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The date for submitting intention to compete forms for the first annual NextBillion Case Writing Competition has come and gone.  At the onset, the editors and I were unsure of how many people would submit."I'd be happy if we got ten," I told the Rob and Francisco.

Well, I'm pleased to let the NextBillion community know that we more than doubled that number with over 20 submissions from teams all over the world!  We had submissions from Washington University in St. Louis, Xavier Institute of Management, Dehlhi Technological University, Indian Institute of Management Bangalore, Tufts University, Colorado State University, University of Houston, York University, Syracuse University, and New York University - just to name a few.

Topics covered scaling BoP ventures (and questioning the need for it), assessing the impact of microfinance in Latin America, the effectiveness of using American youth to fundraise for ventures in East Africa, public/private partnerships, the role of MNCs at the BoP, and so on.

Rob, Francisco, and I are thrilled by the response from the NextBillion community and look forward to reading the final cases, along with the judges, in April.  Good luck to everyone who submitted!

As announced in January (link), The William Davidson Institute (WDI) has joined the World Resources Institute and Acumen Fund as co-Managing Partners of the NextBillion.net site.  The Managing Partners set strategy, fund enhancements to the site, manage the site, and work together to grow the NextBillion community.

This post is intended to introduce WDI to the NextBillion community and to invite you to explore ways to engage with the Institute. 

WDI is a think tank located at the University of Michigan (UM) that focuses on business and policy issues in developing countries.  WDI was founded in 1992, just a few years after the fall of the Berlin Wall, because Bill Davidson wanted to help the countries of Central and Eastern Europe make the transition from central planning to market economies.  WDI's focus has always been on practical engagements (see below).  Today, WDI has about 30 employees and operates in five broad areas:

• Research -we do applied work on Base of the Pyramid, the Business of Health Care, the Globalization of Services (i.e. offshoring), and GreenLeap (i.e. how to commercialize green technologies) issues.

In each area, WDI focuses on practical research and engagement and works to build bridges between academic research and interesting organizations in the field.  Examples of this are Ted London's work on Impact Assessment (HBR article) or my book on Offshoring (link).

• Executive Education - we deliver Exec Ed programs in developing countries using faculty from UM and other leading schools.  In 2009, WDI delivered 44 programs in about 20 countries - including Brazil, Costa Rica, Croatia, Latvia, Mexico, Rwanda, Slovakia, Turkey, and many others. 
• Development Consulting Services - we organize and deliver capacity building projects for development agencies (USAID, the World Bank, etc) in developing countries. 

DCS has core competencies in six areas:  Higher Educational Development, Private Sector Development, Monitoring and Evaluation, Policy Reform, and Post-conflict Economic Growth. 

DCS currently manages a portfolio of 12 projects covering 12 countries - including Algeria, Benin, Cambodia, Guatemala, Jordan, Kazakhstan, Rwanda, Sri Lanka, the West Bank, and others. 

• Educational Outreach - we develop teaching materials (cases, videos, simulations, etc.) on business and policy issues.  WDI has established a leading position in the international business and BoP segments.  You can browse the case collection at GlobaLens.com.   For those of you who are teaching professionals, you can apply for "registered educator" status here.
• Supporting international activities at UM - includes a wide range of activities to encourage emerging market research and experiences by the Michigan community.  These include research grants, student projects, a speakers' series, support for faculty travel and research, etc.

As you can see, there is quite a bit of overlap with the interests of the NextBillion community.  You can find out more about WDI and its activities by downloading our semi-annual newsletter.

Many of the people at WDI (Ted London, Stu Hart, Heather Esper, Moses Lee, and myself, and others) are deeply involved in the "Development Though Enterprise" space.  We look forward to getting to know you all and creating interesting and productive engagements in the years ahead.  

Over the last two decades, models for livelihoods for the poor have come of age and many organizations have focused their efforts on reducing the vulnerability of marginalized communities. A lot of these activities have been through the efforts of NGOs, international funding agencies, and local organizations working in specific regions and with specific segments.

