As you might remember I have written a post in the past highlighting a campaign called Phones 4 Loans. I recently had a conversation with the leader of Recycle to Eradicate Poverty, Brian Weinberg. A summary of the campaign can be found at Digiactive.org soon. Brian is still a student at University of North Texas where he founded the campaign. He has told me that it has been difficult in the beginning. He told me that his greatest challenge was being patient through all the problems he had with website developers. Many times the website developers did not have enough bandwidth to develop the kinds of sites that RTEP wanted. This happened twice and he told me it wasted a huge amount of time that could have been used to focus on getting people involved with the campaign. I think that is part of the reason why the cell phone collection rate has been low in the past year and a half.
They have also told me that they have started to create videos to put up on Youtube. They are hoping to make more videos that are humorous in nature that will become viral. The videos have only been up for a week and I believe as they post more videos that are good quality the more people will eventually view them. If it is possible for musicians to start careers on Youtube it should be possible for a socially responsible campaign to become famous on Youtube.
Brian Weinberg also told me that he is travelling often to go to summits and conferences to meet other leaders in the microfinance field to learn from them and network with them. He hopes to be able to get more organizations informed about his campaign so he can be featured on sites like Global Microfinance Forum. The site is perfect for microfinance leaders to discuss issues and network with each other and collaborate together. I believe that Brian Weinberg is really passionate and dedicated to this project. Although he is young he will eventually learn and become more experienced especially if he is taking steps to contact other leaders in the field. I urge you to go to their website and get involved. This is a great idea and I would hate to see it go to waste.
Friday, May 15, 2009
CSFI Report
CSFI Annual Banana Skins Report on Microfinance
Every year for the last 10 years CSFI, The Centre for the Study of Financial Innovation, conducts a survey and writes a report on the results. The survey is to show what practitioners, investors, analysts, observers, and regulators believe as the top "banana skins" or threats to the microfinance industry. They send the survey all over the world. They show the results from the survey from the people that are surveyed and also the results from regions in the world. I thought this was very interesting and I am going to write about the top risks to the microfinance industry this year. But if you wish to read the whole report the link above will lead you to it.
The number threat or risk to the microfinance industry is management quality. There is much variance in the quality of mangement inn microfinance institutions. In all the regions that MFIs operate in MFIs are being stretched by hectic rates of growth. MFIs are dealing with more complexities in their business and feel pressure to become more commercially-motivated. One of the respondents even warned that any MFIs that do not have good management will fail in these competitive times. The people who were concerned most about management quality are investors and analysts. But the practitioners ranked it 7th in the list of risks. The most concerned regions were in Europe, North America, Africa, and Asia. MFIs are generally run by "visionaries" who are very charismatic but lack good management and organizational skills. As commercializing MFIs becomes more popular MFIs are getting stuck between their commercial goals and their social ones. Without good management these MFIs that are stuck will not excel in either of their goals and will eventually be knocked out by better managed MFIs. But in general this banana skin is not a rising risk but a falling one. People are effectively recognizing this problem and fixing it.
Corporate governance is the second highest ranked banana skin. This is also was a top concern for investors, analysts and regulators and not for MFI practitioners. Many MFIs do not know about basic coporate governance and are generally ignored in these organizations. It is possible that this is because they are worried about getting more investors and getting more clients rather than setting up official corporate governance rules. But investors are very concerned and this lack of corporate governance may lead to loss of confidence by their investors. Some of the shortcomings form of low calibre personnel, lack of experience, cronyism, and poor transparency. Many believe this area needs more professionalism. This is a particularly worrying area for commercial investors. These are the people that are worried about their investments and not about the results that could be shown from them. But there is a bright side to this risk. The risk is forcing people to raise their game and become more professional. Hopefully, this will also lead to better management.
These banana skins reports are very important, in my opinion. They need to analyze these problems and publish them publicly to help MFIs improve their business and help grow the industry. This industry is still young and needs more changes. These problems need to be recognized and addressed effectively. Please take a look at the report it is a great source of information and hopefully many of these MFIs are looking at it to.
Every year for the last 10 years CSFI, The Centre for the Study of Financial Innovation, conducts a survey and writes a report on the results. The survey is to show what practitioners, investors, analysts, observers, and regulators believe as the top "banana skins" or threats to the microfinance industry. They send the survey all over the world. They show the results from the survey from the people that are surveyed and also the results from regions in the world. I thought this was very interesting and I am going to write about the top risks to the microfinance industry this year. But if you wish to read the whole report the link above will lead you to it.
