Archive for October, 2007

Increasing Microfinance Productivity

October 31st, 2007
Photo by me of rural microfinance center meeting near Bangalore, India in September 2007. The gentleman in the middle is the loan officer from Grameen Koota MFI. The woman to his right is the elected center leader for this group of 30 women. The others were part of our Unitus Partner Expedition trip which my wife & I hosted … enabling westerners to get a hands-on experience of microfinance.

Last week, I was in the Philippines for the Unitus Leadership Summit, an annual gathering of some of the globe’s top social entrepreneurs running many of the most innovative and fastest-growing microfinance institutions in some of the poorest areas of the world. It was a privilege to listen in on sessions where they shared what was working, what wasn’t, their challenges and their aspirations. While some of them are considered competitors, they shared very openly about the experiments they were doing in areas such as mobile banking, product development, increasing operational efficiency, raising capital, high-capacity staff recruiting and training and more.

One of the most fascinating topics was their focus on innovating to increase the productivity of their largest group of staff, loan officers. Loan officers are the front-line staff who directly provide financial services (including microcredit) to their bottom of the pyramid customers and make up 70%+ of their staff count. If they can increase loan officer productivity, their whole cost structure goes down and ultimately they can pass the savings on to the customer in the form of lower interest rates. So, this is a very important metric!

Many MFI’s are happy if a single loan officer can serve 300 clients at a time. [Remember the loan officer goes to the client and often they meet once per week with every client, so the number of touchpoints and travel time is significant.] The conversation started off with how they were not satisfied that 750 (!) clients per loan officer was the maximum productivity. Many of them are now reaching this level of productivity. They get to the 750 number as center groups of 50, 3 center meetings per day and 5 days per week. Of course, there’s the recruitment of new members, new member training, follow-up on members, data entry, various paperwork, etc. which also needs to be done.

So, we had a brainstorming session on ways to further increase productivity without overloading a loan officer. Here are some of the ideas that came up:

  • Reduce the maximum radius to client location to 10km (usually now further)
  • Collections every 2 weeks (half the # of trips/meetings)
  • Deploy handheld/wireless devices to loan officers to reduce paperwork and cash-handling time and cost of float (and reduce group meeting time)
  • Create pre-printed stickers to put in client passbooks (rather than having to handwrite each entry in each passbook…loan officer has to do this as most women are illiterate)

But then the discussion went in a different direction … rather than focusing on the # of clients per loan officer as the productivity metric, why not focus on margin generated per loan officer? This has a number of implications and issues including:

  • This would encourage innovation around offering additional products to clients so that meeting times have a lower relative transaction cost. e.g. if you also provided insurance products or health products in the same client meeting, there is a much smaller incremental cost as the meeting is already scheduled.
  • Would loan officers be able to handle a broader range of products well?
  • Would this type of focus increase or decrease client retention long-term?
  • Will loan officers then seek to focus on less poor clients who have capacity for say larger loans with more margin?

So, there wasn’t any silver bullet and with every attempt to innovate there is going to need to be experimentation and refinement. But, I really liked the continuous improvement attitude that they demonstrated and the willingness to challenge the current status quo thinking.

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Posted in Innovation, Microfinance, Opinion

Bandhan helping the poor move ahead

October 31st, 2007

I had the opportunity to visit microfinance superstar Bandhan in Kolkata (formerly Calcutta), India last month and then had the opportunity to catch up with C.S. Ghosh, Bandhan’s CEO last week in the Philippines. Mr. Ghosh handed me a pamphlet highlighting some of their latest progress.

Bandhan one of the world’s largest AND fastest growing microfinance institutions. This is usually an oxymoron as most the larger microfinance organizations are growing very slowly. Here are a few of their stats: over 750,000 clients, over 400 branches, over $120M disbursed, over 2000 staff. And they are growing at something like 30,000+ clients per month!! Five years ago they didn’t even exist and now they’re serving 750K families or about 3,750,000 people!

