Posts Tagged ‘microfinance’

Questions about Unitus changes

August 11th, 2010

I wish I had posted this closer to the announcement date, but I still think this will be helpful for people who care deeply about Unitus and microfinance/poverty alleviation…

I am a board member of Unitus, a global poverty 501c3 charity which recently announced that it is redirecting its efforts from microfinance to new areas of reducing global poverty.  This came as a shock to many people who have valued the transformative work that Unitus has done to dramatically increase access to financial services for poor families.

False and Misleading Rumors

Unfortunately, false and misleading information about this announcement have become widespread.  This is very disheartening because:
(a) The significant positive impacts Unitus has made on behalf of the global poor have been largely ignored, and
(b) Concern that Unitus’ announcement indicates that microfinance no longer requires innovative philanthropic support.

In an attempt to correct some of these misconceptions, I have re-stated some of the most common questions that I’ve been asked along with my thoughts that I shared in conversations with multiple people:

Q: What is Unitus’ mission? Vision? Approach?

Unitus’ mission is to help eliminate global poverty.  Like Nobel Peace Prize laureate Muhammad Yunus has said, we want poverty to be something future generations can see only in museums. From the start, we have been agnostic about methods.  We are not about microcredit, profits, nonprofits, or any other methodology.  We have searched for highly leveraged ways that we might uniquely contribute to empowering millions of poor working families with the opportunity for economic self-reliance. We are strong believers in identifying and accelerating the activities and approaches that most effectively reduce poverty and empower the working poor. We see market systems and capitalism as powerful tools that can and should be harnessed to bring opportunity and sustainability and global impact.  We are committed to identifying high-impact projects with clearly defined and measurable goals.  When we determine our work is done with a particular job, we will declare that we are done, then exit and pursue other worthy projects.

Q: What did Unitus announce?

With approximately $50 billion of microfinance capital now available to more than 150 million of the world’s working poor — and a large and a growing community of philanthropic and (now primarily) commercial microfinance institutions serving this previously greatly underserved market — we feel the time is right for Unitus to seek out other transformative fields of endeavor. Accordingly, going forward Unitus will no longer initiate new microfinance partnerships. We will honor all existing obligations and commitments to existing MFI partners, then move on to new high-value activities. Consequently, Unitus will be downsizing its operations to a small team as we identify new transformative projects to reduce poverty.

Q: What project has Unitus completed?

Our first project was focused on attracting commercial capital into the microfinance sector.  When we first started on this project 10 years ago, almost all microfinance was funded by philanthropic capital.  Less than 10 percent of the working poor had access to microfinance and growth was slow due to capital constraints and lack of innovation.  Our vision was to identify entrepreneurs building the next generation of microfinance organizations in underserved and un-served markets and to support them in demonstrating the financial viability of commercial microfinance operations.  The results of our endeavors have been beyond our imagination when we started.  Our partners are now serving 12-plus million poor families, and represent some of the most innovative, efficient, fast-growing financial organizations on the planet.  And many of them are passing on those efficiencies by regularly reducing interest rates paid on microloans by the working poor to levels never seen before. A recent IDB survey reported that “profit-making MFIs (charge) lower interest rates [than non-profit MFIs].”  This is significant.

Therefore, Unitus is declaring “project accomplished” (which I think is a more accurate statement than the politically charged “mission accomplished” language.) We set out to accomplish a specific project — attracting commercial capital to the microfinance sector.  There was broad agreement amongst Unitus staff and board (although not unanimous) that we had reached our demonstration effect goal. We looked extensively at (and actually experimented in a few) other geographies where we thought our consultative approach to accelerating access to high-density microcredit might apply and we concluded that the right situations did not exist for Unitus to have further transformational impact.  Since our organization and structure was set up for this project, the board unanimously decided that the right decision was to: (a) wind down the existing microfinance accelerator organization; and (b) with a small team, begin new explorations for areas where we could start new projects that had similar transformative potential on global poverty.

Q: The announcement felt so abrupt. Why?