The number threat or risk to the microfinance industry is management quality. There is much variance in the quality of mangement inn microfinance institutions. In all the regions that MFIs operate in MFIs are being stretched by hectic rates of growth. MFIs are dealing with more complexities in their business and feel pressure to become more commercially-motivated. One of the respondents even warned that any MFIs that do not have good management will fail in these competitive times. The people who were concerned most about management quality are investors and analysts. But the practitioners ranked it 7th in the list of risks. The most concerned regions were in Europe, North America, Africa, and Asia. MFIs are generally run by "visionaries" who are very charismatic but lack good management and organizational skills. As commercializing MFIs becomes more popular MFIs are getting stuck between their commercial goals and their social ones. Without good management these MFIs that are stuck will not excel in either of their goals and will eventually be knocked out by better managed MFIs. But in general this banana skin is not a rising risk but a falling one. People are effectively recognizing this problem and fixing it.
Corporate governance is the second highest ranked banana skin. This is also was a top concern for investors, analysts and regulators and not for MFI practitioners. Many MFIs do not know about basic coporate governance and are generally ignored in these organizations. It is possible that this is because they are worried about getting more investors and getting more clients rather than setting up official corporate governance rules. But investors are very concerned and this lack of corporate governance may lead to loss of confidence by their investors. Some of the shortcomings form of low calibre personnel, lack of experience, cronyism, and poor transparency. Many believe this area needs more professionalism. This is a particularly worrying area for commercial investors. These are the people that are worried about their investments and not about the results that could be shown from them. But there is a bright side to this risk. The risk is forcing people to raise their game and become more professional. Hopefully, this will also lead to better management.
These banana skins reports are very important, in my opinion. They need to analyze these problems and publish them publicly to help MFIs improve their business and help grow the industry. This industry is still young and needs more changes. These problems need to be recognized and addressed effectively. Please take a look at the report it is a great source of information and hopefully many of these MFIs are looking at it to.
How Well is Your MFI Doing?
Social Performance Indicators Survey
The Microfinance Information Exchange (MIX) has recently sent a survey to over 1300 MFIs all over the globe. They are trying to develop a standardized measurement of social performance. The social performance is analyzed through 22 core indicators like client poverty level, progress out of poverty, product design, and institutional policies and procedures. MIX is working together with the Social Performance Task Force from CGAP in making the questionnaire that was sent out to the MFIs. Their purpose is to analyze the social performance of MFIs across the globe. The SPTF have about 200 partners to help do this. One of the main problems with measuring social performance is that different measurments look at different areas of MFIs and it is hard to tell which factors are affecting social performance more than others. They have already done an experimental run with their current questionnaire with a smaller base group of 100 last spring. They have found success. I believe that it is important to figure out which methods and organizations are helping the poor than others so that MFIs can learn how to do their jobs better. The whole point of a MFI is to improve people's lives and help them out of poverty. But we must find out which way is the best way to do that in different areas. If we do not have an effective way of measuring success in the field of microfinance than how can we expect microfinance to improve? I hope that the larger study will be a success so that we can see more successful MFIs everywhere in the world. Read this paper if you wish to get a better sense of how microfinance social performance is being measured and why it is important.
The Microfinance Information Exchange (MIX) has recently sent a survey to over 1300 MFIs all over the globe. They are trying to develop a standardized measurement of social performance. The social performance is analyzed through 22 core indicators like client poverty level, progress out of poverty, product design, and institutional policies and procedures. MIX is working together with the Social Performance Task Force from CGAP in making the questionnaire that was sent out to the MFIs. Their purpose is to analyze the social performance of MFIs across the globe. The SPTF have about 200 partners to help do this. One of the main problems with measuring social performance is that different measurments look at different areas of MFIs and it is hard to tell which factors are affecting social performance more than others. They have already done an experimental run with their current questionnaire with a smaller base group of 100 last spring. They have found success. I believe that it is important to figure out which methods and organizations are helping the poor than others so that MFIs can learn how to do their jobs better. The whole point of a MFI is to improve people's lives and help them out of poverty. But we must find out which way is the best way to do that in different areas. If we do not have an effective way of measuring success in the field of microfinance than how can we expect microfinance to improve? I hope that the larger study will be a success so that we can see more successful MFIs everywhere in the world. Read this paper if you wish to get a better sense of how microfinance social performance is being measured and why it is important.
