Two new funds to facilitate private sector development in Africa are being raised as we speak.

The first, the Africa Enterprise Challenge Fund, is the result of a Commission for Africa recommendation. It seeks to “catalyze the private sector to innovate and find profitable ways of improving market access for the poor — especially in rural areas. The ACF will focus on stimulating innovation in agricultural markets and deepening access to financial services.” (AECF concept summary, http://www.dfid.gov.uk/news/files/aecf-pcn.pdf)

The Fund will assemble a portfolio of sixty ventures and grant $150,000 to $1.5 million in investment that will be complemented by a matching contribution by the applicant. Donors who have signed on include the UK’s Department for Development (DFID), African Development Bank, the Consultative Group to Assist the Poor (CGAP), and the International Fund for Agricultural Development (IFAD). The fund will be up and running in 2008. (http://www.dfid.gov.uk/news/files/pressreleases/aecf-launch.asp)

Next up is the Overseas Private Investment Company’s (OPIC) African Social Development Fund. “The OPIC is inviting proposals from experienced private equity fund managers for the formation and management of one or more investment funds that will invest in Africa. OPIC will provide financing for funds generally ranging between $25 million and $150 million in total capital. More info here.

The dual goal of the fund is to generate social returns for Africans and financial returns for investors. The ASDF will support proposals involving SMEs, enterprises that foster “social development, provide access to energy, and provide goods and services to rural or underserved markets.”

The deadline for proposal submission is 5 p.m. EST August 8, 2007.

In May 2007 the Synergy Strategies Group (SSG) opened the first EasySeva Centers and is on track to open a total of 25 Centers by the end of September. SSG has undertaken a new and highly innovative approach in expanding broadband rural access across Sri Lanka. This project is one of nearly 30 projects that have been supported through the Agency for International Development's (USAID's) Last Mile Initiative (LMI). These are currently at various stages of implementation, with the LMI project in Sri Lanka now coming on line.

SSG is taking a private sector approach with each EasySeva Center being owned by a local entrepreneur who is part of a national franchise. In return for franchise fees, the franchise provides bulk purchasing, training, technical and marketing support. The franchise also provides entrepreneurs access to micro-finance and leasing services through Sri Lankan financial institutions. Each of the EasySeva Centers is serviced with broadband Internet provided via a range of wireless technologies, and is equipped with PCs and printers, VoIP phones, pre-paid community phones, and offering a range of services beyond communications to include training, content on a range of topics and micro-finance services.

In order to offer a compelling business opportunity to entrepreneurs, SSG has partnered with a rich set of companies, including Dialog Telekom, Qualcomm, National Development Bank, Lanka Orix (LOLC) and Microsoft. Together, these alliance partners have contributed funding, technology and know-how to the project.

Having demonstrated the effectiveness of the EasySeva model, SSG is now focusing future efforts on seeking private investment capital to bring the model to scale across Sri Lanka and South Asia.

The case study posted at SSG's website reflects the new and creative approach for leveraging rich partnerships to create a sustainable model for locally-owned and operated EasySeva Centers.

After my post Small Car Activity and the article in the Independent criticizing the new venture, I received the following mail from a friend in Bangalore:

The demand for automobiles is growing primarily because of the neglect by the government of metropolitan transport infrastructure, leading to an increased desire among the public of personal transport. This, when coupled with the easy availability of finances on credit and a Finance Minister who encourages spending, leads to the growth of markets that would not be sustainable with even a modicum of saving on the part of the spenders of today. This could lead to a situation where the total debt owed by the spenders far exceeds the amount earned by them, for interest rates and prices often keep pace with salaries. In a country like India, with not a vestige of a Social Security net, this spells a disastrous situation, in my opinion, for most of the spending encouraged is on the part of the urban nouveau riches who have nothing but their work and savings to fall back upon. While economic growth is no doubt essential in India, I fear that it will not be on a sound basis when built on such a rotten foundation where the economy grows as a whole on account of increasing demand, but individuals suffer, being led to spend on non-essentialities.

