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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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The equity gap is growing- small businesses worldwide are finding it harder to obtain needed financing, as has been well documented. For some companies, especially those in emerging economies with few resources, the only alternative is to seek funding from wealthy individual “angel investors” who are willing to invest in seed enterprises that are too risky for venture capitalists.

An article in the Economist details the role these angel investors play in funding startup enterprises, especially as they are becoming an effective bridge to expansion stage funding where investment firms are more willing to take over. The story of the finance gap that exists between an enterprise's startup stage and VC investment is similar to that of the major banks giving microloans; the large fixed costs associated with an investment along with the greater risk of failure small startups have deter VCs from putting money into these enterprises.

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Uganda and India have further institutionalized the growing political popularity of microfinance by attempting to regulate it.  A closer look shows how government intervention can facilitate or hinder the growth of these programs.  

Uganda’s government has chosen to simply limit the interest rate creditors can charge to keep up with inflation.  This effectively kills any profit motive that might have existed in a financial sector where it is already difficult to convince lenders to give out loans with high fixed costs and low yields.  

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As heads of the World Bank battle it out over how to curtail corruption in beneficiary countries, a curious trend is forming that could be a far greater threat to the open, global economic system they favor than any graft or bribery scheme. Over the weekend 116 countries were represented at the Non-Aligned Movement meeting in Cuba. These countries largely comprise the symbolic “South” in the North-South view of global economic and political power.

Pundits around the world saw this as a “revival” for the NAM after having dwindled following the end of the Cold War. I think the US media makes a mistake in painting this as a general anti-US or anti-Western conference; although it is attended by the likes of Hugo Chavez and President Ahmadinejad, the overall sentiment seems to be a greater need for economic and political independence.

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The One Laptop Per Child (OLPC) project gets a lot of hype, which I have no problem with- the more attention the media devotes to development issues the better, in my opinion. But it always bothers me a bit that this MIT creation gets all the press when it hasn’t even reached the implementation stage yet, and other NGOs are already on the ground wiring thousands of villages ala FirstMile Solutions.

In the spirit of spreading the ICT-for-BOP love, take a minute to check out WorldChanging’s recent interview with Inveneo.org, a mostly women-led group (cheers for gendered approaches to poverty issues!) that has worked to create a growing network of wired villages in Africa. The computers are different from OLPC because they have no moving parts and are powered externally and the internet connection hardware differs from FirstMile in that it relies on wifi relay towers.

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UPDATE: Michael Jarvis has posted notes from another meeting, this one called Business Reaching the Poor. Based on his post, it sounds like the second seminar was more focused and less rhetorical than the first (although that's not saying much.

Thanks to PSD Blogger Michael Jarvis, we have a short update from the World Bank – International Monetary Fund annual meeting, currently being held in Singapore. Jarvis attended a seminar entitled "Raising the Stakes: New Frontiers for the Private Sector in Development", and has this report:

Prahalad called for consumption-led, not investment-led, development, with business providing greater choices to the poor and helping reduce the poverty penalty where the poor pay more for the same goods than the wealthy. [He] argued that boardroom debate no longer focuses on the "why" of reaching out to 5 billion poor consumers - it just makes sense - but on the “how”. Innovation is required in marketing, pricing and across company operations.

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You may have read a blog I posted recently discussing some of the problems with the Fairtrade system; this drew directly on a Financial Times article detailing the ways coffee growers in Peru pass their products off as Fairtrade while circumventing the rules. Soon after, the Fairtrade Foundation wrote back with a defense of the system and principles by which farmers are certified and monitored.

The press release answers the FT reporter’s charges that these Peruvian farmers make below the legal minimum wage, arguing that they in fact earn more than what uncertified growers in the region pay their employees despite selling only a fraction of their full crop.

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There is a poignant article in today's New York Times on the alarming rate of suicides amongst India's farmers - more than 17,000 in 2003. Tracing the causes of this epidemic, the article explores a confluence of forces from moneylenders to American multinationals selling genetically modified seed. An excellent article, recommended reading and, in my opinion, an important counterbalance to our frequent praise of market driven development.

Formal, profitable SME financing is gaining momentum in India, as two articles in last week’s Indian financial press indicate:

ICICI Venture mulls 4 specialized funds
New SME Fund to Launch in India

Small and medium sized enterprise investment funds are not new; we’ve discussed the Shell Foundation’s successful African SME fund in the past. Other previous posts have covered the unmet demand for mesofinance. Last week’s announcements by BTS Investment Advisors and ICICI indicate to me that major players in commercial finance have finally begun to understand the need for and potential in SME finance.

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September is an exciting month for country ranking enthusiasts. World Bank’s 2007 Doing Business Report, and Cato/Fraser Institute’s 2006 Economic Freedom Report were released back-to-back, Sep 6 and Sep 7, respectively, begging for some compare-and-contract action. First, what are the purposes of these rankings?

It seems the DB rankings are more like athlete rankings more than anything—they serve as benchmarks for comparison and goals for improvement. Every year, policymakers look at the Doing Business rankings and set about to advance their position compared with the other 175 countries in the running. Mauritius, for example, aims to make the top-10 list in Doing Business by 2009. Doing Business measures 10 aspects of the business environment, oftentimes in terms of how many steps and how much time are involved in completing each of the following processes: starting a business, dealing with licenses, employing workers, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and closing a business.

Continue reading past the break for my comparative analysis of countries from both reports.

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