select conversation #1 on microcredit transferred from omidyar.net
If You Had One Hour to Brief World Bank President Wolfowitz...
Posted to: ON Microfinance by
Alex Counts Grameen Foundation, Wed, 29 Jun 2005 09:54:41 Viewed: 375 times by 91 members
The World Bank is being asked to double its spending on microfinance starting in 2005, the UN's International Year of Microcredit. With an hour to brief WB President Paul Wolfowitz, what three key arguments would you use to convince him that this is a wise use of World Bank resources? How should the funds be used? Why? Which countries or world regions would be your focus?
By Sue Braiden (CCAL30) (2022), Sat, 02 Jul 2005
Alex, it is wonderful to find you here. The Grameen Bank is an elegant example of what works about microfinance. This is a topic of both discussion and experiment here at omidyar.net, and it's good to be able to connect with you on it.
There are a few other folks I'm going to reach out to invite to consider your question.
I know my initial instincts focus on a number of countries in Africa, but that may have more to do with my personal passion for cultivating a greater self-sufficiency and way out of profound poverty, which leads to issues like millions of people dying because of a lack of potable water, a rampant spread of the HIV/AIDS pandemic because little girls are trafficking themselves to truckers to get enough money for food for their families, tribal wars because of competition for scare resources, and so on. I'd like to take some time to think on this a bit and answer more thoughtfully, but will apologize for the initial braindump that this has inspired below.
While I think what's happening with the G8's commitment to writing off the debt incurred by certain countries in Africa will have a significant effect on global poverty and the challenges it creates, it won't address the problems on a large enough scale (in enough countries). I worry that while forgiving the debt will allow countries to focus their financial resources on investing back into their infrastructure (healthcare, education, potable water supplies, sustainable farming, etc.) instead of paying down huge (endless) interests payments on their debt, that two problems will remain. First of all the level of political corruption that exists leaves me cautious about getting my hopes up that unthrottling financial resources will actually mean they get redirected to where they are needed most. Second, I think it's a first step that needs to be followed by a second one, and that's the direct investment in individuals through microcredit so that they can become financially independant and self-sustaining again, which ultimately will boost the economy and solve a host of problems.
I think Grameen Bank's credibility, accountability and scalability makes it a natural servant-leader in this regard. The innovation that's been applied in Bangladesh creates a number of small, scalable things that could lead to a similar cascade of uplift in Africa.
Regarding a potential focus for an infusion of investments, women's empowerment programs like
Marcia Odell's "WORTH" project in Nepal parallel the goals and values embraced by the Grameen Bank's efforts in Bangladesh, and point to a place where significant impact can be made to both the social and economic wellbeing of communities. WORTH promotes women's empowerment through literacy, savings-led micro-finance and micro-enterprise development, and illustrates the kind of capacity building that can be scaled up in significant ways. Marcia sees the efforts as being a strong tool in the fight against HIV/AIDS.
This leads me to think of something else, and that's the pockets of innovation that exist in many diverse places. There are so many innovative microfinance programs doing good things in different areas, that I think an investment in some sort of bridging infrastructure and process might amplify the overall impact they might have globally. Ashoka Fellow,
Christina Jordan, has been recognized for her "Life in Africa" program, one I continue to invest in myself. The African women's radio program is another one that comes to mind.
Howard Rheingold has published an update on a really interesting project that's captured my own imagination when it comes to places to invest that have the potential to create much more global public good. I really think
The Cooperation Project is on the right track when they seek to find better ways of creating tools to inspire a more efficient and effective sharing of knowledge and best practices in global capacity building. It mirrors the efforts of the folks engaged in another
Global Public Good effort that assisted with a few months ago.
Nancy White asked me to assist with the technical facilitation of an online conference. People from all over the world came together to talk about the things that were working (agriculture, water, food, etc.), and some of the challenges that they face in sharing those things more broadly. They talked about idea capital and how copyright laws often get in the way of people sharing some of the really good stuff that's happening. There seems to be a trend of hoarding information and ideas because the innovators often have to compete with each other for scarce resources to continue on (most especially funding). There was one speaker that really moved me deeply. Dr. Robert Day had a lot to say about the notion of working to create easier pathways between each other so that there could be a more free exchange of knowledge and resources. He made the solution sound so simple, and yet it was apparent that there are a lot of things standing in the way of creating bridges between all these islands of innovation.