A model of economic growth that has always appealed to me, is one where the government would attract investment into the country, as is happening today, but instead of relying on its own market and encouraging ever-more-unsustainable spending, would try to make its goods more attractive for export than for consumption in the home market; I would cite the West Asian, Northern African and the smaller South American countries as ideal markets for export of goods. In other words, I suggest that the government bring in funds and create jobs thereby, but instead of encouraging excessive spending in its own markets to keep up the attraction of this country's market for investors, start promoting the country as a manufacturing and export hub. In my opinion, were the government to improve urban transport and infrastructure and start encouraging automobile export, the ever-growing demand for cars and the problems that accompany it would decrease.

Like my friend, I am from Bangalore (or Bengaluru, if you like) - and can readily identify with the issues of bad public transport. Indeed, WRI is involved in exploring solutions to transportation problems.

The difference is - unlike my friend - I do not believe that the onus should be exclusively on the government to solve these problems. Decades of excessive government control have only insulated and delayed India's participation in broader global markets. If cars should be driven out, they should be driven out by consumer choice and convenience - and not by government regulation.

The assumption in theory is that incentives for private players to invest in public transport will correct these anomalies. Unfortunately, the truth is that projects like Metro Rail and International Airport have been plagued by disputes and political haggling.

As far as export opportunities go, Rob points out that India has tried that before, and it hasn't worked well for many countries. Isn't creating local value what the BOP hypothesis is all about (whether producer or consumer)?

Be it a $1 fairness cream, a $100 phone or a $3000 car - a large audience is disturbed by "failures" in markets - and seemingly wants the government to step in to decide what is right for the consumer.

A couple of quick reads, especially if you're recovering from Independence Day celebrations in the United States.

First, over at Acumen Fund blog, Fellow Nadaa Taiyab writes about her experiences working with Medicine Shoppe India and its new spinoff, Sehat Clinic.  The post is a fascinating take on what BOP business models mean from the ground up.  For instance, Taiyab reflects on the tremendous change a business model undergoes from concept to launch:

When I arrived in December, we opened the first Sehat Clinic. Last weekend we opened the seventh, with an eight shortly underway. The model has undergone a tremendous evolution in the past six months. We shifted our site selection strategy from relatively affluent areas with a slum nearby to locating the clinics right inside slums. We redesigned the process through which we recruit doctors and created an employment package that allows us to hire experienced doctors at a salary we can afford. We also implemented an entirely new concept for Medicine Shoppe called community marketing outreach. Through this program, we hire local women in each area to make daily home visits, refer sick patients to the clinic, spread health education and awareness, and promote our free health camps and health clinics. In the past four months we have held over 35 health-plus-vision-testing camps, serving over 4,000 people. We have also made some changes to the look and feel of the clinics and shops and put all our marketing materials in local language, to make our services more appealing to low-income markets.

Second is an article in the Business-Standard by BOP critic Aneel Karnani.  He writes that the BOP market is overestimated by C.K. Prahalad and by WRI (full disclosure - WRI runs NextBillion.net, and many of the authors of this blog authored the report that Karnani calls into question.)  His argument is worth reading - I'm working on a formal response, and can't say more at this time.  Regardless, read it.  An excerpt:

(This post continues past the break; click "Read More" to continue)

The Financial Times today released an insightful series of reports on corporate citizenship and philanthropy. It's especially worth taking a look at the articles on social investment and social entrepreneurship as they explore the trend of increasing convergence between the non-profit and private sectors. I'll refrain from a debate on the possible ethical issues with these interminglings, and instead focus on this development as a sign that entrepreneurs and investors alike are taking triple-bottom-line impacts seriously not just in word but in deed as well.

How much the times have changed as the old antagonists of the environmental movement are becoming our best friends - witness the Angel Investor meeting that our New Ventures partners in Brazil held last week. For the first time, São Paulo has an official angel investor network, the São Paulo Anjos (SPA), bringing together wealthy and socially-minded financiers to channel their investment toward philanthropreneur-type enterprises. New Ventures Brazil at FGV hosted the SPA as they announced a "soft launch" of the network - a pretty good example of why in the same report, the Financial Times ranked our parent group, WRI, 3^rd among global organizations for private-sector partnerships.

Environmental NGOs as a whole have come a long way in their ability to form these crucial linkages; working relationships that only endure because of the mutual benefit our partners in the business and financial communities are receiving. The investor event last week evidenced the increasingly interweaving objectives of our work and with attendees like Rio Bravo Investimentos and Novarum, there is plenty of reason to believe that the TBL movement is becoming mainstreamed (hopefully for good).

