Tag Archives: Muhammad Yunus

Looking forward to an early spring

18 Mar

It has been a long winter for microfinance in South Asia this year.

First, I would like to share an update on the microcredit crisis in India. The Malegam committee published its recommendations for microfinance in India but no new formal regulations have been published so far though it appears several clauses of the report are likely to be implemented. As I had previously written, repayments in Andhra Pradesh state are still very low. Meanwhile, loans to the tune of nearly USD 2.8 Billion (Rs. 13,000 Crores) to some of the largest MFIs in the state of Andhra Pradesh are likely to be restructured with the loan term being extended from the usual 2-3 years to a maximum of 10 years.

I was in India over the last one month and the impasse has not done much good. The confidence of bankers on lending to MFIs for microcredit has been eroded. India is one of the countries that successfully managed to encourage local banks to lend to MFIs. The uncertainty and impasse has in my opinion turned the clock back by nearly a decade.

Prof. Malcolm Harper writes that this situation seems to have produced several losers, but the biggest and the most silent losers are going to be the poor women and their families all over India who will see the flow of credit slowing down. Many aspirations will have to be postponed or remain unfulfilled.

As a saving grace, at UnitedProsperity.org we are glad that default epidemic is restricted to only one state in India. Our borrowers are in a different region and are continuing to pay back their loans, although many of them have been disturbed by the prospect of not getting the subsequent loan on time.

In neighboring Bangladesh, Nobel Prize winner Prof. Muhammad Yunus, an international icon has been subject to the most unceremonious treatment by his government. I sincerely hope that international pressure will encourage the Bangladesh government to treat with respect and dignity the man who has done so much to help women in Bangladesh and around the world come out of poverty with dignity.

Making sense of some of these events has indeed been overwhelming. We have been trying to get banks to start lending based on our guarantee. However, bank lending in India to MFIs is frozen. We also explored several other possibilities in India, but at this point due to the environmental uncertainty banks are in an ultra cautious mode.

We are also contacting MFIs in several other countries to explore if they need guarantees so that they can borrow from local banks. So far we have noticed that in most of the countries other than India, MFIs are dependent on loans from international donor organizations. We have had encouraging discussions with a couple of MFIs and we hope that some of these leads will fructify. We will continue to be posting updates on our blog and newsletter on the progress we are making.

We sincerely hope that all of us can once again cherish and celebrate the opportunity to make a difference to people’s lives. Thanks for your patience and we look forward to an early spring.

What is the right way to help the poor?

4 Nov

Microfinance as it started in Bangladesh is a social business. i.e. The microfinance institution (MFI) is either a non-profit or is owned by its borrowers in case it is a for-profit institution (e.g. Grameen Bank). This ensured that most of these organizations in Bangladesh are single bottom-line, pro-poor organizations whose primary and only mission is helping the poor in a sustainable manner. While most MFIs are non-profits, there is an emerging trend of commercializing microfinance by establishing for-profit MFIs.

In India, a few MFIs have raised equity from socially minded investors and also commercially oriented venture capitalists and private equity firms.Some of these for-profit MFIs also had plans of going public and SKS Microfinance became the first MFI from India to go public in August 2010. This was not appreciated by Prof. Muhammad Yunus who said that this is not the right direction. For those interested in knowing more, the two debates at Clinton Global Initiative and at Asia Society offer a fascinating perspective.

The last few days have been pretty unprecedented for microfinance in the state of Andhra Pradesh in India.Here is a summary of what has happened and some of its potential implications:

In the state of Andhra Pradesh in India, which is the home of several for-profit MFIs, several borrowers were facing extreme stress from excessive debt due to excessive borrowing from multiple MFIs and also from local money-lenders. There were also some reported cases of suicides due to debt-stress.