In terms of the potential for more funding to be made available via the World Bank, I think investing in the kind of bridge building that Howard Rheingold and Bob Day talk about would be a good place to direct capital to. Instead of many programs competing for scare resources, having an infrastructure that encourages sharing and broadcasting critical knowledge and breakthrough innovation more broadly is likely to make the scaling up of what already works more plausible in many more areas, with a greater outcome in the end.
Hardly the focused pitch you were looking for. Your questions inspired a few Aha moments for me that I thought might lead to a few more allies who are already here at omidyar.net joining in on this important discourse.
Good to have you here, Alex!
By Phil Cubeta (CCAL30) (1968) Sat, 02 Jul 2005 08:55:48
Arguments for Wolfowitz:
This is real banking with a dollar return on investment
Will build social as well as financial capital
Will teach and equip the worlds poor how raise themselves up in a free market global economy.
Places to start:
Wherever the "Axis of Evil" competes with Freedom for the hearts and minds of the very poor. Let him pick areas of vital national and international importance. Aghanistan, Iraq, Iran?
But also the worlds poorest nations to prove out our domestic ideology of market freedom.
You might also compare micro-credit with huge boondogle loans. Which has the best record of avoiding corruption? Which has the best cash on cash payback ratio? Which has the best public relations value? Which builds a base of democracy by building a base of self-respecting entrepreneurs? And which will get bipartisan, multilaterial support as being beyond cavil an all round good thing?
Alex, thanks so much for joining here and reminding us of the global importance of well considered social investment.
By David Geilhufe (320), Sat, 02 Jul 2005 08:57:13 I certainly have no expertise in micro-credit, but my experience with at-risk youth, community building and community development points to a simple power arguement.
When you make a microcredit investment, it tends to be an empowering experience for the individual. Someone (the financial institution) has demonstrated confidence in the "downtrodden." Sucess in that context has a huge impact of self exteeme, confidence, and future outcomes.
If I take an at-risk youth, get him or her to wear a tie and jacket and be sucessful in a white collar technology job environment, they can translate those skills in being comfortable in virtually any environment. Microcredit is the smae basic idea.
That inital microcredit investment, for the most part, creates a lifetime of higher achievement on the loan recipients part.
In this modern world where we have begun to see the imense power of coordinated networks of small non-institutional entities (individuals & small groups), there is a good arguement that the impact of a sucessful network (microcredit loaners and loanees) is far greater that the total impact of a old-fashioned command and control project run by a government.
By Lars Hasselblad Torres(3483), Sat, 02 Jul 2005 09:23:36
If i had some time with mr wolfowitz i'd suggest some ways microfinance can complement existing bank initiatives:
Preparation of poverty reduction strategy papers: the local knowledge contained within MF networks like Grameen and BRAC is invaluable. Include MFIs therefore as emerging stakeholders.
Transparency and accountability: government reform and the strengthening of local government is an emerging area of focus for the bank. MF networks are training grounds for a new constituency of locally empowered actors that can advance WB aims.
Democratic participation: the world bank's participation unit is looking for strategies to engage the poor in developing bank programs, monitoring and evaluation. the demonstrable skills and capacities developed through microfinance can be leveraged to augment these goals.
