Blog

Last week, while checking out some regular blogs, I bumped into a short note about a magazine called "Upsides" in the CGAP Blog.

Upsides is an FMO (the Netherlands Finance Development Company) initiative, supported by other likeminded financial institutions such as Standard Bank, Plantersbank, Triodos Bank and ShoreBank.  As such, the core content of Upsides revolves around finance and development.

Every Upsides issue has, on average, three detailed articles that develop a particular aspect of development finance. These articles are peppered with several case studies that help add flesh to the bone and reflect stories from different perspectives.  Additionally there is a section called 20:20 featuring interviews with important actors in the arena.

Initially, I thought that I would read the four already published issues and give an overview here, but soon it became apparent to me that the magazine is just too good to do it the disservice of a mediocre summary. Plus the contents are well thought out and they develop several important well-connected points. Clearly, the authors are experts and they have put much time into their articles.

Instead, I have chosen to give some mouthwatering tidbits of the fourth issue with the hope of stimulating readership from NextBillion visitors. There were three main topics: remittances, the brain drain in emerging economies and branchless banking.

1) Remittances:

• Remittances are usually nearly totally spent. However, when remittances are channeled into savings accounts, a large portion is saved. These savings contribute to the financing of productive activities. In Nicaragua’s case, it has been proved that emigrants are more likely to return home when they know that their remittances are being invested in something meaningful.
• The constraints consumers face in the remittances market are the informality of the transfers market, the cost of remitting and the lack of access to financial institutions.
• In most developing countries, governments require that only banks should be allowed to transfer remittances. Rural areas with their lack of bank branches are thus underserved. Overhauling this legislation to allow non banking financial institutions such as savings and credit associations (like microfinance institutions) to pay remittances will increase the capillarity of the financial system and competition among market players.
• Consumer education is crucial among the less financially literate to avoid spending on non-basic necessities.
• New technologies can allow for cheaper account-to-account transactions. Mobile phone telephony or prepaid cards are an alternative to facilitate remittances.

Continue reading this article

(Via Emeka Okafor and the International Private Enterprise Group)

Equity Investment Firm in Rwanda seeks a CEO to oversee all of its investments. The position is based in Kigali, Rwanda. The firm is investing $25-50 million of equity into a portfolio of companies based in Rwanda. The CEO will report directly to the firm's board of investors and will be responsible for overseeing all corporate governance and financial reporting of the firm and its portfolio companies.

Continue reading this article

Anand Shah, CEO of the Piramal Foundation and a NextBillion reader, alerted me to the recently-announced $25,000//10 lakh rupees Piramal Prize for Innovations that Democratize Healthcare.  In his e-mail, he notes that prize was created

...to encourage and support bold entrepreneurial ideas which have a profound impact on access to higher standards of health for India’s rural and marginalized urban communities. The award recognizes high-impact, scalable business models that propose innovative solutions which directly or indirectly address India’s healthcare crisis. Entries may include, but are not limited to, innovations in service delivery, technology applications, health-related products, or mechanisms to address public health necessities such as potable water.

Initial entries for the prize are due no later than April 1, 2008; the winner will be announced at the end of May. 

The Piramal Prize is a joint project of the Ajay G. Piramal Foundation and the Centre for Innovation Incubation and Entrepreneurship at the Indian Institute of Management - Ahmedabad.  It is interesting to note that the Piramal Foundation gets most of its support from Piramal Enterprises, a major player in the Indian pharmaceutical industry.  This prize is an excellent example of how corporate social investment aligns with financial returns.  But that's the subject of another post.

Continue reading this article

Shatajit Basu, a college junior at IIT Madras and a core member of the India chapter of Asia-Pacific Student Entrepreneurship society (ASES), attended the L-RAMP Innovation Awards 2007 and sent us this guest post.

By Shatajit Basu

Continue reading this article

(Photo: The Women of Akbarpura, by Flickr user lecercle, used under a Creative Commons license.)

NextBillion readers often ask me why we don't cover the microfinance industry more closely. After all, microfinance is a slam dunk BoP success story: a business strategy that helps low-income communities access high quality, competitively priced financial services. So why not write about it more often?

Continue reading this article

Position: SME Equity Finance Director

Location: Amsterdam, with regular travel

Organization: The BiD Network Foundation operates the world’s largest international business plan competition for SMEs in developing countries. It does this online worldwide through its 16,000 member community and with seven national competitions in Asia, Africa and Latin America. Its mission is to contribute to economic growth in developing countries through entrepreneurship.

BiD Network is establishing an investor matchmaking service. It aims to gradually expand its local satellites from 7 to 14-20 countries and is taking steps to launch a Meso-Finance investment facility in 2008.

Job description: BiD Network seeks a director whose main task will be to take charge of the broadening of the Network’s financial services to encompass matchmaking and investor promotion. This task will be executed in tandem with the director in charge of day-to-day operational management of the competitions and continual website development. SME equity finance is a new field of activity that needs to be added to the emerging matchmaking service.