Extreme debt-stress amongst borrowers forced the Andhra Pradesh state government to implement several measures to protect the interests of the borrowers. The Principal Secretary of rural development at Andhra Pradesh clearly stated certain aspects that are non-negotiable in the operations of MFIs:

“We are very clear that certain fundamentals are non-negotiable for example, there cannot be any coercive mechanism, second thing is that there cannot be any multiple lending and third thing is that there cannot be lending without due diligence. I think these are fundamentals, beyond that certainly we are prepared to discuss and then we are prepared to look at it with open mind as far as the modalities are concerned, we are with open mind and we can certainly look at any difficulties that are arising and then dissolve it.”

Since then, Vijay Mahajan, the CEO of Basix which is a large MFI in India, and one of the most respected microfinance leaders summarized the problem and stated that these events will serve as a course correction:

“So it was basically situation where the sector’s incentive structures had gone wrong and I think that corrective has happened. We will rebuild the sector along the right lines and I am sure we will contribute to financial inclusion in the country but all over the country not just Andhra Pradesh.”

Elisabeth Rhyne, Managing Director, Center for Financial Inclusion also writes on similar lines:

“The blame for this unfortunate situation falls most squarely on the MFIs that failed to restrain aggressive growth even as the market became increasingly saturated. Investors must also swallow a big spoonful of blame. Because they paid dearly for shares in the MFIs, they need fast growth to make their investments pay off.”

I believe that the path of course correction has just started and if correctly done with the help of regulators it will be of great benefit to the poor. But the next few months are likely to be turbulent in Andhra Pradesh. MFIs in Andhra Pradesh are not reporting their usual level of collections from borrowers and as a result the finances of the MFIs who are operating in Andhra Pradesh are likely to be strained.

Banks have also slowed down their lending to MFIs and several loans that were to be disbursed to MFIs located all over India have been put on hold over the last few weeks. Banks are slowly resuming lending, but their approach is likely to be cautious for several months to come.

Ajiwika, our microfinance partner works in the states of Jharkhand and Bihar. Unlike Andhra Pradesh, these two states have low levels of penetration of microfinance and Ajiwika is not having any difficulty collecting repayments from borrowers. However, we are waiting on our partner bank to disburse the loan to Ajiwika for profiles for which we have already raised the guarantee (See for profiles by Raised status on http://www.unitedprosperity.org/us/featured_loan_listings).

Although this situation happened in Andhra Pradesh, it is going to affect poor families all over India over the next few months. With banks becoming more cautious in lending to microfinance, it is going to slow down the availability of microcredit in regions like Jharkhand, Bihar, Kutch and others that have low levels of microcredit.

At a broader level, this raises a bigger question. Is the external investor driven profit-maximizing approach appropriate for solving complex problems such as poverty? Can it create unintended consequences especially for those who have so little, as we saw in the case of Andhra Pradesh?

A desire to help fellow humans is the primary motivation for United Prosperity and our loan guarantors. Social Businesses, that carry a single bottom-line of only helping the poor in a sustainable manner, as enunciated by Prof. Yunus, are certainly the need of the hour.

Aravind Eye Care – The world in the eyes of a Social Business

4 Aug

I have been travelling the last few weeks and I am currently in India attending to some family matters and work. I have been spending most of my time in the city of Coimbatore and I recently visited an eye hospital run by the Aravind Eye care system.

Their mission is ‘To eradicate needless blindness by providing appropriate, compassionate and high quality eye care to all’.

What amazed me was how they were living their mission. The technology they use is very modern. The treatment is amongst the best in the world and Aravind has one of the highest treatment success rates in the world. No patient, however poor is refused treatment and several thousands of patients get free treatment.

Shubha and I visited Aravind with a patient at around 3:00 PM in the evening. We did not have any appointment. We entered the reception area and then we were quickly asked to register the patient. Since several patients come from far away villages for treatment, Aravind has done away with appointments all together. The registration fee is Rs. 50 ($1 and 10 cents). For poor patients who cannot afford to pay, it is waived. Aravind subsidizes the treatment for poor patients who cannot pay by the income it earns from those who can afford to pay. As soon as the registration was complete, we were ushered to the first testing station by a nurse. The patient went through a series of examinations – Refraction,  Preliminary examination, Eye and System examination, Dilatation and a Final examination with a doctor. The doctor then recommended an additional consultation with a specialist. We were done with the treatment by 5:30 PM. We were constantly being ushered from one station to another by the nurse and all steps went through with clock-work efficiency.

