Debating the Merits of For-Profit Microfinance

Alex Counts, president, CEO and founder of Grameen Foundation, recently faced Vikram Akula, chair and founder of SKS, the largest microfinance institution (MFI) in India, in an Oxford-style debate at the Asia Society in New York City. SKS went public this summer in a hugely successful IPO (becoming only the third MFI to do so), but – like other for-profit MFIs in the area – has recently been caught up in controversy surrounding allegedly questionable lending and collection practices in the south of the subcontinent, most notably in Andhra Pradesh.

The two discussed whether or not SKS’s for-profit approach to microfinance represents an ideal model for the poor worldwide. Whatever your point of view on this question (you can see the debate in its entirety on the Asia Society website), attendees uniformly agreed that the debate was respectful and substantive, delving into issues that will affect the field of microfinance for years to come.  Alex discusses his impressions of the debate below.

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Preparing to debate Vikram Akula on whether SKS’s strategy represents an “ideal” approach for the world’s poor was quite something!  I read reams of reports on SKS, its founder, and the many achievements of – and worrying developments in – the Indian microfinance sector. Certainly I came across a lot of overheated rhetoric, and I wanted to bring a rational approach and respectful demeanor to the encounter. I also wanted to reflect the seriousness of what was at stake. It is hardly an exaggeration to say that the forces unleashed by SKS’s growth, profits, and IPO have put the Indian microfinance sector, and the tens of millions of poor who are benefiting as well as those who could in the future, on the brink of unprecedented achievements – and, paradoxically, on the verge of collapse.

Vikram Akula (left), chair and founder of SKS, makes a point while debate moderator Niki Armacost, co-founder of Arc Finance, and Alex Counts, president, CEO and founder of Grameen Foundation, take notes. (Image courtesy of Brian Gately – click photo to enlarge.)

All my reading and thinking did not prepare me for learning, less than 12 hours before we were to “face off” at the Asia Society, that Vikram was … in India! He said he would try to participate by video conference, and surprisingly, having him participate remotely worked reasonably well. Still, I was nervous enough to open my rebuttal to his compelling opening statement with a mistaken reference to the host organization as the “Asia Foundation.”  Oops!

Once the debate got rolling, the give-and-take in terms of ideas, principles and facts was energizing – for the two of us, for the moderator, and for the crowd in the room (and, hopefully, those tuning in via the Internet as well). Early on I learned something – that SKS had undergone an external impact study that I was not familiar with. During the reception afterwards, someone mentioned that this was done in 2001. If true – I have asked Vikram to send me the study – it suggests that it may not be that relevant to SKS’s success these days, but it is worth looking at nonetheless.

I felt that my strongest points were about the importance of ensuring that MFIs commit to a “social bottom line,” and that they demonstrate their social performance through validation by external tools, such as the Progress out of Poverty Index. I also emphasized placing what I termed “reasonable limits” on private benefit for those non-poor people who were involved in MFIs like SKS (mainly staff and investors), and how this opened up political space for microfinance. I thought Vikram made many strong points as well. I was heartened to learn during the reception after the debate that several people were “won over” by my arguments (probably some were by Vikram as well). I found it helpful to reference the strategies and decisions of the Grameen Bank when describing an alternative to SKS’s approach.

The video of the debate is apparently circulating widely on the Internet – it might be an exaggeration to say that it has “gone viral” but I am definitely getting a lot of feedback. We are considering making a transcript and also proposing a rematch, maybe in India. Stay tuned!

Cultivating Leaders & Empowering Organizations

Stephanie Denzer is Program Associate for Grameen Foundation’s Human Capital Center (HCC). This is her first blog post from a recent trip to Peru where she participated in a Human Capital Management Assessment of a Microfinance Institution (MFI) in the process of transforming into a regulated institution.

 

Human Capital Center (HCC) team with the Loan Officers from Microfinanzas Prisma

 

On a day when the humidity made it clear that rain was imminent, in the rear of a small branch office in Aguaytía, a rural town in Peru’s Amazon, we spoke with John, a branch manager for Microfinanzas Prisma, about a concept that would be just as familiar in an air-conditioned high rise of corporate America – the importance of having an inspiring mentor as a supervisor. John told us about how his former boss, the previous branch manager, had cultivated a group of highly dedicated and engaged loan officers by constantly discussing their performance with them and making sure they had the necessary support to accomplish their daily work. Now that he has been promoted to this same position, he works hard to maintain the team camaraderie his predecessor built and ensures that each loan officer receives special recognition when going the extra mile to support the branch office’s goals.

I was in Peru to assist with the implementation of Grameen Foundation’s Human Capital Management Assessment tool, intended to be the starting point for aligning an organization’s human capital management practices (leadership, culture, talent acquisition, learning & development, rewards/recognition, etc.) with its overall business strategy. We believe that MFIs who are smart about managing their human capital will be more successful in achieving growth, maximizing the value of their workforce, and ultimately, reach greater numbers of the world’s poorest people.

