Mullainathan also emphasized that understanding entrepreneurs is important for an institution like IFC. He gave a rousing talk on using better designing, branding and even advertising in our financial products (the right wording and choices will matter to the end-user), so that we as practitioners walk away knowing we’ve created something scalable and sustainable and in turn have promoted responsible lending. He referred at one point to the scenario of an experiment in Africa where one bank was able to increase interest rates on a cash loan product (by almost 4.5 percentage points) just by changing photos (from that of a man to a woman) on a brochure advertising the product, targeting males. By advertising promotional items (free mobiles, bags etc.), the bank was able to increase the interest rate by 4 percentage points.

Of course banks the world over have for a long time been using knowledge gleaned from behavioral economics to expand their customer base. The task remains to figure out how to use these same insights to deliver a better product to the clients that are most in need of financial services.

While IFC is strengthening its involvement in India, China is deepening its economic ties in Africa.

In his opening speech at this week's Forum on China-Africa Cooperation in Egypt, Chinese Prime Minister Wen Jiabao announced Beijing's latest commitment to its African trading partners, which includes $10bn in fresh loans (on top of $5bn already pledged in 2006):

We will help Africa build up its financing capabilities...we will provide 10 billion US dollars for Africa in concessional loans... China is ready to deepen practical cooperation in Africa.

China will also set up over 100 clean energy programs, and relieve or cancel the debt of 31 countries. Chinese direct investment in Africa has increased from nearly $500m in 2003 to $7.8bn in 2008.

Wen claims that this latest round of assistance comes with no strings attached:

Africa is fully capable of solving its own problems, in an African way

There is one story floating around the blogosphere that seems to highlight an African economy solving its own problems. The Telegraph is reporting an economic turnaround in Zimbabwe, which has been buoyed by the dollarization of the local economy:

The hyperinflation crisis has in a sense solved itself. The Zimbabwe dollar faded away as the army and then everybody else refused to accept it. The US dollar is now the coin of daily life. Prices have been stable for months. "Forget about a local currency," said Mr Biti.

Zimbabwe's central bank – an arm of state terror under Zanu PF enforcer Gideon Gono – has lost its cash cow. It is no longer able to skim profits from exchange rate arbitrage.

Harare's stock exchange is humming again. Volume has increased 20-fold, all now in US dollars. The mobile phone firm Econet – again able to import kit from China – has paid its first dollar dividend. Delta Beverages has installed a new bottling line after a surge in beer demand, a telltale sign of returning prosperity. The MDC has begun to lift exchange controls. It plans to privatise chunks of the economy, embarking on the most radical free market policies seen in Zimbabwe for half a century.

"It is extremely investor-friendly," said Elton Mangoma, the economic planning minister.

I wonder if the carrot of increased Chinese aid and investment helped Zimbabwe solve some of its own problems. Alas, one can only speculate.

Update: Philip Karp from the World Bank Institute gives his take over at our East Asia blog. In general, he is supportive of China's growing African involvement:

My own view is that China’s growing engagement is good for Africa, is good for China, and indeed is also good for traditional development partners like the World Bank. In addition to providing badly needed sources of financing, trade, and investment, China offers a number of development lessons that are quite relevant to African countries.

The emergence of China as a major player in African development offers African countries a choice.

However, in order for African countries to take full advantage of that choice, and to be fully in the driver’s seat in their relations with the Chinese Government and investors, it will be important for them to have more complete information about what is on offer in terms of levels and conditions of assistance, and on the real terms of the various commercial deals that China is bringing to the Table. This is one area where China can perhaps do a better job in translating the lessons it has learned as a recipient of international assistance into its own engagements with other developing countries.

India has surpassed Russia as IFC's largest investment portfolio. The FT explains this trend:

The IFC decision to increase India's exposure, which was worth $3.4bn last year or 10 per cent of its global portfolio, comes as it is trying to boost support for entrepreneurial companies working with the world's poorest people.

"One of the very positive things coming out of the new government here is their high focus on inclusiveness," said Lars Thunell, chief executive officer of IFC, referring to the India's Congress-party-led government, which was re-elected in May. "That's why we are here."

The article notes that India's seven poorest states contain 40 per cent of the national population, yet only attract 1 per cent of the country's FDI.

Of these seven states, five (Andhra Pradesh, Orissa, Madhya Pradesh, Uttar Pradesh, and Bihar) were measured in the World Bank/IFC's Subnational Doing Business in India. Here's how they fared:

As the flow of financial resources to these regions increases, it will be interesting to see how the distribution of these funds matches up with the ease of Doing Business, especially for an investment such as IFC's, which aims to support entrepreneurs.