perhaps with these three observations in place i'd outline some challenges framed in ways that would be of interest to the bank:
strengthening national banking and regulatory structures to deal with MF programs
bundling loan packages to competent intermediaries that can guarantee sufficient return; reassessing risk
monetization of traditional exchange economies to better measure growth
avoiding "one size fits all" approach to lending programs affected by underlying country social variables
rethinking macroeconomic growth: creating a vibrant culture of microeconomic activity as a significant variable for solid longterm macro-level momentum
Then perhaps i'd talk about some opportunities:
Connecting MF to MDGs: demonstrable and insufficient results
Support for MF creates entry point for other kinds of programs including education, health and environment
Well, i don't know -- kinda stuck there ... can't wait to read more! thanks for firing up this discussion alex
By John Sechrest (CCAL30) (37), Sat, 02 Jul 2005 10:06:38 PDTIf You Had One Hour to Brief World Bank President Wolfowitz:
The Grameen bank is a shining example of how to engage development in the community where it needs to happen. Engaging everyone in the process of helping themselves live a better life is a fabulous process. But there are subtle components to the Grameen process. Buy engaging local teams of people in a way that they are accountable to each other is a vital component. Locally, we tried to establish a microfinance fund, which rapidly failed. I believe it failed because we did not have the community relationships and accountability which has made the Grameen process work in other locations.
At the root of the Grameen process is local accountability and trust among the participants. When we look at the failures around the world, more often they are a failure of trust than they are a failure of resources. How productive would Africa be if the wealth of africa trusted the process of using local banks? Microfinance is not only the process of growing resources, it is a process of growing and expanding trust.
In order for local small enterprises to succeed, they need to have access to the skills to manage and run a business. They need to have resources to build that business on. And they need to have the trust and support of the community that they will do business with.
What three key arguments would you use to convince him that this is a wise use of World Bank resources?
Microfinance brings focus for skills, resources and social trust networks to the people who need them. By putting financial resources into the local community, this creates conversations about self development and self reliance that increases the compentancy of the local business environment. This leads to an increase in self funded business development.
-> Create the compentence in the local business community to grow their own business ecosystem.
Microfinance enables the creation of local business ecosystems which can grow into self sustaining communities, which can create leverage on the money invested. In the US, the SBIR program (
http://www.sbirworld.com/) provides set aside funds for small businesses. Analysis of this program in Minnesota suggests that for every dollar spent on getting SBIR awards into Minnesota, there were 9 dollars of tax funds returned to the state as a result of the process. This happens because the local small business activities reverberate with other local businesses and creates an amplification factor.
-> Leveage the funds invested to gain a ten fold return on the investment.
A growing and thriving entreprenuerial community creates stability beyond the people who have been participants. Entreprenuerial activity helps get people excited and passionate about what they are doing. In addition, it draws others into those activities as they grow. Because crime, vandalism, and fighting are incompatable with entreprenuerial business growth, there is a growth of local resources opposed to disruptive social forces. By having a place where people can engage in business development where they can be excited and effective, it displaces and works against forces that lead to instability. Entreprenuerialism breeds hope.
-> Active engagement in building a new opportunity leads people to work for things that create more stability and more social trust networks.
How should the funds be used? Why?
The funds should be used to create, support and sustain local investment funds/banks which provide microfinance to local communities. Create an process/engine/education program which enables local investment. Learning from the Sirolli work (
http://www.sirolli.com/) focus the microfinance process on groups which are interested in it. Groups and communities which are ready to step up and invest resources and times will make them more successful.
Create marketing mechanisms for spreading the word about the process which reach the people who would be most likely to engage and benefit from the process. Word of mouth is a powerful marketing mechanism. Find ways to have people travel between groups to share successes and to spread the word about it. Partner with other groups that are working on skill development like reading and math to carry the message about it with them. Because the people who need the program are not the people who currently have power and resources, it is difficult to use existing social structures to carry the message. Spend a specific amount of resources on finding effective mechanisms to carry the local entreprenurial message. Use partners, traveling coordinators and local grassroots mechanisms to spread the process.
Work to build infrastructure that engages local investment, to make the local process sustainable. Set up mechanisms where local people with resources can choose to invest their money into the process, to amplify the money that the World Bank puts into the community
Engage with the governments of each of the countries that you would with to enable entreprenuerial development, social stability and local opportunity. Find ways to help the countries that are participating to engage with and support the process of local development. Although it may be that the engagement of the local powerstructure subverts the process of local entreprenuerialism. And to that end, it may be good to just engage the government in a way that causes them to level the entreprenurial process alone.
