Industry Trends

What more can we learn?

April 9, 2012

Stanford Social Innovation Review posted a great article about the importance of data in the non-profit world, and how one specific organization, Data Without Borders (DWB) is making a difference.

DWB’s mission statement begins with the line, “Data Without Borders seeks to match non-profits in need of data analysis with freelance and pro bono data scientists who can work to help them with data collection, analysis, visualization, or decision support.”

A noble task indeed. Of the resources available to non-profits, data visualization and analysis is typically not at the top of their list. Non-profits are mainly concerned with looking for the next batch of funding, and working to drive impact true to their mission. Read more »

Are we disillusioned?

March 19, 2012

By Christopher Cuellar

As a new entrant into the social entrepreneurial world, I have encountered so many people using their skills for good, yet the data seems to be singing a different tune.

A recent article written on GOOD Environment asks, “Are Millennials less committed to the environment than Baby Boomers?” Author, Sarah Laskow, posits that traditional routes of service may be not resonating with the millennial generation due to a lack of faith in the results.

“We don’t want to get ‘involved in programs to clean up the environment,’ because we spent all of elementary school involved in programs hoping to save the rainforest, only to find out the rainforest is worse off than ever.”

So are we, as a generation, disillusioned? Have we seen way too many black and white commercials preaching doom about the ever-thinning ozone layer? Have too many major oil spills and nuclear scares shocked us into a state of inaction regarding the effects of our daily actions? Read more »

Introducing Microfinance Monday

January 30, 2012

By Christopher Cuellar

Today marks the last Monday of January and the first monthly Microfinance Monday on Rising Pyramid. Each last Monday of the month, we’ll take a look at the growth and trends emerging from the microfinance industry. We plan to offer a holistic and balanced look into an industry poised for a critical year. Enjoy!

Time for Microfinance to Retool

As venture capitalists maintain their distance from MFIs and large for-profit organizations continue to report poor results, it is clear that now is the lull in the industry lifecycle where MFIs must go back, retool, and change the way business is done while investors take a sideline role.

Microfinance’s reputation in the past few years alone has pushed the industry to its bounds and essentially made it too sexy too fast. The rewards and opportunities that microfinance presented were overblown from both the investor and consumer side. As bold MFIs drank the kool-aid, the IPOs began to trickle out, met with great surprise, trepidation, but spurred on by hopeful confidence. Read more »

Growing Pains in the Microfinance World

December 12, 2011

By Christopher Cuellar

The micofinance identity crisis continues.

Pressure from all ends of the value chain continues to mount, further tightening the vice on the future of microfinance. Vishal Mehta, Co-founder and Partner of Lok Capital recently summarized investor sentiment by saying that, “the sector is not at all attractive unlike a year ago.”

As Lok Capital, a venture capital firm with investments in MFIs, is raising their red flag, SKS Microfinance is raising the upper limit of Foreign Institutional Investment in orer to shore up a balance sheet that has taken a beating over the past year.

While an infusion of capital might provide shareholders with some temporary comfort, larger issues in desperate need of resolution loom in the near future.

Yaseen Anwar, Governor of the State Bank of Pakistan recently spoke at the 5th Pakistan Microfinance Country Forum about the future of microfinance in Pakistan. His speech, while in depth, seemed to highlight the needs of everything from regulation reform to alternative delivery channels to financil literacy courses.

Further, with the harsh government-imposed restrictions placed on micro loans in Andhra Pradesh, a recent report has shown that in the absense of proper micro loan availability, borrowers are turning to non-traditional methods for credit.

In 59% of the sessions, respondents unanimously said that they had taken loans from money lenders in the absence of MFI credit. Daily finance companies—informal money lending entities—were the preferred choice of borrowers in 29% of the sessions.

This sense of confusion and uncertainty from investors through to borrowers are major growing pains that will need resolution sooner rather than later. A majority of borrowers in Andhra Pradesh have even stated that they would be willing to “repay loans if MFIs can disburse fresh credit”.

Things are not all in a disarray, however. International standardized regulations appear to be heading the way of MFIs.

The International Finance Corporation (IFC), a member of the World Bank group, is working with other institutions to promote global standards for corporate governance. 30 development finance institutions (DFIs) have agreed to adopt a set of standards based in part of IFC’s Corporate Governance Methodology.

The longer that regulation and consumer protection continue to be issues that are unmet in the microfinance industry, investors will stay at bay. These growing pains, while not indicative of a troubled industry, must be addressed through a collaboration of international organizations, governmental regulators, and MFI information-sharing. While I believe the industry is on the right path, the time to act is now.

- Chris

A Microfinance Changing of the Guard

November 28, 2011

By Christopher Cuellar

When news broke of Vikram Akula’s resignation as Chairman of SKS Microfinance, it smacked eerily of the same style of resignation from Grameen Bank founder Muhammad Yunus.

Mr. Akula’s resignation comes at an interesting juncture for the publicly-young SKS. After making a splash with their decision to go ahead with an IPO, they had an equal and opposite reaction for their practices in Andhra Pradesh. The resulting effects have left SKS with a toxic portfolio and a battered image. Losses in their latest financial reports have done nothing to alleviate these growing concerns.

