Making Microfinance More Effective

Harvard Business Review

While meeting this challenge is a clear priority for policy makers and donors, it is also a major profit opportunity for commercial players who can solve market failures and create real value. Personal savings, insurance, credit, cash transfers from family and friends and other financing mechanisms offer promising opportunities to create security and steady employment but they require a nuanced understanding of product design and the local market conditions in order to be effective.

Innovating The Brick-and-Mortar Injustice Infrastructure

Mills Scofield

This week''s post is by Andy Posner , Co-Founder & Executive Director of Capital Good Fund ( CGF ), a non-profit microfinance organization targeting the root causes of poverty through innovative micro-loans and personal financial coaching.

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Learning from Microfinance's Woes

Harvard Business Review

A few weeks ago, I attended a lecture about microfinance, and got sucker-punched. Expecting to hear a litany of pros and cons about the business, and an exploration of good and bad models, I was instead greeted with a knockout punch: Microfinance doesn't work, at least not in the way we think it does. The pugilist-presenter was David Roodman, a fellow at the Center for Global Development and the author of a new book, Due Diligence: An Impertinent Inquiry into Microfinance.

Guest Post: An Entrepreneur's Thoughts on Market Incentives & Foreign Aid

Mills Scofield

Thoughts on Charity, Foreign Aid and Market Incentives - Tanzania. He worked in a firm that supported fixed income investments in emerging markets. I think that microfinance is one of those rare game changing social initiatives that manages to use market forces to drive social change.

Under Fire, Microfinance Faces Falling Out of Favor

Harvard Business Review

Microfinance has come under fire in the past 18 months, triggered in part by SKS Microfinance's IPO. Critics complain that the institutions supporting microfinance have become too greedy, and many are using this as an argument to deeply regulate or, even more, cut support to microfinance operations. Dr. Muhammad Yunus introduced the concept of microfinance in 1983; in 2006, he won the Nobel Prize for his pioneering efforts. Such is the power of microfinance.

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How Large NGOs Are Using Data to Transform Themselves

Harvard Business Review

In 2013, Habitat used its frontline calculations to create a new strategic plan aimed at materially affecting the housing deficit through a combination of advocacy and market development. A critical part was adapting a proven model in a related field: microfinance.

3 Things Driving Entrepreneurial Growth in Africa

Harvard Business Review

Firms are realizing what microfinance has known for a while: Local self-policing groups, or village headmen who police honor codes, can hedge cash flows in far-flung places. Emerging markets Africa Digital ArticleFatigue may be setting in for some Western investors’ interest in African innovation, particularly those that have yet to reap rewards to brag about.

Microfinance Is Good for Women, but It's Only Part of the Solution

Harvard Business Review

Career paths are not one-size-fits-all, yet in emerging markets, it's often assumed that microfinance — the use of small loans to foster self-reliant small businesses in a community setting — is the only path for women seeking economic opportunity. Microfinance has accomplished tremendous things and helped millions of women launch their own businesses; however, it is not a complete means of economically empowering women.

Lessons for Social Entrepreneurs from the Microfinance Crisis

Harvard Business Review

The microfinance industry has in just a few years gone from making headlines for the Nobel Peace Prize to stories about limited impact, allegedly abusive tactics, client suicides, government crackdowns, major lenders struggling with insolvency and the forcible removal of Mohammed Yunus as Managing Director of Grameen Bank. But we shouldn't ignore how the microfinance industry made itself vulnerable to attacks with a political motive.

An Approach to Ending Poverty That Works

Harvard Business Review

Microfinance and other market-based interventions don’t generally reach them. Ending extreme poverty by 2030 is the BHAG – the big, hairy audacious goal – of our generation.

What Makes Social Entrepreneurs Different

Harvard Business Review

It is unthinkable, for instance, to imagine a social entrepreneur treating research on the health effects of tobacco use the way the tobacco industry, market analysts, and investors did in the 1960s and '70s.

Give Impact Investing Time and Space to Develop

Harvard Business Review

An estimated 250 funds are actively raising capital in a market that the Global Impact Investing Network estimates at $25 billion. We allowed microfinance and the venture capital industry the time and space to develop over a few decades.

How Social Entrepreneurs Can Have the Most Impact

Harvard Business Review

Promising approaches include widely distributing solutions via technology like massive open online courses (MOOCs) that make education available globally or mobile apps that provide vital market and weather information to poor farmers around the world; or via existing national or global platforms (think: business, government, community colleges, YMCAs); or changing social norms, as we’ve seen with smoking cessation, designated driving, and consumer recycling and conservation.

Facebook Presence Is an Important Clue to a Social Venture's Future

Harvard Business Review

This makes sense to Milaap.org , a social enterprise in Bangalore that crowdsources low-cost capital for microfinance institutions through its online platform.

