29th at the British Council. He continues to strongly promote the creation of social businesses as these can address and solve the problems of poverty, health care and environment. Prof. Yunus gave examples of social businesses he has been creating in Bangladesh. In addition to the well know Grameen- Danone (joint venture manufacturing affordable yoghurt full of micronutrients for children in Bangladesh) he mentioned Grameen-Veolia (Veolia is a French water company) creating small water treatment plants and BASF-Grameen which will be providing treated mosquito nets at very little cost. He also mentioned the eye hospitals and a healthcare program to create a nursing college as a social business. In the area of environment Grameen Shakti has been providing affordable solar home systems in Bangladesh for the poor.
Prof. Yunus call for social business is very timely as the current financial crisis is forcing us to think how can we improve or rebuild the financial system so that it is an inclusive system that would include the majority of the people. You can see the transcript and videos (youtube) of the lecture.
On April 23rd I visited the bakery of Luisa and Luis in Tecpán, Guatemala. Luisa is a client of Fafidess, a leading MFI in Guatemala that provides microcredits, training and technical assistance to groups of Guatemalan indigienous women with limited resources. My last visit was back in August 2005. The business has been growing steadily on the back of new acquisitions of institutional clients (hotels and restaurants in the area). Monthly sales have more than doubled from Q 16,000 to Q 35,000 (USD 2000 to USD 4375) during this period. There were two other areas where a lot of progress could be seen. As the business increased its clients to hotels and restaurants that need invoice, the bakery has slowly moved to the formal sector and now they hire an external accountant for bookkeeping. The other change which impressed me the most was on the education of the children. In 2005 Luisa's 3 older daughters: Angela, Rosy and Carmen (who were then 17,15 and 13) were helping at the bakery so they could only attend Saturday/Sunday school. Nelson the only boy at 9 years old was attending full time school and the youngest girl Sonia, 5 years old was at home. I had asked then Luisa if Sonia would be able to attend full time school next year. Luisa said maybe. During our current visit, Nelson and Sonia came back from school wearing their uniforms. Yes Sonia is now attending full time school. Furthermore, Angela, now 21 has finshed the weekend school and told me she wanted to enroll to University to study business administration! See photos of this visit.
How is the financial crisis impacting microfinance institutions (MFIs) and their clients? What can the microfinance industry do? These were the questions addressed at the virtual conference hosted by CGAP between Nov 18-20. There were 600 MFI managers, central bankers, investors, and advisers from 34 countries and the150 entries submitted by these participants provided a vivid and powerful picture of what is going on. According to the summary sent out by Elizabeth Littlefield, Director and CEO of CGAP,
"The dominos of the crisis-credit crunch, inflation, currency dislocations and global recession- are hitting microfinance in very different ways, depending on location, funding structure, financial state and the economic health of their clients. While many places seem unaffected today, there is little doubt that there will be impact: integration of microfinance into the mainstream does have costs."Other salient points from the summary report were;
-deposit taking MFIs are well-insulated from the crisis
-immediate concern is how the global liquidity contraction will affect the cost & availabilty of funding to non-deposit taking MFIs
-institutional investors in microfinance are not seeing significant redemptions but they do expect fundraising to become more difficult in the coming months
-advice to MFIs included: increase reserves, cut back on growth and focus on portfolio quality, make sure loan officers are informed and attentive to client needs and communicate early and often with lenders and investors
-concerns about overreaction by policymakers
-amid the anxiety some optimism...as some markets had become overheated so slower growth, tighter credit more conservative policies, better products and even consolidation of weaker institutions may be beneficial in the long run
I logged in during the 3 day conference and one positive impression was how the industry of microfinance (the players) continue to be willing and passionate to share and give information for the improvement of the whole industry, an attitude that the mainstream should learn from microfinance.
Hapinoy envisions to become the largest chain store (franchise) of small convenience stores (known as sari sari stores or variety stores in the Philippines). Their aim is to empower microentrepreneurs and help them grow their business. There are roughly 700,000 sari-sari stores in the Philippines and the idea is to convert some of these stores into Hapinoy branded stores. The microentrepreneurs who join this franchise will have access to microfinance (business loans) as well as training for standarized operating systems. Another benefit would be the opportunity to increase sales through new businesses and services brought in by Hapinoy through partnerships. Hapinoy works closely with MFIs (CARD-MRI, TSKI, Kasagana-ka, LMPC) and also partners with manufacturers and service providers (Nestle, Unilever, Colgate-Palmolive, Smart Communications etc).
Hapinoy is the first venture by MicroVentures Inc, a social business enterprise founded by Philippine leaders from the social development sector and the business sector. MicroVentures seeks for positive change in the Philippines through empowering microentrepreneurs and pushing the social business enterprise agenda believing that making profit and creating positive change can go hand in hand.
