Archive for the ‘grameen’ category

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 grameen, microfinance, poverty, social enterprise, yunus

Microfranchising opens new earning opportunities

August 26th, 2007

Fast Company magazine writes an interesting article, Unplanned Obsolescence “exposing” the decreasing attractiveness of being a village “phone lady” in Bangladesh. FC is following up on a story they wrote almost 10 years ago when they first wrote about Grameen Phone, a wireless mobile service, and interviewed Laili Begum, the first woman to receive a loan to buy a mobile phone. Begum rented out her mobile phone on a per minute basis to others in her village at a mark-up over her per-minute cost. She became the first of now more than 280,000 phone ladies who are now almost ubiquitous in Bangladesh villages.

Initially, Begum was able to earn upwards of $800 profit per month which is more than 24 times what the current average Bangladeshi earns. Today she earns about $22/month profit from her mobile phone due to competition from almost 300 other close-by phone ladies plus the decreased cost for individuals to own their own mobile phone (about $30.) Overall, phone ladies now are typically earning about $60-100 of net profits per month after paying financing for phone and cost of air time.

So Begum and other phone ladies are having to operate additional business ventures to earn sufficient income. Here a summary of her status:

A decade later, instead of begging on the streets and sleeping with cattle as she once had done, Begum shares a two-room brick house with her husband, two sons, a daughter, a television set, and a refrigerator. Next door, she has built a barn, shops, and temporary housing that she rents to five poor families. Today, her banker estimates her net worth at $145,000, which may be more than everyone else in her village combined.

All I can say is “wow!” Begum was able to jump start her business with a lucrative new microfranchising business opportunity and then she took the profits and diversified into additional businesses. Very smart, indeed.

The article chooses to focus on lamenting about the lower margins available to phone ladies today as somehow pointing out the the Grameen Phone program is a failure in helping women earn their way out of poverty.

I take away a very different message and learning. Here are a few thoughts:

  • As with every business, high margin businesses are always going to attract more capital and competitors, so (a) take advantage of them while you can, (b) build barriers to entry where you can; and (c) particularly if (b) is difficult, start diversifying into other businesses with which have more sustainable margin. Begum did this like a pro!
  • So often, micro-borrowers are very uncreative with their business choices. The vast majority of them just do more of what they’ve always done or someone else is doing which can result in low or modest margins, but rarely high margins. This is why I think that there is such a huge new opportunity for microfranchise businesses … essentially one-person pre-packaged businesses which provide an attractive product/service which is differentiated and can result in higher margins. Grameen Phone used to be this.
  • Cash loans are so much better than specific business programs. Think if Begum had gone down the path of building her future purely around the Grameen Phone program. She would have been locked into a declining business model. Instead, she had a loan from Grameen Bank, a bank for the working poor, and she could choose over time which business ventures she wanted to invest in.

I’m going to write more about microfranchising in the future. Here are a few resources to get started with:

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Posted in grameen, grameen phone, microfranchise, poverty

The world’s smallest yogurt factory

February 22nd, 2007

I heard about 6 months ago about the ingenious idea of Muhammad Yunus, founder of Grameen Bank and recent Nobel Peace Prize winner, to build a new yogurt business in Bangladesh.

The first factory just opened near Dhaka as part of a new venture called Grameen Danone Foods. The mini-factory produces a yogurt called Shakti-da (which means “yogurt with strength”) which is fortified with vitamins to address malnourishment. And each yogurt helping with be inexpensive … about 7 cents per cup … which affordable even for the poor.

The story I’ve heard goes something like this … Danone (major yogurt maker) CEO Franck Riboud was sitting next to Yunus at a lunch in Paris in the fall of 2005 and had asked Yunus to explain to him about microfinance and the Grameen Bank. At the end of the conversation, Riboud asked Yunus, “how might I help you?” Now this is a very dangerous question to ask Yunus! Yunus responded, “I’d like you to send your chief yogurt factory designer to Bangladesh to meet with me.” Riboud agreed. A short while later the Danone factory designer chief showed up at Yunus’ office in Dkaha to find out how he could help. Yunus said, “I’d like you design and build the world’s smallest yogurt factory to operate here in Bangladesh.” The factory designer said, “But, I design the world’s largest yogurt factories, not the smallest.” Yunus responded, “I need you to design the world’s smallest one. I’ll be here if you want to go off and think about it and come back later.” So, the factory designer left and went back to his hotel room. A little while later, he appeared back at Yunus’ office with the sketchings for an idea. And the venture was born…

