Microfinance Blog

As a part of Entrepreneurship Week, Stanford University hosted a panel discussion today on funding social businesses. The experts included Kiva co-founder Jessica Flannery and representatives from Ashoka, the Draper Richards Foundation, and BUILD.

Much of the advice they shared was not limited to social businesses; it could be used for anyone wanting to start something.

What do they look for in funding requests?

• Someone with all her “ducks in a row” - very organized, has specific goals, and knows potential partners
• Someone who knows the landscape of his field, both potential and competitive
• A good salesperson who can rally people around an idea
• A history of innovation and fixing problems
• Someone with a personal stake in changing something

What are some common mistakes social entrepreneurs make?

• Too many priorities (lack of focus)
• No life experience or personal connection to the problem

Advice for would-be social entrepreneurs

• Start doing what you love right now; follow what fascinates you
• Don’t plan, just start
• Get out and meet real people, get to know their stories
• Talk to anyone who can help you get started (easier than you may think)
• Know what you really need to get to the next stage (it may be cheaper than you expect)

We lost all our previous blog entries switching to a new server. I’ll try to manually re-post the most popular ones.

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After hearing Professor Yunus speak last week in San Francisco, I was eager to read his latest book, Creating a World Without Poverty. Today I finally had the opportunity to read it, and here are some of the best ideas (minus ones I mentioned earlier in the speech review):

* Win/win globalization needs controls to protect the small players. Government regulation alone cannot do this completely, politics often stands in the way of efficiency. Instead, we need change within the private sector.

* Grameen uses a variety of indecis to measure success, while many multi-lateral developmental organizations simply measure amount of money distributed. Social businesses must link success with results.

* Conventional businesses, even socially responsible ones, are not the total answer. Their first priority is producing profits for shareholders.

* Social business takes systems from profit-producing ones, but its main objective is delivering social benefits.

* Social business from an investor’s perspective
- Loaned (startup) money is paid back, but without dividends (interest, profit)
- Investors are philanthropists with a win/win outcome: their money back, plus ownership of the company
- Business profits stay in the business, rather than being paid out to shareholders
- The business spends time providing products and services to cover overhead costs, rather than fundraising
- For this reason it is self-sustaining, self-expanding, and self-perpetuating
- Social startups compete for investment based on efficiency and results

* There are two types of social business:
1. Ones providing social benefits
2. For-profit corporations owned by the poor

* Grameen uses a 10-point quality-of-life system for analyzing poverty, rather than the typical “X million people live on less than $X per day”.

* Microcredit promotes initiative and responsibility among the working poor, while charity defeats this.

Yunus provides a realistic, workable plan for sustainable poverty reduction through social business in this book. It is a must read for anyone interested in economic and social development.

Yesterday I had the opportunity to hear Mohammed Yunus speak to the Commonwealth Club in San Francisco. His talk promoted the concept of social business explained in his latest book, Creating A World Without Poverty. The main points were as follows.

Grameen Bank succeeded by abandoning the traditional banking model
* Traditional banks: the more you have, the more you get; Grameen: the less you have, the more you get
* Banks look at skills and experience in potential borrowers; Grameen looks at intent and ambition
* Banks are interested in your history; Grameen is interested in your future (a little cheesy, but seeking to improve the borrower’s wellbeing is important)

Other socially-oriented businesses can succeed this way as well
Traditionally, business success has been measured in profit only. Social businesses measure their success by number of people served.

Entrepreneurism is innate in all humans
Social business understands this, and uses the natural resourcefulness of the working poor to help them help themselves.

The poor have the same abilities as everyone else
However, they get trapped in a cycle of poverty, limited by banking and business structures that we have created. To break out of this cycle, we need to create new systems for them. (Example: abolish need for collateral and credit history to provide mini-loans to potential entrepreneurs needing capital)

Social business is the efficiency of capitalism with compassion of charity
Both are needed to survive. Without compassion, capitalism would consolidate all wealth into the hands of a few. Yet the competition under capitalism is needed to ensure efficiency and innovation.

Professor Yunus’ enthusiasm for his work is contagious. Already, he has inspired dozens of world-changing social entrepreneurs. (To learn more, check out How to Change the World by David Bornstein) His newest book will undoubtedly inspire many more.