I think it felt abrupt because so many people care so much about Unitus and had expectations that Unitus had a long-term commitment to microfinance beyond our initial project commitment.  It also felt abrupt because Unitus announced we were downsizing our staff size not due to funding issues or staff performance issues or other more common reasons that charities reduce their expenses.  It also felt abrupt because Unitus staff members, with the board’s determination that the microfinance project was complete, were hard at work identifying new opportunities for Unitus projects. And it felt abrupt because the board chose to announce the changes soon after they were finalized, because we wanted to have sufficient resources to help impacted Unitus employees to find their next world-changing roles.

Q: Is innovative philanthropic capital still needed for microfinance?

Yes! There are many situations where there are still market failures or gaps in delivering financial services to poor families. In many cases, these will require strategically and innovatively targeted philanthropic resources to move things forward. There are also many good philanthropic microfinance organizations that have long-term commitments to improving the microfinance sector, so we believe there is greater need for our particular skills and contributions elsewhere.

Q: Will donations received before this announcement be allocated to microfinance or to new Unitus philanthropic activities?

All donations received prior to the announcement will by default be directed towards microfinance activities, including the completion of our existing microfinance commitments and the wind down of our microfinance operations.  For donors who wish for their monies to be allocated towards new Unitus philanthropic activities, we will provide a mechanism for doing this. To be clear, 100 percent of donations to Unitus are and will be used exclusively for philanthropic purposes.

Q: How much money does Unitus have remaining?

Until we finalize fulfillment of all of our existing microfinance commitments and obligations, we will not have an exact number. We are taking the approach of being generous to fulfill not only the letter, but also the spirit of our commitments wherever feasible. Also, as noted above, we still need to have conversations with donors who may want remaining portions of their donations allocated to new Unitus philanthropic activities.

Q: Will Unitus be able to properly invest donor monies with a smaller staff?

Yes. There will continue to be sufficient professional staff to effectively allocate and invest donor resources into projects approved by the Unitus board.

Q: Did Unitus time this announcement because of the upcoming public offering of SKS Microfinance?

Absolutely not. Our timing was based entirely on the factors I outlined above: our desire to make a transformative difference in other fields of poverty alleviation, and within the context of our existing microfinance commitments, to be the best possible stewards of the financial and other resources with which we have been entrusted.

Q: Why can’t Unitus talk more about its involvement with SKS Microfinance?

Under India law, Unitus is considered a “promoter” for the SKS Microfinance public offering, and is restricted from any public commentary about SKS Microfinance during the quiet period before and after the public offering.

Q: Did (or will) Unitus board members personally benefit from Unitus Equity Funds?

Absolutely not. Some Unitus board members did provide investment capital for Unitus Equity Funds (a separate commercial social venture fund setup in 2006). These investments either came through: (a) family/community foundations; or (b) personal investments with a commitment for all proceeds to be used for charitable purposes. So, 100 percent of any financial returns to board member-related investments are committed to further charitable activities.

Q: What are the new philanthropic projects/activities for Unitus 2.0?

There are many significant areas of market failure which deny the working poor the opportunity to thrive and reach their dreams and potential. Traditional international development approaches have continued to fail to deliver results. We are currently researching systems, approaches and strategies where we believe there is the potential for transformative impact to create large-scale, sustainable opportunities to reduce global poverty. We will be announcing more details soon.

Unitus has published a follow-up FAQ.

If there are additional questions in which you think a larger audience may be interested, please post in comments.

Updates:

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Portfolios of the Poor book review

February 21st, 2010

portfolios of the poorRecommended Reading

Portfolios of the Poor: How the World’s Poor Live on $2 a Day

by Collins, Morduch, Rutherford & Ruthven

This recently published book has got a lot of buzz amongst the microfinance industry as providing new insights into the actual financial activities of < $2/day (key UN definition of very poor) families.  The book includes the one-year financial “diaries” of 250 families living on $2/day in Bangladesh, India and South Africa painstakingly collected by researchers after building trust with families to share their daily financial transaction details.  These are summarized into cash flow and household “balance sheet” statements to analyze the fascinating volume and scale of financial transactions which these families  juggle in order to survive, and occasionally thrive.