Thursday, May 14, 2009
Highlight: MicroPlace
MicroPlace
Today's highlight is on a peer-to-peer lending site, MicroPlace. I liked the idea of p2p lending when I highlighted Kiva.org so I went to look for another interesting p2p idea. MicroPlace is a p2p lending site that is run by Ebay. The Ebay founders have always been involved in microfinance. They have their own foundation that gives out millions in microloans. MicroPlace was started by Stanford graduate, Tracy Turner. Her experience working for the Bangladesh based Grameen Bank inspired her to start her own site for microfinance. The company was bought by Ebay shortly after. Microplace is similar to Kiva in that people give money to entrepenuers that are listed on the site. The first loan must be at least $100 but after that the loans can be as small as $50. Although it sounds very similar to Kiva there is one real difference. The lenders are actually investing in securitized funds. The lenders are more like investors. They invest in these securities then the funds from the sales are given to the MFIs. Then they are repaid the loan with interest. They can choose funds that have higher returns but more risk. They recently announced that they will be offering 6% returns on investments, which is a first for any microfinance institution. Investors can choose the type of people that will be getting their money but not as specifically like Kiva. The borrowers are categorized in man different areas like poverty level, green projects, rural areas, focus on women, fair trade, repayment schedule, geographical area, and financial return level. There is no guarantee on any returns but they are confident that borrowers have a great repayment rate. This is allowing people to smartly invest in something that they believe in. It is killing two birds with one stone. I think it is next place where microfinance will eventually head to. As microfinance becomes more commercialized and more regular investors get involved markets will form and demand will grow. It is possible that eventually there will be trading desks for these securities and it will become a global market. It is not a far fetched idea. Banks have traded weirder things than microfinance loans. It is almost like a subprime loan but safer...hopefully. I believe MicroPlace is putting itself smartly in front of any competition and will be more successful than other p2p lending sites that have come after Kiva.
ACCION CEO Nominated to Work in Obama's Administration
ACCION CEO Nominated
ACCION CEO, Maria Otero, has been nominated as the Under Secretary of Democracy and Global Affairs in the U.S. Department of State. She has not been confirmed by Congress but has indicated that she will take the position if she is allowed. She has been a leader in microfinance and social development over the years. She has taken ACCION and made what it is now. ACCION is now a global microfinance institution operating in more than 20 countries. She joined ACCION in 1986. From there she took the organization to another level. She brought up the clients from 460,000 to about 3.7 million. The active loans in ACCION's portfolio total almost $3.5 billion. She also has experience in being part of large microfinance boards and committees like Calvert Social Investment Foundation and the United States Institute of Peace. She has been an advocate of democracy and humanitarian projects all over the world. As Undersecretary of Democracy and Global Affairs she will be responsible for work on global issues democracy, human rights, labor, environment, refugees, and trafficking of persons. She will be working on issues that are very pertinent to the times facing us. I believe she is a great choice for the administration for this post. She has lots of experience in areas like this and will be very successful in her post. I hope that Congress will not delay any more nominations and let her get to work.
MFIs More Than Just a Bank?
MFIs need and want do more
In a recent survey by Microfinance Insights, a global publication on microfinance, more than 85% of MFIs and MFI investors believe that they should be looking wider social development outside of financial inclusion. In previous posts I have told you that microfinance is important for the people who have been excluded by conventional banks. But, as microfinance institutions are growing rapidly with their success in microcredit many of them are looking towards more ways they can help their clients in different social areas. Many of the surveyed MFIs are already working toward a wider view in social development. About 79% of the MFIs surveyed already offere products and solutions for their clients like community development, inclusion of minorities, and better employment and labor conditions. This drive for better social development programs may be stemming from the commercialization of the industry. As the commercialization proliferates people have started to believe that microfinance has drifted from its original goal of helping people out of poverty. Therefore, many of the microfinance institutions are looking to help communities to break some of these negative images of microfinance. I believe that microfinance institutions stand as a helping hand to struggling people in the countries that they operate in. I also believe that if a microfinance institution believes in what it is doing and is successful they should look for more ways of helping their clients in their fight with poverty. The Grameen Bank does this successfully by investing in hygenic products for their clients and educating their clients in better social behavior. Plus, as microfinance institutions help the community more people will grow to know the organization and it will most likely bring more clients. But what do you think?
