Things Badly Made Don’t Last

Two weeks in and I’ve already settled into a rhythm of sorts. I’ve got a place to stay with my friends Urvaksh and Khursheed, and a base to work out of at the Ashoka office in Bandra. I take the fantastic new sea link every morning which gets me there in a short half hour; an amazing transformation for a journey that used to take us almost an hour longer when I was a child.

Bandra still has its leafy lanes and quiet charm in some places, but in others its a completely different animal. Fancy shops and bars and a new demographic of active young people. Much of the new development that has missed South Bombay seems to have focused here.

Still, for all the new flashiness and technology, the ‘chalta hai’ attitude to quality still persists. Things are regularly badly made and poorly put together. The old roads were always badly made and so were the electrics, but even the new malls are only half built and already in full use. Wires hang freely, just built car parks look 10 years old, and cheap new steps are already chipped. At my friend’s house, builders who don’t have a clue what they’re doing are busy smashing through walls they shouldn’t be damaging. Unqualified electricians are ripping sockets out of walls, and plumbers take wild guesses at where pipes might before taking the tiling apart.

 

Some obvious causes

1. Things are built on inadequate budgets or done as cheaply as possible, so the materials used are poor quality and the labour employed isn’t skilled enough
2. Things are built by people who will never use it, and therefore don’t personally relate to the pain of failure
3. There is pressure to get value as quickly as possible, so things go into use before they are properly finished

The upshot of all of this is that although basically functional, much of it doesn’t work properly, and costly maintenance and fire-fighting cycles start right from day one. Over time people have just come to accept it as given, because the problem has become too huge and too endemic to manage, and the underlying causes cannot be easily addressed.

There is probably a lesson in this for people funding and delivering social programmes. Building programmes on inadequate budgets, or designing them without having spent enough time on the ground and in collaboration with the people impacted, or rushing into new initiatives simply because of perceived need, is likely to result in programmes that don’t deliver quality and never really create lasting or sustainable change.

Adventures in India: Home Sweet Home!

The heat and sunshine in Mumbai are almost overpowered by the noise of construction as I sit on my friend Nikhil’s couch, watching cricket and settling in to the next leg of my globosocial adventures, one eye on the clearly untrained workers haphazardly drilling the building wall just outside.

My flight was smooth and impressive for an Indian Airlines, with good food and a reasonably big touch screen entertainment system that was miles better than anything I flew to or around Latin America. Cheap too. Go Jet Airways!
Outside the flat at Kemps Corner, little has changed since I was a child. The flyover is as it always was; the summer haze is smoggy as ever; red buses haven’t changed; car horns continue unabated; and taxis are still the same tiny Fiat Padminis we used to squeeze into as children.



Tomorrow I’ll pick up the phone and start calling friends I haven’t seen in ages, and on Monday the social adventures will start as I get in touch with the people and projects who’ve contacted me over the past few months. If you’re reading this and have any suggestions or connections, let me know.

In the meantime, the IPL juggernaut is swinging into full flow with the Mumbai Indians playing Rajasthan, and Harbajan Singh and some random woman say hello from a massive billboard outside our window!

Video Presentation: Globosocial Adventures (SBS Oxford, 2010)

I recently gave a talk on scaling social enterprises to MBA students at Oxford University's Saïd Business School, which is partnered with the Skoll Centre for Social Enterprise. It seemed to go down well, so some of the students asked me to come back to talk to them about my journey around the world and share some of my learnings on social enterprise so far.


Globosocial Adventures - Oxford MBA Talk, Feb 2010 from Rizwan Tayabali on Vimeo.

Here's the contents of the talk in case you want to skip through it...

• Introductions (3:33)
• Talk Structure + Group Questions (8:40)
• About Me (1:50)
• Social Triggers (3:10)
• My Path to SE Consulting (5:20)
• Globosocial Adventures - What & Why (4:46)
• How It’s Going So Far (1:04)
• SE Consulting Challenges (13:43)
• Useful Things I’ve Learnt (17:25)
• Why SE’s Fail (7.00)

The Base of the Pyramid is a Lie

The “Base of the Pyramid”. I want you to take a moment and picture it. What did you imagine? Be honest with yourself. A billion vulnerable souls in different environments, many of them inexorably losing their struggle against brutal realities… OR… a triangular pyramid; a textbook line drawing?