To learn more about social business, I encourage you to read Professor Yunus’ latest work, Creating A World Without Poverty. I will be reviewing it here at the Microfinance Blog soon.

Lynne Patterson is co-founder of Pro Mujer, a New York-based microfinance organization with operations in 5 Latin American countries. To date, Pro Mujer has provided $327 million in microloans to 173,000 clients. In this interview, Lynne shares how she got started, challenges she faced, and trends she sees for the future.

1) In 1990 you moved from New York to Bolivia to train women in self sufficiency. What prompted you to go a step further and provide micro-loans?

Carmen and I are basically educators. We saw the group meetings as ideal vehicles for ongoing education and training in business skills and health that our clients need. Pro Mujer is a social support and educational system; many of the benefits to women are a result of working together to achieve their goals.

2) Aside from providing capital, does Pro Mujer take additional steps to assist these entrepreneurs in succeeding?

The women are required to attend training sessions before they receive a loan during which time they make simple business plans, i.e. calculate their expenses and estimate income and profits. This exercise helps them develop a more businesslike framework. All clients receive training in good health practices and we link them with health services. Their main asset is their health, so we focus on how they can prevent illness through primary health care for themselves and their families.

3) Since launching this program in Bolivia 17 years ago, you’ve expanded to Nicaragua, Peru, Mexico, and Argentina. Looking back, what has been the biggest challenge you have faced as an organization, and how did you overcome it?

One of the major challenges has been to run the organization as a business, not as a non-profit organization. Initially, we were very donor driven. Now we strive to satisfy our clients’ by providing the services they need in the most efficient way we can. The other major challenge for us has been to provide health education and health services along with financial services. We subsidize this component with retained income from financial services. The result has been we have grown less quickly than had we only offered financial services to clients, but we have certainly improved the health of our clients and their families and in some cases saved clients’ lives.

4) Over the past couple years we’ve seen the internet revolutionize the way individuals can participate in micro-lending through sites such as Kiva and MicroPlace. Does this represent any real change for you or the entrepreneurs receiving these loans?

I am sure we don’t begin to comprehend the implications of this revolution. I think it’s just wonderful that individuals can lend to our clients through Kiva and that investors can lend to us and other MFIs through MicroPlace. We want to take advantage of these kinds of internet opportunities that are making more resources available and at the same time lowering costs.

5) What do you see as the biggest opportunity for the microfinance industry in the next 5 years?

I see microfinance as a service delivery system not only for financial services but for health and education services that the poor need because they are not being provided by governments. There is no quick fix for poverty. It’s going to require a multi-sector effort to eliminate it, and microfinance institutions have the potential to partner with other organizations or to provide other services themselves.

Thanks, Lynne! To learn more about Pro Mujer, visit ProMujer.org.

MicroPlace’s website tells us how the organization was created:

When Tracey Pettengill Turner - a social entrepreneur and seasoned business executive - first heard of microfinance, she was inspired by the prospect of a solution to global poverty that mixed capitalism, human dignity, and old-fashioned hard work. Upon graduating from Stanford Business School, Tracey headed for Dhaka, Bangladesh to find out if the reality of microfinance lived up to her expectations. After working at the Nobel Peace Prize winning Grameen Bank for a few months, she was convinced that microfinance was a powerful tool to help alleviate poverty.

Upon her return, Tracey discovered that the capital markets in the United States were beginning to view microfinance as an attractive investment opportunity. However, only major financial players like institutional and high net worth investors could invest. An everyday investor like Tracey had no way to participate. That insight led to the vision of MicroPlace: a company that enables everyday people to make investments in microfinance.

When eBay executives heard about MicroPlace, they were excited by the synergies between eBay’s mission to provide economic opportunity and MicroPlace’s vision to empower the world’s working poor. They saw MicroPlace as an ideal opportunity to put eBay’s assets to work in a way that could be truly world-changing. Powered by eBay’s expertise in connecting people, creating marketplaces and processing online transactions, MicroPlace could deliver on its vision to significantly impact global poverty.

MicroPlace officially became part of eBay in the summer of 2006.

It is interesting to note that we are actually talking about investments with a financial return here. Security issuers sell securities on MicroPlace, and use the funds generated to invest in microfinance and support loans to lending organizations, who then use those funds to provide loans to microborrowers.

