Seeking Head Of State Like Powers

Image via WikipediaIn seeking to create a for profit, high tech microfinance startup, in seeking to lead it as Chairperson/CEO, I seek to create head of state like powers for me that I hope to put singularly to the cause of microfinance. I am confident the technology that is the Internet is already ripe for such possibilities.

The Google/Facebook Of Microfinance
Microfinance Alone Can't Cure Poverty
Microfinance: No Substitute For Good Governance

I have said time and again, good governance is the number one factor in tackling poverty. It is not microfinance. And riding a microfinance outfit would give me a way to take close looks at governance structures around the world.

For instances, I am gripped by the street revolutions across the Arab world. Few things are as exciting to me as a democracy movement. There is no better display of people power.

The Long March Of Democracy
The Internet And The Emperors
Syria Is Being Left To The Dogs
Indiscriminate Firing By Syrian Security Forces

Focus, Focus, Focus

Image by Austin Yoder via FlickrAt this blog I want to switch to talking primarily about microfinance and the technologies and business practices primarily related to microfinance. The idea is to keep a steep learning curve. The idea is to communicate. The idea is to enter into conversations.

I have done a lot of reading and commenting on broad developments in tech, and I want to keep doing that, but so far that has been the primary thing by a wide margin. I want to narrow that margin. I want to start talking primarily about microfinance.

The three broad conceptual jumps I have made - moving from a non profit model to a for profit model, moving from a low tech model to a very high tech model, and doing the last mile under the same brand name everywhere through the franchise concept - have to be visited again and again.

Microfinance: No Substitute For Good Governance

Image via WikipediaDemocracy is basic. I am a firm believer in democracy. The year a country becomes a modern democracy is year one in that country's life. Lack of democracy, bad governance, massive corruption, and civil war are situations that are not within the domain of the microfinance industry. Basic good governance is critical for the microfinance industry to have a playing field where it can start performing, it can start to lift people out of poverty in large numbers.

There is plenty of diversity within the microfinance industry. There are many right ways. And microfinance is not the only tool with which to cure poverty. China has lifted more people out of poverty the past few decades than any other country, and it does not even allow MFIs to come in.

Aggressive Fundraising, Aggressive Recruiting

I sent out this tweet to an angel investor yesterday.

The Stink From The New York Times

Image via CrunchBaseNetflix has a market value of $10 billion. The New York Times has a market value of barely one billion dollars. Articles like this one are the reason why. This feels like a hachet job done by a Vinod Khosla enemy.

The title of the article itself is so out of the whack. The microfinance industry in India is nowhere close to collapsing. Not even close. The article itself talks about how 1% of those who borrowed the money might no longer be able to pay. That is not a collapse. That is an excellent default rate. The default rates at big New York City banks that rich people and companies borrow from are much higher. And I am talking pre Great Recession numbers.
Image via CrunchBase
Just like the default rate remains low, yes, there are borrowers who have committed suicide because they could not pay back. But the article makes it sound like the microfinance industry in India has given rise to a country wide epidemic of suicides. People are committing suicide left and right by the roadside. That would be like taking the news of one Congresswoman in Arizona getting shot and making it sound like now there was a raging civil war in America.

The Stink From India

Image via Wikipedia

New York Times: November 2010: India Microcredit Faces Collapse From Defaults: India’s rapidly growing private microcredit industry faces imminent collapse as almost all borrowers in one of India’s largest states have stopped repaying their loans, egged on by politicians who accuse the industry of earning outsize profits on the backs of the poor. ........ Indian banks, which put up about 80 percent of the money that the companies lent to poor consumers, are increasingly worried that after surviving the global financial crisis mostly unscathed, they could now face serious losses. Indian banks have about $4 billion tied up in the industry ........ for-profit “social enterprises” that seek to make money while filling a social need ...... microfinance in pursuit of profits has led some microcredit companies around the world to extend loans to poor villagers at exorbitant interest rates and without enough regard for their ability to repay ...... microfinance could become India’s version of the United States’ subprime mortgage debacle, in which the seemingly noble idea of extending home ownership to low-income households threatened to collapse the global banking system because of a reckless, grow-at-any-cost strategy. ...... legislators in the state of Andhra Pradesh last month passed a stringent new law restricting how the companies can lend and collect money. ..... local leaders urged people to renege on their loans, and repayments on nearly $2 billion in loans in the state have virtually ceased. Lenders say that less than 10 percent of borrowers have made payments in the past couple of weeks. ..... the industry faces collapse in a state where more than a third of its borrowers live. Lenders are also having trouble making new loans in other states, because banks have slowed lending to them as fears about defaults have grown. ..... “They aren’t looking at sustainability or ensuring the money is going to income-generating activities. They are just making money.” ...... the industry had become no better than the widely despised village loan sharks it was intended to replace. ...... SKS and its shareholders raised more than $350 million on the stock market in August. Its revenue and profits have grown around 100 percent annually in recent years. This year, Vikram Akula, chairman of SKS Microfinance, privately sold shares worth about $13 million. ...... a few rogue operators may have given improper loans, but that the industry was too important to fail. “Microfinance has made a tremendous contribution to inclusive growth,” he said. Destroying microfinance, he said, would result in “nothing less than financial apartheid.” ...... Indian microfinance companies have some of the world’s lowest interest rates for small loans. Mr. Akula said that his company had reduced its interest rate by six percentage points, to 24 percent, in the past several years as volume had brought down expenses. ..... many lenders grew too fast and lent too aggressively. Investments by private equity firms and the prospect of a stock market listing drove firms to increase lending as fast as they could ..... the number of borrowers who are struggling to pay off their debts is much smaller than officials have asserted. He estimates that 20 percent have borrowed more than they can afford and that just 1 percent are in serious trouble ...... microfinance firms had lost sight of the fact that the poor needed more than loans to be successful entrepreneurs. They need business and financial advice as well ..... the industry was now planning to create a fund to help restructure the loans of the 20 percent of borrowers in Andhra Pradesh who were struggling. ..... The television, the mobile phone and the two buffaloes she bought with one loan were sold long ago.

Home ownership by the poor is not what caused the global financial meltdown. It was bad behavior on the part of bankers. This crisis in India can also be attributed to bad behavior on the part of bankers. But this crisis is overblown. Before I ever came to America I thought New York City was all about crimes and crimes alone.