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It has been interesting and worthwhile to me to have the opportunity to sift through NextBillion’s multitude of resources in search of projects to add to the activity database. The projects I have come across never cease to inspire. Some are new twists on old ideas combining traditional methods with modern systems…some are partnerships forged in the name of innovation. Some focus on cultural and artistic traditions and still others address more urgent needs such as disease prevention and nutrition. Acknowledging and sharing each project’s success and significance is just as important as the activities themselves.

Banco do Nordeste's CrediAmigo: Microfinance Banking
In November 1996 at a meeting in Fortaleza, the World Bank and Banco do Nordeste, a development bank formed to support growth in northeastern Brazil, decided to initiate a collaborative process to jointly implement a local development program based on the idea of micro-credit. Motivated by the fact that small informal companies – family owned and small properties - were not being served by the Bank's financing activities due to the restrictive regulation of Brazil's Banking Systems, Banco do Nordeste and the World Bank decided to develop and launch a pilot low-income bank, targeting micro-entrepreneurs from informal sectors.

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What do cows and cell phones have in common? Until the advent of microfinance, the answer was not much. Over the past twenty or so years, small loans have enabled thousands of low-income clients to purchase a cow – a story we've all heard before. The client sells milk, making money to re-pay the loan and maintain a steady income. In recent years, microfinance clients in Bangladesh, Rwanda, Uganda, and the Philippines have used their loans to purchase cell phones and service through a project called Grameen (now Village) Phone. These entrepreneurs then re-sell minutes on their phone at a slight mark-up to fellow villagers – just like their predecessors sold (and still sell) milk to generate money.

Grameen/Village Phone – combining innovative technology with microfinance and a good business model – has always been one of my favorite base of the pyramid success stories (WRI published an excellent business case study on GrameenPhone way back in 2001). Despite the project's strength, it hasn't grown much beyond its roots in four countries. Even when you have a good, proven idea, it's hard to expand quickly without local offices and staff in new markets. For Village Phone to work, you need to be able to evaluate clients, manage loans, interface with local phone companies, and keep the phones charged and running. The Grameen Foundation has the staff and expertise to do all this in their four operational countries – but why limit such a good model because of a lack of staff?

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There is no doubt that there is something to microcredit, though there are critics. But have we let the hype behind the idea, (see Rob's post about Yunus' Nobel Peace Prize) blind our ability to see its faults?  This Forbes article, Easy Money, goes deeper into some of the fallacies of microfinance.  It's worth reading.  An excerpt:

In the K.R. Puram slum in Bangalore, India, a group of 15 women gather in a small, muggy living room. The electricity comes and goes, turning the fan and the single bare lightbulb on and off. Flies buzz around the room, and children run in and out.

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Remember Innovations?  First issued this past March, Innovations: Technology | Governance | Globalization is a relatively new journal from MIT Press about people using technology and new modes of organization to address global challenges.  I wrote about it on NextBillion back then, after Phil Auerswald graciously sent over a pre-publication copy.  At the time, I called it "a must-read for anyone interested in creative, local solutions to the world's problems", and suggested that "its content bridges the gap between 'whatever works' BOP practice and rigorous academic analysis."  More than six months later, I stand by my assessment, in part due to their upcoming issue's focus: microfinance and technology.

Those of us interested in reading more about microfinance and technology will have to wait until next March, but I’m sure there are plenty of NextBillion readers who are practitioners in this emerging field.  If so, consider submitting a paper.  Nick Sullivan, whose forthcoming book You Can Hear Me Now focuses on the impact of cell phone companies in development, is also publisher of Innovations.  He sent over some general criteria for submission:

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"It's a moment to balance the global with the local." - Dr. Abhay Bang, director of SEARCH

NextBillion’s news section contains 4 new items, all of which pertain to “risk” in relation to the BOP community. But this risk I am referring to is two-fold. These news items address the wrongly perceived notion by commercial banks and insurance companies that the poor are 'high risk.' But the flip side, the newsworthy aspect, is that now these companies are seeing opportunity instead of risk. In fact, they are making it their job to reduce the risk to the poor using multiple approaches.

Micro Health Insurance
For years, the poor were considered uninsurable, both for the barrage of risks they face and for being either unwilling or unable to pay for disasters in advance. Micro health insurance plans, such as the one provided by UpLift India Association, aim to provide quality healthcare at low premiums on a community-level scale. Undertaken with creative planning, this initiative can provide the same protection against risk for the poor that it does for the rich. In countries such as India (the world leader in this emerging field, with 5 to 10 million people enrolled in micro health insurance nationwide) where the poor usually work in informal jobs or are self-employed, they are highly unlikely to be included in employment-related plans. In addition, about one-fourth of hospitalized Indians fall below the poverty line as a direct result of their hospital expenses, according to a 2002 World Bank report. Many people take out steep loans or sell their homes in order to pay. And for the poor, losing even a day's wages while waiting in the hospital can be devastating. According to an article by The Christian Science Monitor...

