Microfinance has become an very effective tool for fighting poverty and saving the environment. They have helped create economic opportunity for the world's poor and have expanded access to sustainable forms of energy and water.

PS: This is a potential alternative career opportunity for MFI loan officers, which are aplenty ( with maybe some/most of them possibly poorly paid and have no access to statutory benefits like Provident Fund, Insurance etc ?? ).

Though violence is a huge problem-one that will take years and years to correct-Trivani has taken the first step and implemented a widow's microfinance program in Kaberamaido, one of the poorest areas of the country. These widows see some of the worst violence of any group, so this program will provide hope for thousands of women who have nowhere else to turn.

Currently, fifty widows are attending a vocational training school to learn skills such as cooking, sewing, and jewelry making. These skills will help the widows to better support their families and the orphans that many of them have taken in. Trivani is paying for each widow's education and has also partnered with the headmaster of a private secondary school, who has agreed to produce the school curriculum and organize the teachers and classes for these widows.

The organization is located right across the border from the U.S., with offices in the border towns of Nuevo Laredo, Ciudad Acuña, and, soon, Piedras Negras. In short, FVP helps people in the border region to build housing and to start or grow small businesses. Housing is in its title because FVP started in 2002 as an affiliate of Cooperative Housing Foundation (CHF), an international NGO based in the U.S. It was initially founded to address the housing crisis that had resulted partly from the large post-NAFTA migration of Mexicans to work in industries along the border. FVP is now independent from CHF, but the latter continues to advise the FVP on its development.

Housing is a big part of its heart and soul, but FVP has grown into an organization that addresses more than just housing. FVP’s work is dedicated to improving the livelihood of Mexicans of modest means who live in the border region. As one of their leaders explained to me, grinding poverty – not knowing where the next meal is coming from – is not nearly as common here as in other parts of Mexico. But poverty persists in this relatively affluent region, what he called pobreza patrimonial, which I will badly translate as something like a “poverty of assets”.

In other words, even if a family is getting along from day to day, their stability can be fragile. FVP builds up the foundation on which its clients stand, providing tools to actually build a foundation – housing loans – and to strengthen their source of income – small business loans. I will talk about this concept more in future posts.

For FVP, this means more than just giving a loan to an individual or household. It means creating a relationship with each client and helping them to build their business or their home up over time. Enduring growth, they call it here.

The organization’s work philosophy is to make borrowers feel like they are all part of a common project to improve their way of life – and you can see this in the way that the loan officers interact with the clients.

Please flash on your mental screen your picture of a “Loan Officer”. I know I had my own preconceived image, warts and all. And I have friends who work as Loan Officers. Now put it to the side for a moment.

Now imagine Mireya, a Loan Officer at FVP. She is by trade an accountant, she knows her numbers, and she dresses in a business suit, but that is where the similarities with my former image of a loan officer end. Mireya drives her hatchback car out to neighborhoods that paving has not yet reached, braving the rain and seeming to instinctively avoid the flooded streets most likely to swallow her car (we actually saw a truck here that was completely taken down by a pothole, so this is no joke).

When she arrives at clients’ homes or businesses, it has the feel of a cousin stopping by, not a financial officer. Even when she talks shop – getting an update on a business or helping to open a new loan – she and the client have a rapport that is more collaborative than hierarchical. Somehow, she does all of this without getting a speck of dirt on her light tan pants. I, meanwhile, look like I have been in a mud wrestling match.

We were fed tamales on our last stop, and stayed for almost an hour at the client’s house. Mexicans don’t feed tamales to people they don’t like.

The example of Mireya is emblematic of how FVP works. They emphasize forming a connection with clients that will extend beyond a loan, they try to treat each client as a special case, and their rule of thumb is to be honest and transparent with the client about all aspects of the loan process.

Can you imagine this from a bank? I have known loan officers in the U.S. at banks and mortgage companies who have really stretched themselves to help out their clients. I am sure they exist here, too. In general, though, banks are a place where many of the clients do not feel welcome, much less a place they would seek out as a source for a loan.

