Thursday, November 18, 2010

Microcredit's Creative Destruction

An article in today's New York Times on the potential collapse of microcredit in India highlights the bumpy ride that always seems to accompany the growth of any new idea.

Apparently, some microcredit lenders in Andhra Pradesh, India's 4th largest state by population, crossed the fine line between balancing profits and social impact to loan sharking, all in the name of growth.  It's easy to see why.  Microfinance is increasingly becoming big business, in part because the need is so great, viable models (like those of the Grameen Bank) have become mainstream, and default rates are customarily low relative to profit margins.  


And, most of all, people can get rich doing it.  SKS Microfinance, India's largest for-profit microlender and backed by famous investors like George Soros and Vinod Khosla, recently floated a $350 million IPO with SKS Chairman Vikram Akula privately selling shares worth about $13 million.


The dynamics (another word for messiness) that accompany innovation and entrepreneurship have a familiar pattern.  Early successes lead to refined models that produce ever increasing value to both customers and providers.  Almost inevitably, these models are exploited by a few bad apples, sinking the whole concept into question.  


Fortunately, all market-based innovations have built-in (although not always timely) mechanisms to clean up the mess.  The refusal (or inability) of those receiving microloans to repay has already led to tighter regulatory restrictions and generated questions among policymakers, legitimate loan providers, and their customers.  The answers to these questions, and the processes taken to find them, will undoubtedly lead to even better, more effective microcredit models in the future.  Unfortunately, the "best" providers of microloans to the poor, which have pulled millions in poverty at least a rung or two up the economic ladder, will end up as collateral damage, at least for a while.


All of this is little comfort to the Indians whose lives have been damaged by unscrupulous lenders.  It's a situation that has probably existed since the beginning of time and always will as long as those who have are willing to give to those who need. 





Tuesday, November 16, 2010

Clean Water, One Credit At A Time

Today's NY Times Fixes column features a solution proposed by Vestergaard Frandsen, maker of the LifeStraw which operates under a "Humanitarian Entrepreneurship" business model, to address the lack of clean water that afflicts many parts of the world.


In essence, the idea is to use the proceeds of carbon credits, which are increasingly becoming freely traded on global exchanges (like stocks and bonds), to finance investments in clean water solutions (including post-implementation support), thus making the cost of clean water = ZERO. Since boiling water for purification customarily uses carbon emitting energy sources like wood, it not only makes logical sense but Vestergaard Frandsen will make more $$$ the more successful they are at scaling adoption.


If there's one constant in the private sector it's that companies that introduce new, seemingly viable business models create hordes of fast-followers.  This competition generates innovative energy that refines and fine tunes approaches, lowers costs, and provides a platform to "scale" solutions.  


If there's anything surprising about what seems to be a surge of activity from the private sector to generate "profits with a purpose", it might be that it's taken this long to realize that, where there are societal problems of almost unimaginable magnitude, the mechanics of markets may provide a solution that also creates shareholder value. 

Wednesday, November 03, 2010

Unreasonable Men and the Quest for a Malaria Vaccine

Billy Shore of Share Our Strength

My good friend Billy Shore is the founder and executive director of Share Our Strength, one of the world's leading organizations in the quest to end childhood hunger.  Billy was a senior aide to former U.S. Senators Gary Hart and Bob Kerrey and was selected as one of "America's Best Leaders" by U.S. News and World Report in 2005.

He has a new book coming out called The Imaginations of Unreasonable Men: Inspiration, Vision, and Purpose in the Quest to End Malaria (his fourth; see all of Billy's books here) which follows the story of two audacious scientists who have been racing each other for 30 years to develop the malaria vaccine. He uses the narrative to broach the question, “How do you solve the problems of hunger, disease, and other critical social problems with no natural market?”

Here an article link describing the book and Billy's insights on social innovation, published by Community Wealth Ventures, Share Our Strength's social enterprise consulting firm: