Jolkona - how micro-donations can lead to macro impacts

In a country where we have 26,000+ NGOs, it is always expected that innovative solutions to alleviating poverty will come from within the country first rather than only from foreign aid, foreign know-how and foreign goodwill. If necessity is the mother of all inventions, then it has really produced inventions such as micro-credit and luminaries like Dr. Yunus and Sir Abed. While it is appreciated what esteemed individuals like these have contributed to the world and to the fight against poverty, let us also look around and see what a relatively younger generation, with less grey hair than Yunus-Abed, is doing in relation to fundraising, poverty alleviation and technology. Jolkona Foundation is such an organisation which I have been following for a while now.

For the sake of alleviating poverty

I have come across very few businesses that strive to change people’s lives. In this post, I am going to let you know about one business that has been doing much for the sake of alleviating poverty; needless to say, from the world. KIVA helps deprived entrepreneurs from the developing countries get loans from developed countries to realise their dreams. What could be a better idea than that?

KIVA's mission is to tie people through lending for the sake of alleviating poverty. Literally speaking, it’s the world’s first site of its kind that enables person-to-person micro-lending. It enables individuals to lend directly to unique entrepreneurs in the developing world.

The people KIVA features on their website are real people seeking sufficient funding to help them run their small businesses. Potential lenders can browse entrepreneurs' profiles on the site, choose someone to lend to, and then make a loan. In addition, throughout the course of the loan (usually 6-12 months), the lender can receive email journal updates and track repayments. Then, when s/he gets her/his loan money back, s/he can relend to someone else in need. Quite simple, but amazing, isn’t it?

KIVA partners with existing expert microfinance institutions. In doing so, it gains access to outstanding entrepreneurs from impoverished communities world-wide. Its partners finds original and competent entrepreneurs (usually who are short on funds). Through Kiva, its partners upload their entrepreneur profiles directly to the site so the prospective lenders can lend to them. To know more on how KIVA works, please click here.

I believe, Bangladeshi entrepreneurs can gain a lot from KIVA if an expert partner gets aligned with it. Right now, there’s a name of a Bangladeshi partner (Annesha Foundation) on the KIVA website, but its account is closed.

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Should we not take a chance?

FT: Calls for ratings framework amid surge in microfinance

The Financial Times

By Joanna Chung in London

http://www.ft.com/cms/s/6454c890-244b-11dc-8ee2-000b5df10621.html

Published: June 27 2007 03:00 | Last updated: June 27 2007 03:00

Microfinance is quickly becoming a popular corner of the capital markets as more investment banks and investors see the business of providing small loans to low-income individuals in poor countries as potentially profitable as well as a powerful tool for development.

However, some experts say there are obstacles preventing the microfinance sector from reaching its full potential, including the absence of a global framework that mainstream investors can use to assess properly the risks associated with the sector.

A transparent and globally acceptable method for rating microfinance institutions would help to open up the asset class to a much wider universe of investors than would or could invest in unrated securities, industry observers say.

"The lack of consistent metrics for analysing micro-finance institutions has hindered investment at a time when microfinance is growing at a significant rate," says Cynthia Stone, chair of the Emerging Markets Council at Standard & Poor's.

"Despite the level of interest, mainstream investors need standard metrics before they can invest in this particular sector. By creating standard metrics the market understands, it will draw out institutional and other investors who were on the periphery or have stayed out of the market."

Ian Callaghan, head of the Microfinance Institutions Group at Morgan Stanley, says that access to a greater scale of capital is needed and that means tapping a pool of investors that do not necessarily have a social objective but are looking for diverse investments.

"Microfinance has so far been mostly funded by development banks and socially responsible investors but they do not have the access to the kind of capital that is needed to satisfy the growing industry's needs," he says.

Activity in the microfinance sector has been growing in the last few years and has involved increasingly complex deals. Last month, for instance, the first publicly rated microfinance collateralised debt obligation - which pools together packages of bonds - raised more than $100m. The deal was rated by S&P and completed by BlueOrchard, which specialises in the management of microfinance investment funds, and Morgan Stanley.

Mr Callaghan says: "It helps that investors can look at a piece of rated paper that they can compare with other rated paper that comes across their desks."

In a recent report providing recommendations for a rating methodology that can be used to rate microfinance institutions (MFIs), S&P predicted that greater transparency and globally acceptable standards could see volumes of microfinance-related securitisation deals surge.

S&P expects to rate an additional two to three microfinance CDO transactions and around 25 MFIs in the coming months, with CDO issuance levels potentially reaching $500m by the end of 2007. As the existing microfinance institutions become adept at handling new inflows of funding, and more MFIs enter the market, securitisation volumes could reach between $1bn and $3bn annually over the next decade, the agency says.

Copyright The Financial Times Limited 2007

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An interesting article on how greater transparency can translate into creating real strategic and tangible value for an industry or firm, and not just as a “nice to have”, lip service or PR ploy. The important factors here are: being upfront about and properly assessing risk factors, having a standard set of metrics to facilitate comparison, greater innovation in financial product development (e.g., structured finance vehicles like CLOs/CDOs),and to a certain extent divorcing, for lack of a better word, “passion” from capital investments decisions (i.e., admittedly simplistically put: create a business model that creates real value while supporting a social charter which can therefore stand up to the scrutiny of dispassionate investors and have a fighting chance of being sustainable). Of course, an adequate investor base and climate is a necessary prerequisite (so maybe the whole thing is moot when it comes to Bangladesh. Or not?)

While the MFI industry is clearly in need of the above, would it be a leap too far to say that other sectors in Bangladesh, including financial services, should take heed and reap similar rewards?

Micro-credit mising it's mark? Wait, is there a clearly established mark?

Since micro-credit is such a major part of our economy (the implications of which I will not go into here), some interesting blog posts and links courtesy of NextBillion.net, below.

1.

Article by Aneel Karnani (author of "Mirage at The Bottom of the Pyramid") in Stanford Social Innovation Review, “Microfinance Misses It’s Mark”

“Despite the hoopla over microfinance, it doesn’t cure poverty. But stable jobs do. If societies are serious about helping the poorest of the poor, they should stop investing in microfinance and start supporting large, labor-intensive industries. At the same time, governments must hold up their end of the deal, for market-based solutions will never be enough.”

2.

Is the Microfinace Model Broken?

"It seems timely to revisit the need for scrutiny in the microfinance industry as it enters the mainstream and to hopefully broaden the debate beyond academic circles and development institutions. CGAP this month published a focus note analyzing the Compartamos IPO, essentially seeking to answer the question of whether the exceptionally high profits Compartamos has earned for its private shareholders can be justified for an organization that is supposed to have the social interests of its clients in mind. CGAP's answer, while not completely damning, is not a vindication for Compartamos either - they conclude that the NGO could have reasonably charged lower interest rates that would have decreased profits but allowed poor clients to keep more of their earnings."