The conventional wisdom, amongst FVP clients and staff, is that most clients would not get a loan from a bank. I am still unpacking the reasons for why this is the case, if, in fact, it is true. Is it that they don’t qualify for a loan – that the bank’s requirements are too stringent or inflexible for the small entrepreneur without much collateral? Is it that banks are just not interested in giving out loans less than, say, $10,000 pesos ($1,000 dollars +/-)? Or is it that clients just don’t seek out a loan from a bank, because they are afraid of a bank or have a perception that the bank won’t serve them? Are there other small entrepreneurs that do go to banks for a loan, i.e. is it just that I am looking at a skewed sample?

It is probably a little bit of all of these depending on the situation. How it breaks down is something that I will explore over the next couple of months. So far, though, my instinct is that most of FVP’s clients just would never ask a bank for a loan. From initial conversations, it seems like most clients – mostly poor or working poor – just do not consider a bank loan one of their options.

Turn on that mental screen again. Imagine that you have a wealthy great-aunt who has historically has spurned your siblings in public, didn’t invite you to parties because she assumed you couldn’t afford the formal wear, and made you feel really uncomfortable when you walk into her house. Would you ask her for a loan?

Similar reasons have been offered up by the thirty-some clients with whom I have spoken: they don’t think that the bank would give them a loan, they view banks as a friend of the wealthy and the middle class, not the poor. And they just feel downright uncomfortable when they enter a bank.

Just to dilute my speculation with some empirical evidence, I looked at some of the research that has been done. A 2004 World Bank study estimates that only 23% of adults in Mexican cities have a bank account. The percentage of urban Mexicans that access bank loans, I would guess, is much less. (The percentage that has bank accounts in NYC and LA, for instance, is about 2.5 times this, at approx. 63%)

So, back to FVP. Their strategy is largely a response to this feeling of alienation. In the neighborhoods where they work, confianza is king. Confianza is a great word, a combination of a few concepts. It is trust, but also good rapport, a social familiarity amongst people. And it is these tendencies that bind people together in these neighborhoods, if I am reading things right. In other words, FVP’s strategy follows the contours of the way that people actually relate to each other in poor and working class neighborhoods of Nuevo Laredo. Their tactics build up confianza, so that the client trusts them and grows to count on them for collaboration in the project of improving their livelihood in an enduring way.

From what I can tell from some other Fellows’ blogs, this tendency is characteristic of other quality Kiva microfinance partner institutions around the world. They are not just micro-versions of banks giving out micro-loans – their approach to working with people is fundamentally different from the typical banking institution.

Now, I feel remorseful about being hard on banks. But that is probably a requisite way to kick off a microfinance blog, since microfinance is largely about providing financial services to those excluded, for whatever reason, from the traditional financial sector. I am not anti-bank. My work in the U.S. is in developing affordable housing in cities, so I fully recognize that responsible banks are essential to the well-being of communities in my own country, as well as being necessary for the health of our economic system. Here in Nuevo Laredo, I’m looking forward to seeing how all of these different models fall on the continuum of financial services available to the working poor.

To right the balance, I promise that this week I will enter at least one bank with an open mind and ask a loan officer some questions.

We’ll see if I get fed any tamales.

To see all currently fundraising loans from FVP on Kiva.org, please click here.

To help support my work in Nuevo Laredo, you can chip in here:

http://brendan.chipin.com/kiva-fellowship-mexico

The Daily Monitor (allAfrica.com), July 20: A group of organizations led by CARE Ethiopia report that their "community-led savings and loan projects" have "resulted in an improvement in the lives of women affected and infected by HIV/AIDS."

IRIN/PlusNews, July 18: A report from the Catholic Agency for Overseas Development points out that many HIV/AIDS patients who are receiving ARVs are still threatened by hunger and poverty, suggests AIDS programs need to take these problems into account.  (See summary here.)

IRIN/PlusNews, July 16: A Kenyan project providing support for people on antiretroviral therapy (ART) focuses on healthy lifestyles, personal involvement in healthcare, and optimistic "positive living."  (This is only mentioned at the very end of the article, but this program can be seen as an example of task shifting as a method for coping with health worker shortages.)

IRIN/PlusNews, July 14: Siphiwe Hlope, a "pioneer" in the fight against HIV/AIDS stigma and discrimination in Swaziland, discusses the courage of women who open up about their HIV status.

This effort is one in a larger trend by major financial institutions to enter into the MFI space. Micrcapital.org, the source for this article, explains as such:

HDFC’s recent market entry and rapid scaling-up of operations reflects a general recognition by prominent Indian banks that microfinance is a financially sustainable if not lucrative enterprise. Other recent market entrants include banking giants UTI and ICICI, holding total assets of USD 1.2 billion and RUP 3.9 trillion (USD 92.7 billion) respectively. Further details on this movement can be found in the MicroCapital story Commercial Banks in India Delve into Microfinance Investments.

We have also written numerous times on the evolution of microfinance and involvment of traditional players. You can read Prerna's wonderful post on MFI and Private equity here.

I uploaded the presentation I'm using to SlideShare here.

Grameen Foundation uses micro finance and innovative technology to fight global poverty and bring opportunities to the world's poorest people. With tiny loans and financial services, it helps the poor, mostly women, start businesses and escape poverty. has global network of 55 micro finance institution (MFI) partners including its Growth Guarantee partners has touched more than 34 million people in 24 countries.

In addition, it introduced and now sustains technology initiatives (Mifos and Village Phone) in Cameroon, Kenya, Rwanda, and Uganda, bringing a total country outreach to 28.

Grameen Foundation is a non-profit

www.grameenfoundation.org

The African-American Credit Union Coalition (AACUC) was created to increase the global credit union movement's strength by adding the focused perspective and energy of credit union volunteers and professionals of African-American and African descent.

The African-American Credit Union Coalition (AACUC) is a non-profit organization of African-American and African descent professionals and volunteers in the Credit Union movement.

AACUC was formally established and incorporated in St. Louis, Missouri in 1999.  AACUC was first conceived by a few visionaries during annual CUNA Governmental Affairs Conferences in Washington, DC.  Prior to its formation, African-American and African descent credit union professionals had organized social meetings to discuss how to form the AACUC. When African-American credit union professionals and volunteers from different parts of the country began to discover the value of information-sharing among each other, the visionaries held their first formal organizational meeting at Andrews Federal Credit Union in Suitland, MD. Over the years, AACUC has grown and is ever changing to meet the needs of the dynamic credit union movement which it serves. It has become an all-encompassing organization for individuals (professional and volunteers) in Credit Unions, Insurance, Regulators, Consultants and other entities in the credit union movement.

Affiliation with AACUC offers a unique opportunity to influence and shape the credit union movement and its governmental affairs. AACUC promotes personal and professional growth of its members as well as collectively articulating concerns and advocating resources to improve the economic development of surrounding communities that are often under-served by majority financial institutions.

AACUC supports programs that offer benefits for African-American and African descent credit union professionals and volunteers, credit unions, and credit union vendor partners. The goals and objectives include expanding the interest and increasing the numbers of minorities in the credit union movement; increasing outreach of the credit union movement in African countries and in the United States through credit union mentoring; providing scholarship programs and educational opportunities to credit union professionals and volunteers towards professional development and advancement; and most importantly enhancing internship and scholarship programs for African-American and African descent college students in pursuit of financial services careers to introduce them to and encourage them to seek employment within the credit union movement.

In "Summer 2007," which opens in cinemas on Friday, five medical
students from Mumbai stray into a village, unprepared for the deaths
and misery they encounter there.

"They get embroiled into this whole saga of who's responsible, why
is there so much poverty and disparity," said Atul Pandey, the film's
producer.

The film also explores the possibility of micro credit as a solution
and has a character inspired by Mohammad Yunus, the 2006 Nobel peace
prize winner and founder of Grameen Bank, Bangladesh's biggest
micro-credit institution.

Click here for past TC-I stories on the farmer suicides.

In the meanwhile we are beavering away researching the microfinance market in Rwanda. There are several institutions in the country providing microfinance loans but it seems that access to funding, even for them is problematic. It is not clear either that very small projects are always able to access funding. If anyone out there has experience or is involved in microfinance in Rwanda, I would be very grateful to hear from them.

Social entrepreneurship and micro venture capital

Microfinance has been the rage in international development for awhile now. I would say it peaked when Muhammad Yunus, founder of Grameen Bank won the Nobel Peace Prize in 2006.

The rage today in international development is social entrepreneurship and venture capital investing in small and medium enterprises (SMEs). Social entrepreneurship targets base of pyramid development but a step above microfinance. Where as microfinance typically invests in small individual loans, social entrepreneurs invest debt or equity as business partners.