Which countries or world regions would be your focus? Why?
In the current times, we have fundamental changes to our world underway. There is not a community in the world that does not have a disenfranchized group which is not effectively connected to the local economy and who are struggling.
In Lane County Oregon, I just heard on the radio that 1 out of 3 children in Lane county have eaten food last month from the local Food bank.
To that end, I would invest the World Bank efforts into those communities that are ready and able to engage.
There are certainly parts of the world which stand out as places that need this type of activity. Afganistan needs it, Botswana needs it, Tajikistan needs it, india needs it, china needs it, colombia needs it, and even Oregon needs it.
However, there are the subtle aspects of the grameen process which distinguish it from normal Aid activities. It is these subtleties which determin the success of the program. Many of these factors are social. The sirolli process is perhaps a bit overboard in that it never tells people what to do, but waits for them to ask. But the root of the right idea is here. People have to be ready to engage in the process. When they are, the process can work. The success of the Grameen process seems to be tied to social factors that are important to the process.
To that end, I would not target any specific "Areas", but I would instead focus on the process of spreading the word and mechanism to the people who are ready to engage in it.
Every country in the world needs something like this. Some of them can self fund it. Others need help understanding that they can fund it. And some need real help building sufficient structure to make it possible to do this. This program is not a cure-all, but something that can work in some conditions. Invest the funds where the conditions are favorable. And then spend some of the resources to increase the number of places where this could happen.
I think that the microfinance process can be a sustainable local investment process which in the end does not need donations. it is an investment, where the funds will come back out.
In the end, these processes can become self sustaining. the local community can gather, support and nurture growth of investment funds which can be used to create more businesses and more funds.
What will it take for local communities to be able to trust investing in themselves? This is what the World Bank can help create.
And it is in the World Banks best interest to do this because it increases stability of the communities, it increases the productivity of the world and it increases the trust networks which will enable things far greater than microfinance.
I hope this addresses your question at the level that you wanted.
-johns
By David Bornstein (63), Sat, 02 Jul 2005 10:27:10
This is a great topic. Here are my points.
Microcredit has already proven itself to be the fastest and most reliable method to alleviate poverty on a massive scale. Yet it is still only reaching 2% of the market.
Microcredit is a platform upon which many other development goals can be successfully built -- including health, education, insurance, savings, alternative forms of energy.
This is the best 'bang from your buck' you can get. The relative impact related to relative investment is huge.
--Bonus point -- Global Security -- It allows employment without the social upheaval normally associated with people having to flee to urban areas. By reducing or slowing urban flight, microcredit can help stabilize the world's mega-cities, or mega-shantytowns, or at least give them more time to absorb new arrivals. By doing so, this will weaken the appeal of those who advocate violence as the only means toward building a better world.
Good luck. David Bornstein
By Jim Fruchterman (CCAL30) (115), Sat, 02 Jul 2005 11:51:39
Knowing his background, I would expect that microeconomic arguments should win the day: the energy and intelligence of the average poor person is best applied with a modest economic and support investment in what that person believes they can succeed in. Most of the social entrepreneurs I've met from Asia and Africa emphasize providing people with access to the tools to help them help themselves: education, information, credit, basic rights. Also, microcredit seems to be very effective in getting past the kleptocratic elites. I love the part of Yunus' book where he makes the point that the poor have far lower default rates on loans than the rich!
By Robert Tolmach (148) Sat, 02 Jul 2005 14:25:57
For those interested in microfinance, I heartily recommend a wonderful book by David Bornstein (see his post above) , The Price of a Dream : The Story of the Grameen Bank.
By
Kevin Jones (24), Sat, 02 Jul 2005 17:11:33 I would assume the bank knows the value of MF and would talk to them about the best way to leverage their investment. For instance, I would talk about the recent $87 million bond deal by Developing World Markets which had both a university endowment and a church pension fund as participants. The rise of a new level of intermediary like dwmarkets.com will reduce the cost and time to raise capital for MFI's thus accelerating their impact.