Though these models have been successful in creating employment, they haven't scaled to realize their true potential. One such example is of Chamba chappals where over 500 artisans make sturdy and beautifully designed footwear in their homes or small shops. Chamba chappals have long been known for their durability and exclusive designs, many of which are now being developed and sold by footwear manufacturers at exorbitant prices. Yet, in the absence of proper advertising and market linkages - critical to ensuring these organizations take advantage of existing market opportunities, the Chamba artisans are finding it increasingly difficult to make ends meet.

Before moving forward, it is important to define 'market linkage' for the benefit of all readers. This definition is my view-point on the topic and may vary from other definitions. A clear market linkage is comprised of  one or more organizations that facilitate end to end integration of the entire supply chain - mobilize the women, train them, provide necessary infrastructure, supply inputs, provide capacity building training, and buy-back the finished product.

In simpler terms, an established market linkage frees up the women workers so they need only concentrate on production or sales (in the case of micro-entrepreneurs) and earn their livelihood.

Though some organizations have successfully created market linkages and achieved scale, we as an industry have a long way to go. I have listed four models that can each be effective in creating organizations that are scalable and sustainable:

1) Community managed organizations - These organizations mobilize groups to come together towards a common economic activity. They provide various types of capacity building to provide the necessary functional and technical skills. High volumes ensure benefits in the form of better pricing, lower operational costs, and removal of intermediaries. One of the most successful models in India is that of 'Shree Mahila Gram Udyog' (Lijjat papad - thin crispy Indian wafer). The organization reaches 42,000 women in 72 branches across various states. Through the combined effort of all its members, Lijjat has achieved sales of over Rs.520 crores with exports itself exceeding Rs. 24 crores.

2) Corporate tie-ups - These models could include institutions (like microfinance, NGOs, and the like) that mobilize women for a livelihood activity and companies that provide the market linkages. Notable among these is Indian tobacco company's (ITC) collaboration with 'self employed women's association' (SEWA) - one of India's largest membership organizations for women workers in the informal sector. SEWA mobilizes rural women and brings them together in the production of agarbattis (incense sticks). ITC supports these organizations in setting up units, training women, providing raw materials, and buying-back the finished product. Another interesting model is that of Fabindia.

3) Collaborative model - Considering the array of activities involved from mobilizing people to selling the output, there is an opportunity for multiple players to participate in a market linkage. These models include different organizations playing different roles to ensure a beginning to end integration. I haven't been able to come across any such successful models that have achieved scale.

4) Women entrepreneurs- There are organizations with inclusive business models that have created micro-entrepreneurs. Women in these organizations act as sales and marketing agents. Some of successful models are 'The Village Phone' - grameen phone's initiative and 'VisionSpring', among others.

Through these models, organizations like ITC, Lijjat papad and Gujarat cooperative milk marketing federation (Amul) have successfully created livelihood opportunities for thousands of women - creating employment opportunities in rural and urban areas while also creating wealth. They provide constant support through their strong marketing reach, technical training, and quality process - resulting in standardized and high quality products. These micro-enterprises provide the women with a livelihood that could be carried out within their homes, at their own time and convenience. Though it varies from product to product, these micro-entrepreneurs earn anywhere between Rs. 800 to Rs. 3000/month - which is significant considering that most of these women are otherwise unemployed and their husbands are unskilled laborers.

We as an industry must create more robust market linkages which once successful hold tremendous potential for large scale impact.

If you know of other organizations which provide a large scale livelihood with a market linkage, please indicate that in the comments section.

A recurring theme in romantic novels and movies is that you travel all over the world to finally find what you were searching for, right where you began. Could it be that the answer to malnutrition and self sustaining communities be a plant which has been growing in their back yard for all this time? This might be the case with Moringa Oleifera, often dubbed as the Miracle Tree, often discussed as being a savior of vulnerable communities especially in Africa and South Asia.