The places to start seeking information:
Ashoka.org
Technoserve

Social entrepreneurship funds:
Acumen Funds
Agora Partnerships (Ross is an intern there)
Endeavor (President is James Wolfenshon)

Blogs on social entrepreneurship:
The Green Skeptic
NextBillion.net

Where you can do it online:
MicroPlace
Betterplace

I recommend checking the links out. They each bring something new and enlightening.

Microfinance has been around for over 30 years (the idea for the Grameen Bank first emerged in 1976 and the Grameen Bank Project became an independent bank about a month after I was born), but only really hit the mainstream in the past several years. Since that time, it has truly taken off, gaining celebrity endorsement, earning its founder a Nobel Prize, and now apparently an article in Time Magazine.

This notoriety has been a mixed blessing. On the one hand, organizations like Kiva.org have emerged. Kiva aggregates both donors and 'field partners' - traditional microfinancing organizations - and creates a more personal connection by allowing donors to chose the recipient. The import is obvious: one website taps the eligible recipients of 96 different traditional funds, The result is statistics like these (which are now out-dated): 22.7 hours to fully fund a loan, 1810 entrepreneurs funded, 526 loans completely repaid, 3048 new lenders, nearly $664 000 lent in one week.

On the other hand, microfinance (and more broadly, development), have become trendy. The social appeal lures in potential donors, who seem to see it as an easy way to ‘make a difference’ while making some money, without understanding the mechanics of microfinance in the broader web of development projects.

Microfinance is an expansion of capitalism, but it is so often approached and evaluated as an aid program. A common criticism of microfinance is that loans often don't get used to build a business; they go to pay for school loans, or a doctor's visit, or to provide temporary liquidity for the family. I've often been confused by this complaint. True, helping a struggling family pay for school books for their child isn't exactly a business investment in line with the state goals of the organization (or donor expectations), but it is an investment, in that child, and in the economy of the developing country. The same for doctors' visits.

Poverty isn’t due to a lack of aid; it is the result of a lack of capitalism. The revolutionary aspect of microfinancing was that it provided loans - and other banking services - to an underserved market, namely, the poor. The literature shows that a combination of banking services (and laws to help capture capital, particularly through private property titles) contribute greatly to wealth creation. However, finally, savings accounts - and microfinance institutions acting as real, if small, banks - are emerging, and with them, consumer loans.

But banks are businesses, and they are allowed, entitled, required to make money. While I am defending banks in this regard, this is not an excuse for usurious interest rates. The importance of microfinancing organizations is that they provide an alternative to loan sharks. If that is unacceptable to a donor, then they should run a grant program, and leave the investment to others.

(I feel I should interject here to say that I have nothing against philanthropy, or philanthropists, and part of the reason I started this blog was because I wanted to think and write about ways that everyone can participate in bettering the world. However, microfinance is only one particular kind of tool, and, like all tools, there are some actions it is very good at performing, and other projects that it shouldn’t be used for)

The reality is: development is a many-sectored thing. Not even capitalism can do it all, all by itself; public sector changes are often necessary, and there is always room for philanthropy. But confusing the tools of capitalism and aid does no good for anyone.

I'm not sure that microfinance will change the world, but I do think that it will, as Cowen and Boudreaux claim, empower the poor, particularly poor women, and give them some control over their lives and their assets.

Someone (I don´t think I know them) commented on my post below about the likelihood that a for-profit MFI would be more efficient and effective at delivering financial services than a non-profit like Esperanza. This is an interesting question, hotly debated among development workers. I´ll have to wait until I have a better connection and some AC before I give my full opinion, but here´s a question to think about: wouldn´t the profit motive be the ideal way to ensure that everyone is able to recieve financial services? Without profits, will capital actually be mobilized in the amounts needed for real development to happen? On the other hand, wouldn´t a for-profit institution tend to serve only the less poor?

I have some sem- informed opinions, but we´ll talk later. I have other things to do at the moment.

Microfinance: A View from the Ground

Pro Mujer, WORTH, WAMER

The SKS-CL Academy, in the pilot phase, will provide primary education till third standard using the national open school syllabus with special emphasis on technology. While Career Launcher would manage and run the schools, SKS Microfinance would support the marketing of the schools and provide education loans.