Recently, NextBillion blog analyzed the processes of MicroPlace and another provider of microfinancial services, Kiva and highlighted the differences between the two:

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First of all, Kiva is a non-profit. As Matt and Jessica Flannery have explained, it’s very difficult to become a SEC-registered broker/dealer - even more difficult when you’re running Kiva from your living room on the nights and weekends. (See pages 37-38 of the Innovations article for Matt’s take on this decision.) MicroPlace, on the other hand, had the institutional and financial backing of EBay, allowing it to go through the complex regulatory application process and to put up the necessary money for the SEC to sign off. Upshot: Kiva wanted to be for-profit, but had to stay a NGO because it was a regulatory nightmare to register with the SEC. As a result, lenders on Kiva only receive their loans back - without interest. MicroPlace, as a broker/dealer, can pay interest to lenders - thanks to its ability to navigate the aforementioned regulatory maze.

Secondly, MicroPlace adds a level of intermediation that Kiva doesn’t have. With Kiva, lenders provide capital to MFIs, who then lend to clients. MicroPlace is a market for microfinance securities, not just requests for loans. Sure, it takes away some of the intimacy, but for the microfinance industry, it’s a big step. Securitizing loans helps diversify risk, and allows microfinance investors to reach into the second and third tier MFIs that are having a hard time raising non-donor money.”

If your answer is yes to these three questions, then starting a blog would probably benefit your organization. To successfully launch your blog, follow this process:

Step 1: Select a publishing platform

Popular ones include:

• Wordpress (free)
• Blogger (free)
• Typepad ($4.95/month and up)

Step 2: Develop publishing systems

Many organizations with unsuccessful blogs fail to understand the significance of the endeavor. Under-committing resources to a blog will risk failure.

From the start, assign one person as blog manager. Establish a policy for your entries: will you post press releases only, or interviews and opinion pieces as well? Your answer will depend on the type of blog you intend to maintain.

Step 3: Promote your blog

Announce your new blog using existing methods of communicating with your support base, such as via an email newsletter. Link to the blog from your website. Notify the media with a press release.

Contact other bloggers that would be interested in your cause, and persuade them to review your blog and refer their readers to you. Comment on their blog entries, and establish yourself as an opinion leader. Trade links with similar sites.

Spread your reach by syndicating entries with RSS newsfeeds. This allows readers to view your content without actually visiting the site. It also could result in spreading your message far beyond the people that find your blog.

Integrate services such as Digg to harness the power of social networking. Many popular blogs have received thousands of new visitors through this method alone.

This case study is courtesy of Pro Mujer.

Name: Georgina Gutiérrez Luna
Age: 56 years
Children: 1 daughter – (Rebecca)
Hometown: Mixquiahuala (Hidalgo), Mexico
Started with Pro Mujer Mexico in October 2002, currently in 12th loan cycle - ($750 USD)
Business: Selling chicken

Georgina is a single mother living in rural Mexico. Although she was forced to drop out of school to help support her family, she is determined to make sure that her daughter Rebecca has the kind of opportunities that she herself never had. She is very proud of the fact that for the first time she is now able to earn enough money to ensure that Rebecca receives an education.

Before receiving her first loan from Pro Mujer Mexico (PMM), Georgina lived with her parents and made only enough money helping with her father’s business to buy food for herself and her daughter. One day a friends told her about the loans that Pro Mujer offers. After returning from an information meeting, she was convinced that this would be just the help she needed to invest in a business of her own and make enough money to support her family.

With her first loan, Georgina was able to buy chickens of her own and the materials she would need to feed and care for them. She sells the chickens for $1.70 per kilo and the average chicken weighs two kilos, an average sale of approximately $3.40 per chicken. After accounting for the cost to feed them, she estimates that she makes $2.00 in profit for each chicken that she sells. Her sales vary from day to day, on an average day she sells 15 chickens and on especially good days she can sell as many as 20.

Georgina has invested all the money from each of her PMM loans in her business which has allowed her to increase her profits and begin selling rabbits to supplement her income. She was able to buy rabbits and three cages with the money from one of her PMM loans. She makes approximately $1.00 per rabbit that she sells and the number that she sells varies greatly. Sometimes she is also able to sell the fur for $2.00 - $3.00 per rabbit.