There are a lot of good insights in this book and I recommend it for those who value data in order to design innovative and helpful financial services for base of the financial pyramid families.  Here are a few highlights I noted:

  • Every family had both loans and savings
  • Families accessed on average of 8-10 different financial instruments in the year
  • Cash flow turnover was up to 300-500% of total net income
  • Incomes are not just low, but also uneven and unpredictable … creating higher complexity to manage cash
  • Families often borrow even when they have savings
  • It is not uncommon for savers to pay interest/fees rather than receive them to those holding their savings
  • Moneylenders are often used for short-term loans … interest paid perceived as a convenience fee rather than interest rate
  • Flexibility/adaptability is a critical factor when the poor select financial services
  • Financial transactions outside the formal financial system (including MFIs) greatly outnumber those with MFIs
  • The downsides of informal financial transactions:  unreliability, lack of privacy, lack of transparency

Poor households would benefit greatly from reliable, convenient, reasonably pricing “formal” financial tools to help with:

  • daily cash flow management
  • savings (for long-term needs)
  • borrowing for flexible uses

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What poor people really want

October 23rd, 2009

Vanuatu-BoyBjorn Lomborg of the Copenhagen Consensus (see my previous post on Priorities for helping the world’s poor), posted an OpEd in today’s WSJ entitled “The View from Vanuatu on Climate Change“.  Vanuatu politicians have been some of the most vocal proponents of carbon cuts to prevent global warming destructive impacts on his country.

Rather than theorizing a lot about what the poor really want (which is essentially the approach of the Copenhagen Consensus), he decided to visit the tiny island nation of Vanuatu and ask some locals about how they would prioritize things.

Here’s what one woman said: “Having a boat in the village to use for fishing, transporting goods to sell, and to get to hospital in emergencies.  She doesn’t want more aid money because ‘there is too much corruption in the government and it goes in people’s pockets,’ but she would like microfinance schemes instead. ‘Give money directly to the people for businesses so we can support ourselves without having to rely on government.’”

I won’t comment here on the extreme disconnect between her country’s president and her situation.

Microfinance is very effective in getting cash to the poor

One of the lesser told benefits of microfinance is that money actually does get into the hands of the poor.  Every penny of every $50 loan is accounted for in financial records which are then audited regularly.  Every borrower has a pass book which details what they’ve received and paid.  And I know from first hand experience that even illiterate borrowers understand very clearly exactly what they’ve received, paid back and their outstanding balances.  It is much more difficult for governments and other middlemen to get in between the transactions and fraudulently steal money designated for the poor like what happens in most other charitable schemes.

As Mother Teresa would say (in paraphrase), “We talk a lot about the poor when we need to be talking to the poor.”

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Creating a World Without Poverty book review

January 29th, 2008

Creating a World Without Poverty: How Social Businesses Can Transform Our Lives
by Muhammad Yunus

Muhammad Yunus, 2006 Nobel Peace Prize recipient, has recently released his second book, Creating a World Without Poverty. The centerpiece of this book is Yunus proposal for a new kind of institution called a “social business” which is a for-profit business which has as its top objective a social objective/mission. Yunus makes a passionate argument for the benefit and role of social businesses in helping us move extreme poverty to museums.

I have written a fair amount on Muhammad Yunus, Nobel Peace Prize winner and his first book, Banker to the Poor on my blog. Yunus is an incredible innovator and one of my current day heroes who has made a huge impact on addressing global poverty. So, I was eager to read his new (and second) book.

While I do recommend reading this book, I would call this less of a book and more of a collection of stories and speeches on topics with a little more detail thrown in than a speech generally allows. So, don’t be expecting something “integrated”, but a bunch of Yunus’ current thinking and favorite topics.

Social Business. The centerpiece of this book is Yunus’ concept of a social business. His argument is that humans are actually interested in more than self-interest … they are also interested in helping others. Traditionally, there are 3 primary organization types: (i) for-profit businesses; (ii) non-profits/NGOs and (iii) government. He is proposing the need (and opportunity) to launch a new entity, a social business, to serve the needs of the world’s poorest citizens.