This is setup as a for-profit, social enterprise joint venture between Danone and Grameen Bank. Danone is contributing $500,000 of seed capital. The plan is to re-invest all profits with the exception of paying back Danone their initial seed capital. The factory will buy milk from Grameen Bank microvenders (who’ve been financed by Grameen Bank to buy cows) and microentrepreneurs will sell the yogurt door-to-door. Each factory will employ 15-20 women directly and up to 1,600 people in an area. And the enterprise is designed to environmentally friendly using biodegradable cups made from cornstarch, solar panels for electricity generation and rainwater collection vats. If the first factory is successful, they have plans to launch 50 more in Bangladesh and then who knows where.

There is a good write-up of the story in Fortune magazine called Saving the world with a cup of yogurt.

Please post comments about other social enterprises you have heard about.

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Posted in danone, grameen, poverty, social enterprise, yogurt

Grameen comes to the USA

February 22nd, 2007

Grameen Trust, the Bangladesh-based charitable arm of the Grameen Bank, is starting up a microfinance business in the USA called Grameen America. [I couldn't find a web site for this yet although there is a job posting for a CEO.] Grameen Bank has been a pioneer in microfinance and recently was awarded the Nobel Peace Prize along with its founder Muhammad Yunus.

Here are some of the highlights from a business plan overview I have seen:

  • It will be a for-profit social enterprise business setup as a joint venture between Grameen Trust and a large financial institution [likely to be H&R Block] with Grameen Trust having a controlling interest. They expect positive cash flow in 4-5 years.
  • A long-term Grameen executive, Prof. H. I. Latifee [see his recent whitepaper], the managing director of Grameen Trust will head up the initial “build, operate and transfer” team to setup and then hand-off operations to a USA team. The thinking is to transfer the know-how and DNA of Grameen Bank to seed this organization.
  • The business plan references the Association for Enterprise Opportunity which estimates that there are more than 750 existing microfinance organizations/programs in the USA. Most of them are characterized as “social welfare programs” and none are financially self-sustaining [without donors] with the best running at only 70% cost recovery.
  • Their initial focus will be on recent immigrants who have an entrepreneurial spirit. Micro-business loans will start at $500 and grow from there based on a positive repayment history. The borrowers will support one another in groups although they won’t guarantee each others loans.
  • It sounds like the focus is going to be on urban areas with the first test market of New York City. They are planning to take advantage of credit cards to simplify credit access and lower transaction processing costs (for borrower and themselves).
  • They expect to later offer a number of membership benefits including networking, member discounts, visa and citizen information, credit establishment and more.
  • They are hoping to ultimately create a lot of grief for the credit services for the working poor offered in the form of payday loans, loan sharks and other unscrupulous bottom feeders who prey on the vulnerable.

I am a big fan of introducing more competition and reasonable credit choices for the working poor in the USA. Grameen America has a lot of the right thinking on this including starting with a business (=sustainable) mindset, establishing a beach head with a likely-to-succeed client segment, partnering with a deep pocketed financial services company and taking advantage of technology to enable scale and cost containment. I think that the challenges of business licensing, regulations and tax reporting will likely require more of an incubator-type structure, but this is something that can evolve over time.

What do you think?

Reference: previous post on Microfinance in the USA

Update: Here is Grameen America’s web site.

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Posted in grameen, grameen america, microfinance, poverty, usa

Microfinance gets recognized

October 15th, 2006

If you have seen the news in the last few days, you will know that Muhammad Yunus (along with Grameen Bank, which he founded) has been awarded the Nobel Peace Prize for his pioneering work in microcredit. This is a very powerful statement about the power of the microfinance revolution to help address one of the root causes of war … hopeless poverty.

Here are some of the things that impress me about Yunus:

  • He is an innovator. The Grameen Bank has continued to re-invent itself and lead the way in developing improved products and services which serve the poor AND are sustainable through generating profit.
  • He is an advocate. Yunus uses his access to powerful people to speak on behalf of the needs of the poor. He continues to frame his ideas, issues and questions in plain language which challenge the typical techno-speak of the international development community.
  • He is generous. Yunus has generously given of his time, knowledge and influence to help others learn from what they are doing at Grameen Bank in order to implement best practices to help the poor in other areas of the world.