Hapinoy is a promising venture that one should keep an eye on. I learned about Hapinoy as I met Markus Dietrich who will be working for Hapinoy as a consultant based in Manila for one year starting this October.
Ashoka's Changemakers and Citi have launched a competition titled " Banking on Social Change- Seeking Financial Solutions for All" to invite entrepreneurs from around the world to find and create innovative projects that will enable everyone to have access to financial services. Entries are accepted until October 1st.
Ashoka is a leading innovator for social change as it finds, fosters and connects the world's leading social entrepreneurs-men and women with system changing solutions for the world’s most urgent social problems. Changemakers, an initiative by Ashoka, has been building the first online "open source" community that co-creates and implements the best solutions for social problems through collaborative competitions. Changemakers hosts competitions on a wide spectrum of social problems where innovative solutions are desperately needed. The current competition was launched in mid-July and in the first 4 weeks 34 entries from 11 countries have been submitted. Anyone can view the entries, enter a discussion or nominate a project. If you would like to showcase your innovation, share your insights or simply learn about solutions go to Changemakers.
A lively debate has been sparked by Mike Edward's new book "Just Another Emperor-The Myths and Realities of Philanthrocapitalism" where he challenges the increasing use of business thinking in philanthropy and the current hype about it. It is in fact a controversial topic but certainly a healthy debate. I got to know about this topic as I follow Nextbillion where now the whole team is writing their comments on this subject.(highly recommended read). Also there is an on-line debate on this subject hosted by Global Philanthropy Forum. Here you can read comments from Matthew Bishop from the Economist who coined the word "philanthrocapitalism" and has written a book with Michael Green titled "Philanthrocapitalism: how the rich can save the world" coming out this fall.
I believe strongly that today there is a powerful movement of making the world a better place (the subject of my latest book) which has been accelerating due to the converging business (for-profit) and social (non-profit) worlds. Both worlds offer principles and methods in different areas that they ought to learn from each other. It is important to sort out what can be used most effectively from each world. I think that this is a timely debate and look forward to see the outcomes.
Where can one go to learn more about microfinance? Is there enough capacity (trained staff and managers) to cope with the explosive growth of the microfinance industry? Of course there is no limit (only one's own time) as to how much one can learn through the internet (ie CGAP, mixmarket, microfinance gateway or the UNDP Microfinance Distance Learning Program) but, there are also an increasing number of institutions that offer training programs around the world.
For programs/courses: Boulder Institute of Microfinance(creating a platform for dialogue and critical thinking in microfinance), Microfinance Center (programs for practitioners in Eastern and Central Europe), School of Applied Microfinance (provides 2 week training courses for MFIs in East Africa), Harvard Business School & Accion Program on Strategic Leadership for Microfinance (executive education for directors of MFIs), and Frankfurt School of Finance and Management which runs the Micro Banking Summer Academy. One excellent institution, Microfinance Management Institute (MFMI) is building a community to foster development of human resources for the microfinance industry through the creation of learning tools and programs. They also provide courses for funders as well as integrating microfinance courses into the curricula of premier graduate management programs in developing countries.
If one's interest is to get familiar with microfinance by going to the field there are many microfinance institutions that provide visitors programs. I have visited 2 of these which were excellent. BRI in Indonesia and BRAC in Bangladesh.
For international conferences the easiest way to see these are on the website of the microcapital, the top newsletter of microfinance investments.
So don't wait if you want to learn more about microfinance get started now!
This book introduces the new innovative social/business models that are making the world a better place and portrays the inspiring people behind them.
Starting with an update on microfinance, it covers other innovative market-oriented models such as base of the pyramid (BOP) businesses, social enterprises and microfranchises. These models together with microfinance are improving the lives of the 4 billion people living at the BOP. The last section covers in detail a remarkable example in this area, Scojo Foundation. Scojo is developing the market for affordable reading glasses at the BOP through microfranchising.The book provides the author's insights on 1) how the business (for-profit) and social (non-profit) worlds have been converging, setting the stage for these new models to emerge, 2) how these models, the people behind them, and the advent of Web 2.0, are creating a strong and positive movement towards a more responsible, sustainable and kinder world and 3) how all of us could make a difference.The book has been published in German language by rueffer and rub with the title >Kleiner Einsatz Grosse Wirkung. (Small input, big impact - thus,the red chilis of the cover) This book illustrates a giga trend, the powerful movement of making the world a better place.