Recognizing that there exists a need beyond only loans to assist individuals in breaking free from the shackles of poverty, SKS is now looking to provide the actual means for such people to acquire the knowledge to improve their own situations.

SKS members can opt for an education loan of INR 3,100 (USD 72) to provide quality education to their children. The school will run at a fraction of regular fees and the monthly fee for KG and Class I is INR 175 (USD 4).

The schools are also open to non-members as well. TC-I along with the community at large will be anxiously watching this program hoping for its success and its subsequent replication across the board.

[Source: Microcapital.org]

Given this wealth of relationships Miami seems to be ideally located to play a pivotal role as a meeting point where big American Venture Capital meets Latin American entrepreneurs. This hasn’t happened yet.  The root cause of this is two pronged: At the hemispheric level, entrepreneurship in Latin America faces significant challenges regarding their human capital utilization, the capital allocation processes, the social cost of failure and the economies of scale required for the Venture Capital model to work. At the local level Miami haven’t been able to provide the “ecosystem” required to foster economic development trough innovative enterprise.

Wasted Human Capital: Latin American societies are extremely stratified. A good proxy of this stratification is the GINI index, used by the United Nations as measure of inequality of income distribution, in which Latin American countries fare dramatically (8 of the 15 most unequal countries in the world are located in Latin America). As a consequence, the same “selected few family names” share powerful positions in economic, political and legislative positions for generations. One big family name has senators, judges, and board members sparkled across several generations in several of the most prominent institutions. Social mobility is scarce; the “American Dream” is just a dream when it comes to Latin America.

As a significant percentage of the human capital of these nations are excluded socially, they are also excluded from education opportunities, and therefore, are unable to participate in an entrepreneurial ecosystem with their knowledge. Social mobility is a pre-requisite of a healthy entrepreneurial environment. It allows people from all walks of life, from all backgrounds, from all knowledge arenas access to the commodity capital is.

Sub optimal Capital allocation: Social mobility is also the prerequisite of optimal capital allocation. In an environment where the best ideas never come to light because people don’t have a chance, investors  look for returns elsewhere exporting capital in the form of foreign accounts, offshore private banking and the like. Mid and big enterprises attract most of the local capital, leaving nothing for high-risk / high-return endeavors and the positive economic externalities innovation brings. This sub optimal financial structure prevents higher growth rates fueled by innovation. For investors to get optimal returns, the economic ecosystem must allow the brightest of the brightest to arise from the shame of social exclusion.

Macroeconomic disadvantages. Cash strapped emerging companies might not overcome their own revenue volatility anywhere in the world. One bad season might wipe the company altogether. If we add the effect of the endemic macroeconomic volatility of Latin America’s economies the challenge is daunting.  Even worst: both (company and market volatility) tend to be highly correlated, amplifying the effect of each other.

High social cost of failure. Unlike American were entrepreneurship is praised, and where the example of a founding father being broke several times before it “struck it rich” is well known, Latin American entrepreneurs pay a high price if they fail.  Failure looms in the family for generations, stringent bankruptcy laws have few clauses protecting the failed endeavor, and social ostracism is the norm in a stratified society where nobody wants to be seen with the failed entrepreneur.

The Sciences dilemma: Scientific research provides the backdrop where many new innovations came from, Unfortunately, sciences research absorbs significant amount of resources and do not relate directly to any cash flow producing business and therefore is extremely difficult to justify politically. This difficulty is even more pressing for cash strapped countries with “hot” social needs. This is the policy dilemma: on the one hand basic sciences investments are necessary to produce innovation and wealth in order to “enlarge the economic pie”; on the other hand those same resources are needed to fight current pressing problems as starvation and the like. 

Economies of scale (1): Venture Capital is a financing industry that has violent statistics; out of 9 financed companies 6 will fail, 2 will generate moderate returns and 1 will be the next big bang.  In order for the Venture Capital industry to exist, a multi billion dollar market must be readily available to be tapped on by a billion dollar company. Unfortunately, there is only a few multi billion sectors in Latin America: Agribusiness, Mining, Telecom, and another couple more. Furthermore, historically there is not a lot of companies that have grown at the pace Venture Capital requires for the model to work. In short, Latin America faces a scale problem. The only way we can scale is using  multinational Pan American approach.