But, what I found the most interesting was a study of the impact of microfinance services on their clients by Mr. Ranesh Buswas and Mr. Soumik Ghanta of the Indian Institute of Forest Management, Bhopal, India, April-June 2007.

Here is a chart of the impact on their clients through 3 loan cycles (each 1 year)


Here are a few of my observations:

  • By the third loan almost all of the women (90%) have access to a savings facility (critical to help with unforeseen or special expenses)
  • 100% have reduced their dependency on moneylenders by the 3rd loan (moneylenders charge at minimum 100% and often 300-500% interest with daily repayment required)
  • 90% have increased their income by the 3rd loan (meaning that they’ve pretty much all figured out how to run a business which provides enough income for them to repay their loan plus interest and have surplus)
  • Many (60%) of them have started to grow their liquid assets by the 3rd loan (owning productive animals are one of the key methods for doing this)
  • Some (30%) are starting to be able to acquire (or buyback) more land by the 3rd loan, but it will take longer for the majority.

What do you observe? [post a comment]

Oh, and a bonus… a short video I made while visiting a group of Bandhan borrowers in September. Look at their beautiful saris!

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Posted in Microfinance

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Remittances top foreign aid

October 31st, 2007

A couple of weeks back at the International Forum on Remittances, a study was released which reported that global foreign remittances in 2006 totaled three times all aid provided by donor nations to developing countries (as reported by OECD). Global remittances totaled more than $300B while donor aid was $104B. Remittances even topped foreign direct investment in developing countries which totaled $167B (reported by the Institute of International Finance).

Remittances are the money transfers that foreign workers in developing countries send home to their family and relatives. Most of the transfers are between $100 and $300 at a time.

Remittances to India topped the list at $24.5B, followed by Mexico at $24.2B; China, $21B and the Philippines and Russia, $13.7B each.

And, guess what is growing the fastest? Your right, remittances!

This tells me that even if foreign does rise, it is likely to become an increasingly smaller contributor to capital transfer to developing countries and can never match the growing impact that migrant workers are having on the shifts in global capital.

How about we encourage easier, more secure and better priced options for people to send money back to their home countries? For many people, an ATM or Paypal or a mobile money transfer option would be a welcome solution.

I first read about this in the Philippine Daily Inquirer. Yes, I was in the Philippines last week ;-)

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Posted in Globalization

Affirmative action for the poor

October 19th, 2007

The Economist recently wrote about (article: With reservations) the current debate within India about whether the existing affirmative action (called “reservations” in India) quota legislation for the poor should be extended from higher-education education and government jobs to private companies.

First, there are a variety of viewpoints of who should get affirmative action benefits. Historically, these benefits have mostly been allocated to dalits (aka untouchables) and tribal peoples. Some now advocate that these reservations should also apply to the [much larger group of] lower caste peoples (some estimate at 500M+ in India) and non-Hindu poor including Muslims. There are many complicating factors and opinions on this due to the significant political partisanship of many of these groups. See my post on the India caste system for more details on this.

Second, there is a significant difference in attitude to caste within urban environment (where caste is discriminated against less) and rural (where it is still very strong). This makes it difficult to create laws which have the intended benefits of removing discrimination while not unhelpfully propping up those who don’t need the help and abuse these guarantees.

Third, the article notes that another confusing factor is that low-caste Indians are getting less poor at almost the same rate as the general population. The statistic they note is that between 1983 and 2004, the low-caste Indians spending power increased by 26.7% compared with 27.7% for the average Indian (source: National Sample Survey Organisation).

Fourth, there are also regional differences. In northern India, they note that for historical reasons that commerce is dominated by members of a few business castes, while in south India the business community has been more open to members of non-business castes.

So, does it really make sense to extend affirmative action quotas en masse to the private sector? Is this the right approach and priority to helping the poor? What do others think?

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Posted in Globalization, Opinion

Grameen update

October 18th, 2007

On Tuesday, I participated in a dinner event sponsored by the Seattle International Foundation featuring Nobel Laureate Muhammad Yunus, founder of Grameen Bank and author of Banker to the Poor.