Muhammad Yunus, Nobel Peace Price winner, in his continuing fight to make poverty history promotes a new type of enterprise which has as its objective to make a difference. These social business enterprises will be self sustainable, in his words “no loss, no dividend enterprises”. He refers to two types of such enterprises one having investors like the latest joint venture between Grameen and Danone, an enterprise providing fortified yoghurt to malnourished children. Investors will get their capital back, but, profits will be injected back to the company to continue to achieve its objective. The second type of social business enterprise is a for-profit model but owned by the poor such as Grameen Bank.This book goes in depth explaining his "Next Big Idea" social businesses and also present some ideas on how corporations and individuals can take part in achieving a "world without poverty". It is inspirational and of course uplifting. Highly recommended. Past related entry on this topic, "Muhammad Yunus promotes social businesses"http://www.microfinance.ws/weblog/2006/12/
An exciting area of growth is mobile banking as it is accelerating the outreach of financial services at the BOP. The increasing use and diffusion rate of mobile telephony in developing countries is creating low cost alternatives for people to make deposits, remittances and payments. Smart Money and Globe’s G-Cash in the Philippines, Wizzit in South Africa and M-Pesa in Kenya are some of the innovative mobile transaction systems. Africa has witnessed a spectacular growth in mobile phone subscriptions from 15.3mn in 2000 to 198mn in 2006. The penetration rate in this period soared from 1.97% in 2000 to 21.48% in 2006! (Penetration rate of fixed lines in the same period went from 2.48% to 3.09%). CGAP is covering this area with a slightly broader scope. They have published very interesting notes on “branchless banking” which they define as “the delivery of financial services outside conventional bank branches using information and communications technologies and non-bank retail agents (merchants, supermarkets, post offices)”. The notes published so far cover India, Kenya and Pakistan. Mobile banking/branchless banking is a hot topic for 2008.
On October 24th, MicroPlace launched its web site that allows people to invest as little as $100 in microfinance. More precisely, people can purchase investment notes with returns ranging from 1.5 to 3.0% that are issued to a particular microfinance institution. This is great news as this provides another option for people to participate in supporting microentrepreneurs worldwide. So now in addition to Kiva which allows people to support microentrepreneurs with a loan (you get capital back but no interest) you have MicroPlace where you can make money from these loans "doing good, doing well". This news has been covered by Businessweek, Reuters, Fortune etc but the best article out is by Rob Katz of nextbillion titled "Kiva vs. MicroPlace-What is the difference?" an excellent read. Kudos for Calvert Foundation, which is the first issuer for MicroPlace. Calvert has been offering for the past 10 years community investment notes including those that went to fund microfinance institutions and these notes were offered to the public at large. One of the very few choices that have existed but now their efforts can be inmensely scaled!
One request to MicroPlace/ebay and to the microfinance investment community. Kiva is a non-profit so everyone can participate but investments in MicroPlace is only available for US investors (US residents). I am aware of the constraints in the investment world but can we/someone make a platform or several platforms for investments so that everyone can invest?
This story came to our attention through Microcapital. Ecobank Transnational Incorporated, the parent company of Ecobank, the leading regional banking Group in West and Central Africa serving wholesale and retail customers, and ACCION International a global microfinance network, announced their partnership to open microfinance banks in 20 African countries. Ecobank has a network covering 18 countries: Benin, Burkina Faso, Cameroon, Cape Verde, Central Africa, Côte d’Ivoire, Ghana, Guinea, Guinea Bissau, Liberia, Mali, Niger, Nigeria, Sao Tome, Senegal, Sierra Leone, Tchad and Togo, with plans to establish presence in East and Southern Africa. The Group has a network of over 320 branches and offices. The two institutions started their collaboration in December 2006. According to the Accion's press release "ACCION will work with Ecobank to develop a regional banking platform that will deliver financial service products to micro- and small entrepreneurs in African countries within the Ecobank network. These products may comprise loans as low as $100, savings and insurance products, and related financial services, all designed to help lift people out of poverty. Over the next three to five years, ACCION will work with Ecobank to develop a comprehensive mix of tailored financial products that will be distributed through its existing branch network, and introduce alternative delivery channels such as ATMs, point-of-sale terminals and cell phone banking."
Another partnership that is making sense.
The business (corporate sector) and the social worlds are converging. We could call this a megatrend and it continues to gain momentum. One has seen this through microfinance where an effective development tool initially created in the social/NGO/NPO world have given birth to numerous microfinance institutions that have become sustainable and profitable. Microfinance now attracts funding/investment from both capital markets (commercial banks, asset managers, private investors) and foundations. Social entrepreneurs are also another major force behind this and no doubt that Microfranchising also links these two worlds.
One can also see it through the new partnerships between players of these two worlds especially as the multinational corporations and their executives team up with social activists and NGOs to market products to the 4 billion people at the base of the pyramid (BOP). C.K. Prahald, one of the leading advocates of BOP opportunities, has recently co-authored with Jeb Brugmann, a very interesting article in the February Harvard Business Review titled Cocreating Business’s New Social Compact. It is an excellent read (even if you have to pay for the copy to download) for those who are interested in these new partnerships. Many examples are cited including British Petroleum, Healthstore Foundation, and ICICI.