Story from the Field: Fortune Lost to Rats

Julius Matovu and Olga Morawczynski work on Grameen Foundation’s financial literacy initiative in Uganda.

Muhereza holds bag filled with money shredded by rats

Muhereza Kabaramagi lives in Katooke village, Kyenjojo district in Western Uganda; where she is a second-hand-clothes trader in the weekly mobile markets that take place around Kyenjojo district. She has been doing this work for the last 15 years.

She doesn’t have a bank account for two reasons: She lacks familiarity with how a bank operates, and the nearest bank to her village is 30 km away. The cost to travel from Katooke to Kyenjojo, where the bank is located, is 8,000 Ugx (US$4), which is more than she afford, given that she sometimes earns less than that in a week. So Muhereza decided to save her money in a secret place — a small handbag at home. She has been keeping money like this for the last 15 years.

Two months ago, business was not doing well for Muhereza. It was low season for the farmers who buy most the second-hand clothes that she sells. She decided to dip into her savings, which had accumulated to about 350,000 Ugx (US $150). But after digging out the handbag from a secret place in her bedroom, Muhereza made a startling discovery — her fortune had been shredded to tiny pieces by rats!

Muhereza was devastated but continued to save cash at home, keeping it in an impenetrable box. This was the best option for her, she explained to us, because the bank was too far from her village and the transport costs would quickly wipe out her small savings. But when we told her that there was a Mobile Money agent about 100 meters away from her home, Muhereza signed up as a customer to send and receive money.

Grameen Foundation’s Mobile Money program, which connects the poor to traditional financial services through mobile-phone technology, has a vital place in any solution that aims to mobilize the savings of the poor. There are already five times more mobile money agents than bank branches in rural areas of Uganda. Many of these are located in places where banks find it expensive to operate. Mobile Money is well-positioned to capture the billions of shillings that are stored in purses, under mattresses, and in impenetrable boxes. It is also well-positioned to link the poor to the formal financial sector by enabling these people to transfer money electronically to faraway bank branches affordably. This would radically reduce the transaction costs associated with banking and enable individuals to put away cash more frequently.

It is vitally important that solutions like this become more widespread in the developing world. Good savings practices can help the poor deal with unexpected financial difficulties (healthcare challenges, fluctuations in income, etc.), and such practices can best be enhanced when the poor have easy access to affordable financial services.

A Day in the Life of a Community Knowledge Worker (CKW): Part 2

This is part two of of a two part blog series. If you haven’t yet, we recommend you read Part One of his blog post series. In part 2, Jason Hahn describes his day with Esther, a kind-hearted Community Knowledge Worker (CKW), as she asks farmers to register for the CKW program, where they will be able to use smartphones to access CKW Search to access information about the current market prices for crops as well as ask questions about best farming practices.

After setting up my tent in her well-kept yard, I headed out with Esther on her afternoon round to register farmers for the Community Knowledge Worker (CKW) program. Registering farmers allows us to track how frequently they use our services and see if they change their farming practices based on the information we provide. Part of the registration also involves conducting a baseline poverty survey. We can use the baseline data to see whether or not farmers we are working with are moving out of poverty.

 

Jason Hahn’s tent in Esther's yard

 

After a few registrations, it quickly became apparent why Esther’s community chose her to be a CKW. She gave advice and solicited information in a very friendly manner and it was clear she had a good rapport with her fellow villagers. It would be easy to see her on the city council in a small American town.

Jane Kapsandi was the first woman that we called on. We found her outside her house made of mud bricks and a tin roof. Using CKW Search, a program on Esther’s phone, Esther answered Jane’s question about what foods will help her cow give good milk. Jane was happy with the advice and agreed to be registered for the CKW program. Chatting with Esther after our visit to Jane, she told me that the easy access to information the phone provides was a real improvement on other sources of information. Before, they would have to wait for an infrequent visit from an agricultural extension agent. Now, they have real-time access to a large body of useful information.

After leaving Jane, we walked along a footpath through a field interspersed with banana and coffee plants to call on Godfrey Mwanga. After registering Godfrey for the program, Esther answered his questions about coffee rust disease. This disease, which appeared endemic in Kewel, markedly diminishes the harvest from a coffee plant. Again using CKW Search, Esther told Godfrey that to cure the disease, the coffee plant can be sprayed with a copper based fungicide. As coffee is one of the chief cash crops of this region, information on protecting the plants is very useful.

 

600 shilling container of coffee

 

During my two days in Kewel, I learned a great deal about coffee, including seeing it for the first time on the branch and watching traditional coffee roasting. What I found amazing was the difference in price between what raw coffee costs, 600 shillings or .30 cents for an amount that would fill a large yogurt tub, and the $3.50 a latte sets me back in Seattle. As the CKW program grows, we will introduce new software and partnerships to enable farmers to capture more of the value of their goods. Learning the price of coffee here brought the reasons we are doing this into sharp focus for me.

 

Jason Hahn picking coffee in Kewel

 

As we moved from house to house, I asked Esther how she found using the smartphone. She told me it was a useful but she had recently been asked by the program managers in Kampala to update the software on her phone, but did not know how. When Edward, our field officer, came back the next day, I asked him to update her software. I took the need for automatic updates back to our tech team to look at. By constantly examining how we best serve our end-users, CKWs and their farmer neighbors, we are improving the services that we offer.

While I left Kewel tired in body, as those roosters sure do start crowing early, I was energized about the work we are doing. Easy access to actionable agricultural information can change the life of a farmer. While we have a great deal to learn as we deliver it, I am convinced the CKW program is a viable way to bridge “the last mile” of providing that information to rural farmers living at the base of the poverty pyramid.

A Day in the Life of a Community Knowledge Worker (CKW): Part 1

Jason Hahn describes his initial impressions of Uganda upon his return to the United States. Jason is the Information and Communication Technology Innovation (ICTI) Development Manager at Grameen Foundation. The ICTI team develops, tests and advances mobile phone products and services in Uganda, Indonesia, and Ghana to improve health care, farming, banking, and more. This is the first part of a two-part blog series on “A Day in the Life of a Community Knowledge Worker”

On the Way to Kapchorwa

I recently returned to Seattle from visiting our Community Knowledge Worker (CKW) program in Uganda. This program is building a network of trusted information providers, called Community Knowledge Workers (CKWs), throughout rural Uganda who use smart phones to deliver agricultural information to farmers in their villages. While I was familiar with the program from PowerPoint, meetings, and reading reports, I did not have a first hand appreciation for the work of a CKW. From my time as a Peace Corps volunteer, I knew there could be a big difference between what Headquarters thought was happening and what was really happening at the grassroots level. To see for myself, I headed out to the village of Kewel in the Kapchorwa region of Eastern Uganda to spend two days with Esther Kibet, one of our CKWs. While there, I experienced first hand the positive effects the CKW program was having and also saw a few different ways we can improve.

Esther Looks Up Information Using CKW Search

As we approached Kewel, we began rising into the foothills of Mt. Elgon, one of Uganda’s highest mountains. It was picturesque to see these hills, with the tops hidden in fog, rise from the plains as we approached. The cooler climate makes this location ideal for growing coffee, as I soon discovered. After picking up Edward Chelangat, our hard working field officer in Kapchorwa town, we headed to Kewel where I was warmly welcomed by Esther. The Kapchorwa region is known as the land of friendly people, and Esther certainly embodied that charisma. Kewel, a very small village, is located on a dirt road several kilometers off the main road, which runs through the region. It is a village of hard working farmers who are growing, among other things, the coffee that many of us enjoy on a daily basis.

Be sure to read Part 2 of “A Day In the life of a Community Knowledge Worker.” Jason explains further how cell phones are empowering farmers in rural Uganda.

“Bridging” the Last Mile

Jason Hahn is the Information and Communication Technology Innovation (ICTI) Development Manager at Grameen Foundation.

Grameen Foundation’s Community Knowledge Worker (CKW) program, based in Uganda, is dedicated to bringing life-changing information to farmers. Through a network of CKWs empowered with mobile-phone technology, we provide tips to farmers on preventing crop disease, raising livestock, and getting the best prices for their goods.

 

The recruitment team crossing a river after the team ran into a washed-out bridge

 

Grameen Foundation’s Community Knowledge Worker (CKW) program, based in Uganda, is dedicated to bringing life-changing information to farmers.  Through a network of CKWs empowered with mobile-phone technology, we provide tips to farmers on preventing crop disease, raising livestock, and getting the best prices for their goods.

As we roll out this network of CKWs across rural Uganda we’re looking for farmers in the most rural and difficult-to-reach corners of Uganda, to ensure that information is available to everyone, not just those close to a road or in a populated area.  Sometimes that requires taking extreme measures – sometimes it even requires crossing a river swollen with rainwater.

Recently, our team ran into a washed-out bridge when recruiting new CKWs in the Okidi region of Northern Uganda, not far from the border of Sudan. Without hesitating, they jumped into a boat to get across the river and recruit on the other side. In the words of Simon Okut, one of the members of the team, “Not even the washed-away bridges will stop Grameen Foundation from reaching our target communities. In this photo, the recruitment team is getting on a boat to cross to Okidi parish in Atiak sub-county, which hasn’t accessed services for a while due to collapsed bridge. Bravo GF!”

Grameen Foundation and Qualcomm Partner to Empower Indonesian Communities

Sean DeWitt is a Technical Program Manager for  Grameen Foundation’s Village Phone initiative to empower Indonesian communities through technology. On Friday, October 29 at 12pm ET, Sean will be hosting a webinar detailing our Village Phone work in Indonesia. Register Now!

For millions of people living on less than $2 a day, affordable and reliable access to phone services rarely exists.  In these rural communities, people are often forced to travel great distances to make a phone call.

In August 2009, Grameen Foundation and Qualcomm Wireless Reach joined forces by launching a collaborative Village Phone initiative in Indonesia, which supports a social enterprise called RUMA.  Created by two consultants, Aldi Haryopratomo and Budiman Wikarsa, RUMA (an acronym meaning “your micro-business partner”) supplies pre-paid telephone air minutes in small amounts at a discounted price through a network of businesses run by the poorest of the poor.  Through this initiative, RUMA has helped more than 4,500 entrepreneurs serve more than 300,000 customers in their communities.

Working at small grocery store and motorbike repair shop, Cindy and her husband were unable to afford their daughter’s school fees.  One day, an employee of RUMA asked Cindy if she would like to add a phone airtime service at her grocery store.  Thanks to RUMA’s coaching and training, Cindy has expanded her business and is building a future for her family.  She has paid for her daughter’s books, uniforms, and enrollment fees for the school year.  Cindy can even afford to give her daughter lunch money every day!

Similarly, Alkhomah and her husband were struggling to survive.  Her husband is a security guard and they both run a small shop out of their simple row house.   With a hardworking attitude, the couple works each day to provide food and shelter for their children and pay for their educations.  A RUMA employee offered Alkhomah a chance to run a business selling phone air time.  With money she and her husband make selling phone airtime, they now earn enough to pay for their children’s education fees with cash instead of paying on credit.

Grameen Foundation and Qualcomm are honored to be among the finalists in the US Chamber of Commerce’s Business Civic Leadership Center’s Partnership Award. We need your vote today to support this project empowering women like Cindy and Alkhomah. You can vote once per email address, so we invite you to Vote Today and spread the word!

Watch a video with details on this exciting initiative.

Story from the Field: The Ugandan Millionaire

Ishita Ghosh is  Research Lead on Grameen Foundation’s  Financial Literacy Project.

Out in the field when we ask people what the biggest impediment to saving is, the common refrain is that they don’t make enough money to save. It remains a popular perception that only the rich can afford to put money aside regularly and watch their wealth grow. Smaller-denomination currency is more often than not discarded as being of too small a value to ever add up to anything significant.

Out in Kyegegwa, about 100 kilometers from Fort Portal in Western Uganda, we met a man who proved us wrong. This man owned a small shop that dealt in food items, imperishable items and hardware, amongst other knick-knacks. When we approached him to open up a PostBank (a socially-concious bank reaching customers in rural areas) account, he jumped at the idea almost immediately. The accessibility that the mobile PostBank van offered him was invaluable, because he spent much time and effort to travel to his bank, which was at least 40 kilometers away.

When he brought us his savings to deposit, it was in a dirty, bulky cement sack that held a number of black polythene packets all neatly tied up. Within the packets were bundles of coins –  loose change that his customers had handed over to him.  In just over six months, the shopkeeper had managed to save 2.1 million Ugandan shillings (around $950) using this method.

When I went to interview this shopkeeper with the amazing story, I discovered that he had some very sound savings principles. He understood that even small amounts put aside regularly could accumulate over time into significant savings. This is the first tenet of good savings behavior – start putting away some money regularly, even if it is a very small amount. You will be surprised how it adds up over time.

The shopkeeper was also an organized saver. Every black polythene packet had a small piece of paper that mentioned the date and exact amount in that packet – a meticulous method of tracking his savings. But the most amazing part of the story was how the shopkeeper decided to save the notes or coins that came into his hands on a daily basis – to re-invest the larger value notes into his small business and expand it, while putting the coins away as savings.

The decision to save in coins also was a pragmatic one, linked to the shopkeeper’s desire to protect his savings. The coins made the sack with his savings very heavy, an instant deterrent for thieves who would try to haul the sack away from his shop – something that a sack full of lighter notes could have never achieved. Moreover, the cumbersome sack would restrain the shopkeeper himself from taking the sack out of his shop and spending his savings, effectively curbing the ease of access to his money. This constitutes another important principle of good savings behavior – getting your money out of your reach, or creating a trivial barrier between you and your savings.

After hearing this amazing story, I immediately took the stray coins from the various pockets in my bag and put them away in my wallet. I smiled as I put the wallet away in my bag – I had gone to educate the people in these Ugandan village and towns about the importance of savings, but our local Ugandan millionaire had taught me something valuable instead!