Yunus has a rather specific and narrow definition of the term/concept of a “social business.” Yunus defines two kinds of social businesses: (a) a business which is owned by the poor; and (b) a business where investors are only allowed to receive back their capital invested (that is, no additional return whatsoever.) He primarily focuses on (b) where the primary objective of a social business is a specific social objective plus it must be self-sustaining (i.e. generate financial surplus) in order to provide on-going and growing fulfillment of its social mission. Type (a) social businesses can be pure profit-making machines with the benefit to the poor provided through the profit surplus. Or social businesses could be both type (a) and (b) like Grameen Bank.

Yunus sees no room for businesses with owners/investors (other than poor people) which earn a profit (he calls them profit-maximizing) calling themselves social businesses or having any long-term potential for delivering much social benefit to the poor. He believes that the profit motive will always win-out and these hybrids will ultimately not serve the poor. He also assesses other examples of organization formats to help the poor including coops and NGOs. [See separate response to Yunus' social business concept.]

Social Entrepreneurs. Yunus defines social businesses as a subset of the larger social entrepreneur segment. That is, all social business operators are social entrepreneurs, but not all social entrepreneurs run social businesses. That is, what they do is either not run as a for-profit/sustaining business and/or it doesn’t meet his criteria for a social business per above.

The Grameen Bank Story. There is a whole section/long chapter dedicated to succinctly telling the story of the Grameen Bank. For those of you who who haven’t read Banker to Poor, this hits many of the story high points (and some later additional points) in much fewer words.

Grameen Companies. Yunus provides one of the first overviews (that I’ve seen) of the 24 (!) companies/entities that Grameen Bank has launched in the last 25 years. He describes what they are doing and identifies some as successful and others as work-in-progress. All of them are intended to help the poor in Bangladesh with just one, Grameen Trust, which is seeking to help the poor outside Bangladesh today.

The Grameen Danone Story. Yunus tells in detail the story of how the new Grameen Danone venture in Bangladesh transpired. [I wrote about it here a while ago and got it mostly right ;-)] This is Yunus’ posterchild example of a social business (except it does pay 1% dividends). It is a very compelling and interesting story of how Danone, the world’s largest yogurt company created a new JV with Grameen in Bangladesh to deliver nutritious food products to the poor of Bangladesh. Their first product is a tasty, healthy yogurt product aimed at children which is priced right and is run as a business. Grameen Bank borrowers provide the milk through the cows they have financed. Danone designed a new micro-yogurt factory that supplies a local area and is sold door-to-door by women entrepreneurs from Grameen Bank in their villages. This is a great example of a social business.

The Poor Lack Capital. Yunus has a strong belief that the first place to start with helping the poor is to provide capital. He argues that at the core of poverty is that the poor lack capital so “the poor work for the benefit of someone else who controls the capital.” He says that “poverty arises from the fact that they cannot retain the genuine results of their labor”, so “the poor work for the benefit of someone else who controls the capital.” Sounds like Marx, huh? Yunus is very much a democracy advocate and capitalist though and encourages a business (not socialist) approach to addressing poverty. In fact, he is quite negative about the ability of non-profits/NGOs and government to provide much help to the poor without the contribution of business.

Microcredit Interest Rates. Yunus has a very simple test for whether interest rates charged for microcredit are fair. He grades interest rates that are up to 10% above cost of funds as “green” (best), 10-15% above as “yellow” (warning) and >15% as “red” (he calls them “moneylenders”). He then has a few footnotes which admit that there should be some exceptions. While I agree that philosophically that there should be more transparency and accompanying scrutiny on interest rates charged by MFIs, his formula is very centric on Bangladesh and other like countries like India and are not reflective of the realities of the cost of doing business in most other emerging market countries. So, unfortunately, I think his test is more the exception than the rule.