Of all the jargon in the social sector this is the one I hate the most. It reduces people to statistics, vast complexity into a homogenous group, raw reality into emotionless concept, and human beings into a neat simplification: The fabled ‘fortune’, the market, at the base of the pyramid.

The thing is that the base of the pyramid is a nonsense on two counts.

1. It is not a pyramid.

Here’s how it really looks: 1bn high income. 2.5bn middle income.1.5bn low income. 1bn extreme poor. (see Jeffrey Sachs, End of Poverty)

The last group are people who, for example, cannot even afford the $1 a day needed for the life saving AIDS treatments that Cipla provides.

 

2. It is not a market.

The so called market that many social enterprises and social investors are chasing is not at the base, but somewhere in the middle. The market that allows social enterprises to be viably self-financing and which is being targeted by social investors, is not the bottom billion, but the middle four. This is where, for example, the microfinance entities make their profits, and where you can sell technological or service innovations that address social need at costs that fit available income. At the bottom, no social ‘enterprise’ is going to work. The bigger challenge is to keep people alive in the face of conflict, and famine, and AIDS.

 

Maybe this area of focus for social entrepreneurs should be called the 'Middle of the Michelin Man’ or the ‘Middle of a Weirdly Shaped Top Heavy Ball’ but of course that would be stupid and dehumanising. But not any more than the base of a hypothetical pyramid that isn’t.

Burning Thoughts at Fahrenheit 451

Busy days in Buenos Aires follow busy days in Sao Paolo and my life is a blur of new information that I commit to processing and adding to without really knowing how. In between I worry about what do with all this information. Today I met with Mei Ling who has written a book and is writing another, through Vanessa who pointed out that in books lie the legitimacy and permanence of big thinkers. More immediate than books lie articles; 2000 word ones that Neal will pay me to write for Shareable.net and I haven’t even got there yet.

Maybe its because sometimes I feel like my mind has a mind of its own and I'm merely an observer taking photographs of my imagination. If that sounds like a poor attempt at wordplay, rest assured that its utterly literal...

 

 



 



I don’t really know where it comes from, or why I’m able to do it. I don’t really see myself as a writer or a big thinker. The world is overloaded with words, and big thinkers rarely create anything the person on the ground can use. But then today I read Fahrenheit 451, which is just stunning. A book about the power of books, and the dangers of simplification and the simplification of simplification, until the point where richness and complexity of thought become anathema. A pain to be avoided and destroyed. And then I started thinking about thinking and wondering what do with the stuff I create.

Hopefully at some point my mind will make up its mind and I’ll figure out what to write, and how I’m going to do it!

Microfinance in Pictures

While in Mexico I had the fantastic opportunity of spending time with Frida Ruiz Fernandez who worked in regulation for microfinance and banking for Peruvian Government for 4yrs, and Juan Ahedo who works with Fin Comun, a microfinance organisation based in Mexico. From Frida I learnt a bit more about Microfinance, much of which is summarised below, and through Juan I was able to accompany a couple of branch managers on their site visits around the city.

Fascinatingly for me, I learnt that microfinance is not just about lending to rural populations, but also a support system for tiny shops, restaurants and stalls all over low-income areas in cities too. The most fascinating thing was being transported back to a world of notebooks and hand-written accounts.

Microfinance in the City – Typical Clients

 

Introducing Microfinance

Traditional Banking

The mechanisms of traditional banking essentially function around monetising (investing/re-lending for financial return) deposits that people store with the bank; and on providing interest based credit that is offset either by collateral, or risk managed through the use of standardised credit rating systems for medium to high income populations.

Why Low Income Populations Can’t Use Traditional Banks

Low income populations typically have neither the collateral nor ratings needed to access credit, because their wealth base is too small for collateral and standardised credit rating systems are not designed to assess their circumstances. Traditional banks therefore have to invest in completely new mechanisms for managing these demographics, which isn’t worth their effort so they ignore the space altogether.

Finally, where low income populations do have savings, they generally don’t deposit their money in normal banks because

1. There is a lack of accessible infrastructure. i.e. no branches in their areas since it is not profitable for traditional banks to provide these.
2. Low income populations are not used to going into big banks. They feel out of place and intimidated by the experience.

The Critical Problem

Since low income populations often have greater immediate needs around borrowing money, the lending space has traditionally been covered by loan sharks, where exorbitant interest rates mean that people can end up paying many multiples of the money they borrowed, under threat of personal violence. This simply exacerbates their poverty.

The second problem is that without access to mechanisms of depositing, managing and growing money, these populations are typically excluded from opportunities to create the longer term wealth that can help them to escape the poverty cycle.

Microfinance

So microfinance is really just a fancy name for the mechanism of providing safe small (typically high interest) loans to people, groups or enterprises who’s incomes are too small to provide collateral or credit ratings, and are therefore risky and highly cost intensive to manage.

Microfinance organisations make it cheaper and profitable to provide these services by basing themselves and working in the same areas as these populations, and they have adapted their credit methodologies to lend to low income sectors in 3 ways

1. Their assessment model is very human intensive in terms of finding entrepreneurs, getting to know them personally, helping them with paperwork etc, typically by having branch managers which personally go out to meet clients rather than have them come into a branch, which means a much higher cost base than traditional banking.
2. They provide loans without collateral, and manage the risk by replacing collateral with information about the people they are lending to. Hence they are significantly more diligent than traditional banks about each individual being lent to. Branch managers establish close relationships with borrowers and work to understand their networks and personal circumstances.
3. They charge higher interest rates than traditional banks – anywhere between 25% and 40% annually, which although high is still less than loan sharks. Commercial microfinance entities lend at even higher rates of 40%-140%.

The Goal

Enable people to exit poverty through profits from assets or activities enabled by small loans.

The Gap and Issues

Microfinance organisations however are typically not banks, which means that they still do not address the issue of saving and wealth accumulation. One reason for this is that lending entities (like store finance) operate without much scrutiny, but taking deposits makes you a bank, which requires compliance with a whole new range of costly financial regulations that can otherwise be avoided.

Since these organisations fall outside traditional banking mechanisms, in many countries they often exist without any regulation. This means they often grow too quickly and operate at very high risks of bankruptcy.

Another issue that is also now being recognised is that the mechanism of micro-finance still struggles to bring people out of poverty. The reason is to do with the focus on funding entrepreneurs rather than stable business models or even helping create enteprise for people who don't have any income streams, and because of the lack of education and understanding of money management in low income populations.

Finally, microfinance is a profit model, and many of the players are not in it for the social goal. They don’t always operate ethically, and are not necessarily interested in mobilising communities out of poverty. Education and health components added to the financing model, can cynically be seen as mechanisms to reduce the risk of default, but the really good ones invest significantly in the development and mobilisation of the communities they work with.

The exorbitant interest rates can often be equivalent to loan sharks, and more importantly, as the sector matures and costs of managing clients and risk reduces, these rates don't drop (see lack of regulation and monitoring). This means that after a while commercial microfinance entities typically just mint money and will continue to do so. This is one of the reasons for the huge financing boom for these organisations, but goes entirely against the ethics that the public associates with social enterprise.

The real trouble in the end is that any development model whose sustainability/profitability is based on offering debt, and which has financers as the primary stakeholder, is likely to result in exploitation unless it is ethically run or strongly regulated. At some point any commercial lending entity will end up having to convince (manipulate) people to take loans regardless of whether they need it, just to keep its business model and profit margins going. As the market booms, more entrants seeing easy money are rushing in under the radar of public goodwill.

Solution 1: Regulation

Peru recently won an award for the creation of regulated environments for successful growth and scaling of microfinance. They minimise the risk of failure of microfinance orgs by enforcing a step by step system of growth by modules. Every step in scaling operations requires governmental approval, using a risk based approach covering 4 areas:

1. Credit
2. Market
3. Liquidity and Operations
4. Capital adequacy (i.e. having enough capital to support operations).

This approach prevents microfinance organisations from growing too fast or taking risky decisions, and unregulated Microfinance organisations are not allowed to take deposits.

Benefits of regulation

1. Access to ratings and ranking makes these organisations open to investment
2. They get feedback that helps them grow and get better
3. Regulation means they are better run, so they have access to better human resources
4. Access to guarantee funds up to a certain amount of deposit to help offset risk.
5. Protect against and reduce risk of exploitation of vulnerable low income populations.