Economies of scale (2): The pan American strategy has challenges in itself: Brazil and Mexico have a different languages providing natural barrier of entry to the retail operators.  Legal barriers arise in most of the sectors Financial services, energy, telecom And so to scale the becomes difficult.

The Entrepreneurial ecosystem issue in South Florida:  Following professor M. Porter ideas, there is a need for at least three elements to arise simultaneously in order to generate a real Entrepreneurial cluster: there must be a critical mass of interconnected competing business, financing must be available, and academia must be present providing sciences, innovation and professionals. The vicious circle present in South Florida doesn’t help: the lack of companies deters VC’s of having a real presence in Miami, and at the same time, the University does not have a strong output of professionals that might be feeding the nascent companies. The ecosystem is not here.

The current global inflationary spiral has prompted the IMF chief to alert about the consequences it has for the poorest of the population. In his latest statements, Mr. Strauss-Kahn follows classical western economics thought: the poorest fifth of the world population make wages in the local currency, and in inflationary environments their wages are adjusted at a slower pace than price rises, eroding their purchase power over time. The higher the inflation rate, the slower is the wage adjustment. On top of that, the classical economic thinking goes, the poorest segments of the population don’t have the inflationary hedges richer people have like moving their assets to gold or other less inflation-sensible assets class.

This line of thinking has two central assumptions: First, there is an asset the owner cannot dispose immediately (e.g. “frozen” savings in the bank, wages to be paid at the end of the week and/or other accounts receivables); second the asset is denominated in the national currency being devaluated due to inflation.

This set of ideas are extremely compelling in the developed economies where most of the population is wage-earning employees (unemployment rates have been around the 8% average the last 50 years) and poverty is a marginal concern (“endemic” poverty in the G7 countries is less than 1% of the population, mainly as a consequences of other concomitant factors –e.g. mental health, physical handicap, substance abuse )

The contrasting situation in emerging economies

Emerging economies offer a sharp contrast, characterized by unemployment and sub employment rates of above 70%; poverty levels above 40%; a significant portion of the economic activity being informal outside of any state monitoring and taxing. In these latitudes, the poorest fifth of the population likely do not earn regular wages, and live mostly out of locally transacted goods and services. Three salient characteristics of this markets can be pointed: (a) a significant part of the transactions are barter or cuasi-barter transactions: agents tend to operate through simple “mental accounting” in two “ledgers”: accounts receivable from their neighbors and accounts payable to their neighbors. Minimal or no cash is involved and the transaction is denominated in terms of the goods to be exchanged: (e.g. one pound of rice for two pounds of coal). Since there is no cash involved, and their transaction is not indexed to any currency, the accounts payable/receivable act as a natural hedge against inflation (b) these tend to be rural settings without much connection with the global economy. (Furthermore, Development economists tend to agree that it is the lack of trade and linkages with other economies what keeps these regions poor). As a consequence, a global inflationary spiral is irrelevant, since the linkages with the global economies are not there. Whatever happens in the world, for good (development) or bad (inflation), is not necessarily happening there. For instance, while a country can import inflation trough their need to import increasingly expensive oil, this small village’s dramatic isolation isolates them from development and inflation. Finally, (c) Transactions are remarkably small, as the market agents have not savings capability being theirs a subsistence economy (single serving soups are a best seller in Mexico and India, based on the consumers’ ability to pay for one at a time, and their inability to purchase and store large packages). This lack of assets implies that the poorest of the poor don’t have anything to get depreciated trough inflation! Inflation is a concern of those that do have something to be depreciated, like the blue collar’s worker savings in the U.S. bank or his devalued paycheck at the end of the month. In the absence of assets, paradoxically, the concerns on inflation also disappear.

The significant contribution of Microfinance

Microfinance has played an important role in the poverty alleviation efforts the last there decades. Capital fuels the machines of economic growth: As the micro entrepreneurs increases its productivity thanks to micro credits, the local economies grow and trade with other geographies become real. These improved economic conditions lift micro-entrepreneurs while making them more vulnerable to inflation. The micro-entrepreneur’s illness of the childhood are gone, but now they are exposed to the illnesses of the grown up’s. How? (a) Barter transactions recede and the influx of capital increases the amount of economic activity being transacted in the local currency, witch is loosing purchasing power as time passes by. The micro-entrepreneur “cash cycle” becomes a significant hurdle. The cash he gets from sales after his economic activity is performed might not be enough to pay for supplies for the new cycle of economic activity, a couple of days or weeks after (b) Linkages with the global economies make them prone to inflation import by the way of an increase price of supplies now imported from other villages at the national or even international level. Worldwide prices do impact them now. (c) The increase in their savings capacity makes the risk of any savings in the form of assets denominated in the local currency to depreciate.