International Capital for Microfinance. Curious to me, Yunus picks a fight and argues that international/foreign equity and debt capital for bad for MFIs. Some of this comes from his perspective that these investors have for-profit objectives (counter to his social business criteria) and some from the additional cost due to currency risk issues. He argues for national, subsidized megafunds to provide the capital to MFIs along with urging governments to authorize MFIs to collect and then re-lend savings (currently prohibited in most countries with Bangladesh being a notable exception.) I think his first point is too restrictive as there just isn’t enough subsidized capital to go around. I am fully in support of his second point on savings and think that this would be a huge benefit to the poor.

Technology for the Poor. Yunus is a big proponent of the power of technology to transform and uplift the poor. Grameen Bank has launched companies which have brought cell phones and internet services to villages across Bangladesh. And yes, the poor have very productive means of taking advantage of these services. He encourages the development of new technologies which are targeted at the poor. Probably his most interesting idea is a handheld device which provides simultaneous translation so the poor can more easily communicate with the globally important economic languages.

So, quite a bit to chew on from an economist from Bangladesh!
UPDATE: Here is Grameen Foundation’s blog on this book

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The Poor Always Pay Back book review

November 17th, 2007

The Poor Always Pay Back: The Grameen II Story

by Asif Dowla and Dipal Barua

If anyone is interested in seeing inside one of the world’s most innovative microfinance organizations, this is a fantastic documentary of the huge transformation that Grameen Bank (founded by Muhammad Yunus) … 2006 Nobel Peace Prize winners … went through over the last few years to deliver “version 2″ of the Grameen approach to microfinance.

This book is written by practitioners for practitioners. So, there are lots of details, examples, explanations and market research data presented … including some which is not all that positive (e.g. that borrowers don’t uniformly increase sending their daughters to school). This book is a must read if you’re in the microfinance field and want to see how the next generation of microfinance is being rolled out.

The book starts off with a detailed review of the first generation of the Grameen methodology now called “Grameen I” or Grameen Classic. It explains the issues/challenges faced with the Grameen Bank using this model and how many of the learnings from their approach naturally drove them to adapt for an improved model. Then it describes the new Grameen II model in detail including the open-access savings, flexible loan products, a range of deposit products, self-reliance at the branch level, no need to access donor funds, their ability to keep interest rates very low, insurance products, pension products, education loans, elimination of group loan guarantees and more.

There is also a very good chapter on how Grameen Bank is intentionally starting to serve the poorest of the poor who are generally not serviced by microfinance because they are often surviving through begging. Grameen’s beggar’s program is built into the core of staff incentives to ensure that no one is being left out of access to financial services.

My only critique of the book is that it is a bit dry. You need to approach this more as a textbook and research document. I’m glad that the authors and others involved took the time to write this up to give us an indepth look at the Grameen story!

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Banker to the Poor book review

August 21st, 2005

bankerBanker to the Poor: Micro-Lending and the Battle Against World Poverty

by Muhammad Yunus

Yunus is probably the most well-known microfinance practitioner having started The Grameen Bank in Bangladesh in the 1970’s and led it ever since to its current state where it serves millions of micro-entrepreneurial women across Bangladesh and, through replication, in many other countries. Yunus is very much a practitioner, a continuing innovator and activist for practical solutions to putting poverty to where it belongs … a museum.

This is his first book which tells the story of birth of the Grameen Bank up until mid 2000’s.  If you want more up-to-date writings on Grameen Bank, I recommend:

Related Posts:

Grameen update
Grameen and Yunus win Nobel Peace Prize
Grameen now lends to beggars
Yunus: Statesman for the poor
Yunus bio

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Give Us Credit book review

August 19th, 2005

giveuscreditGive Us Credit: How Muhammad Yunus’s Micro-Lending Revolution is Empowering Women from Bangladesh to Chicago

by Alex Counts

Counts heads up Grameen Foundation USA, the non-profit extension of The Grameen Bank – one of the first, large-scale successful microfinance banks based in Bangladesh. Counts shares the story of The Grameen Bank from its early inception in Bangladesh to where it is today. In parallel, he tells the story of an attempt of another NGO helping micro-entrepreneurial women in South Chicago with micro-loans.

Related Posts with Thumbnails

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