The problems are deep and they are institutional above all else. One just has to ‘follow the money’:

– who pays government officials?
– who pays civil servants?
– who pays politicians?
– who pays bankers?
– who pays central bankers?

What is the difference between what we believe happens and what is really happening with money: who prints it and for what purpose? More on Money as Debt also known as Credit.

02 September 2008
Microloans Enable Many Bolivians to Become Entrepreneurs

Microfinance is fastest-growing business in South America’s poorest country

By Phillip Kurata
Staff Writer

Washington — Bolivia, the poorest country in South America, has devised a system of microfinance lending that offers poor, often illiterate people the chance to become self-sustaining entrepreneurs.

One such entrepreneur is Flora Callisaya, a 38-year-old single mother of three boys aged 12, 14, and 18. The mother and her boys used to live with Callisaya’s parents as she struggled to support her family. She received her first loan of $17 from the Pro Mujer microfinance institution (MFI), which requires its members to participate in a savings program.

Callisaya used her initial loan to buy materials for a printing business. From that modest beginning, she expanded her enterprise to include a photography studio and dishware and gift boxes that she sells in the market. Her loan now is $1,122.

Thanks to Pro Mujer’s mandatory savings program, Callisaya has bought her own land and a house. She has served as president of the communal bank that the MFI helped organize.

“Pro Mujer is like school for us. Here we can see each other, have fun, relax and learn. For us Pro Mujer is a place we can be together,” Callisaya said, according to the Pro Mujer Web site.

Inter-American Development Bank seed financing has played an important role in the Bolivian and similar microfinance systems throughout the region.

“Microfinance lending is the fastest growing and most profitable sector of the Bolivian economy for the past quarter century,” said Sandra Darville of IDB. “Loan repayment rate is very high. If they want another loan, they have to repay the first one.”

Bolivia seized and redistributed land, nationalized mines and natural gas reserves and imposed exchange rate and price controls from the 1950s to the 1980s with the aim of spurring economic growth, but to little avail.

Then, in the 1980s, Bolivia reversed course and embraced market-based reforms — lifting price controls, encouraging foreign trade, selling off state enterprises and closing unprofitable mines. Those measures stabilized the economy but did not induce economic growth. Poverty remained high, and the rural poor migrated to the cities in search of better economic prospects. Witness the growth of El Alto, a city near the capital, La Paz, from a population of 100,000 to more than 1 million over 15 years.

On the streets of El Alto, as well as other Bolivian cities, vendors sell fruits, vegetables, televisions, refrigerators and clothing. These street businesses are part of the “informal” economy, which provides the livelihood for more than 60 percent of the population.

To enable laid-off miners, landless peasants and others of the impoverished underclass to support themselves, donor countries, charities and the Bolivian government developed ways of identifying prospective entrepreneurs and loaning them small sums of money to launch businesses. Thus was born the microfinance industry, and the collapse of the myth that poor, illiterate people were poor credit risks. The default rate on microloans is less than 5 percent.

About 1 million Bolivians have taken out microloans from about 20 MFIs. Throughout the Latin America and Caribbean region, about 8 million people have taken out microloans, amounting to about $9 billion.

The 2004 Special Summit of the Americas affirmed its support for IDB lending through the banking system to micro-, small-, and medium-sized enterprises. A summit statement praised IDB for “striving to benefit all of the countries that participate in the Summit of the Americas process.”

Referring to Bolivian microloan recipients, the IDB’s Sergio Navajas said, “These people are very, very poor, but they have viable businesses. The key to microfinance is having methodology that distinguishes legitimate business people from would-be beggars.”

“MFIs are part of the financial system,” Darville said. “Certainly, they are sustainable. They have grown, taking deposits, offering checking accounts. Some issue bonds and shares. Increasingly, they are part of the domestic and international capital markets. [Credit rating company] Standard and Poor’s has begun rating them for their credit risk.”

The microfinance lenders form close ties with borrowers, getting to know them and their communities. Often loans are extended to groups, creating “moral collateral” in the absence of material assets. If one person defaults on a loan, then the other members of the group are responsible for repayment. The social network minimizes the default rate.