In a recent survey by Microfinance Insights, a global publication on microfinance, more than 85% of MFIs and MFI investors believe that they should be looking wider social development outside of financial inclusion. In previous posts I have told you that microfinance is important for the people who have been excluded by conventional banks. But, as microfinance institutions are growing rapidly with their success in microcredit many of them are looking towards more ways they can help their clients in different social areas. Many of the surveyed MFIs are already working toward a wider view in social development. About 79% of the MFIs surveyed already offere products and solutions for their clients like community development, inclusion of minorities, and better employment and labor conditions. This drive for better social development programs may be stemming from the commercialization of the industry. As the commercialization proliferates people have started to believe that microfinance has drifted from its original goal of helping people out of poverty. Therefore, many of the microfinance institutions are looking to help communities to break some of these negative images of microfinance. I believe that microfinance institutions stand as a helping hand to struggling people in the countries that they operate in. I also believe that if a microfinance institution believes in what it is doing and is successful they should look for more ways of helping their clients in their fight with poverty. The Grameen Bank does this successfully by investing in hygenic products for their clients and educating their clients in better social behavior. Plus, as microfinance institutions help the community more people will grow to know the organization and it will most likely bring more clients. But what do you think?
Wednesday, May 13, 2009
Issue: US vs. Third World Countries
Today, I will be addressing another topic that I feel is very important in the field of microfinance. I have been saying that microfinance has been found as an effective way of helping the poor find a way out of poverty. But I have always been a bit wary of its effectiveness in the United States. The United States is definitely a different market than microfinance capitals like Bangladesh, India, and Mexico. These countries are certainly not as developed and have much more room for micro-entrepenuers to grow. There are many problems facing microfinance and microcredit in the United States but the Grameen Bank and President Obama think otherwise. I will be discussing the opposing views and what I think of them in this post.
I personally believe that microfinance, especially microcredit, is difficult to make successful in the United States. It is not as easy to start a business selling small hand made crafts in the United States than in Bangladesh or India. It is much harder to get money together to start a business in the United States than in Third World Countries. In a paper written by Mark Schreiner and Johnathan Morduch, they address the problems of replicating the kinds of success seen in microfinance in developing countries and economies and the differences that may pose difficulties for the United States microfinance market (Link to paper). They named seven reasons why microfinance will have problems reaching the success of other countries' success. The first is the size of the microfinance sector. It is true that we have our own share of poverty in the country but the microenterprise sector is much smaller in the US than in Third World countries. Therefore, the size of the microfinance market is not as large. Many unemployed will look towards hourly wage jobs than starting their own business because it is less risky. In Third World countries, according to this report, most unemployed looks towards opening their own small businesses no matter how small they may be. The United States also has a functional welfare system that most of these Third World countries do not. This safety net allows people to live off welfare which makes microenterprises even less attractive. Moreover, large firms and enterprises are the main types of businesses in the United States. In many of the Third World countries, small vendors and shops are the main form of retail services. Although small businesses are not completely nonexistent in the US there are only a small number of these specialized services in America. Furthermore, the lack of social capital between people in the US compromises one of the strategies of microfinance, group liability. People in the US are more likely to look for individual success and will not throw their hat in with their neighbors. There is much less connection between neighbors on a block in a major US city than there is between fellow villagers in India. I agree that these problems are serious when thinking about expanding the microfinance activity in the states. It is most likely why no MFI in the United States can turn a profit.
But there are two points that the authors made that I do not agree with. One of the points is that many people in the United States have many options when it comes to banking services including the poor. But I cannot believe that to be true. Commercial banks are not in competition with MFIs. The main clients to MFIs are people that the commercial banks have shunned away because they do not have any collateral or any consistent use of their services. The second point that I do not agree with is the idea that MFIs in the United States do not use a self-chosen peer liability group. It may have been true when the article was written a few years ago but after the entrance of Grameen Bank America that has all changed. Grameen Bank America has brought all of their services from Bangladesh to New York City to try to help women who want to change their lives. They use the same concept of peer liability groups to ensure that people can repay their loans. In fact, Grameen Bank has announced recently that it will be expanding their loans in the United States. They have been able to get a 99.5% repayment rate. Last year they made over $1million of loans to over 400 women in New York City. Furthermore, each of the borrowers also opened up savings accounts with Grameen Bank. Grameen Bank believes that the trust people have in their neighbors and friends lives in New York just as it lives in the villagers in Bangladesh. They hope to be able to expand and give out an even larger amount of loans in 2009. This just shows that people are finding successful ways to bring microfinance into the forefront in American finance. It is especially important during these tough economic times. I have also mentioned in the past the belief Barack Obama has in microfinance. He also believes that it will help the United States bring more people out of poverty. He supports the efforts of MFIs abroad and in the States.