In some cases the patients require surgery or additional tests for glaucoma etc. All these are often done the same day itself and each of these additional procedures costs most patients Rs. 100 ($2 and 20 cents) or Rs. 200($4 and 40 cents). (Note: Health insurance is still not common in India, so these are actual costs of the treatment and not the copay amount or deductible).

Several aspects are truly noteworthy about Aravind:

The system is designed bottom up for providing eyecare to the poor and very often illiterate patients. All stations are numbered so patients can be simply told ‘Go to station 10’ for example. Additionally a nurse also ushers the patient from one station to another so even those patients who have no escorts are well taken care of.

The treatment through various stations happens extremely fast with minimal waiting between stations. It is almost like an assembly line. This minimizes loss of income for patients.

Their scale is also pretty massive. The Coimbatore hospital treats 1100 patients a day, works 6 days a week and has 140 doctors, 700 nurses and ward staff, and 35 administrative staff.

The doctors and specialists perform only the critical tasks for which their expertise is truly needed. The rest of the tasks are performed by well trained nurses. As a result doctors at Aravind see many more patients in day than doctors in other clinics. Thereby they gain more experience in treating common ailments and also treating rare conditions of the eye that doctors in other clinics rarely come across.

Aravind reminds me of the concept of Social Business that Muhammad Yunus talks about. I recently read Muhammad Yunus’s latest book ’Building Social Business: The New Kind of Capitalism That Serves Humanity’s Most Pressing Needs’. The book is literally a ‘How to’ manual distilling the decades of insight Muhammad Yunus has gathered. Having been through the journey of starting an organization that I see as a social business the book was most enjoyable and I would highly recommend the book to anyone who plans to start an organization whose primary goal is making a difference to the world in a sustainable manner.

Aravind can also be considered as a social business. It does not have for-profit investors in a traditional sense. It is not a typical charity either. It is sustainable and absolutely committed to its mission. It once again proves how imagination and commitment can make a big difference to the world.

Imagining India – Interview with Nandan Nilekani

4 May

Bhalchander: It is my great pleasure and honor to have with us today Nandan Nilekani, author of the recently published book Imagining India – Ideas for the new century, and Co-Chairman and Co-founder of Infosys Technologies. Nandan’s work and accomplishments have been recognized worldwide and he has received numerous honors and awards. In 2006, Nandan was conferred the Padma Bhushan, one of the highest civilian honors awarded by the Government of India. Most recently, Nandan was nominated to the list of 100 most influential people in the world by Time magazine.

Congratulations on your new book, Imagining India – Ideas for the new century. It is an extremely well researched, wonderfully articulated and truly thought provoking work. You have sparked a new discussion which all of us must actively engage in. And thank you very much for taking time from your busy schedule to be with us.

Nandan Nilekani:  Thank you. I’m glad to be here.


Bhalchander: We have several questions for you, many of them from twitters all over the world. The first question is from Raj Melville, Boston, USA.  How does one retrain & retain today’s rural India to help feed the increasing food demand?

Nandan Nilekani: I think rural India is in reality, well-placed to meet our growing food demand. But right now, our agricultural productivity is low because of a very weak support environment – ineffective water and electricity supply, a badly built subsidy system, and weak connectivity to our cities and markets.  We have for instance, ignored irrigation and groundwater replenishment – nearly two-thirds of our farmed land depend on solely rains for water. Our subsidy system – that subsidises water-intensive crops such as rice and wheat – encourages farmers in arid regions as well to grow these crops, since it lowers their risk. This means that our farms have not diversified, and we are not growing crops suited to regional climates. 

Particularly tragic is the amount of produce our farmers lose due to our weaknesses in transport. Fully one-third of our produce gets spoilt while being transported to markets, because we lack the cold chain infrastructure we need. These infra weaknesses – bad roads, unconnected villages – also isolate our farmers, limit their knowledge of best practices; and since they are so disconnected from our markets, they cannot find out quickly and easily what prices are, and what consumers are buying.  