The interest rates on microloans in Bolivia have fallen from around 60 percent a year in the 1990s to 19 percent now, according to Navajas. As business people have seen that microfinance is a viable service industry, competition has grown and lowered the cost of borrowing, he said.

Most of the microloan recipients are women — by coincidence rather than design, according to Darville, although some MFIs deal exclusively with women. The reason that women constitute the majority of the borrowers is that most microfinance loans go for retail businesses, such as small grocery stores, bakeries, handicrafts, restaurants and market stalls, where women predominate.

How to Write About Failed Bottom of the Pyramid Ventures
Submitted by Rob Katz on July 17, 2008 – 09:47.
Published in: Microfinance | Miscellaneous

Like any business, base/bottom of the pyramid ventures fail – often. I have neither the space nor the inclination to list those I know of – besides, writers from Erik Simanis to Aneel Karnani to Anand K. Jaiswal have done some of the heavy lifting for me.

We don’t talk enough about failed bottom of the pyramid ventures. After all, what CEO wants to risk his company by talking about all the things they did wrong?

Answer: Matt Flannery. The Kiva CEO is incredibly forthright when discussing what they’ve done well and what they haven’t. His latest blog post is practically a how-to guide for talking about failure inside a BoP venture.

Ultimately, Flannery’s self-effacing and honest tone makes me trust him and Kiva more, even as he discusses huge loan defaults in their portfolio. Why does this work?

1. Know what you did wrong, and say it. Don’t equivocate. Matt comes out and admits – in plain English – that Kiva rushed into partnerships without sufficient due diligence.
2. Don’t blame others. Sure, the political situation in Kenya is tough, and corruption in many African countries is high – but Matt isn’t trying to pass the buck.
3. Be personal. Matt isn’t using corporate communications lingo – instead, he offers a “(sh**)list of partnerships that closed in bad faith.” Unprofessional? Only if you’re a corporate communications consultant. To the rest of us, this is honesty, plain and simple.

For maximum effect – and to learn from the master – read Matt’s post. While you’re there, subscribe to his Kiva Chronicles blog. You won’t be disappointed.

It starts with Overview: Microfinance unlocks potential of the poor which says:

Microfinance hit the headlines in 2006, when the Nobel peace prize was awarded to Muhammad Yunus, a Bangladeshi banker who pioneered the idea of providing small loans to villagers.

Microfinance may even become an asset class for investors. In May, the International Finance Corporation, part of the World Bank Group, announced an investment of $45m in credit-linked notes to be issued by a vehicle set up by Standard Chartered to facilitate microfinance lending in sub-Saharan Africa and south Asia.

Meanwhile, microfinance has become one of the main instruments through which the poor access financial services. In Bangladesh, ASA, the microfinance group, operates a decentralised model in which simplified accounting and record keeping removes the need to have separate accountants and cashiers in branches.

The article of most interest here summarises the main points of an interview with Lars Thunell, the Swedish-born chief executive of the International Finance Corporation, the World Bank’s private sector finance arm.

Several relevant excerpts from it are included below.

FT.com / Reports – Lars Thunell: Poor farmers need level field

The need for a set of standards to protect poor people while mitigating
against the risks to financial institutions chimes well with the IFC’s mission to promote sustainable private sector investment in developing countries.

The IFC has established a “responsible microfinance initiative” to look at developing a version of its Equator Principles – the project finance standards first developed five years ago in conjunction with a small group of banks – which have been adopted by some 60 financial institutions worldwide.

The IFC is also conscious of the controversy surrounding the profits made by Compartamos, the Mexican lender. Muhammad Yunus, the Nobel peace-prize winning founder of the Grameen microfinance institution, criticised the high interest rates demanded from Compartamos’ poor customers after the company successfully completed a lucrative public offering.

… as commercial banks vie with social enterprises in the microfinance field, the question of how much profit is acceptable lacks a definitive answer.

“The [interest] rates are there, – it’s a fact of life – but I think what would always help in any market is more transparency and disclosure around those rates,” Mr Thunell says.

Furthermore, technology is likely to play a role in widening access to microfinance – for example by allowing borrowers to pay using their mobile phone instead of going to a bank.

But this win-win model is likely to face a serious test this year as millions of people in the developing world struggle with rising food prices.