For more information about this position, please click here.

Some NextBillion readers may have noticed a rather provocatively titled piece that appeared recently as the cover article for BusinessWeek: "Can Greed Save Africa?"

What a way to cut to the chase! The article probably makes most development and aid activists squirm. After all, Renier van Rooyen, the South African on-site manager of ESV Biofuels, one of the investments featured in the piece, is quoted as saying, "I'd be the last person in the history books to go down as a philanthropist... But you cannot run a business when your workers are out with malaria or sick from dirty water." This was his way of explaining changes in the village of Inhassune where, as a result of the jobs created by the a new biofuel plant, "mosquito control, power lines, and potable water have quickly arisen from a barren stretch of bush" and people are registering to vote (with newly issued government ID cards) for the first time in their lives.

Continue reading this article

Codensa is a very successful utility company that serves 2.2 million customers in Colombia. It is controlled by Endesa, the largest electric utility company in Spain, which in 1997 took control of Codensa and Emgesa (this second company accounts for 21% of the generated electric capacity in Colombia).

Its return over equity (that is, the rate of return over shareholders’ investments) has grown from 4% in 2003 to nearly 12% in 2006. This is a measure of the current company's profitability.

Furthermore, last July, Codensa’s debt offer was oversubscribed three times, despite being in Colombian pesos rather than a more stable international currency and despite the jittery markets at the time (they still are). This was a bet the market made in favor of Codensa’s future stability and profitability.

Codensa caters to the Colombian BOP. According to their 2006 Annual Report (in Spanish), more than 88% of their customers were households of which more than 80% belong to the socioeconomic population strata 1, 2 and 3. In value terms, households represent nearly 60% of total sales out of which 74% belong to the above mentioned strata. In both these cases, strata 2 and 3 represent the lion’s share in volume and value terms.

Customer growth has averaged around 3% since 2000 with the increase in the value of energy sales rising from 1% in 2003 to 5.77% percent in 2006.

How does Codensa do it?




















First, it is run very efficiently. When Endesa bought Codensa, loss of energy was nearly one quarter of its total energy output. Now it is less than 9%. Loss of energy can be due to many reasons, ranging from theft to poor infrastructure management. To be able to reduce energy losses requires a constant, well-coordinated and interdepartmental effort. Only well-run firms can accomplish this for several consecutive years.

Codensa realized that even its success in the energy market would not bring long term growth. As current Colombian legislation sets market concentration limits of 25% on companies in energy distribution, this would be a ceiling on growth for Codensa, which in 2006 had 21.4% of the market. To keep growing regardless, Codensa decided to try something new in 2000 (four years before the publication of C.K. Prahalad’s book).

Codensa’s management noticed that it had a critical mass of customers whom it knew relatively well. At the same time, it noticed that most of its customers did not own electrical appliances. By offering credits to stimulate ownership, the firm’s revenues would increase. When no bank stepped forward at this opportunity, Codensa decided to go solo. They offered loans to customers to enable them to purchase electric appliances while allowing them to pay back the loans through their utility bills. The loan rate was fixed at the average rate in Colombia. Codensa also signed agreements with retailers to offer appliances targeted to their customers.

It was a runaway success. Today, up to 18 retailers have joined into agreements with Codensa, offering up to 90 different brands of electronics to their customers. These are some telling figures:

• 74% of the customers who ask for a loan are successful in obtaining it.
• 95% of its borrowers belong to the population strata 1, 2 and 3. Out of this percentage 32% have never had any relationship with the banking sector (not a surprise in a country where 60% of the non-banked population does not even know where to find a banking branch).
• Only 5% of their borrowers default, even though Codensa is not allowed to cut electricity on those customers who do not pay back their loans (and this is written in every bill).

Continue reading this article

(via Just Means)

Position: Membership & Administration Coordinator (Entry-level)

Location: Washington, DC

The Social Investment Forum (SIF) is a national nonprofit organization for financial professionals and institutions that advances the concept, practice, and growth of socially and environmentally responsible investing.

This entry-level position offers an opportunity to learn about economic strategies that address key issues such as: corporate social responsibility, serving low-income communities through community investments, and strengthening the voice of shareowners and stakeholders in corporate decision-making.

For more details about the position, qualifications, and application instructions please click here.

Usually, I stand by the belief that bringing politics into development discussions is a recipe for disaster for anyone – be they journalist, blogger, development planner or, above all, the target "beneficiary."

Today, however, I can’t resist pointing to the political events in Venezuela (the extremely narrow 51-49% defeat of Hugo Chavez’s sweeping constitutional reform package two days ago), with the hope that they will spark discussion on NextBillion about what this means for the BoP. (For worldwide news perspectives on these events, click here).

Continue reading this article