An average day for her starts at 4:30 a.m. when she kills and cleans the chickens she plans to sell that day. Once she has finished, she takes her daughter to school and then returns to her house. She sends some of the chickens with her father to sell at a local market and then takes some around the neighborhood. The chickens that she doesn’t sell early in the morning, she sells from a small stand in front of her house. In the afternoons she picks up her daughter from school, returns to care for the animals and helps her mother prepare dinner for the family.

Georgina’s income has increased significantly since she started with Pro Mujer, and now she is able to support both herself and her daughter. She uses her profits to pay for her daughters’ school tuition, supplies and clothing. She is also able to contribute to other household expenses which relieves some of the financial burden from her parents. Georgina hopes to begin saving more with PMM and plans to use that money to help her daughter with college expenses.

She likes the training that Pro Mujer gives especially on topics such as self-esteem and dealing with family problems. These talks have made her think about a lot of things that no one ever spoke openly about before. This has allowed her to think about how she would handle different types of situations and she feels will allow her to give better direction to her daughter.

To learn more about Pro Mujer, visit promujer.org.

IFC and the Consultative Group to Assist the Poor, in collaboration with Visa International, recently held a global conference — Next Generation Access to Finance: Gaining Scale and Reducing Costs with Technology and Credit Scoring — that highlighted technologies used by the financial services industry, including microfinance organizations, to reduce costs and reach new customers. These technologies will enable financial institutions to serve poor people in remote areas and offer services not possible even a decade ago

Over 300 delegates from more than 60 countries heard global industry leaders give in-depth and critical analysis on technology use and credit reporting to increase access to finance. Other participants included regulators, representatives from the donor community, and global leaders in financial technology and credit information.

The event also gave a multisectoral, global view of credit scoring and mobile banking solutions and their potential for financial institutions.

“The lack of credit bureaus and limited use of state-of-the-art lending and delivery technologies are a major stumbling block in making access to credit more widely available in developing countries,” said Peer Stein, Head of IFC’s Financial Infrastructure and Institution Building unit. “This implies huge untapped opportunities for several emerging market nations, particularly in Sub-Saharan Africa, Asia, and the Middle East and North Africa, where access to finance is generally limited, and where microfinance is an important part of the credit economy.”
The conference also enabled lenders to assess different products and establish contacts with global providers of cutting-edge technologies attending the conference.

“Mobile phone banking and other emerging applications will revolutionize financial markets in rich and poor countries alike,” said Elizabeth Littlefield, CGAP’s Chief Executive Officer. “At long last, the cost reductions and increased reach made possible by such technologies should enable us to serve remote areas and poor people viably, offering services we never dreamt possible a decade ago. However, while customer acceptance is driving spectacular growth in applications like M-PESA in Kenya, or G-Cash in the Philippines, we still have a long way to go in adapting regulations, understanding customer needs, and designing customer-friendly products.”

John Elkins, Executive Vice President of Visa International said, “We believe that Visa’s payment solutions can increase the efficiencies of microfinance institutions, provide a secure way for clients to store and retrieve funds, and help bring the unbanked into the formal economy, allowing more productive use of capital, increased growth, and economic development.”

Learn more about the conference at www.financelearning.org/ngm2007.

Blogs present a tremendous promotional opportunity for microfinance organizations. When used correctly, a message can be spread effectively throughout a large number of people at a very low cost. The size of your budget no longer has to limit the number of people you can reach.But blogs are not for everyone. How do you know if you should maintain your own blog, or work with existing bloggers? This question can be answered by considering the following factors.

Do we have enough time?
Blogging is a low-cost, but highly time-consuming endeavor. While setup is quick, are you willing to commit resources to publish new information several times each week?

Can we publish enough original content?
The most effective blogs are ones that publish unique content instead of re-publishing news from others. Does your organization create enough news to keep the blog updated regularly? If not, are you willing to devote resources to generating new articles, interviews, and other content?

Would a blog add to our marketing toolbox?
To justify the time investment, you have to consider if blogging would bring something new to your marketing efforts. If you already have channels of communication established with supporters and the media, a blog may not be worth the investment.

Many organizations with unsuccessful blogs fail to understand the significance of the endeavor. Under-committing resources to a blog will risk failure.