Nitin Rao's blog

Imagination with Realism: What Works for Microfinance

Nitin Rao — Tue, 10 Jun 2008 13:22:05 -0500

Microfinance, in its for-profit avatar, is attracting capital, talent, blogposts - you name it - and a fair bit of criticism. So when Alex Counts, President & CEO of the Grameen Foundation proposed his vision for Reimagining Microfinance in the Stanford Social Innovation Review, he targeted the right issues. The problem, as I see it, is that elements of Counts' vision are simply not realistic.

I agree with Alex that microfinance is better placed as a platform from which to develop and distribute a range of products and services—not just financial ones. I also agree that microfinance institutions stand to gain by structuring themselves to gain from high volume, not high margin models. This will help not just in terms of revenue, but also in terms of managing what can be a precarious political environment for MFIs and their investors.

An excerpt from an article (The Big Trouble With Small Loans) in TIME Magazine illustrates the line MFIs must tread:

Consider the time a bank chairman asked if SKS could raise its interest rates. Akula said yes (in most markets it has a monopoly) but that SKS wouldn't do so because it would be exploitative. The banker scoffed that Akula didn't understand economics. Akula shot back that the banker didn't understand customers, who would turn on SKS if they felt abused. "We're maintaining a loyal customer base that will stay with us as they get out of poverty," says Akula.

(Full disclosure: I work at SKS Microfinance)

However, in my view, Counts goes too far and becomes too idealistic in the proposals that follow.

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Talent Retention in the Fast Changing Development Sector

Nitin Rao — Fri, 06 Jun 2008 11:01:01 -0500

If you are a manager at a NextBillion enterprise, pause and ask yourself:

What attracted you to development through enterprise?
What attracts members of your team to this sector?

It's interesting to see how employees bring diverse motivations. Understanding what drives them is key to retaining your top talent.

Is it the mission?
The recent buzz and interest in development has seen quality talent from countries such as the US take up positions in developing countries, often with significant pay cuts.

Is it the money?
For many loan officers at microfinance organizations such as mine, even USD 100 a month can be a great salary.

Is it a hybrid?
As a colleague told me, "I'm happy to work in this sector as long as I can manage a certain lifestyle"

Is it a short-term stint?
Development startups depend on talent working as interns or for short stints ahead of graduate school, or a career change.

When I first considered the sector, driven by Prof. C. K. Prahalad's HBR paper on "Serving the World's Poor, Profitably", what attracted me was the elusive idea of doing good and doing well at the same time. While market mechanisms may not always work from the get go, it was a concept that I found very attractive.

Indeed, understanding and being true to your motivations might help you be satisfied. Especially in a context when business schools applicants like my friend ask, "How important is it to do some non-profit work?"

It's an exciting time as the development sector is changing very fast and will look very different in a couple of years.

With NGOs converting to market-driven structures or philosophies, some of our favorites on NextBillion are making a big transition - in terms of their vision, capital and team structure - bringing unique challenges from inertia to compensation policy!

For quality talent considering the sector, the opportunity to work on highly entrepreneurial assignments with a lean, high caliber team remains a great draw.

Harnessing India's Human Capital Through Educational Opportunities

Nitin Rao — Mon, 28 Apr 2008 06:05:36 -0500

India's growth depends on its ability to significantly revamp its dismal education sector, which suffers from problems of outreach and quality. A recent study shows that the public education sector may be beyond saving.

A possible solution comes in the form of sustainable investments in a vast network of private schools delivering standardized, high quality education at an affordable price to the low income mass market (base of the pyramid) customer.

The investments in schools would take the form of financial resources, organizational support and value-added services to help these schools become efficient and effective educational institutions.

Harnessing India's Human Capital Through Educational Opportunities, published in the MIT International Review, presents one possible solution. (Full disclosure - I am one of the paper's co-authors.)

Read the paper at http://web.mit.edu/mitir/2008/spring/harnessing.pdf

(Photo by McKay Savage, used under Creative Commons License.)

Too Much Money Chasing Too Few Investments?

Nitin Rao — Fri, 25 Apr 2008 07:51:17 -0500

In recent years, the capital markets have infused millions of dollars into the 'development sector.' While we applaud the growing interest in development through enterprise, the question arises: are there enough quality investees? Or, more simply, is too much money chasing too few investments? Let's take a closer look:

Capital:
The novelty of the venture philanthropy model and the (debatable) success of microfinance in particular have helped attract large tracts of new capital to the development sector.

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Micro-loans and Macro-expectations

Nitin Rao — Tue, 25 Mar 2008 10:21:44 -0500

Via NextBillion ally Reuben Abraham, I was pointed to James Surowiecki's recent article, What Microloans Miss in The New Yorker.

Surowiecki points out that while microfinance does a tremendous amount of good, there are also real limits to what it can accomplish. With over $25 billions of loans and websites to lend to the poor, microloans are increasingly being viewed as a panacea for all issues of poverty.