Professor Yunus shared a number of updates and answered questions. Here are some of my notes…

On Grameen Bank in Bangladesh:

  • Now serving 7.5 million clients (avg. family size of 5 => 35M+ people)
  • 27,000 staff
  • Now 80% of poor in Bangladesh are offered microfinance (all MFIs) and targeting 100% coverage by 2012
    • Most poor countries have 5-10% with the best being 15% coverage of microfinance for poor, so lots of work still to do
  • Bank is owned by borrowers
  • All capital loaned out comes from savings of the poor (and bank staff)
  • Each branch must drive their own savings for capital to loan out … require that each branch become profitable and capital self-sustaining within 1 year
  • Microfinance is very empowering for women … often first time in their lives that they have anything of their own. Borrowers (women only) decide who will inherit their savings if they die. Interestingly, most women choose their youngest daughter as she has the least opportunity.

On other Grameen-spawned businesses:

  • Grameen Phone is largest mobile operator in Bangladesh with 16M subscribers
  • Grameen Energy is focused on bringing solar energy solutions to the poor … reached 100,000 households so far and now aiming for 1M. Cost of solar panels continues to slow down growth of this business. There is great hope that some technology breakthroughs will substantially lower the cost and enable them to accelerate deployment.

On social businesses:

  • Yunus continues to be a strong proponent for social businesses … that is, businesses which exist as commercial entities AND have a mission to have a strong positive social impact
  • I think he is right and this is a great new opportunity for entrepreneurs

On microfinance in China:

  • China has very little supply for microfinance and, next to India, has the largest unmet demand for microfinance
  • Yunus recently met with senior people in China’s central bank on their request to hear about his ideas on microfinance
  • Central bankers were initially quite defensive … holding up their cooperative model as being quite effective in channeling financial services to the poor
  • Yunus said that that was quite interesting and that China must be doing something quite differently as in Bangladesh there was also a long-term cooperative system which was widely promoted by the government, but is completely ineffective due to corruption, bureaucracy and lack of relevance.
  • This caught the central banker leader off guard and she surprisingly agreed with his assessment and said that they would no longer rely on cooperative model as the cornerstone of China’s financial services provision for the poor.

Additionally, Grameen America was formally announced. See my earlier posting.

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Posted in Microfinance, Social Business

Empowering Women Through Microfinance

October 13th, 2007

In my recent trip to visit microfinance programs in India, I had the opportunity to meet with a number of microcredit borrower groups in both urban and rural environments.

One of the most interesting experiences I had was observing the personal confidence and empowerment of women who were engaged in ongoing microfinance borrowing. I met with a number of borrowers who had been borrowers for 3, 4 or more years. This means that most of them were on their 3rd, 4th or later loan cycle (as loan cycles are typically 1 year). These women were demonstratably excited to have us “foreigners” sitting down with them at one of their weekly center meetings. After they finished their formal/normal business or interacting with the microfinance loan officer, we had the opportunity to ask them questions through a translator. They were very eager to respond to our questions … telling us [proudly] about their businesses, their challenges, what they were able to do with their profits, their new business ideas, what they would do with larger loans, etc. We were talking very much like peers–business person-to-business person–which I really enjoyed.

I contrast this with another group of borrowers I met with who were about 6 weeks into their first loan cycle. This group was very shy and would not offer us much in response to our questions — even just simple ones about their needs, their families, etc. Now part of this is probably attributable to how early they were in being able to leverage their loans and drive results. I wondered if some of this was cultural … were we meeting with women who were poorer, of a different religion or other cultural differences which would account for this difference in response? The loan officers assured us that this group was almost identical in their background to the other groups with the exception that they were newer to microfinance.

I had heard about how microfinance empowers women. Now I have seen it. The loan officers we met with say that they see this again and again as women grow in their confidence and self-worth as they continue to run their businesses, pay back loans and earn additional profits which they then get to invest in their families and to further expand their business efforts. But there’s nothing better than experiencing this firsthand!