So the reason our farm growth has averaged just 2% or lower is because of a disastrous combination of our above weaknesses. I would say that addressing these would solve a large part of our supply problems. 


Bhalchander: The next question is from Andreas Kopp, Munich. What should a young college graduate do to make his way to change the world?

Nandan Nilekani: The role of the youth is critical, and you tend to see that countries grow fastest when they have a larger proportion of their population that is young. I think graduates and students need to think beyond a first job in the corporate world. If you have a good idea and if you are a young entrepreneur for instance, you have a high chance for success – you have enthusiasm, and innovation on your side. And such entrepreneurs are critical for growth and development. In India, I’ve seen young entrepreneurs who are making quite an impact – Sriram Raghavan, who heads COMAT, and Jignesh Desai, who heads MCX, come to mind. And then there are the young people who take up and join various social causes: pushing governments towards more transparency and disclosure, tackling environmental issues, and driving reform. Even if you are not directly involved in politics and public policy, the third sector does allow committed people to make a difference. And of course, an effective way to ensure forward looking development is to have more young leaders in politics: governments need to be invigorated from within as well as without. 


Bhalchander: The next question is from Andreas Kopp, Munich, Germany and Trevor Rotzien, Seattle, USA. In his recent book, Creating a World without Poverty – Social Business and the Future of Capitalism, Nobel Laureate Prof. Muhammad Yunus talks of a new form of business – social business. In Prof. Yunus’s own words: “A social business is not a charity. It is a non-loss, non-dividend company with a social objective. It aims to maximize the positive impact on society while earning enough to cover its costs, and, if possible, generate a surplus to help the business grow. The owner never intends to take any profit for himself.” What are your thoughts on social business? Can a wave of social businesses as Prof. Yunus envisions help solve some of the pressing challenges India faces? 

Nandan Nilekani: From what I’ve seen, some NGOs that work in India do function as ‘social businesses’. That said, I think too many of us indiscriminately tar the idea of ‘profit’ being bad for the social sector. Its good for all kinds of organizations to create surplus for a rainy day.  Two organizations that made a huge difference to poverty in India were the Rockefeller and Ford Foundations – they financed the research efforts that led to the Green Revolution. Their money came from corporate profit. The Bill and Melinda Gates Foundation is now doing some incredible work in Africa. We can’t diminish such efforts because they were funded by corporate profit. 

And for better or for worse, more people are motivated by profit than by philanthropy. The question is whether such for-profit efforts are effective in the social sector, and from what I’ve seen, I would say yes – paired with sensible regulation, it helps bring excellence to the forefront in the social sector. In India, businesses targeted at the poor have managed to deliver them low-cost services more effectively than some NGOs. Arvind Eye Hospital specializes in  low-cost eye operations for the poor. For-profit micro-finance institutions are doing remarkably well in Tamil Nadu and Karnataka.   


Bhalchander: We have a question from Vijay Sankaran, Mumbai, India.  How is Indian IT helping bridge the digital divide? 

Nandan Nilekani: The real impact is right now with ICT rather than just IT – a combination of information and communication technologies. Mobile phone penetration for instance, has made a big difference to farmers, especially combined with voice services that inform them of crop prices, and weather information. And while internet penetration is still very low, community kiosks built by companies such as ITC and Comat have brought some semblance of connectivity to the villages and rural towns. 


Bhalchander: The Tata Nano has generated unprecedented enthusiasm. Building on the theme of innovation for the masses Vijay Sankaran, Mumbai, India and Atul S Kulkarni, Duluth, USA would like to know when will Infosys and the other large Indian IT companies make the common Indian their customer?  When will Indian IT build a Nano? 

Nandan Nilekani: In my opinion, Indian software for the common man will come through an instrument that is more like the mobile phone than the computer. This should hopefully take not more than another five years.  


Bhalchander: You mention in your book that people regardless of income levels should have access to health facilities, clean water, basic infrastructure, jobs, capital, social security and good schools for their children. But projects in almost each of these areas have long gestation periods and low financial returns to investors. How do you propose that we mobilize the risk-tolerant and patient capital in a reasonable time frame to initiate and implement these projects successfully? 