Solution 2: Education & Community Investment

Microfinance organisations are now beginning to provide financial and health education, in order to offset risk (well educated and healthy populations are better placed to repay loans), but the really good ones also invest in education and community programs to transform civil society in low-income areas. Education must focus on savings and wealth management and not be used to encourage take up of more debt.

Solution 3: Microfranchising

Entrepreneurs are great at finding opportunities to set up ventures, but not necessarily so good at scaling or creating stable and repeatable business models. Since microfinance typically lends to small entrepreneurs in low income populations, the quality of enterprise is typically not suited to scale or growth. Your average tiny corner shop isn’t very likely to become 10 large corner shops. Results are starting to show that while microfinance has benefits, it isn’t necessarily mobilising communities out of poverty in the long term.

The solution may involve offering finance for proven micro-scale business models that can be scaled by franchising. Local product reseller models for example. The value here lies in the creation of new jobs as it does not involve funding existing enterprises. It would also open up economic possibilities for people who don't already have stable incomes.

Solution 4: Debt and Wealth Management

For any microfinance entity seriously interested in driving economic development for low income populations, there absolutely must be a focus on debt management and reduction, followed by support for creating and growing wealth. Cash in hand is not wealth. Assets are. A savings account with interest for example. It not only grows money, but also safeguards it. Another example is ownership of housing. A lot of poor people have historical debt that keeps them locked in poverty. Debt reduction systems are not necessarily profitable, but could be justified in the longer term of creating a base of clients whose wealth can be monetised without fear of exploitation. The key here is replacing short-term profit maximisation with long term profitability and social impact.

Adventures in Sao Paolo Part 4: Searching for Marcelo Lima

It’s another month gone and I’m at the airport in Sao Paolo, waiting for my flight to Buenos Aires. The taxi ride was expensive (80 Reais) but very fast and I’ve now got an extra hour to kill and time to reflect on another whirlwind few weeks of vibrant people, new problems, passionate conversations, beers, and days so full that I haven’t even had time for blogging.

In truth I’ve been meaning to post more often, but I’m finding that I just don’t think in actively reflective ways, so I don’t have much to say on a daily basis. My notes would be all be repetitive… “I met some great people, had interesting conversations about social development, offered some new perspectives, ate well and had a few beers!” Can’t imagine how any of you would find that interesting after about the 5th time :) Churning out emotive descriptors of daily experiences is therefore not proving to be an option with the time I have. But I find if I carry on absorbing things in my usual go with the flow type way, then things aggregate and crystallise and the writing occasionally just happens. Like today.

I’m sad to be leaving Brazil. I’ve met as many lovely people as I did in Mexico City, which is pretty amazing. I’ve been looked after and entertained and included, to the point that I’ve never had a single day with time to occupy by myself. In my short time in Rio, I caught up with Iris, Theresa included me in the amazing things she’s doing and Gilberto showed me around. In Sao Paolo, the Ashoka crew took me for beers, Elenice showed me around the city, the Wikimedia guys made me feel part of the movement, and others from my hostel hung out with me in the few moments there was time to spare.

Adventures in Sao Paolo Part 3: Gravatars and Charity Champs

It’s another beautiful balmy night in Sao Paolo, and I’m sitting out on the patio in my hostel, winding down after a long day of discussing concepts and issues and potential futures, followed by more birthday beers.  Two nights in a row. Fun, but tiring, because the 7 very conservative university kids in my room all keep waking up at about 6.30 – it makes no sense; they’re on holiday!!



Turns out Brazilians are proud about the openness of their culture in that anyone can be Brazilian, regardless of colour or background; but they lament the fact that there is an envy and revenge side aspect that isn’t so pleasant. Apparently everyone’s out for themselves and want to show each other up. I can’t confirm this because everyone I’ve met has been fantastic, but then I’m mostly meeting people involved in social change, so it’s a bit skewed.

Been learning all about Hybrid Value Chains and Ashoka’s Full Economic Citizenship, which is about trying to design and prove replicable models of symbiotic partnerships between private and social organisations in the areas of Housing, Health and Agriculture. Fascinating but complicated.

Also had a interesting conversation with Kevin Wong from Charity Champs, who is developing a platform to support micro-philanthropy using gravatars as part of a strategy to return social kudos back to people who get involved. If you don’t know what gravatars are go click the link :) As usual the conversation threw up a whole host of ideas in my head and I started to picture awesome opportunities to use virtual worlds like Wii World, which is probably going to be massive in the next 5 years. Very fun conversation, and hopefully I’ll be able to help with their long-term strategy in some way.