What are the returns to capital when it comes to microfinance? What are the effects of demand shocks, entrepreneurial ability, and other independent variables? Many in the microfinance (and enterprise development) communities have wondered about these very questions for years, but little empirical research has been done to support or reject working hypotheses. A recent paper by Stiglitz et. al. does tackle this issue, but so does a newly-released Working Paper.David McKenzie, a Senior Economist at the World Bank, is the co-author of the new paper, Returns to Capital in Microenterprises. McKenzie is also the featured speaker in an upcoming event hosted by the QED Group through its Microfinance After Hours Seminar Series (sponsored by USAID). Should be a good event - I'll be on vacation that week, but I recommend it highly.

As for the paper, here's an excerpt:

Small and informal firms account for a large share of employment in developing countries. The rapid expansion of microfinance services is based on the belief that these firms have productive investment opportunities and can enjoy high returns to capital if given the opportunity. However, measuring the return to capital is complicated by unobserved factors such as entrepreneurial ability and demand shocks, which are likely to be correlated with capital stock. We use a randomized experiment to overcome this problem, and to measure the return to capital for the average microenterprise in our sample, regardless of whether or not they apply for credit. We accomplish this by providing cash and equipment grants to small firms in Sri Lanka, and measuring the increase in profits arising from this exogenous (positive) shock to capital stock. After controlling for possible spillover effects, we find the average real return to capital to be 5.7 percent per month, substantially higher than the market interest rate. We then examine the heterogeneity of treatment effects to explore whether missing credit markets or missing insurance markets are the most likely cause of the high returns. Returns arefound to vary with entrepreneurial ability and with measures of other sources of cashwithin the household, but not to vary with risk aversion or uncertainty.

A quick roundup before the weekend.

First, here's a new blog to check out: Nubian Cheetah.  Its author, Nii Simmonds, is based here in DC (small world) and was recently a speaker at TED Africa.  Nii posted last week about a conversation he had with George Ayittey (also based here in DC, at American University) regarding a "Cheetah Sustainable Fund." 

This comes on the heels of Ayittey's construction of Hippos vs. Cheetahs to describe old-school, development money dependent African government bureaucrats (Hippos) vs. new-school, entrepreneurial African business and political leaders (Cheetahs).  See my previous post for details.

In any case, Nii and George brainstormed a Cheetah Fund:

During our 30 minute conversation about the TED conference, George asked, "so Nii how do we get you TED Cheetah's to contribute to African development"? I thought about it for a second and said, "I would be nice if TED sponsored fellows to their respective countries to use their professional work experience to help a business for a month or so. I heard a pause, and George said, "well that is nice, but what about a fund, called a Cheetah Fund that is sustainable was set-up to help TED fellows or other African Cheetahs with funding for their respective businesses."

Read the whole post, and consider adding Nii's blog to your RSS feeds.  I know I did.

Also of note, AIDG has launched a small business to bring sanitation services to Cap Hatien, Haiti's second-biggest city.  Check out the press release for details:

Over 60% of Cap-Haitien’s inhabitants do not have adequate sanitation in their homes. The public latrines that do exist are rarely maintained because of a lack of funds. With no other options, many residents resort to defecating in the open, often in nearby bodies of water, or in plastic bags. Feces in plastic bags has earned the facetious name of “flying toilets”, as they are often hurled onto solid waste piles or roofs.

AIDG’s aim is to create a small business that will alleviate part of this problem by maintaining the public latrines. Typically, latrines in Cap-Haitien are emptied by hand with shovels. It is slow, unpleasant, and dangerous work; the danger comes from the absence of suitable protective clothing or equipment. When finished, the waste is not properly disposed of and is usually dumped in local mangrove swamps, increasing the contamination of local water sources.

The development of a low-cost pumping solution would increase the speed and safety of latrine cleaning. Adaptation of AIDG’s biodigester technology could also allow for the safe processing of human waste to kill harmful pathogens.

Happy weekend, and here's hoping you don't encounter any 'flying toilets'!!

We've known about Vodafone's M-Pesa project for some time now.  The money-transfer via mobile phone service has been active in Kenya for a few months now, first as a pilot and growing steadily throughout the country.

The New York Times and the Economist both have articles on M-Pesa today.  Vodafone's partner, Kenyan telco Safaricom, has signed up over 175,000 customers in just three months, and more than 2,500 are signing up every day.