The plant, which grows in dry soils in tropical lands, is known primarily for the exceptional nutritional value of its leaves. Lowell Fuglie who has been researching abut the uses of Moringa for over a decade (and used to work for the Church World Service) says "Gram for gram, Moringa leaves contain three times the iron of spinach, four times the vitamin A of carrots, seven times the Vitamin C of oranges, three times the potassium of bananas, and four times the calcium and twice the protein of milk" (a much larger list can be obtained here). "Nutritionally, you can't beat it." he adds.

But it doesn't end here; Moringa Oleifera is known to be a really good water purifier, plant growth enhancer, biofuel (abstract only), and has plenty of medicinal uses.  These address some of the most pressing issues faced at the BoP today: Enegry, water scarcity & agricultural yield and most importantly malnutrition. All this being said, one would expect entrepreneurs to jump at this opportunity and capitalize upon it. A Moringa-based idea submitted to the Ashoka's Nutrition Competition was even adjudged as an early winner. However, we don't see any major players trying to create an industry based on this wonder plant. Why so?

The opportunities and challenges in the commercialization of Moringa have been summed up well by in a paper written by J P Sutherland, who was involved with a biotech startup called Optima Environment SA based in Switzerland. He cites lack of extensive research, skepticism from the scientific community, barriers to entry in the form of government regulations as well as poor marketing as some of the factors which constraint the commercialization of Moringa products such as oil, water coagulants and packaged food. He emphasizes that if entrepreneurs can find a way to improve the extraction process, moringa oil has a potential to become a useful source of fuel (both industrial as well as domestic) in the years to come. However, it's also up to the venture capitalists in the agro-health sector to realize it's importance as a life saving plant and encourage investments in this domain. 

What's really fascinating about this plant is that it is locally available in areas that need it most. The tropical nations provide the temperature and soil requirements that is suitable for its growth.  Every part of the plant, be it the stems, the leaves, the pods are useful in one way or the other. Even if it takes time to commercialize it on a large scale, I can see this as a useful community run venture to meet the nutrient needs of villages that are struggling to meet their requirements.

Grabbing a notebook and pen from my bag in the back seat, I asked Esi, the program manager and driver today, to please brief me on the clients from TechnoServe's cotton program she and I were en route to visit. The Mpaka workshop, she told me, is one of the twelve workshops that TechnoServe has nationwide to train farmers on best practice methods of cotton production.

These nationwide workshops are a key part of the program strategy to revive Swaziland's cotton industry. They provide TechnoServe advisors an opportunity to improve the capacity of farmers to succeed in growing cotton by focusing on reducing their cost of production and increasing yields per hectare, two factors over which farmers have relative control.

The goal for the Mpaka workshop was to teach farmers the basics of effective pest control to ensure that farmers were both purchasing the right  pesticides to control the pests in their fields and applying pesticides in the most educated and efficient way. By focusing on this topic today, at this stage of the crop's lifecycle, TechnoServe advisors can help farmers control a factor that can improve yields and income by as much as 50%.[i]

For background: In 1989, 16,000 cotton farmers in Swaziland's Lowveld region produced 32,000 metric tons of seed cotton which contributed more than $14 million to the rural economy. Since then this number has fallen to the 394 metric tons produced in 2008. This isn't because 16,000 smallholder farmers are producing little to no yield, rather it is due to a myriad of reasons including a steady transition of cotton-producing farmers into corn and other food crops.

Sadly, however, the Lowveld region is not suitable for such crops and farmers are seeing failure after failure of food crop attempts. TechnoServe has partnered with the government-run National Cotton Board to revive the cotton industry in order to secure income for the thousands of struggling smallholder farmers in this region.

A few moments into the drive and my conversation with Esi her phone rang. Esi answered and gaily chatted with the head of the cotton farmer association we were en route to see. I took the much needed break to transfer the details of the conversation to my notepad and incrementally gaze out the window (something I do to keep my motion-sickness-prone stomach at ease).

When Esi hung up the phone, she informed me that we would have to alternate our plans today. The association we were supposed to train today canceled on short notice because they learned that a prominent aid organization was handing out food in their community. The farmers in the association that were scheduled to attend the training were going to collect handouts instead and the training was to be rescheduled for another week, hopefully in the near future.