Here are a few (of the many) articles written this past week:

Good Read: Yunus’ biography, Banker to The Poor

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Posted in grameen, nobel peace prize, poverty, yunus

A Poverty-Free World

January 12th, 2006

Muhammad Yunus, founder of Grameen Bank, shared a very compelling vision printed in a recent article in BusinessWeek:

My mission is to create a poverty-free world. I believe that human beings are created to contribute to all other life forms, including their own. But poor people too often spend their lifetime just taking care of themselves because the struggle has been so hard for them. I strongly believe in the unlimited potential of all human beings, not just a privileged few. All kids, when they’re born, represent the same unlimited potential in any circumstance.

Poverty is absolutely meaningless and unnecessary in the world. It was just indifference to poverty that created and sustained it. It’s not created by the poor. It’s created by the system. Once we fix the system in the right way, poverty will disappear.

I’m encouraging young people to become social business entrepreneurs and contribute to the world, rather than just making money. Making money is no fun. Contributing to and changing the world is a lot more fun.

Bono, lead singer of U2 and poverty fighter said “Our generation wants to be the generation that ended extreme poverty.”

Now those are visions worth living for!

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Posted in grameen, poverty, yunus

Yunus: statesman for the poor

September 21st, 2005

I had the opportunity to hear Muhammad Yunus, founder and director of The Grameen Bank, earlier this week speaking at an event in Seattle.

Yunus is very much an activist for practical solutions to defeating poverty. He recounted his story of starting The Grameen Bank, now one of the largest banks in Bangladesh with now over 5M micro-credit borrowers. They also launched a mobile phone company in Bangladesh called Grameen Phone targeting the rural poor which has now become not only the largest phone company in the country, but also the largest company and tax payer! More than 200,000 micro-entrepreneur “phone ladies” are now operating in villages all over Bangladesh renting out phone minutes to fellow villagers. This is a significant service to the rural communities, a profitable business for the phone ladies and a profitable business for the phone company — a triple win.

The Bonsai People

Yunus is very much an advocate for the potential of the human spirit in every person. He believes that people are poor not because of their own actions but because of the systems that have denied them the ability to reach their potential. Yunus provided the analogy of the bonsai tree. He said that you can take a seed from the largest tree in the forest and put it in a small pot, limit its water and it will grow up as a dwarf tree. Yunus said that this is a good analogy for how potential is not realized by poor people.

Dream Your World

Yunus was asked about how he would talk with well-off children about poverty. He said that we should encourage our children to dream about the world they want. Then we should encourage our children to pursue making that world. Wow!

Social Entrepreneurs

Yunus was asked about what he saw as the next major movement. He talked about a new kind of business person who was building a business to make a profit (for no business will survive without profit) but also to equally value providing a social return. This contrasts with the Wall Street approach of focusing exclusively on maximizing profitability. He envisions an industry developing around social capitalism to run alongside the traditional profit-only focused industry.

Previous post on Grameen and beggars

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Posted in book reviews, grameen, microfinance, poverty, social enterprise, yunus

The poor helping the super poor

July 21st, 2005

The Grameen Bank (based in Bangladesh) is known as the pioneer in establishing the working model for the now burgeoning microcredit industry. See Grameen II for a summary of how their model works and for statistics on how Grameen is making an amazing impact on poverty elimination in Bangladesh and, through replication, to other countries.

One of the new programs Grameen started in 2003 is the Struggling Members Program which targets providing credit to beggars who don’t qualify as Grameen regular [very poor] loan candidates. Essentially this is a social justice program which they are implementing as a result of their belief that credit is a human right.

Unlike their regular Grameen loans, they provide small (around $9) loans to beggars for which they pay no interest and for which the receiver negotiates a repayment schedule which works for them. They ask their current loan customer groups (very poor people, but ones who run a micro-enterprise of some sort) to support and coach the beggars towards creating some sort of income activity outside of begging. The beggars cannot use any money received from begging to pay off their loan. To top that off, they provide beggars with an identity badge with Grameen Bank’s logo on it to let people of the bank’s support behind them. Wow!!!

The Grameen Bank continues to lead the way in delivering credit to poor.

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Posted in beggars, grameen, microfinance, poverty