Conscious of anecdotal evidence that rising costs have left producers unable to plant all their land, the IFC is looking at how it can help farmers expand cultivation by financing the purchase of seeds.

Moreover, microfinance is increasingly about the provision of a broad range of financial services, not just small loans, and these too could play a role in solving the food crisis.

“It’s not only a moral issue I think there’s going to be tremendous business opportunities to look at agribusiness in a new way and be creative,” he says.

Mr Thunell says his dream is to help financial firms provide insurance to farmers to protect them against sudden hardship.

If the rains fail the insured farmer would receive help to repay the microfinance loan.

“These are the types of thing that we should be doing – first showing how it can be done, then incorporating that into our projects, then finding partners and spreading [the idea].

“That’s our job, that’s what makes it fun,” he says.

Grameen Shakti (GS) has won the First Place under the National Energy Globe Award 2007, says a press release.

It is one of the 15 best projects, out of 800 contenders from all over the world.

GS has also been selected as one of three nominees under the air category for the Energy Globe Award 2007. It has won these recognitions because of its unique and impressive programme to bring light, energy and income to energy-starved rural Bangladesh through renewable energy technologies.

Dipal Barua, managing director of Grameen Shakti, received thee awards in the Plenary Hall of the European Parliament in Brussels on May 26. Eminent personalities such as European Parliament President Hans-Gert Pottering, EU Commission President Jose Manual Barroso, former UN Secretary General Kofi Annan and former Soviet president Mikhail Gorbachev attended the ceremony

Grameen Shakti, a worldwide leading rural-based renewable energy provider, has installed 160,000 solar home systems, over 3000 biogas plants and 15000 improved cooking stoves.

Grameen Healthcare, SGHG to establish trust

The Daily Star - Wednesday, May 14, 2008

Grameen Healthcare Trust and Saudi-German Hospital Group (SGHG) of Saudi Arabia yesterday signed a cooperation agreement for establishment of a trust to build social business hospitals which will bring health services to the country’s poor and disadvantaged people, says a press release.

Sources said the partnership deal will work with the common social goal of providing primary and secondary healthcare services to the people, particularly to the most disadvantaged.

As part of the joint-venture initiatives, a 50-bed hospital named ‘Al Sabeel-Grameen Hospital’ will be established at first. On the basis of success of the hospital, more hospitals will also be built in the country.

Nobel laureate and Grameen Healthcare Chairman Prof Muhammad Yunus and SGHG President engineer Sobhi Batterjee signed the agreement on behalf of their respective organisations at Grameen Bank headquarters in the city.

Islamic Development Bank (IDB) President Dr Ahmed Mohamed Ali was present at the signing ceremony as chief guest. Saudi Charge d’Affaires in Dhaka was also present at the programme.

Professor Yunus said, “We are very happy to collaborate with the Saudi-German Hospital Group on social business hospitals in the country. After establishment of our first 50-bed hospital, we hope to create several such hospitals for the benefit of the poor and disadvantaged people. We look forward to our partnership with the Saudi German Hospital Group”.

SGHG President Sobhi Batterjee said, “Saudi German Hospital Group will bring expertise in building and running hospitals. Grameen will bring its expertise in reaching the grassroots people with services. We are looking forward to this collaboration.”

IDB President Dr Ahmed Mohamed Ali said, “The IDB will be an active partner in ensuring the success of this partnership.”

Prof Yunus and Sobhi Batterjee, president of SGHG, a leading provider of medical services in the Middle East, met in Dubai January this year and decided to embark on a collaboration of setting up social business hospitals in Bangladesh and beyond.

Intel-Grameen deal on ICT – based business services

The Daily Star – Wednesday, May 10, 2008

Global computer technology giant Intel has signed an agreement with Grameen Trust to form a new venture dedicated to social and economic development.

Intel Corporation Chairman Craig Barrett announced this while addressing the World Congress on Information Technology (WCIT) 2008 in Malaysia on Monday.

The Grameen-Intel joint venture aims to bring about self-sustaining solutions based on information and communications technology (ICT) to help empower the world’s impoverished.

The initiative, which will be launched in Bangladesh, is based on the ‘social business’ model created by Nobel Peace Prize winner Dr Muhammad Yunus, who founded Grameen Bank in 1976 to promote microfinancing and community development.