Rumors of clashes with the SKS board started swirling, and Mr. P H Ravikumar, Interim non-Executive Chairman, confirmed as much in an interview with The Economic Times. Mr. Ravikumar explains, “the board very clearly feels that we need to be a financial services inclusion company, of which microfinance will be a subset. That is an issue.” Read more »

True Change Takes Time

November 22, 2011

By Christopher Cuellar

A line that not only Americans heard over and over a little more than 3 years ago was, “Change We Can Believe In”. That slogan, emboldened into voters’ and non-voters’ minds helped to propel Barack Obama to victory as the President of the United States.

Now, with re-elections around the corner, the retort that is slyly thrown around is “What Change?” In the minds of some, things have gotten worse, not better, over the past 3 and a half years. Was Obama’s slogan misleading? False advertising? Possibly.

Change at a massive scale requires innovation, concessions, and most importantly – patience. Social Entrepreneurship is no different. Take microfinance for example. You’re creating a whole new financial market by opening the previously-shut gates to millions more consumers. This sort of a massive entry of consumers to a new market will inevitably lead to pushing its boundaries. Read more »

A Microfinance Identity Crisis

November 14, 2011

By Christopher Cuellar

In a recent interview with The Economic Times, Vinod Khosla, one of the early and large backers of SKS Microfinance, remarked that SKS “should present themselves as a business, and not as do-gooders.”

I fundamentally disagree at the notion that those are necessarily (or appear, in his statement) to be mutually exclusive.

For the sake of this article, let’s go ahead and assume that Mr. Khosla’s point is correct, and MFIs should operate solely as a business. What does this actually mean? Read more »

Microfinance at a Crossroads: Balancing Good Intentions with Critical Industry Structuring

September 29, 2011

By Christopher Cuellar

In the quest to reduce and eventually eliminate poverty, there exists no silver bullet. Poverty is a complex problem that requires the cooperative assistance of people from the top to the bottom of the economic pyramid. Economic stimulus through access to capital for microenterprise or personal use is one instrument that has experienced widespread accolades as well as criticism as it has grown in size and popularity.

Microcredit, or microfinance, more broadly, has taken the bottom-up approach of providing access to capital to those who previously did not have the opportunity. As microfinance has grown, its overlay between driving “real” impact using semi-traditional economic methods has made it the darling of social enterprise. Early successes and rapid growth have even inspired some Microfinance Institutions (MFIs) to go public. As access to capital became more widespread, perfect-storm-like conditions began forming in conjunction with a global recession. Repayment failure rates have started to rise, and areas like Andhra Pradesh have been saddled with accusations of corruption and abusive lending practices. Read more »

Stop and Think: Two social business campaigns that force you to wake up

September 26, 2011

By Christopher Cuellar

A little over a month ago, I received an email from Kushal Chakrabarti asking me to participate in Vittana’s newly launched campaign entitled, “What does education mean to you?” I clicked on the link and sat in front of a blank computer screen scratching my head.

I guess I had never stopped to think about it. I am very appreciative of my education – but why? It provided opportunities, allowed me to challenge myself, was a fun experience, and armed me with arguably the most powerful tool available to people in this world. Why did it take me a while to think of that? Read more »

Sweetening the pot for entrepreneurs

September 12, 2011

By Christopher Cuellar

One of the largest questions entering SOCAP this past week was how we can take the level of effort to the next level with regards to social entrepreneurship. The energy is there; success stories have been documented; the innovation is hot – so, now, how can we get large scale support for impact investing?

The U.S. Small Business Administration worked with over 1,000 entrepreneurs, investors and other participants to develop a comprehensive report for how to address barriers to entrepreneurship in the United States. The report focused on 5 key areas:

• People: identifying, hiring, retaining, and developing a strong entrepreneurial workforce in America
• Money: fostering an environment in which promising U.S. startups and high-growth firms can access the kinds of capital they need
• Ideas: transforming more of America’s discoveries and breakthroughs into commercial success
• Customers: ensuring that America’s small firms can compete for customers, including U.S. Government contracts and export business
• “Lean” Government: making the U.S. Government itself more

While the scope of this report focuses on entrepreneurship as a whole in the United States, there were two key ideas suggested in the “Money” section that caught my eye:

Perceived Barrier: There are limited sources of startup capital, which necessitates identifying and scaling alternative platforms. However, these platforms are constrained by the regulatory environment.

Participant Idea: Allow certain exemptions for crowdsourcing platforms. Some participants felt that startups that raise smaller amounts of capital through mechanisms such as crowdsourcing platforms (online tools to pool funds from disparate sources) should not face the same rules as large corporate institutions. In addition, each state regulates the offering and sale of securities through its unique blue sky laws. A few participants thought the Federal government could play a role in coordinating state blue sky laws to allow for greater regulatory flexibility for smaller companies and allow seamless fundraising across geographies.

Participant Idea: Support social enterprise. Individuals seeking capital for social enterprises, with the goal to do good while also building a profitable business, can face even greater hurdles than other entrepreneurs. A renewed push for the Social Impact bonds, currently in the marketplace in England, was encouraged by some participants. Alternatively, a hybrid tax structure falling between a pure non-profit and for-profit was championed by a few participants.

First of all, it is an awesome sign to see social enterprise included in the national agenda for entrepreneurship. It shows that not only are social entrepreneurs’ voices being heard, but their results are demanding changes to the system.

Second, this directly addresses comments from Antony Bugg-Levine around how the system currently is shaped: “Our legal and policy system currently frustrates impact investors who have to work around both charity rules and investing rules that largely assume for-profit investing cannot legitimately contribute to social good.”

As social enterprise continues to gain popularity, it is important not only to implement change at the internal level, but also at the infrastructure level. Continue to be change-makers.

- Chris