Al Hammond just spent a few days with Vodafone in London, including some time with Nick Hughes, the executive in charge of M-Pesa.  He's secured a promise from Nick to post a guest blog on the program here at NextBillion.net - hopefully later today.

In the mean time, brush up on your background reading - either via the Newsroom or direct link.

The fifth issue of Innovations: Technology|Governance|Globalization arrived in my mailbox today.  Simply put, get a copy.  As usual, editors Phil Auerswald and Iqbal Quadir - along with publisher Nick Sullivan (of You Can Hear Me Now fame) and senior editor Winthrop Carty, have assembled a set of articles by leading academics and practitioners of interest to those of us in the "base of the pyramid" community.

Entitled Microfinance 2.0: Technology and Services for Ascending Markets, the thick journal (221 pages) covers everything from patient capital to regulatory innovation and doesn't miss much in between.  (Disclaimer: I have an article, written with Al, Bill, Cory, and Julia, in this issue as well).

I'm just starting to read, so a review is forthcoming, but go ahead and start yourself.  Jaqueline Novogratz (Acumen Fund) has an article, as does Kiva's Matt Flannery and famed venture capitalist Vinod Khosla.  Best part -- most of the articles are freely available.

Let me know what you think about specific articles in the comment section (below).

Chris Monasterski over at the PSDBlog connects biofuels, world hunger, and The Next 4 Billion report. Wish I had thought of it! (Seriously, bravo Chris.) Check it out - biofuels are driving food costs up, which puts pressure on BOP budgets. The poor are among those most at risk from the effects of massive climate change, but if we in the West/North have to divert food stocks away from BOP populations in order to avoid climate change, are the effects on BOP communities any better (or even worse?) To be seen. In the meantime, here's what Chris has to say:

From Foreign Affairs:

The enormous volume of corn required by the ethanol industry is sending shock waves through the food system. […] corn futures rose to over $4.38 a bushel, the highest in ten years.

Biofuels have tied oil and food prices together in ways that could [have] potentially devastating implications for both global poverty and food security.

[…] resorting to biofuels is likely to exacerbate world hunger. Several studies […] suggest that caloric consumption among the world’s poor declines by about half of one percent whenever the average prices of all major food staples increase by one percent.

New Ventures Intern Jesse Last muses on pub trivia and a conversation with one of the most innovative entrepreneurs in the personal care products market.

I got an interesting pub trivia question the other night - what is the body's largest organ? I promptly shouted "liver" and repeatedly pounded my fist on the bar until my teammates relented. Needless to say, I was wrong (it's number two). The body's largest organ is the skin. Fact check me, and play a terribly enthralling round of "The Organ Game" courtesy of the British while you're at it.

I will spare you the rest of my pub trivia night to get to the point - skin and taking care of it in a socially responsible way. Last week I spoke with one of WRI New-Venture's most promising entrepreneurs - Fernando Lima. Fernando is the founder of Florestas, a company specializing in personal care products derived from Amazonian plants, nuts and berries. All cosmetic companies want to claim these exotic ingredients and will flash pretty pictures to make you a believer. Unfortunately, we've seen the consequences of multi-national corporate greenwashing on the rainforests before.

Fernando's commitment, on the other hand, is personal. Asked about sustainability, Fernando explained the connections between environmental degradation, poverty and exploitation in Brazil. He described how he purchases his ingredients from Amazonian cooperatives, providing incomes and reducing the need of indigenous people to cut down the rainforests in order to survive. In essence, triple-bottom line theory to me amounts to preserving Brazil's cultural and environmental integrity for Fernando.

Having retailed IKOVE in Brazil, Europe and the U.S., Florestas is looking to raise $2 million to open two Wellness Center and Spas, one in New York and the other in São Paulo. I've never been to a spa before, but with Fernando's success maybe I'll be able to write it off as a research expense...

The full profile of Florestas is available here.

You are invited to a special Networking Happy Hour to support entrepreneur-driven models of development.  

Come learn about leading organizations working to bring innovative, market-based solutions to global poverty.  Network with others committed to unleashing the potential of small business entrepreneurs to become true catalysts in the development of their communities.  