“Technology offers the means for scaling up our efforts towards global change and progress,” said Barrett, who also chairs the United Nations Global Alliance for ICT and Development (UN GAID). “By creating new business models based on ICT, as Intel is doing today with Grameen, we can bring people the tools they need to improve their future.”

“I am very happy to collaborate with Intel in this new direction and create opportunities for poor people to rise above social and economic barriers,” said Yunus, also the author of the best-seller, Creating a World Without Poverty.

“I believe technology-based services will provide the ‘hand up’ that people need to discover their full potential. Once we show that this business model works in Bangladesh, we hope the successes we achieve there can be applied to the rest of the developing world.”

Grameen-Intel combines Intel’s technology innovation and Grameen’s extensive experience in creating economic development and income-generation opportunities at the village level. The new company will use a private sector-based approach to address social and economic problems such as poverty, healthcare and education in developing countries.

Intel and Grameen foresee a number of ICT-based services and entrepreneurship opportunities growing out of such a business model. Examples include remote villagers receiving medical attention through internet connectivity, rural communities being able to order medicine locally instead of having to walk 10 miles to a hospital, and families being notified of money received from relatives abroad.

According to Kazi I Huque, the Intel manager serving as the CEO of the joint venture, “The creative usage of technology has the potential to make a real impact on people in the developing nations who today are not part of the digital age.”

“To narrow the gap, we must address specific needs at the grass-roots level,” Huque said.

The one most relevant here is GapCast #5 – Bangladesh Miracle described below:

Have you heard about Miracle that has happened in Bangladesh over the last 30 years? No? In 1970 an average women in Bangladesh gave birth to 7 children, and one of four of them died before the age of five.

But after independence from Pakistan in 1971 things have improved. See Hans Roslings GapCast #5 to see how much.

Fascinating and really instructive. Some hard lessons for all of us, irrespective of the disciplines we practice as it shows how received wisdom can be so very wrong.

What one sees in the changes that have happened in Bangladesh over just 30 years should also be compared with his early look on the developments in Sweden over 300 years.

So, Bangladesh is a leading country in the world not just in population density but also in the speed and rate of reduction of child mortality. Grameen Bank and focus on micro-credits for women played clearly a very big part in this quiet and generally overlooked transformation. More startlingly, this transformation has not been fueled by a mad rush to urbanisation either.

Prof. Rosling is not surprised by this. As he says in another lecture, this time to an IT audience in Ireland in November 2007:

“Ignorance is not a problem, it is preconceived ideas. Otherwise the students (from a leading university in Sweden) would not score significantly worse on a comparison test (1.8 +/- 0.4) than the chimpanzee (2.5) guesses right!”

After Muhammad Yunus, the Nobel-winning founder of Grameen Bank, began making microloans to women in poor countries so that they could buy revenue-producing assets like cows and goats, he was approached by a Bangladeshi expat living in the U.S. named Iqbal Quadir. Quadir posed a simple question to Yunus — If a woman can invest in a cow, why can’t she invest in a phone? — that led to the 1996 creation of Grameen Phone Ltd. and has since started the careers of more than 250,000 “phone ladies” in Bangladesh, which is considered one of the world’s poorest countries. Women use microcredit to buy specially designed cellphone kits costing about $150, each equipped with a long-lasting battery. They then set up shop as their village phone operator, charging a small commission for people to make and receive calls.

The endeavor has not only revolutionized communications in Bangladesh but also has proved to be wildly profitable: Grameen Phone is now Bangladesh’s largest telecom provider, with annual revenues of about $1 billion. Similar village-phone programs have sprung up in Rwanda, Uganda, Cameroon and Indonesia, among other places. “Poor countries are poor because they are wasting their resources,” says Quadir, who is now the director of the Legatum Center for Development and Entrepreneurship at M.I.T. “One resource is time, another is opportunity. Let’s say you can walk over to five people who live in your immediate vicinity, that’s one thing. But if you’re connected to one million people, your possibilities are endless.”

It is definitely worth a read. Simple technology used by people for the applications that make sense to them – and everyone gains.

He criticises ‘development’ and commends Dr. Yunus to Angela Merkel…