Industry Trends

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

September 29, 2011
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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
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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

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

Embrace change – even bad change

August 29, 2011
By

I’ve spent a lot of time recently researching the changes in the microfinance industry at a deeper level. I began to read research reports from the early 2000s and even (way back) in the ’90s, and it’s fascinating how much ideas have grown and changed – while still maintaining the same theme: helping those who don’t have an opportunity.

From the time when Muhammad Yunus lent his first bit of money to the local entrepreneur to now – microfinance has taken quite a path. Reading a recent report from J.P. Morgan and Consultative Group to Assist the Poor (CGAP), it’s pretty impressive/interesting/confusing to read how institutionalized microfinance has become, and how the lines between traditional finance and microfinance are increasingly blurring.

Is this the state in which the pioneers of microfinance would have imagined in years later? At this point – it doesn’t matter. This is where we are. Take it or leave it.

If you’re the innovator behind an idea – what goal do you anticipate? Do you want your idea to scale and truly reach and impact the masses? If so, you’d better be okay with change occurring – change you cannot control.

As anyone taking an entrepreneurship class can tell you, if a good idea experiences success, there will likely be copy cats. Those competitors will put their own spin on the idea, and tweak it as they see fit. Iterations and iterations down the line, you’ll have a different animal – one that has grown and been shaped by the creative minds in the market.

In today’s rapid paced world, the examples of change are almost instantaneous. Embrace the daily change in the microfinance industry and if you’re concerned – do something about it. Take action and implement your own change.

- Chris

Troublesome Changes to the Micofinance Model in India

August 8, 2011
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In a time where uncertainty in the markets is at one of its most critical points, the ability pay back one’s debt has taken center stage. The national debt of the United States has been downgraded from AAA to AA+ by Standard & Poor’s. This morning it was announced that Fannie Mae and Freddie Mac have also been downgraded.

Meanwhile, in India, similar uncertainty exists about the future viability of the microfinance model. The Wall Street Journal recently published a piece on one of the changes being tested by BASIX, a self-defined “livelihood promotion institution”. The test means that “BASIX representatives will be dispensing bank loans, rather than BASIX taking credit from banks onto its books and then assuming responsibility for the loans it issues. The bank will be able to set the interest rate and will pay BASIX a fee for handling the loan.” Read more »

The Window or the Mirror: Where do you look?

July 18, 2011
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In Good to Great by Jim Collins, the pattern of “the window and the mirror” is introduced when talking about the leaders of companies that made the leap from “Good” to “Great”. According to the book,

Level 5 leaders look out the window to apportion credit to factors outside themselves when things go well (and if they cannot find a specific person or event to give credit to, they credit good luck). At the same time, they look in the mirror to apportion responsibility, never blaming bad luck when things go poorly.

While the context of Collins’ pertains to individual leadership qualities, when reading this, I immediately began thinking of social enterprises operating at the BoP. Companies like d.Light Design and Aravind Eye Care who knowingly jump into an industry where others have shown little improvement over the status quo, and seek to drive change, highlight the effect of looking in the mirror rather than the window.

There’s something to be said about focusing on your own organization rather than what the rest of the industry does. If you’re confident in your belief and your strategy, then let the market do its own thing. There is always room for internal improvement, and great companies start from their dedication and determination within.

It would be just as easy for Aravind, who performs low cost eye surgery in India, to cite the the tough market conditions of rising health care costs and helplessly jack up the price to their customer. Yet they have found a way to buck this trend and look at themselves for methods of improvement.

d.Light, with all of the many hurdles they have to cross in order to develop, produce, and distribute their products, is going against the grain of accepting industry constraints. They refuse to accept that due to the lack of technology, market strength, scale, and supply chain routes, they cannot compete. It is their desire to find a way where others have not that allows them to continue to grow.

Though these are only two small examples of social enterprises looking in the mirror, I see this as being a key concept that many social enterprises will need to face and overcome in their journeys. Do not accept pre-existing industry conditions as unchangeable; do not forget to look at yourselves for ways to improve; do not pass the buck – there is always a way.

- Chris

Define Your Own Success

May 23, 2011
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Here at Rising Pyramid, we have spent a lot of time discussing and advocating for the development and application of metrics.

Many of the metrics revolve around the concept of transparency and accurately reporting company status and progress. Including a standardized set of metrics will help to properly assess a company’s health and performance.

But what makes your specific organization a success or failure? Read more »

A Declaration of Ignorance

May 9, 2011
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As a consumer or investor, how comforted would you be if a company openly admitted they weren’t positive that their approach to serving you was the best one?

As consumers in the developed world, I’m sure many reactions would be neutral to negative. A typical response might sound something like, “My company should already know how to serve me. This is why I’m paying them for the product, right?”

When working at the Bottom of the Pyramid, paradigm shifts are a mental requirement, especially when dealing with consumer / market behavior. In today’s day and age, you can find consumer or market research (albeit at a price) on almost any sector in the developed world. Where there are traditional consumers, you can expect that at least some research has been completed. Read more »

A Critical Opportunity Lies Ahead

May 2, 2011
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As the news of Osama Bin Laden’s death ran across the bottom of the TV screen last night, I began to have flashbacks to when Saddam Hussein was captured. The United States and the rest of the world are at a critical juncture with the war on terror: their perception and reputation on the ground are yet again at stake.

Social Entrepreneurs (not to mention those working with NGOs and aid-based organizations) are a special breed of people who repeatedly place themselves in less than politically, socially and economically ideal situations. In an effort to drive the social change they believe in, they are willing (eager?) to understand and live in the same difficult (and at times, tumultuous) conditions as the constituents that they worth with.

In difficult geo-political times, ignorance and passion can lead to unnecessary violence directed towards innocent people. When global tensions rise, we must keep the people on the ground in the forefront of our minds. Instead of this event re-opening wounds, it should serve as an opportunity to strengthen ties with our global neighbors. Read more »

Celebrate our Failures

April 25, 2011
By

I read a line in a book recently that made me pause for a bit.

“Anything worth doing is worth failing at.”

I immediately began to think of organizations like Matchsavings.org and other social ventures that began with an idea and a dream, but for a laundry list of internal and external factors did not flourish. They believed so strongly in their idea and the impact it could have, and though it was not sustainable in the end, I don’t consider it a failure on many levels. Blazing the trail for others to follow and learn from is almost just as valuable as if they still existed today. Read more »

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