I would counsel the bank to invest in other intermediaries that will help define MF as a valid asset class such that pension funds like Calpers and those of other churches and other college endowments feel they have to put 1.5 percent of their corpus there. Underwriting intermediary infrastructure like rating agencies, etc. to expand and speed deal flow is, i think the best way for the bank to spend its money. Smart peoplea are telling me the market needs defining and clarifying in order to encourage more institutional investors to follow the pioneers.
By
Michael Herman (CCAL30) (615),
Wed, 06 Jul 2005 14:54:50 PDTthis was a daunting question when first posed, hence my delay in responding. and then it just gets more daunting to follow so many posts. (grin)
that said, i would think that grameen already knows how to make the case for the lending and obviously has the stories to show that the process works on so many levels.
the question though is about a doubling of resources... an exponential leap. this takes whole new levels, i think. i would echo then sue and some other who talked about bridging... a way to connect more and more of a microfinance movement worldwide. (he says not really knowing if such things already exist or not.)
the next thing that comes to mind is the profits. where do they go? does the initial money from the world bank go to through organiztions to borrowers and then the profits flow back? cuold the monies be distributed and the profits retained so that the WB was really capitalizing, not lending?
it's really all just questions here, for me, not answers...
what are the models in place for cloning grameen's operations? what would i need to do, a little individual usually sitting in chicago but with ties, for instance, to places like nepal, to start my own microlending program?
are there other organizations already receiving WB funding that could be invited to expand what they do into a MF program as well?
what if WB funds were used to capitalize new MF banks, but only on a matching basis? what if monies raised locally in a place like nepal were matched more generously than money raised in the US or other wealthier places?
how else might this next round of financing be used to draw still more funds in. i figure that the 'how to do the lending' part is already well known, but how do we grow the pot of funding sources? seems the world is awash in cash (as evidenced by very low interest rates in many places) and the returns on MF must still be fantastic. so how can these new WB funds create the infrastructure to bridge into new funding markets, not just lending groups?
maybe that's enough questions for one sitting.
thanks for the invitation, sue. will stay tuned now, from london for the next few weeks, back to chicago for the conference. would love to do more with this there. if there's a way to tie conference conversations to actions that can help this sort of work move forward, i'd love to put something on the wall in chicago.
so maybe that's my last question... what, if anything, could we do at the conference that would be of any help in advancing MF initiatives anywhere?
By
Julie Caldwell (CCAL30) (2294),
Fri, 08 Jul 2005 01:29:26 PDTEdited: Fri, 08 Jul 2005 01:30:33 PDTComment feedback score:
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There are three points of common ground the world is ready to stand together with and for:
It's youth.
Our water.
Physical and Ecconomic security
How might MF as such be used to strategically build infrastructure and supports that strengthen interconnection (local - regional - global) and organization to support these issues accross geographic boundaries.
Focus on geographical areas and known areas of stress with huge potential for conflict:
Africa (AIDS)
Middle East (Water)
South America (Elderly and orphans)
Asia (women's rights)
America (The middle class with emphasis on community youth development)
Indegenous cultures (document oral traditions)
Remember that we will need whole villages to stand strong together. Look for ways to invest in people, roles and technology that create access and connect dots.
By
Alex Counts (85),
Thu, 14 Jul 2005 14:29:45 PDTComment feedback score:
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We were tossing around this question at GFUSA and wanted to get your thoughts. You’ve given us good food for thought. Thanks for taking the time. Some of our key points for Mr. Wolfowitz would be:
Eliminating poverty is a realistic goal if resources are applied where they are needed and the local population is actively engaged. Microfinance institutions have an important link to these communities, particularly in rural areas, and a stake in the success of their projects.
Microfinance is a self-sustaining tool where the initial investment is recycled in the local economy. It is based on a solid business model and commercial financing can play a central role in its growth and expansion. The World Bank is in an excellent position to show its leadership in a growing area where a relatively small amount of capital goes a long way.
Philanthropy has a critical role to play in accelerating the growth and magnifying the impact of this anti-poverty strategy, particularly in the areas of getting MFIs to the point where commercial sources can be the dominant form of financing for their growth, and creating the external conditions that will facilitate the mainstreaming/commercialization process (while not shifting the ultimate poverty reduction objectives).