CGAP will accelerate its quest for technology solutions that can bring critical financial services to billions more of the world's poor thanks to the $24mn grant by the Bill and Melinda Gates Foundation. CGAP has been providing for the past few years an increasing range of technology services to MFIs and financial institutions. Most of this funding will support pilots to expand access to financial services with new technology approaches (using mobile phones, POS and card based technologies for deposits, payments, remittances). CGAP has selected 9 project ideas for further development together with institutions in Colombia, Kenya,Mexico, Mongolia, Pakistan, Philippines, South Africa and the Maldives. This is very good news as the majority of the unbanked live in rural and remote areas where the nearest bank is very far away.
Professor Yunus promoted the concept of “social business enterprises” in his Nobel Lecture delivered after receiving the Nobel Peace Prize in Oslo yesterday.
The eloquent yet moving lecture portrayed the milestones of Grameen Bank and how microcredit has been lifting millions of people out of poverty. It also touches upon how technology is playing a major role (telephone ladies) in empowering people. Prof. Yunus in his continuing fight to make poverty history promotes a new type of enterprise which has as its objective to make a difference. These social business enterprises will be self sustainable, in his words “no loss, no dividend enterprises”. He refers to two types of such enterprises one having investors like the latest joint venture between Grameen and Danone, an enterprise providing fortified yoghurt to malnourished children. Investors will get their capital back, but, profits will be injected back to the company to continue to achieve its objective. The second type of social business enterprise is a for-profit model but owned by the poor such as Grameen Bank. The Lecture video is available on demand (the social business enterprise topic is covered between1:15 to 1:25).
Bank director Elizabeth Littlefield rejected Yunus's criticism, at a microcredit summit in Canada this week, that "not even one percent" of the World Bank's total lending goes to microcredit funding.
"That actually is quite a narrow definition of the World Bank's spending in microcredit, it relates only to credit lines on lending to microcredit institutions," she said.
The actual number "could be up to six percent of its total budget, about 1.3 billion dollars, if you use a much broader definition that includes credit lines, policy advice, payment systems, work on regulation and supervision as well."
The above paragraph is taken from the CGAP press site and copyrights belong to AFP.
The reason why I am referring to this article is because although I agree with Yunus that the World Bank should do more, it would be so unfair to overlook the non-financial support and gigantic work and efforts of building the infrastructure for the microfinance industry that CGAP has been doing for the past 10 years.
Another press article about Elizabeth Littlefield that came out after the summit is "What is next for microfinance" Very good read.
The Global Microcredit Summit 2006 took place Nov 12-15th in Halifax. Over 2300 delegates attended to monitor, discuss and celebrate having reached their goal of providing 100 mn of the world's poorest families access to microcredit. 2 new goals were announced at this summit to (1) ensure 175 million of the world's poorest families have access to credit (affecting 875 million family members) by 2015, and (2) help 100 million of the world's poorest families move above the $1/day threshold by 2015 (affecting 500 million family members).
Prof. Yunus Muhammad, this year's Nobel Peace Prize winner was one of the keynote speakers. Prof. Yunus together with Sam Daley-Harris, founder of RESULTS and the Microcredit Summit Campaign, talked to the media on Nov 14th. One can listen or read the transcript of this media call.
On May 10th a one day microfinance workshop took place in Kantonsschule Zurcher Oberland in Wetzikon. This is an upper secondary level school in the Canton of Zurich. The 21 students who are 17-18 years old got an introduction to microfinance, performed a role play of microenterprises and MFIs and discussed about how to make viable businesses using microloans. In the first hour I introduced the concept of microfinance using 4 cases of successful microentrepreneurs I have met in the Dominican Republic, El Salvador , Guatemala, and Indonesia. The role play done by the students resulted in business plans for 1) production of Banana Beer in Tanzania, 2) sale of refurbished bicycles collected in Switzerland and sold in Romania and 3) a European style bar in a beach in the Dominican Republic. I do believe in involving the youth in changing the world... They are our hope for making the world a better place.
I opened my email today and saw this newsflash sent by CGAP. I find it positive and noteworthy as such efforts are very much in need in conflict areas.
"Despite power outages in Baghdad, eighty-five Iraqi women participated in the first of a series of microfinance training events on Tuesday. The World Bank Institute, Global Distance Learning Network, Middle East and North Africa region of the bank, Iraq's Ministry of Planning, and CGAP's regional hub in Jordan are collaborating on training Iraqi women in basic principles of microfinance. Using GDLN videoconferencing technology and CGAP materials in Arabic, a trainer based in Amman, Jordan will conduct two further workshops on May 3 and May 4. "
Since it's foundation in 1995 CGAP has been the resource center for the microfinance industry, the architect of the infrastructure of the industry, and is working to build inclusive financial systems.