Nandan Nilekani: I have detailed the approach in my book – health and schools can be approached with a combination of voucher systems, and in highly rural areas, with government support for private initiatives in the early years. I don’t think these take long gestation periods. Neither does clean water and basic infrastructure – if there is popular pressure for it. Taking indirect subsidies out of the equation and replacing them with direct subsidies makes people focus more on markets, which in turn, forces pressure on governments to improve connectivity and access to basic services. Once the pressure is there, the response tends to be immediate. 


Bhalchander: In part II and part III of your book, you talk about areas where a lot of work needs to be – schools, our cities, infrastructure, creating a single market, environment and so on. There has been slow progress in most of these areas. With the impending elections, if you were to recommend a few easily understood points whose implementation the voters should demand from the government and politicians in a time bound manner, what would they be? 

Nandan Nilekani:  I would suggest, 1) Money in your hands – direct subsidies. In  the form of cash to an account held by each citizen, which would replace the creaky indirect system of ration shops and subsidized rice/fertilizer/kerosene. 2) School vouchers, which give poor students the option of attending either private or government schools. These two alone would bring more cash into the hands of citizens, and give them access to markets.  And it would as a result, create more pressure towards better infra that connects markets, and less red tape in education. 


Bhalchander: The World Bank estimates that 456 million Indians (42% of the total Indian population) now live under the global poverty line of $1.25 per day (PPP).  Most of them are perhaps impatient for progress. What would be your message to them? 

Nandan Nilekani: I would say, that we must use the democratic process to break barriers to access. We are in a vastly imperfect system, where votes are channeled to vote banks and interest groups, which in turn harden the status quo. Instead, if voters focus on the issues of access to education, direct subsidies, infrastructure, and breaking down barriers in labour markets, then we’d see progress come faster. 


Bhalchander: Your tone in the book is one of cautious hope, which largely echoes the general sentiment of the public. But while concluding the book, you state that the government and ministers do not talk the language of hope. How do you propose that the people at large get them to speak the language of hope? 

Nandan Nilekani: A big problem here is that the leaders in the government are of a different generation, and bound to age old interest groups. For a different language, we need younger leaders – this is beginning to happen – as well as reformers who simplify the language of reforms so that people can understand them: when reformers speak of direct subsidies, vouchers, universal health and pension plans, and a more decentralised approach to environment and energy, I think they will find that much of the poor is on their side. 


Bhalchander: The last question is from Ashok Parameswaran from New York, USA. How do you balance your time between work and philanthropy? And what are your future plans? 

Nandan Nilekani: My efforts in philanthropy don’t take much time because I have quite a few people that I trust running the day to day operations of it. I’ve been fortunate in that I have some very brilliant, dedicated people managing my non-profit interests. 


Bhalchander: Thank you very much for being with us. We wish you success in spreading your ideas and impacting policy for a renewed India.

Social capital and social business

24 Nov

Note to readers: This blog post is almost twice my usual post and I was feeling a bit guilty about it. But then, I read Seth Godin’s post today and it makes me feel much better.  


As we have been trying to raise funds for running United Prosperity, we have realized how hard it is. We had applied to the Echoing Green Foundation last year. They received more than 1500 applications for 20 Fellowships each valued at around $68,000. Based on the feedback we received, my assessment as to why we did not get funded was that United Prosperity as a venture is complex and some of the Echoing Green evaluators did not want to risk their donation of $68,000 on a venture which seems extremely complicated.


Early this year, I was also talking to a Venture Capitalist who invests mostly in for-profit social ventures. He was quite willing to invest a comparable amount in United Prosperity provided we could turn it into a for-profit venture, which could give him a multifold return on his investment in due course.


This soon made me realize that we have reasonably good amount of commercial capital available for reasonably good and sometimes bad business plans, but ‘social capital’ or capital whose primary purpose is to ‘do good’ with little or no financial returns to investors seems to be in severe short supply.