These three elements: transactions being nominated in local currencies, new linkages with the global economy, and increased savings generate a new scenario for the micro-financed entrepreneurs which are for the first times exposed to the global macroeconomic trends.

Is there anything to be done?

The efforts of the Microfinance institutions face a new challenge. Their success or failure is now associated with the global economy. For the microfinance institutions to succeed, they need to add to their tasks not only the provision of capital and financial literacy, buy provide the ailments to the global economy maladies. This is a major undertaking.

The expansion of financial services to the poorest brackets of the population have seen an enormous expansion in the latest decade as significant publicity was gained after Mr. Yunus’s Nobel award. Deutshe Bank has suggested that this is a $250B market, and new financial products have been slowly released (investment banks have invested in BoP securitized debt, climate insurance has been rolled out, etc.) Microfinance institutions might want to explore the use of inflation hedging mechanisms either via embedding them in their loans or as a standalone offering. The explosive boom in global derivatives trading might provide an interesting field where experience might be “imported”.

Sustainability of the Microfinance organizations

On the supply side, microfinance institutions face their own share of problems. As their loans for the most part are fix interest and not indexed to the inflation, in an inflationary environment they will get payments in devalued currencies and thus, their might experience net loss. Depending on their managers ability to generate inflation risk hedging strategies they will fare this inflationary period with success, or simply will be forced to reduce their capital base and take significant write off from loans that are underperforming in real terms. Nothing big banks have not seen lately.

Today his organization, Grameen Bank, has grown to cover 7.5 million borrowers in Bangladesh, 97 percent of them women. From this beginning he has expanded to provide services and products in a number of areas ranging from health insurance, to affordable cell phone service with Grameen Phone to renewable energy solutions through Grameen Shakti.

Drawing from his successes with these businesses, Prof. Yunus has refined an overarching social business philosophy that he recently published in his latest book "Creating a World Without Poverty - Social Business and the Future of Capitalism".

Prof. Yunus' core contention is that by focusing exclusively on profit maximization for shareholders, capitalism tends to simplify human beings into one-dimensional, money-driven creatures. In reality, we all are multi-dimensional beings with interests in our society, our environment as well as our financial well being. His basic proposal is that that businesses need to consider two, sometimes opposing, objectives - maximizing profits and achieving some pre-defined social objective

In his proposed approach, ‘Social Businesses' would have a primary social objective, would be run just like a for-profit with a goal of generating a sustainable income stream, but, other than repaying the initial investments of its investors, would not return any additional dividends. A Social Business would not be grant based or a charity.

By looking at the overall social issue with a fresh perspective unfettered by profit maximization, Prof. Yunus believes Social Businesses can develop new approaches and processes that can radically improve conditions around the world.

Why would one invest in a Social Business when there is no apparent financial return? Prof. Yunus maintains that many social organizations turn to governmental or foundation sources to provide financial support. Investing those same funds in a Social Business, as opposed to giving it away as a grant, would provide a greater return. Since, by definition, a Social Business is a sustainable entity, it will pay back the initial investment thus freeing up funds to be reinvested in other social endeavors. In addition, establishing Social Businesses to solve societal issues would help foster greater efficiency in the social sector. Encouraging sustainable business models in the social sector creates a virtuous cycle where businesses can help solve major issues while regenerating funds to be reused for other social purposes.

Prof. Yunus' end vision is a parallel financial environment where there are hundreds of Social Businesses, where social investors can chose between investment alternatives in a dynamic ‘Social Stock Market' and make informed decisions to channel their funds to support organizations that are making the most social impact.

Click here to see a longer version of this article that I wrote for Lokvani recently.

More broadly, it refers to a movement that envisions “a world in which poor and near-poor households have permanent access to an appropriate range of high quality financial services, including not just credit but also savings, insurance, and fund transfers.”