How should the funds be used? Why?
It is important to keep new capital flowing to MFIs, but we also have to work on building their capacity to manage their operations. I think a sizeable chunk of any capital infusion must be directed to that goal. Some important investments that strengthen the organizations and stimulate growth include:
•Equity and guarantees for borrowing from banks for medium to large MFIs: Equity, guarantees, and in some cases subordinated debt can stimulate commercial capital at ratios of up to 10:1.
•Loans in local currency for smaller MFIs, as a bridge to take MFIs from grant financing to borrowing at commercial rates (initially with guarantees of some kind in most cases): Concern about foreign exchange risk in microfinance has been raised by commercial investors.
•Development of public goods, such as affordable and professionally designed off the shelf software packages (portfolio management, accounting and impact tracking) in local languages that conform to local accounting standards, etc.
Which countries or world regions would be your focus? Why?
It is not always easy to draw black and white distinctions in choosing the countries for investment. Some regulatory environments are progressive in some respects, and regressive in others. Others are regressive in terms of the letter of the law, but progressive in their interpretation and enforcement. Some are changing rapidly, or are said to be. Overall, I think it is critical to help those countries without supportive enabling environments to create that environment, particularly where the unserved market is large and social entrepreneurs are ready. If we are basing our decision on the country’s regulatory framework, existence of social entrepreneurs and banking infrastructure, the top tier could include India, Pakistan, Bangladesh, Philippines, Morocco, Bolivia, and based on the outcome of local laws and internal conflicts, Vietnam and Nepal. The next level could include South Africa, Sri Lanka, Mexico, Honduras, Indonesia, Nigeria, Jordan and Haiti. However, an organization’s mission could dictate other factors as important and those could well produce another set of priority countries.
By
Steve Nelson (79),
Thu, 14 Jul 2005 19:44:03 PDTComment feedback score:
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I would be interested to know how much money the World Bank currently "spends" to directly support microfinance institutions. I understand that CGAP (a creation of the Bank) is more of a broker for other donors such as USAID, DFID, Norad, UNDP, Asia Development Bank and other institutional donors. I appreciate what CGAP is doing, but how much money from the World Bank is there to double?
By
Sue Braiden (CCAL30) (2022),
Thu, 14 Jul 2005 22:57:35 PDTComment feedback score:
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Alex, I've really enjoyed watching this thread progress, and certainly the condensation of the message into the points you've just shared.
My question: is this a hypothetical exercise? I assume that this is something that you are planning on presenting to Paul?
Would be interested in your continued feedback if this is the case, and as it evolves.
Thanks for inviting us to engage in a bit of critical thinking on this.
By
Alex Counts (85),
Fri, 22 Jul 2005 07:51:27 PDTComment feedback score:
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Good to see you online, Sue. We don't have one, but we're planning to reach out to him later this year. We also know that RESULTS, an advocacy group we work with, is trying to get legislators from the U.S. and elsewhere to meet with him to advocate for more and better microfinance support from the World Bank. We'll share those discussion highlights with you.
Beyond that, we and perhaps others participating in this dialogue, may have opportunities to get a couple of minutes with him at a conference, or God knows maybe bump into him in a restaurant. But if one or more of these opportunities materialize, whoever gets it will have the benefit of our thoughts on the role the World Bank should and should not play.
We started this dialogue to generate ideas that could inform our collective advocacy and to broaden the discussion about the appropriate roles of international financial institutions, donor agencies and philanthropists. The responses have been great and I’m looking forward to seeing what others have to say.
By
Sue Braiden (CCAL30) (2022),
Fri, 22 Jul 2005 11:01:39 PDTComment feedback score:
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This was a good idea, and I think we've all appreciated having the chance to do a bit of brainstorming with you, Alex. There are a few more folks that I've heard back from wondering if it was too late to share thoughts. Most of them made it and have posted about, but a few more folks are likely to continue sharing thoughts.
Thanks again :^)
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