An excerpt:

The idealized view of microfinance is that budding entrepreneurs use the loans to start and grow businesses—expanding operations, boosting inventory, and so on. The reality is more complicated. Microloans are often used to “smooth consumption”—tiding a borrower over in times of crisis. They’re also, as Karol Boudreaux and Tyler Cowen point out in a recent paper, often used for non-business expenses, such as a child’s education. It’s less common to find them used to fund major business expansions or to hire new employees. In part, this is because the loans can be very small—frequently as little as fifty or a hundred dollars—and generally come with very high interest rates, often above thirty or forty per cent. But it’s also because most microbusinesses aren’t looking to take on more workers. The vast majority have only one paid employee: the owner.

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Technology Diffusion: A Unique and Unexplored Challenge

Nitin Rao — Wed, 12 Mar 2008 08:57:57 -0500

Soon after we explored the role of Technology in BoP success, Derek pointed me to an interesting article in The Economist: Technology in emerging economies. The article makes a distinction between technology adoption and technology diffusion -- and argues that emerging economies are better at adopting new technologies than at putting them into widespread use.

The Tata Nano at USD 2500 is a favorite example to show that competence in design and technology exist, and that challenges could well lie in reaching out to a large audience.

Even as technology is spreading to emerging markets faster than ever, I found one very interesting data point.

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Technology: A Key to BoP Success?

Nitin Rao — Tue, 04 Mar 2008 14:46:40 -0500

What do Aravind Eye Care, d.light design, Ekgaon Technologies, ITC's e-Choupal, and the much awaited Tata Nano have in common?

New market segments?
Radically new paradigms?
Technology?

As the BoP discussion moves from whether-to-invest to where-to-invest, there is an increasing need to measure the impact of new ventures. I see a strong correlation between Successful Models and Technology.

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Social-Impact Fellowship in Hyderabad

Nitin Rao — Mon, 03 Mar 2008 15:08:51 -0500

Deadline: April 26, 2008

From the Social-Impact website and Via ThinkChange India:

Social-Impact is a new international professional development program. Their goal is to accelerate growth and increase impact of social entrepreneurs’ projects and/or organizations. Social-Impact’s programme provides social entrepreneurs with:

Mentoring
Training
Technical assistance consulting
Networking opportunities and
Access to financing

Social-Impact's comprehensive and customized technical and financial services will enable social entrepreneurs to scale their organizations. The program is offered to select candidates who have demonstrated exceptional progress in creating projects or programs which address social issues.The application can be found here.

In what is perhaps a sign of change in the way we look at social innovation, Social-Impact plans to have one-third of the 2008 cohort to be constituted of organizations that have significant earned income.

Job: Vice-President - Sales, India at d.light design

Nitin Rao — Fri, 29 Feb 2008 04:12:41 -0500

Position: Vice-President, Sales

Location: India

Organization: The goal of d.light design is simple – to eradicate kerosene lanterns from the face of the earth. To do this it will become the market leader in delivering safe and affordable lighting solutions to over 1.6 billion people who currently do not have access to electricity. d.light's initial focus is India, where it will provide modern lighting to the 78 million families still using kerosene lanterns.

Position Description: d.light design is hiring a VP Sales Executive who will report directly to the CEO and build sales and distribution in India. This position is based in Delhi and is an incredible opportunity to work with a high growth Silicon Valley social enterprise funded by both US and Indian investors including Mahindra & Mahindra, Draper Fisher Jurvetson, Acumen Fund, Nexus India Capital, Gray Matters Capital and Garage Technology Ventures.

For more details, visit http://www.dlightdesign.com/jobs/dlight-jd-vpsales.pdf

To apply, contact india@dlightdesign.com and include your CV and a statement of interest. Following successful phone interviews, the CEO, Sam Goldman, will conduct personal interviews in Delhi.

Global Action, Local Responsibility: Is Development Through Enterprise a Western-Only Concept?

Nitin Rao — Thu, 07 Feb 2008 12:55:22 -0500

This year's topic for the St. Gallen's Symposium set me thinking...

Global Capitalism, Local Values
There has been much discussion about Bill Gates' keynote address at the World Economic Forum in Davos, where he pushed for "a creative capitalism" that uses market forces to address the needs of the world's poorest countries. In his keynote, Gates told the audience that, "We have to find a way to make the aspects of capitalism that serve wealthier people serve poorer people as well."

Even as academics such as Prof. C. K. Prahalad at the University of Michigan and Prof. Kasturi Rangan at Harvard Business School write and research extensively on the opportunities at the base of the economic pyramid, does development through enterprise (DTE) remain by and large a Western concept? Is global capitalism a wave that originates from the West and trickles to the developed countries?

Clash in Values
Based largely upon my experiences in the development sector in India, I believe the success of global concepts (spawned in the West) ultimately lies in their implementation at a local level.

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