Making Sense of the Many Kinds of Impact Investing

Harvard Business Review

According to the Global Impact Investing Network, the market for impact capital, currently sized at $60 billion, could grow over the next decade to $2 trillion, or 1% of global invested assets. Everyone agrees that impact investing is on the rise.

It's Not All About Growth for Social Enterprises

Harvard Business Review

Many in the nonprofit world call this technical assistance or training, while for-profit entrepreneurs might see it as business development, partnerships or even affiliate marketing. Successful examples of this approach are still rare; most people point to microfinance.

Transforming Rural India Through Agricultural Innovation

Harvard Business Review

Addressing the agriculture value chain—soil testing, facilitation of inputs and credit, market linkage, and field advisory services—is part and parcel of agriculture development initiatives. Over 1,900 beneficiaries have established micro-enterprises for which microfinance has been facilitated. With a majority of its population living in villages, rural poverty is a major problem in India. The disparity between the urban and rural incomes is also on the rise.

Entrepreneurs: You're More Important Than Your Business Plan

Harvard Business Review

And we are often happy to review these start-up plans — which include the typical elements such as a product description, competitive analysis, estimate of market size, and projected financials. The kids develop discipline and focus, but also practical, marketable skills.

Servant Leadership Observer ? November 2010

Modern Servant Leader

Book Says Servant Leadership Critical for Marketing Leaders. Peer-to-Peer Microfinance: A Sustainable Solution to Poverty. Twitter. LINKEDIN. The Modern Servant Leader Servant Leadership & Technology. Leadership. Technology. Resources. Other. Archives.

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Businesses Serving the Poor Need to Get Over Their Unease About Profit

Harvard Business Review

cents for a sachet that could purify 10 liters, Pur achieved penetration rates of 5% to 10% in its test markets — strong by almost any yardstick — but in 2005 the company gave up on Pur as a business, because the numbers simply hadn't worked. The microfinance industry is a rare D and E success story. Microfinance banks, which provide desperately needed loans to low-income consumers, draw mainstream investors because of their attractive returns.

Funders Can Give More than Money

Harvard Business Review

Six years ago, David and Donna Allman approached Opportunity with an idea that fell outside our traditional microfinance model: to build a Community Economic Development (CED) program in Nicaragua. It called for leveraging the profits of the global microfinance institution, and coupling them with private investments from the Allmans and their donor network. We know that microfinance alone will not break the poverty cycle.

The Smart Way to Make Profits While Serving the Poor

Harvard Business Review

However, as I discussed in my last post , the model has a fatal flaw: It inevitably requires an impractical penetration rate of the target market — often 30% or more of all consumers in an area. A localized base product is an offering whose final processing prior to sale — such as dilution or combination with other components or ingredients — is done as close to the target market as possible.

Global Entrepreneurs Need New Funding Models

Harvard Business Review

The White House has called this gap between the demand and supply of finance for small and medium enterprises a "market failure.[and] We wanted to do this because we recognize that small enterprises are a very significant engine for development; they create employment, which tends to be more sustainable and better paid than you would find in the more informal microfinance sector," says Oxfam's Nicholas Colloff.

It Takes a Village to Raise an Entrepreneur

Harvard Business Review

A hybrid approach is exemplified by startup Frogtek, which develops software for local shopkeepers in emerging markets to more efficiently track their inventory, leading to better purchasing decisions and greater profits. A recent Monitor Institute report estimates that the size of the global impact investing market will be at least $500 billion in the next decade. Hybrids thus risk mission drift, as they may over time start targeting wealthier and more profitable market segments.

Using Games to Get a Handle on Bank Risk

Harvard Business Review

Bank marketing materials focus on the dreams, anxieties and goals of consumers. Popular games also tend to spawn communities who share information and strategies about how to overcome hurdles, suggesting that peer to peer education is also possible (this has been seen in microfinance). Risk management processes don't — but they should. Most audits and regulations of banks are focused on certifying the integrity of data and controls.

President Obama Can Make Start-Up America Succeed

Harvard Business Review

Opportunities and markets are global. Entrepreneurs don't need to help America beat China or Brazil in addressing the needs of customers and markets. Microfinance (Bangladesh), securitization of revenues (Saudi Arabia), and royalty-pay-back funding (Israel) were all invented overseas.

The Downside of Focusing on Women and Girls

Harvard Business Review

Second, the marketing pitch for focusing on women and girls increasingly is stereotyping men in the effort to combat the stereotyping of women. David McKenzie's research in Sri Lanka, Mexico, Brazil and Ghana has shown that urban male entrepreneurs typically earn far higher returns from microfinance than women do (in Sri Lanka average returns on capital for women were 0%, for men 10%).