Co-sponsored by The Aspen Institute, TechnoServe, Ashoka, Young Americas Business Trust,
World Resources Institute, International Private Enterprise Group, Endeavor & Root Capital 

Hosted by Agora Partnerships
Thursday, July 19th, 2007
6:00pm - 8:30pm
Play Lounge
1219 Connecticut Ave., NW

$10 donation with free Flor de Cana rum drinks all evening & other great drink specials

Tell us you're coming at rsvp@agorapartnerships.org

I'm very happy to announce the release of the WRI business case study, What Works: Mi Farmacita Nacional, authored by Enrique Coronado ('08), Christina Krettecos ('07), and Yvonne Lu ('07) of Columbia Business School.

Mi Farmacita Nacional, a fully for-profit pharmacy franchise, is among the first retailers of generic medications to serve low-income communities in Mexico. Mi Farmacita was launched in 2003 and has since more than doubled its number of outlets every year to reach 57 outlets as of March 2007. Outlets in operation for a minimum of 22 months are now processing an average of 2,400 transactions/month in sales of affordable medications, doctor consultations, filtered water, telephone access, and other essential products and services.

What Works: Mi Farmacita Nacional analyzes the business strategies that have enabled Mi Farmacita's rapid growth and success in serving low-income communities.

This case study was made possible through the generous support of the Horace W. Goldsmith Foundation and Social Enterprise Program at Columbia Business School.

In response to some demand from readers and suggest-ers (not a word, I know), I'm posting the article that Al, Bill, Julia, Cory and I wrote in Innovations. Click "read more" for access to the PDF. Here are the first few paragraphs.

Full review of the journal coming soon -- perhaps after I return from vacation. Is it bad that I want to read the whole journal while on holiday? Phil Auerswald, don't let me down now!

In an informal suburb of Guadalajara, Mexico, a growing family is struggling to expand its small house. Help arrives from a major industrial company in the form of construction designs, credit, and as-needed delivery of materials, enabling rapid completion of the project at less overall cost.

In rural Madhya Pradesh, an Indian farmer gains access to soil testing services, to market price trends that help him decide what to grow and when to sell, and to higher prices for his crop than he can obtain in the local auction market. The new system is an innovation of a large grain-buying corporation, which also benefits from cost saving and more direct market access.

A South African who lives in an impoverished, crime-ridden neighborhood of Johannesburg has no bank account, cannot order items from a distant store, and is sometimes robbed of her pay packet. She finds that a new financial service offered by a local start-up company allows her mobile phone to become a solution—her pay is deposited directly to her phone-based account, she can make purchases via an associated debit card, and she carries no cash to steal.

In a small community outside Tianjin, China, a small merchant whose children have been repeatedly sickened by drinking water from a heavily-polluted river is distraught. He finds help not from the overwhelmed municipal government but from a new, low-cost filtering system, developed by an entrepreneurial company, which enables his family to treat its water at the point of use.

Four billion people such as these form the base of the economic pyramid (BOP)—those with incomes below $3,000 (in local purchasing power). The BOP makes up 72% of the 5.75 billion people recorded by available national household surveys worldwide and an overwhelming majority of the population in the developing countries of Africa, Asia, Eastern Europe, and Latin America and the Caribbean—home to nearly all the BOP.

This large segment of humanity faces significant unmet needs and lives in relative poverty: in current U.S. dollars their incomes are less than $3.35 a day in Brazil, $2.11 in China, $1.89 in Ghana, and $1.56 in India. Yet together they have substantial purchasing power: the BOP constitutes a $5 trillion global consumer market.

Full article.

We've talked a lot about the excellent Doing Business reports that the World Bank Group produces every year.  A quick reminder:

The Doing Business database provides objective measures of business regulations and their enforcement. The Doing Business indicators are comparable across 175 economies. They indicate the regulatory costs of business and can be used to analyze specific regulations that enhance or constrain investment, productivity, and growth.

Well, they've taken it a step further.  In partnership with Google and Google Maps, the Doing Business web site now features a link to a mash-up of the Doing Business indicators on a map of the world.  You can scroll around and get a great idea about regional trends.  Clicking on an individual balloon seamlessly transitions into a pop-up with the Doing Business data.  There are even special balloons for the top 10 reformers of last year.

This is a great example of how free and/or open-source technologies can be used to make the case for pro-business policy reforms.  And frankly, it just looks good and runs well.  You should check it out, bookmark it, and share it with your friends.

Via Development Gateway.