Have others out there found similar or different experiences?

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Posted in Microfinance

China Shakes The World book review

October 13th, 2007

China Shakes The World: The Rise of A Hungry Nation

by James Kynge

I picked up this book to increase my understanding of how things work inside of the fast-growing economy and most populist country in the world. Kynge was the China Bureau Chief for the Financial Times from 1998 to 2005 providing him a very expansive viewpoint on the changes going on inside of China over a period of immense change in China.

Kynge looks at how entrepreneurs in China are leveraging access to liberal capital access from China’s banks to dramatically start and grow entire new business empires. One example he describes is how an entire out-of-date steel mill based in Dortmund, Germany [employing at its peak 10,000 workers] is purchased by a China entrepreneur, deconstructed by an imported team of Chinese works, transported to China and reassembled as an exact operating replica. This project was appropriately named Phoenix.

This book explores the issue that even with an economy growing at 9-10% per year, China generates a few million less than the need 24 million new jobs each year. Beijing politicians face incredible pressures to keep the economy growing in order to generate these new jobs in order to maintain peace and order. He says, “China is like an elephant riding a bicycle. If it slows down, it could fall off and then earth might quake.”

Some of the statistics Kynge presents about China’s economic boom:

  • 400 million people raised out of poverty
  • 120 million people migrated from farms to factories
  • Quantum leap in education standards for 10′s of millions of children
  • Construction of first world infrastructure on a massive scale
  • Growth of over 40 cities with populations exceeding 1 million people
  • Commercialization of housing
  • Vaulting progress up the technology ladder which has helped unleash one of the greatest ever surges in general prosperity
  • Lowered cost of goods leads to greater purchasing power of the poor in developed countries

He contrasts this with the dark sides of China’s boom:

  • Massive pollution which dramatically impacts their citizens’ health and beyond their borders
  • Poor working conditions in many factories with very limited ability for workers to organize
  • Growing inequality of the richest and the poorest
  • Massive demand for natural resources domestically and globally acquired at “any cost” without regard for human consequences
  • Widespread corruption
  • A failed healthcare system

Kynge covers many of the more recent tussles between China and developing countries on military objectives, offshoring, populists movements and more.

While this is not per se a book about defeating poverty, it is a good read for understanding some of the complex dynamics at play inside China … still home to 100′s of million people living on less than $2/day.

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Posted in Poverty Reading List

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Microfinance center groups

October 3rd, 2007

In my recent trip to India (see other recent posts), we had the opportunity to visit a number of microcredit borrower group meetings. At Grameen Koota, a rural MFI partner of Unitus based in the outskirts of Bangalore, they meet weekly with the borrowers in what they call a “center meeting.” Each center meeting consists of women borrowers from the same area (usually one village) who know each other and consists of 4-8 sub-groups of 5 women (so total of 20-40 women in a center.) There is one women elected the leader of each 5-person group and then one women is elected as the center leader by the entire group.

At each center meeting, the agenda is as follows and generally takes from 30-60 minutes:

  • Speak pledges
  • Take attendance (if more than 10% of center members are not present, then no loans can be disbursed that week)
  • Borrowers make loan payments (principle and interest) which is recorded in their passbook. If anyone cannot make the meeting, they send along their payment with some who is attending. If someone cannot make their payment, the group must cover.
  • New approved loans are disbursed.
  • Loan officer requests any need for emergency loans and then disburses if approved by the group.
  • New loan applications are collected for later review.
  • General discussion on any issues/questions.
  • Speak pledges again

I took some videos of our group of Americans visiting two center meetings. We had the opportunity to ask the women any questions we wanted through a translator and they were eager and excited to respond. We asked questions about their businesses, how they were using the profits, about their challenges and what other services they would be interested in.