Nandakumar Rajeshirke, a stone carver in India, bought coverage for his whole family at 50 rupees ($1.10) per person annually and renewed the plan for several years in a row. In 2005, his gamble paid off. Rajeshirke's wife needed a hysterectomy, a procedure that would normally cost 20,000 rupees ($446), one-third of his yearly salary. "Without insurance," he says, "I would have had to sell some things from my house or get a loan from someone at high rates." Instead of facing financial ruin, he paid 6,000 rupees ($134) total and had help navigating the long process through diagnosis, surgery, and medication.

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What’s a hundred dollars from the perspective of a low-income, base of the pyramid community? That question should be viewed in a new light in the weeks after Muhammad Yunus was announced as the Nobel Peace Prize winner. A hundred bucks? That’s a micro-loan, of course, to be made through Yunus’ Grameen Bank or any of its surrogates around the world. Perhaps the cutting edge answer is to loan the hundred peer-to-peer through Kiva, or invest it in a for-profit microfinance fund, as reported in a lengthy, well-researched New Yorker article. All are worthy responses, but microfinance is not the be-all, end-all answer to the perspective question.

In the new APP (After Peace Prize) world, the barrage of media coverage about microfinance has overshadowed an important fact: some people are too poor for loans, or simply scared of credit. What does this mean for the development, philanthropic, and policymaking communities? Perhaps they should take a closer look at organizations like Trickle Up, a non-profit that provides seed grants (not loans) of $100 and business training to aspiring microentrepreneurs worldwide.

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I've recently been reading through some past blogs, keeping a keen and curious eye out for activities to add to NextBillion's activity database...care to see what I found? Some very interesting, and of course worthwhile projects...

ZENUFA Laboratories - Tanzania

Zenufa, a pharmaceutical company, is settting up one of the first Tanzanian pharmaceutical plants complying with the WHO Current Good Manufacturing Standards. The project is being supported by BIO (Belgian Investment Company for Developing Countries)

Zenufa has a long-range plan to produce more innovative drugs, not yet manufactured in Tanzania, such as ARV drugs for aids patients. Zenufa will sell most of its products in Tanzania but will also target other neighbourhood countries. In addition, this plant will improve the access to essential drugs, will help reduce prices and will offer opportunities to launch more sophisticated drugs. Zenufa will create about 150 new jobs, most of them for women.

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I was in Karachi this past weekend, where I addressed a packed seminar, Improving Access to Financial Services: Mobile Money Transfer and Beyond, convened by the Asian Development Bank and the State Bank of Pakistan. If audience enthusiasm is any indication, financial service provision over mobile phones continues to gain momentum in both development and private sector circles.

The topic of my talk was low-cost networks and their role in providing all kinds of services – not just financial – to rural communities where there is currently no coverage. I believe that connectivity is a key enabler to all kinds of business development, and that the other important ingredient is microfinance. Despite the rapid spread of mobile phone coverage and the exponential growth of microfinance (legitimized by Muhammad Yunus’ Nobel Peace Prize), there are still millions – billions – of rural, low-income villagers who remain off the network. Connectivity and microfinance can jump-start the latent economic potential of these billions – by giving them access to finance, markets, information, customers, suppliers, government tenders, large companies...the list goes on.

Another presenter at the seminar was a team from Globe Telecom (Philippines) who spoke about their G-Cash platform (previously noted on NextBillion). They now claim it can be implemented on any mobile system – a not-so-subtle indication that G-Cash is going to scale up, and soon. I am beginning to wonder if G-Cash is going to be one of the first BOP innovations to blow back to the West/North, and if we’ll be using the system here in the United States sooner than expected.

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Muhammad Yunus, who developed the idea of microfinance and later founded the Grameen Bank, is the 2006 winner of the Nobel Peace Prize. It is not his first peace prize. The Wikipedia entry is already updated to reflect today’s news; I suspect the mainstream media will be saturated with coverage over the next few days.

I’m thrilled to see a pioneer like Yunus receive an award of this caliber; it will probably mainstream microfinance in a way that we’ve never before seen. Maybe now the press will stop its often cookie-cutter coverage of the topic, and instead focus on more cutting-edge news. How about stories on interest rate caps, the underserved gap between microfinance and venture capital, and the role informality plays in keeping businesses micro, just for starters?

Regardless of how this story is covered, however, it can only be a good thing. Congratulations to Dr. Yunus and the Grameen Bank, and to all the people working hard every day to bring financial services to the BOP.

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It was bound to happen- BusinessWeek caught the microfinance bug today, publishing an extended overview of this booming industry in India.  Rather than simply explaining the microfinance movement and describing how it works, the author gets into some of the structural imbalances spurring market demand for credit in small amounts.

The article contrasts India’s prosperity on a national level “its economy has clocked 8%-plus growth over the past three years” with the unequal distribution of these gains “roughly 30% of India’s 1-billion-plus population lives below the poverty line” to illustrate the reason why representatives of ICICI bank would be traipsing around rural India handing out $100 at a time.

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