The unfortunate truth is the overcoming the logistical challenges to reschedule a meeting within the window of this critical week for pesticide application is very unlikely.

While I am pleased to know the farmers and their families were likely relieved of food needs for a week or so, I believe that this illustrates an often discussed but rarely witnessed issue facing the development community: unforeseen setbacks to sustainable programming. We often talk about sustainability in development or compose programs that aspire to facilitate sustainability, but far less often do we address or share instances of setback.

I don't doubt that those farmers in the cotton association needed food, but I now wonder whether their crop will be as bountiful this season, their confidence not wavered, and most importantly, their income capacity not limited. If so, in three months time, rather than having the money to put food on the table and reinvest in their business, these farmers will be looking for the next wave of relief. I do acknowledge that I am jumping to a number of conclusions here, but this set of events is possible and similar challenges interfere with programs like this every day.

In reading this it may seem that I am cynical and risk averse, but on the contrary I am quite optimistic and thrive on the opportunity to address and overcome challenges. I am sharing this story now because I see a need to spur rigorous debate about ways in which practitioners can avoid development drag. BoP growth requires a functioning market and innovative solutions and I believe that we have a collective role to play in making this happen.

Each visitor and contributor to this site is already achieving much progress in strengthening the industry knowledge and practice, but I think we can do more. Continuing to deepen our collective wisdom and advance best practices is a promising way forward, and I am excited to continue this effort of insatiably searching for and delivering solutions.

[i] National Cotton Strategy - 2009 to 2014, report developed under the leadership of the Swaziland Cotton Board, with assistance from TechnoServe/Swaziland, and through support from USAID. All statistics are drawn from this report unless otherwise noted.

What do the following four social ventures all have in common: Driptech, D.Light, Click Diagnostics, and Embrace?

They were all started by students. Don't believe me? Look it up.

I'm a big believer in student-formed social ventures.  Students are arguably in the best position to start a social venture.  They have incredible support, access to unbelievable resources, and can take on risk that others can't.

Think about it. If a student team needed help on financial forecasting, it just needs to pop into a finance professor's office. Need legal counsel?  No problem. Talk to your fellow student attorneys or law professors.  Want to learn how to create a company website? Take a course or ask your CS major buddies. Looking to raise capital? Milk your student status to the max.  Or leverage your university's alumni network. Especially at University of Michigan, alumni are very supportive and want to help.

I believe in the empowerment of students for social entrepreneurship so much that Nick Tobier, professor at the School of Art & Design, and I started the course, Social Venture Creation, this winter term through the Center for Entrepreneurship at the University of Michigan.

To date, the class has just under 30 students working on four ventures addressing a variety of social issues such as food access, city traffic, internet access in Africa, and healthcare training in rural communities. Students work in multidisciplinary teams and spend an entire semester crafting a business plan and taking steps towards implementation. 

We've been very fortunate to have the help from some industry players in our venture creation process.  Mid-semester, we'll be having consultants from IDEO come in to evaluate and help improve business plans.

At the end of the course, the students will make presentations to a variety of faculty members, a handful of industry experts, and potential funders.  Because funding is such a big issue, we're currently exploring an online mechanism to support the cause. Something similar to Big Ideas @ Berkeley. 

I've shared a handful of class videos on this post. Watch and hear 1) Why students are taking the course (above) and 2) Students working with IDEO's design thinking methodology (below).

If you are currently a student, I encourage you to make the most of your time at your university and try starting a social venture. If your school doesn't have any courses on social entrepreneurship, talk to your professors and ask them why not. Or send them a link to this post.  I'm confident that there will be some faculty members who will want to do something.

And if you are a UofM alum and want to help out the efforts at the University of Michigan, please contact me!

How does one convert "credit" extended to low-income households into tradable "commodities"? Is there a way to use the best know-how of financial markets to transform an industry that makes small loans to low-income households? Is it possible to diversify an organization's sources of funding lowering its cost of capital while at the same time increasing the returns of an investor's portfolio?