On the heels of that controversy, Kiva finds itself dealing with another. Premal Shah, Kiva's president, apeared yesterday on Press: Here and discussed the concerns of some Kiva users over the site's expansion to include U.S.-based borrowers. Premal points out (in the very beginning of Episode 33 Part 2) that Kiva gives you choice: "The whole idea of Kiva is that it gives you, the person who wants to make a difference, choice. So if you want to lend to a goat-herder in Ghana, go for it. If you want to lend to a bakery in Oakland, California, that's your perogative."

Yet because of David's post (or at least it seems likely because of David's post), Kiva changed the language on its home page. CGAP explains:

It no longer promises: “Kiva lets you lend to a specific entrepreneur, empowering them to lift themselves out of poverty”. Instead it more accurately describes its role as: “Kiva connects people through lending to alleviate poverty.”

The messages seem to be a little misaligned. To be fair, the site is pretty clear about how the whole process works if you click on the prominently displayed Learn how Kiva works. But I'll admit that when I first made a loan through Kiva, I didn't realize the money wasn't really going to an individual, but an institution that could allocate the money as it sees fit (since cash is fungible and the institution can choose to cover defaults and late payments for a particular entrepreneur to keep up its rating on Kiva). 

Is transport infrastructure the most important aspect of urban evolution?

The Treasury's courtship of the blogosphere.

Is China's changing worldview bad for business?

America's largest retailer: it's not Wal-Mart.

Why are some marathons more volatile than others?

The EU's role in reducing state fragility in Sub-Saharan Africa.

Thoughts on migration: Kosovo edition.

Unemployment

What America can learn from Europe about unemployment.

Other difficulties that arise from high unemployment.

Plus, unemployment charts galore from Calculated Risk.

A less pessimistic take on today's numbers (it's still ugly).

Why employment is down and GDP up? It's all about productivity.

While most of their argument is convincing, I think they may be overstating their case in one spot. The authors argue that "the belief that skilled emigrants must cause public losses in the amount of their training cost is based on a series of stereotypes." Their evidence against these stereotypes? A single survey of African-born members of the American Medical Association. This hardly amounts to a damning piece of evidence. The fact of the matter is that we don't really have any comprehensive source of information that would allow us to judge exactly how much of a public subsidy skilled emigrants take with them.

Clemens and McKenzie rightly point out, though, that countries that do provide massive public subsidies through free or near-free higher education may want to look at alternative ways of financing their system of higher education. One method would be providing student loans. While setting up such a system is not a simple task, IFC has been gaining experience with this in a number of countries.

Writing in this blog last July, Anushka Thewarapperuma penned a favorable review of a new book by Daryl Collins and Jonathan Morduch on how people living on less than $2/day manage their financial lives. The authors discovered that the world's poor are quite good at managing their finances:

The poorest people on earth engage in the sort of sophisticated money management that would make Chuck Schwab proud.

Thewarapperuma ended her post by noting that Collins "will be coming out soon with a pilot study using the same methodology of financial diaries, this time for small businesses."

Flash-forward to today, and Collins is back with her new study, commissioned by FinMark Trust, which gathers cash flow and qualitative information for small businesses in South Africa. The report, which surveyes 26 businesses in Langa and Nyanga townships across a range of industries, makes some initial conclusions about the financial services and training needs of these small enterprises, including:

• Businesses do not only need capital loans – in fact, very few in this sample would be candidates for a capital loan. However, they do need a short term line of credit to weather short periods (sometimes overnight) of cash flow bridging.

• Because small businesses usually work on a cash basis, money is on hand all the time, making it more difficult to create disciplined savings behaviors than those who receive regular income from a job or a grant. Yet because business income is so irregular and partners are so unreliable, the need for a savings buffer is even more acute for businesses owners than regular income receivers.

• Many small businesses generate substantial amounts of cash on a daily basis, and many owners simply keep that cash on hand in their homes for periods of time. However, because small business owners are in the public eye, they are particularly vulnerable to theft. A very convenient transaction account would be particularly important for small business owner.

• Small business owners have sought, and some have received, training, but most continue to be unsure of how best to manage their debtor’s book, price their goods and services and manage their employees.

Yesterday I noted how Pakistan's poor are primarily interested in accessing finance as a safe means of channeling their savings. Judging from Collins' initial conclusions, this may hold true for the world's poorer entrepreneurs as well.

Update: A new link to the study has been uploaded.

The recently published 2009 Microscope (now expanded to 55 countries around the world with the assistance of IFC) gives a mixed answer. Of the 13 countries in Latin America for which there are data in both the 2009 and 2008 Microscope, seven saw their microfinance premiums rise while six saw their microfinance premiums fall (see image below the jump for the most recent premiums).

It's not clear that the financial crisis had much responsbility for the increased premiums even in these six countries. Rather, the authors of Microscope 2009 suggest rising premiums can be attributed either to uncompetitive microfinance markets or small and inexperienced MFIs. 

Of course, the funding side of things is only part of the story. The crisis may have had an impact on the performance of microfinance portfolios. But somehow I suspect that subprime entrepreneurs are a better bet than subprime mortgage borrowers.