Finally, had some great advice from Neal from Shareable.net, around blogging in the moment. He had a great observation that trips like mine are part of a new culture that is emerging where contribution to the common good is the priority, and that appreciating diversity is essential to our ability to change as a people. What I’d add is that in understanding diversity we also understand how similar we all are underneath it all, and how connected we all are in the things that are important to us. And in that lies the recognition that we do not exist alone and that we are fundamentally responsible for each other, far beyond the reach of our own families and immediate societies.

On which inclusive note, here’s something very cool I came across – The Homeless World Cup. Check it out and be amazed!

Adventures in Sao Paolo Part 2: Equilibriism

A new day in Sao Paolo and I still haven't found the key that gives you the little sign above the 'a' in Sao! I'm in the Ashoka office in Vila Madalena area, which is really nice and chilled out. I've only been here a couple of days and I already feel way more at home than I did in Rio. Sacrilege, considering that you're generally supposed to rave about Rio and use Sao Paolo as a transition point, but hey. We're all different.

I met someone called Daan Schraven last night who was talking about an interesting concept he's come up with called Equilibriism, which is all about finding balance, so I'm going to find out more about it over lunch. Meantime I've very kindly been given my own desk in the Ashoka office, and finally have a decent place to work. I arrived expecting to start from scratch, but Mônica de Roure who runs the team had already sent an email round to everyone telling them to expect me so amazingly it's all set up. I'm always a little surprised (happily so) that people actually make time for me.

The hostel I'm staying at is fantastic. It's called Vila Madalena. The guy who owns it is called Tulio and he's really passionate about the place, and it shows. He spent an hour filling me in about Sao Paolo and things to do! So unless someone offers me a place to stay with them, I'm sorted for the next couple of weeks.

Vila Madalena Hostel

For the moment though, today is going to be about trying to find some equilibrium between writing stuff up, learning about new things, sharing old practices with new people, and then 'happy hour' with the Ashoka team after work!

Adventures in Sao Paolo Part 1: Pattern Recognition

Well more like pattern discovery... I'm still trying to figure out how to run this blog!! Trying to work out what's the right balance between sharing travelogues, knowledge and impressions. I thought I'd try and keep it as a mix between travelogue and knowledge sharing, but both types of post require a lot more time and effort than I actually have. In some ways it's also limiting because I'm not finding it easy to share impressions on the fly. So here's a third type of post... the random diary!

I'm now in São Paulo, after a week in Rio de Janeiro. A friend of a friend said Rio was like the San Francisco of Brazil in terms of the attitude and mindstate of residents, while São Paulo would have more of a New York feel. To a certain degree he was right. Just one day in São Paulo and it already feels more like city than bay area, and not just because Rio has a beach :)

Ipanema beach, Rio de Janeiro

I'm in a hotel just of Av Paulista, which apparently is a major area, but I haven't gotten out much. Decided to keep my head down and spend the day writing things up. I'm so behind on all the things I need to write up. Every day is a barrage of new and interesting information about social projects and issues and solutions, not to mention new and exciting sights and sounds and tastes.

I still haven't finished writing up my observations on Mexico, and then I've got Rio to share with you. On the social enterprise front I need to write about Hybrid Value Chains and Microfinance and Fair Trade vs Direct Selling and Renewable Energy and Rural Community Development and Agro Ecology... that's before I even get to editing the video interviews I've done and the million photos I've already taken. I probably need a week just to get it all up!

Anyway before I sign off, I just thought I'd share that it's good to be eating food that involves salad - really never thought I'd say that, although after Mexico I'm really missing hot salsas with everything; it's been raining regularly in Brazil as we approach the summer; I've seen my first big cockroach since I was a kid in India (go São Paulo!); and returning to hostel life and big dorms really hasn't been as much of a trauma as I'd imagined. If anything, it's gotten easier because at 32 I sleep more heavily than I used to at 25, when I last travelled around the world!

And talking of hostels, tomorrow it's back to dorms in one near the Ashoka office, which the Ashoka team is kindly letting me use as a base. I'm looking forward to seeing how similar or different things are at this end. Assuming all goes smoothly I should be knuckling down to churning out more useful stuff this week. Til then adios amigos...