Securitization, which typically involves conversion of assets that have predictable future cash-flows (like mortgages, automobile loans, student loans, home equity loans, credit card receivables, etc.) into rated, standardized and tradable securities, promises to offer an answer to all these questions.

Highlighting the recent $10.4 million transaction that involved India's first mutual fund investment (by ICICI Prudential AMC) in the Indian microfinance industry, a recent blog entry by Dr. Nachiket Mor emphasized the importance of securitization as a financing channel for the microfinance industry. His blog triggered an interesting debate that argued how Micro Finance Institutions (MFIs), who have traditionally depended on uneven year-end inflows from banks, could diversify their sources of funding by participating in the assets-backed securities market via "rated" securitizations.

This particular transaction involved the securitization of receivables from over 55,000 micro loans originated by Equitas Micro Finance, a MFI based out of Chennai. It demonstrates that receivables securitization offers an economically attractive alternative to conventional sources of financing for MFIs. So, how does it all work? Securitization converts an illiquid asset into a tradable instrument in the debt-capital markets. In the case of a MFI, the underlying asset comprises of a pool of micro loans that are originated by the MFI and are backed by the future cash flows related to the loans (i.e. the collections from the low-income clients). A structurer, then, performs rigorous due diligence on the MFI by creating strict underwriting guidelines to ensure that only the most credit worthy MFIs are chosen to participate in the securitization process.

A portfolio of loans is then sold to a bankruptcy-remote entity, "Special Purpose Vehicle (SPV)," that is housed in a separate legal entity (usually a private Trust). A rating agency performs due diligence on the MFI and the loan portfolio; in order to acquire a high desired rating for the to-be-issued securities, it is critical for the originator of micro loans (the MFI in this case) and / or the investors, to provide adequate credit enhancement. Credit enhancements, such as subordination (first loss default guarantee by the originator, and second loss deficiency guarantee by the investors), over collateralization, etc. are vital risk-reduction techniques that aid in protecting the securities backed by a pool of collateral (for example, collections from low-income clients in our case) from potential losses arising out of defaults in the underlying assets (the micro loans in our case).

After purchasing the assets, the SPV then creates investment-grade debt securities, which are then sold to investors in the debt capital markets. The returns that the investors receive are directly affected by the performance of the underlying assets since the investors take in the interest and principal payments on the underlying assets for the duration of the security's life. Also, since the SPV is a legal entity independent from the MFI, the rights of investors to the assets held by the SPV are protected in the event of the MFI experiences financial trouble.

So, why would an investor (in our case, banks, insurance companies, mutual funds, private wealth managers, etc.) like to participate in an asset-backed securities market comprising of micro loans to low income families as the underlying assets? It is because microfinance loans are an increasingly attractive asset class due to the following salient features of Microfinance loans: 1) lower acquisition costs given a loyal client base that results in high portfolio quality and loan repayment rates; 2) high liquidity and solvency given the short tenor of the micro-loans, typically less than a year, thus giving entities such as mutual funds to have an additional short-term investment opportunity; and, 3) high returns and portfolio diversity given microfinance loans' low correlation to the mainstream markets.

On the other hand, securitization helps the MFI broaden its borrowing sources, reduce the cost of borrowings, impart pricing flexibility on the lending side, enhance ROA and other financial ratios, and/or lower leverage and boost financial return ratios. For example, since the securitization process results in the "true" sale of assets, there is generally a corresponding removal of the assets from the balance sheet of the MFI. The MFI can then realize meaningful improved balance sheet metrics (such as Return on Assets, Return on Equity and Return on Capital) and financial flexibility to manage higher growth with existing capital. Specifically, issuing additional debt (bank loans) may have adverse effects on the MFI's balance sheet, as well as undesirable dilutive effects while issuing additional equity.