It is a tough call overall whether microfinance will really flourish in the United States as it did in South America or Southern Asia. It is obvious that the regulations that hold togethe businesses in the United States are not as friendly to microentrepenuers as the Third World countries. But I do believe that microfinance is a great idea and great ideas will be able to find a way to change lives anywhere it goes. I think microfinance can be adapted for the American culture and find a way to help people out of poverty.
I personally believe that microfinance, especially microcredit, is difficult to make successful in the United States. It is not as easy to start a business selling small hand made crafts in the United States than in Bangladesh or India. It is much harder to get money together to start a business in the United States than in Third World Countries. In a paper written by Mark Schreiner and Johnathan Morduch, they address the problems of replicating the kinds of success seen in microfinance in developing countries and economies and the differences that may pose difficulties for the United States microfinance market (Link to paper). They named seven reasons why microfinance will have problems reaching the success of other countries' success. The first is the size of the microfinance sector. It is true that we have our own share of poverty in the country but the microenterprise sector is much smaller in the US than in Third World countries. Therefore, the size of the microfinance market is not as large. Many unemployed will look towards hourly wage jobs than starting their own business because it is less risky. In Third World countries, according to this report, most unemployed looks towards opening their own small businesses no matter how small they may be. The United States also has a functional welfare system that most of these Third World countries do not. This safety net allows people to live off welfare which makes microenterprises even less attractive. Moreover, large firms and enterprises are the main types of businesses in the United States. In many of the Third World countries, small vendors and shops are the main form of retail services. Although small businesses are not completely nonexistent in the US there are only a small number of these specialized services in America. Furthermore, the lack of social capital between people in the US compromises one of the strategies of microfinance, group liability. People in the US are more likely to look for individual success and will not throw their hat in with their neighbors. There is much less connection between neighbors on a block in a major US city than there is between fellow villagers in India. I agree that these problems are serious when thinking about expanding the microfinance activity in the states. It is most likely why no MFI in the United States can turn a profit.
But there are two points that the authors made that I do not agree with. One of the points is that many people in the United States have many options when it comes to banking services including the poor. But I cannot believe that to be true. Commercial banks are not in competition with MFIs. The main clients to MFIs are people that the commercial banks have shunned away because they do not have any collateral or any consistent use of their services. The second point that I do not agree with is the idea that MFIs in the United States do not use a self-chosen peer liability group. It may have been true when the article was written a few years ago but after the entrance of Grameen Bank America that has all changed. Grameen Bank America has brought all of their services from Bangladesh to New York City to try to help women who want to change their lives. They use the same concept of peer liability groups to ensure that people can repay their loans. In fact, Grameen Bank has announced recently that it will be expanding their loans in the United States. They have been able to get a 99.5% repayment rate. Last year they made over $1million of loans to over 400 women in New York City. Furthermore, each of the borrowers also opened up savings accounts with Grameen Bank. Grameen Bank believes that the trust people have in their neighbors and friends lives in New York just as it lives in the villagers in Bangladesh. They hope to be able to expand and give out an even larger amount of loans in 2009. This just shows that people are finding successful ways to bring microfinance into the forefront in American finance. It is especially important during these tough economic times. I have also mentioned in the past the belief Barack Obama has in microfinance. He also believes that it will help the United States bring more people out of poverty. He supports the efforts of MFIs abroad and in the States.
It is a tough call overall whether microfinance will really flourish in the United States as it did in South America or Southern Asia. It is obvious that the regulations that hold togethe businesses in the United States are not as friendly to microentrepenuers as the Third World countries. But I do believe that microfinance is a great idea and great ideas will be able to find a way to change lives anywhere it goes. I think microfinance can be adapted for the American culture and find a way to help people out of poverty.
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