But then, the need or market for ‘doing good’ is so large, how do we expect non-profits or social ventures to build infrastructure and IT systems to do good in a scalable manner when the ‘social capital’ to build such scalable infrastructure is unavailable? That seems to be the challenge most social ventures face.


I think there are a few ways one could make such ‘capital’ available:


  1. Collect the available social capital in a scalable manner over the internet: Organizations like Kiva,Wokaidonorschoose.org and ours are doing that.
  2. Reuse the social capital: Money given as a donation is used once. But as a Kiva loan or United Prosperity guarantee, the same ‘social capital’ gets reused with multiple entrepreneurs.
  3. Use some amount of ‘social capital’ which bears slightly higher risk to free up additional commercial capital: With United Prosperity, the ‘social capital’ provided by social guarantors frees up additional commercial capital with banks.

But still there is a problem. Other than the already stretched government grants, most of the ‘social capital’ available in the world comes from donations from individuals directly or through grant making Foundations set up by philanthropists or corporations.  And most of the leading philanthropists such as Bill Gates, Warren Buffet, Michael Dell or Pierre Omidyar have made their money from business. i.e. It is commercial capital which is eventually being turned to social capital thanks to the generosity  and public spiritedness of individuals. The same holds true with United Prosperity or Kiva – Our guarantors or Kiva lenders earn their income through commercial means and then choose to help poor entrepreneurs.


There is also an another interesting observation. Commercial capital seems to have the ability to take risks and multiply itself and expand the scope of commerce. Social capital seems to be incapable of multiplying itself and rapidly expanding the scope of ‘doing good’. To take our unsuccessful fund raising example, the VC with ‘commercial capital’ was willing to take risks and invest in United Prosperity but Echoing Green with ‘social capital’ was perhaps worried that United Prosperity will never see the light of the day in a reasonable time and unwilling to support us.  


Overall, all of us are in a situation where we have to rely on ‘commercial capital’ to transform itself into ‘social capital’ and do good for society. If our businesses are not robust and successful, we will have fewer high net-worth individuals and lesser ‘commercial capital’ getting transformed to ‘social capital’. Thus the importance of the role of business and the generosity of individuals is unquestioned in society but one major question is unanswered: Why cannot we get ‘social capital’ to multiply itself just like ‘commercial capital’?


I think it can and it should if we want to ‘do good’ in a scalable way.  One way Prof. Yunus talks about in hisNobel lecture and his recent book ‘Creating a world without poverty: Social business and the future of capitalism’  is through a new type of organization called as the ‘social business’. 


As per Prof. Yunus in his Nobel Lecture, “Social business will be a new kind of business introduced in the market place with the objective of making a difference in the world. Investors in the social business could get back their investment, but will not take any dividend from the company. Profit would be ploughed back into the company to expand its outreach and improve the quality of its product or service. A social business will be a non-loss, non-dividend company. Once social business is recognized in law, many existing companies will come forward to create social businesses in addition to their foundation activities. Many activists from the non-profit sector will also find this an attractive option. Unlike the non-profit sector where one needs to collect donations to keep activities going, a social business will be self-sustaining and create surplus for expansion since it is a non-loss enterprise. Social business will go into a new type of capital market of its own, to raise capital.”


At this point, we need to raise around $2 Million of startup capital to sustain our operations over the next four years. If we are to raise capital as a social business, we will seek out non-dividend paying equity (or a 0% interest loan). We will find public-spirited investors who will put in the new non-dividend paying equity and provide stewardship to the organization.   And at some point, when United Prosperity achieves break-even from its operations, we might be able to buyback the equity from the investors. Or the investors may even be able to sell the equity to other later stage more risk-averse investors at a premium. Prof. Yunus also talks of a social stock market where such social stocks may be listed. Social business and social stock market have the ability to increase the pool of social capital available in the world and increase the scope of doing good. The Tactical Philanthropy blog had a post on a Non-Profit IPO in Canada.  I don’t know if the Non-profit raised donations or raised equity. But who knows, social business and social stock markets may become a reality faster than we think.