The term debt, additionally, usually carries covenants that restrict the MFI's financial flexibility (specifically around the timing of the repayments). But, by raising funds through the sale of an asset (that already exists on the MFI's balance sheet) and by receiving cash for the receivables within days of an invoice being issued, the MFI's working capital needs are dramatically reduced. The MFI can then re-deploy these funds to originate and service a larger number of loans, optimize its existing distribution network and correspondingly reduce its operating costs passing on this benefit to the end customer in the form of a reduced interest rate. A lower interest rate for the microloan, finally, spurs demand for microloans and will empower the MFI to fulfill its social mission of reaching more unbanked households.

Earlier this year I wrote why I thought 2010 would be plentiful with news and initiatives related to leadership development in the social enterprise/base of the pyramid space. In effect, fellowships and cohort-based programs continue to flourish all over, aiming to equip leaders (entrepreneurs, students, intrapreneurs, senior business executives, and so it goes) with the tools, networks and confidence boost they need to push their GO buttons and take this movement to a next level.

In the fall last year I had a chance to meet the Pop!Tech Social Innovation Fellows in person, while attending the conference in beautiful Camden, Maine. Everyone I met spoke about the way this experience had truly transformed their ventures. In particular, I felt that the Pop!Tech fellowship had a special emphasis in improving their ability to communicate and spread the ideas and vision behind their ventures. That's what Pop!Tech is best at, after all; It is a world-class ideas festival, where people from diverse backgrounds come together to tell meaningful stories, share ideas that matter and do so in a way that sticks.

Nominations for the 2010 Class of Pop!Tech Social Innovation Fellows are now open. So roll up your sleeves and nominate that someone you know has potential to effect meaningful change in the world. Give that someone the gift of being considered for an experience that will transform the way she conceives her venture and, particularly, the way she spreads the idea throughout the globe. Give that someone the gift of joining a remarkable cohort, which, together with the Pop!Tech extended community and the Program's exceptional faculty, truly make 1+1 equal 11.       

Go ahead. Nominate that someone. 

To read Pop!Tech's official Press Release, click here. 

If something isn't broken, do we still fix it? This is something one hears quite often and it's importance in Base of the Pyramid contexts is often neglected. A recent talk at BITS Pilani by (Retired) Brigadier P. Ganeshan, Andhra Pradesh head of Honeybee (we have earlier covered Honeybee here), focused on just that. In a nutshell, Honeybee is a digitized compendium of rural innovations and local practices implemented by rural communities in Indian villages. It currently houses over 100,000 innovations from all over India. Talk about an idea pool huh?

The crux of his talk was the need for knowledge-based growth. Despite India being a knowledge-based economy, he said, it is surprising to see how the knowledge possessed by BoP populations is being neglected and not given the attention it deserves. He stressed that many social entrepreneurs, though willing to spend vast amounts of time lending an ear to the problems of villages, aren't as willing to accept that these villages have come up with solutions to their own problems. The critical part, he believes, is optimizing these solutions to maximize their output.

He spoke of how India's farmers usually follow 30-35 farming practices, but no initiative is in place to optimize these practices and introduce appropriate technologies. According to him, villages are the oldest and most natural and form of open source knowledge, with potential to be further improved for the benefit of the entire nation.

The best thing social entrepreneurs could do is understand local technologies already being used and optimize them with local knowledge gathered from the insight of their users. Local solutions in the villages are often the most eco-friendly and sustainable, and they are also locally made, cutting down on operation costs.

This video further simplifies the point he was making.

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To date, the track record of strategic, sustainable and successful engagement in BoP markets from corporations is extremely weak. Although companies such as SC Johnson, Dupont/Solae, and Danone have penetrated BoP markets with products and services that arguably make the poor better off, the list of successful corporate BoP projects remains quite short. In 2010, NextBillion readers will be looking for more companies with major product development and R&D budgets, proven marketing abilities, and pools of enterprise-savvy talent to lead social and economic development at the BoP.

Certainly, some successes in this area will originate in the top tiers of management, but one of the most powerful forces for progress and innovation in corporate BoP engagement may come from further down the corporate ladder. Those who will lead much of this change are "social intrapreneurs", employees who develop and implement solutions that both benefit their companies and create positive social and environmental impact. They challenge the status quo and apply the principles of social entrepreneurship inside their organizations.

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