NextBillion.net - Development Through Enterprise - Financial Services

The Missing Middle

David Lehr — Wed, 17 Sep 2008 18:01:46 -0400

Every few weeks, members of the Silicon Valley Microfinance Network (SVMN) converge in the San Francisco Bay Area to learn about microfinance, microcredit, and related finance and economic topics. The last session, Fueling the Growth of Small and Medium Enterprises (SMES), was led and hosted by Google.org members Linda Segre and Swati Mylavarapu, who outlined why SMEs are so important and their plans on stimulating SME growth in developing economies.

In most economies, small and medium enterprises, generally employing between 10 and 250 workers, are the drivers of new job creation, innovation, and overall economic growth. The World Bank estimates that SMEs contribute an average 51.5 percent of GDP in high income countries-but only 15.6 percent in low income countries. By contrast, the "informal" micro-enterprise sector accounts for an average 47.2 percent of GDP in low income countries, but just 13 percent in high income countries.

Low-income countries typically have very large numbers of informal micro-enterprises and may also have a handful of larger firms-possibly ventures created by foreign investment, or family-controlled conglomerates built up over generations.

But they typically suffer from a "missing middle," with few SMEs in between, held back by perverse regulatory climates and poor access to inputs.

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Changemakers' Banking on Social Change Competition: Deadline for New Entrants Next 9/30

Francisco Noguera — Wed, 10 Sep 2008 12:20:28 -0400

"Open sourcing social solutions". I loved it since I first heard of it about 18 months ago while I was booking tickets, packing bags and spending long hours understanding "who was who" in this fascinating and rapidly changing base of the pyramid space.

I learned about it from Changemakers (most likely via NextBillion.net), an initiative of Ashoka whose idea competitions open the door for a very interesting dynamic of feedback and model refining between different stakeholders involved in this space.

After hosting competitions in areas as diverse as healthcare, water and tourism, Changemakers.net has naturally become an obliged stop for anyone interested in identifying, learning about and getting in contact with innovative and entrepreneurial solutions to social challenges. Previous competitions have been highlighted in NextBillion.net in the past, and this year's "Banking on Social Change - Seeking Financial Solutions for All" competition is no exception. Following is Changemakers and Citi's introduction to the competition.

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Nachiket Mor: Revolutionizing Financial Services in Rural India

Rob Katz — Tue, 09 Sep 2008 11:44:12 -0400

Want to lull me to sleep? First, start your event at 6:30 and go until 8:00 in the evening; I get to work early, so I'm often exhausted by the end of the day. Second, draw the blinds to keep out natural light; exacerbate the soporific effect by dimming the lights (so I can see the PowerPoint slides, sure). Third, serve food – especially heavy, rich food like meat and cheese – before the presentation starts. Between these three, you're guaranteed to have me – and at least 75 percent of your audience – asleep by the 20 minute mark.

Or not. To my surprise, there's an antidote to this sedative trio – and his name is Nachiket Mor. Last night, along with 150 or so others, I sat in rapt attention while Nachiket described his latest thinking on banking at the base of the pyramid in a talk entitled The Next Big Step: Revolutionizing Financial Services Distribution in Rural India. Yes, the event started at 6:30, and they served delicious (but heavy) hors d'oeuvres. And since the auditorium was bright in the late-day sun, the organizers drew the blinds and dimmed the lights. But for the duration of Nachiket's presentation and through the Q&A, the entire audience sat and stood at attention. It was that good.

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Indian Industry Taps Rural Markets for Benefit

Rob Katz — Tue, 19 Aug 2008 17:41:16 -0400

New Delhi, Aug 19 (IANS) Four of India’s largest companies Tuesday showcased here how they have benefited by tapping India’s huge rural market.

The four - ICICI Bank, Hindustan Unilever Ltd, Hero Honda Motors and Infosys Technologies - are among the largest in their own areas of business.

Market Movers: Mobile Banking for the Poor

Rob Katz — Tue, 05 Aug 2008 10:13:08 -0400

At a press conference this morning in Mumbai, mobile-banking company Obopay announced an alliance with Grameen Solutions -- an alliance with an extraordinarily ambitious goal. In ten years' time, the companies said, they would like to see 1 billion of the world's poor -- people living on less than $2 a day -- receiving banking services via their mobile phones. It probably won't happen, but it would be amazing if it did.

Beyond Microcredit: Savings, Assets and Financial Inclusion

Francisco Noguera — Thu, 31 Jul 2008 12:01:43 -0400

Last night I attended a reception to launch Global Savings, Assets and Financial Inclusion, a new report issued by Citi Foundation drawing on the conclusions of last year's Global Symposium on Savings, Assets and Financial Inclusion organized, among others, by New America Foundation.