Video: A center meeting in a rural, very poor village near Bangalore

Video: A center meeting in a small rural town near Bangalore

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Posted in Microfinance

Microfinance pledge

October 3rd, 2007

As I noted in previous post, I just returned from 2 1/2 weeks visiting high-growth microfinance institutions (MFIs) based in India. I visited many group meetings where staff of a MFI would meet with clients to transact business … generally, receiving loan payments, group savings, etc. and distributing new loans, withdrawals, etc. At the beginning and end of each meeting, there were pledges said by the MFI staff and the borrowers to state their commitments and values. I couldn’t understand what they were saying as they were usually speaking in the local language, so we asked for a transcription of the pledge from one MFI, Ujjivan, an urban microfinance startup based in Bangalore.

Here are the pledges:

Customer Pledge
We will use the benefits of our loans to eliminate poverty.
We will repay our loans promptly.
We will save regularly for our family.
We will educate our children.
We will stand by our group in good times and bad.
We will work to build a long and mutually beneficial relationship with Ujjivan.
God is a witness to all our acts and deeds.

Staff Pledge
We will work with poor women towards eliminating poverty.
We will work without discriminating caste, creed or religion.
We will be truthful in all our activities.
God is a witness to all our acts and deeds.

I thought these were very powerful pledges! Wouldn’t be great in other companies/organizations had pledges which they recited in front of their customers! I know this sounds so “out there”, but it would surely help keep their values front and center.

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Posted in Microfinance

India microfinance

October 3rd, 2007

I just returned to Seattle from 2 1/2 weeks in India focused on microfinance. I was traveling on behalf of Unitus as a board member and chair of portfolio committee to visit a number of Unitus’s microfinance partners based in India. I visited a total of 8 MFIs (Unitus now has 12 MFI partners in India) based all over India. It was quite a whirlwind trip (7 cities/areas) and thoroughly interesting to see so many talented entrepreneurial teams building social enterprises to provide extremely poor working women/mothers with useful financial services.

Here are a couple of things I observed:

  • Continued focus on women clients. The women are better at repaying loans and have demonstrated again and again that they invest the profits in their family’s best interest.
  • Two distinct models emerging. 4 of the MFIs I met with have found great success in taking a very grassroots approach to hiring inexperienced first level field staff (generally, loan officers) and then promoting (to branch manager, area manager, district manager, etc.) exclusively from within as the field organization grows. The other 4 MFIs are taking much more of a traditional startup business approach hiring strong professionals to lead areas of the operation. Both of these models are working to drive extremely high growth and sustainability.
  • New product development. There is a lot of effort being put into developing new and better financial services products beyond the basic productive loan offering. Examples include health insurance, a variety of specific purpose business and consumption loans, remittances, individual loans (no group involved) and savings-like products (note: traditional savings products are prohibited by India’s central bank outside of chartered banks).
  • Products to drive more profit margin or “livelihood”. There are some great ideas for providing a “business-in-a-box” type product with built-in franchise-type branding/product and/or access to distribution channels. One example is that rural women are provided raw materials for creating incense sticks or clothing and there is a buyback of finished products to a large retail channel eliminating the middleman and therefore increasing the women’s profits substantially. Another example is the creation of an optimized “dairy unit” consisting of 7 cows/buffaloes which is financed and operated by a group of borrowers which both doubles the yield of milk produced per day per animal and has built in profits through buyback with a dairy cooperative.
  • Variety of entrepreneurial talent. I visited and interviewed many women clients across various rural, peri-urban and urban sites in India. Some of them had a lot of entrepreneurial and others had very little. Often the lower expectations were based on lack of transportation options/infrastructure limiting their markets to their local village. Most clients said that there lives were improving with access to financial services, but some were definitely improving faster than others.
  • Urban starting to take-off. There is almost no urban microfinance in India. Unitus has partnered with three entrepreneurial MFIs who are pioneering the work to serve the urban slum dwellers. This is still early, but there are some positive indicators that this segment is primed to grow rapidly.

I am excited about what I saw and experienced. India still has some 100M extremely poor households without microfinance and another 100M of low income households with no access to financial services. So, there’s still a lot of opportunity and work to do!

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Posted in Microfinance