Micro Finance Institutions (MFIs) came to prominence in the 1980s, although early experiments date back 30 years in Bangladesh, Brazil and a few other countries. Microcredit has largely been a private (non-profit) sector initiative that avoided becoming overtly political, and as a consequence, has outperformed virtually all other forms of development lending. MFIs insist on repayment, charge interest rates that could cover the costs of credit delivery, and focus on client groups whose alternative source of credit is the informal sector.

The Grameen Bank, one among the most famous microfinance organizations was awarded the Nobel Peace Prize in 2006. Originated from Bangladesh in 1976, it started disbursing small loans to the impoverished without requiring collateral. The founder, Professor Muhammad Yunus, transformed the institution into an independent bank by government legislation in1983. 

India has seen an impressive growth in Microfinance Industry in the recent past. Microfinance is one of the few market-based, scaleable anti-poverty solutions that are in place in India today, and the argument to scale it up to meet the overwhelming need is compelling. 

Some of the leading Microfinance Institutions in India are: 

1) SKS Microfinance

Launched in 1998, SKS Microfinance is one of the fastest growing microfinance organizations in the world. SKS CEO and Founder, Vikram Akula, was recently recognized by Time Magazine as one of today's 100 most influential people. 

2) SHARE Microfin Limited (SML)

SML started operations in 1989 as a not-for-profit society. It was the first MFI in India to obtain a NBFC (non-deposit accepting) license and also the first Indian MFI to carry out a microfinance securitization transaction.

3) Spandana

Spandana was formed in 1997 by Padmaja Reddy and a few close peers who believed that there could exist simple, yet democratic and powerful systems that would enable the poor to harness their naturally entrepreneurial spirit. It is a regulated micro finance institution (MFI) providing financial and support services to rural Indians 

If you are looking for a website that covers updated information on Micro Finance industry with various Micro Finance Institutions around the world, MIX MARKET is the right place. MIX MARKET is a global, web-based, microfinance information platform. Incorporated in June 2002 as a not-for-profit private organization, The MIX (Microfinance Information eXchange) aims to promote information exchange in the microfinance industry. The MIX MARKET currently provides data on 1229 MFIs and 101 investors.

You can find a White Paper on Micro finance from the following Link. This paper discusses the successes and failures of various microfinance institutions around the world and lessons learnt from the past in Microfinance Industry. 

Intellecap is an organization that is actively looking for unique and effective approaches to addressing the missing middle and creating means for entrepreneurs to achieve the necessary funding to expand their services. Keyzom Ngodup, who works at the organization, has blogged for us in the past on various ventures that Intellecap has taken and the risks and rewards that have resulted.

The Srijan B-plan competition along with the IDG are two of the many great things that this organization has continued to do. Go here to check out webcasts of the event last week, and if you are interested in learning more about the entrepreneurs, click here to go to the IDG website.

I'm back on the MicroBikeUSA case again! I am using all of my social networking prowess to see if I can get the guys any press. I have a feeling it's sort of hard to do that when you're biking 10 hours a day, but I think they absolutely merit as much attention as we can give them!

I've been exploiting the journalistic talents and contacts of Dan Victor, tweeting, emailing, and plurking about the guys and asking around for tips. I DMed @newmediajim (Jim Long) to see if he had any suggestions and he ended up tweeting a link to their website and also told me that he'd look into some other venues. I was pretty excited about that because he has a MUCH bigger twitter audience than I do so that in itself was some cool publicity. Thanks, Jim!

I'm also hoping that DebinDenver might have some Colorado contacts because the guys will be in Pueblo by next week.

If you have any contacts or suggestions for me please let me know! Also, I hope you've been keeping up with their blog because they've had some great stories to share (like the puppy they saved last week!)

All the best!
Kathleen

Launched in 2007, the Village Phone Assistance Center guides MFIs and other organizations in developing Village Phone products that provide poor communities around the world with affordable and reliable phone access and cell phone business opportunities. One critical resource is the Village Phone Direct Manual, first published in 2007 in collaboration with the International Telecommunications Union. The English-language version has been downloaded more than 1400 times, and it is now available in four additional languages: Arabic, Chinese, French and Spanish.

The grants will be on the order of $10,000, and initial applications should be e-mailed here. The deadline for the first round is August 24, 2008. More details can be read here.