CGAP's Kate McKee, who collaborated in the report, offered some very interesting insights on the symposium and the report based on her experience designing asset building strategies. Especially interesting were her remarks on the fact that the microfinance movement and the BoP community in general must go beyond credit and transaction mechanisms --i.e. mobile banking, which have predominated in the debate about financial services for the poor so far-- and offer the poor real and practical alternatives to walk the "financial ladder" towards greater economical security through asset building mechanisms like savings and insurance.

I couldn't agree more. One of the things that used to impress me the most about my microfinance clients in Bogota was their creativity when it came to find ways to save, "stretch" their income and increase their liquidity. One of the mechanisms was what they called cadenas (Spanish for chains).

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Doing Business with the Poor

Joseph Bornstein — Mon, 28 Jul 2008 10:26:22 -0400

In the race to achieve the Millennium Development Goals, it is critical to examine all tools at our disposal to alleviate poverty. The greatest untapped resource is the enormous potential, in the form of investment and innovation, of the private sector. And the success of any private enterprise with the poor depends on a dialogue and often collaboration with governments.

United Nations Development Programme's new report Creating Value for All: Strategies for Doing Business with the Poor offers suggestions for governments and the private sector to better develop markets that engage the poor on the demand side as clients and customers, and on the supply side as producers, employees and business owners. Its heart lies in 50 commissioned case studies by researchers largely from developing countries, including three cases from India. These studies examine businesses that have often worked with governments to successfully include the poor.

Countries such as India can take concrete steps to facilitate more inclusive business models - from raising awareness about the opportunities of doing business with the poor to removing constraints in the market environment. Moreover, governments can strengthen their own capacity to collaborate with the private sector, and combine traditional aid and subsidies with private sector approaches so that the poorest of the poor can ultimately become integrated into the formal financial and other sectors.

Continue reading.

Muhammad Yunus’ Next Big Thing: Health Care for the BoP

Joseph Bornstein — Thu, 24 Jul 2008 11:44:50 -0400

The way Noble Peace Prize winner Muhammad Yunus sees it, the micro-credit revolution is running its course in his home country of Bangladesh. Between his Grameen Bank and other NGOs, which together make Bangladesh the most heavily micro-credit-enabled place on earth, he estimates that about 80% of the poor families that might want to participate are being served already. His goal is for Grameen to help finish the job by 2012.

What's next? Health care. "This is the biggest project. With micro-credit, we only reach the poor," he told me. "With this health care project, we reach everybody-and we bring state-of-the-art health care to even the poorest."

When I visited with Yunus in his office in Dhaka, Bangladesh, today, he had just returned from a stay in Amman, Jordan. In fact, he's been traveling almost non-stop since he got the Peace Prize in 2006, first taking advantage of his new fame to press his ideas on the global stage, and more recently publicizing his new book, Creating a World Without Poverty: Social Business and the Future of Capitalism, which went on sale in most places early this year. But now he's planning on spending a lot of time in Bangladesh on the health care project.

Continue reading.

Innovations target South Africa’s Unbanked

Joseph Bornstein — Wed, 23 Jul 2008 10:43:03 -0400

In the higgledy-piggledy streets of Bethelsdorp, a sprawling South African township once designated for people of mixed race, what at first glance appears to be a colourful new youth movement is gathering strength. Adherents sport blue T-shirts and baseball caps and lug brimming satchels. They roam the streets, knocking on the doors of the township's shacks and simple bungalow homes.

In the anarchic days of the apartheid era such youths might have been "comrades" rallying local morale against the police. More recently they might have been members of a nattily dressed new gang. But they are not. They are salespeople for a mobile-telephone-based community-banking scheme.

"We are telling people how easy it is to have a bank account," says Antonio Loots, the community banker for Standard Bank, South Africa's largest bank, who cruises around the township in his ancient BMW overseeing the salespeople. "Places like Bethelsdorp are very remote from traditional banking structures. For an initiative like this to work it must have local input."

Continue reading.

The Next Billion

Joseph Bornstein — Wed, 16 Jul 2008 11:30:17 -0400

Till a few years ago, N. Padmavathy and her six friends were daily-wage workers in an export unit in Chennai, with a monthly income of not more than Rs 2,000.

At times, when she had to pay her children's school fees or take her children to the doctor, she had to borrow at hefty rates from the local money lender.

As a daily-wage worker, she could never predict her income, till she discovered the power of microcredit. A Rs 15,000 loan each, taken by Padmavathy and her six colleagues, has made entrepreneurs of these daily-wage workers. Today, they are the proud owners of a tailoring unit, which is an exclusive franchisee of a leading exporter.

Says P.N. Vasudevan, managing director of Equitas: "The loans we provide not only help the customers improve their business activity levels but also because of lower rates and easy repayment periods, customers can come out of the debt trap laid by money lenders."

Thanks to urban micro-finance institutions (MFIs) like Equitas, Padmavathy and others of her ilk now have access to credit and a better way of life.

Seeing an aching need among this category, often referred to as the Next Billion, a new set of players are coming up in urban hubs to offer financial solutions-primarily credit and insurance-to this economically active group of consumers.

Continue reading.