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The greatest return on investment via PSD Blog - World Bank Group August 18th, 2008 at 16:00

image I previously posted on the myth of the entrepreneurial middle class. A post on the India Development Blog on What Does Productive Loan Use Look Like reminded me of this issue. Michael Chasnow reports on new research on the use of credit in the slums of Hyderabad. Here are the reasons people took out loans (often not from any microfinance institution, and at interest rates of 80%): Health expenses (17%) Marriage (13%) Temporary difficulty (10%) Home construction (10%) Consumption (10%) Start a new business (7%) Business expansion (1.33%)The use of credit to invest in business falls pretty low on the list. Chasnow questions the efforts of microfinance institutions to closely monitor loan use or to create specialized products to promote business development. I would tend to agree with...
In Healthcare, Education, Access to finance, South Asia

Financing the next Silicon Valley via PSD Blog - World Bank Group August 13th, 2008 at 20:05

image Although we're in the middle of the lazy days of August, infoDev has just come out with an impressive document on just how to create the next Silicon Valley. Entitled Financing Technology Entrepreneurs & SMEs in Developing Countries, the publication takes a look at the missing piece of the puzzle for many tech businesses in developing countries: access to finance. It takes more than a brilliant idea to make a tech business work, and infoDev has identified a lot of constraints on both the demand side and supply side of finance.Much of the information in this publication is not entirely new. Many of the constraints on the supply side for financing SMEs are relatively well known: informational asymmetries, the high risk of small operations, transaction costs, and limited or nonexistent...
In Access to finance

Who gets the credit? via PSD Blog - World Bank Group July 30th, 2008 at 21:10

image A new paper coauthored by fellow PSD blogger Thorsten Beck entitled Who Gets the Credit? offers up some new insights on what effect credit availability has on GDP growth. Using data on 45 countries between 1994 and 2005 on the relative share of enterprise vs. household credit, the authors conclude: We find that it is bank lending to enterprises, not to households, that drives the positive impact of financial development on economic growth.I find this a startling conclusion; most of the literature on human capital suggests that credit constraints play an important role in dampening growth. Student loans - one of the products that the IFC has been involved in - should help overcome this credit constraint and give a boost to growth in the long run. Even in the absence of formal student...
In Education, Access to finance

PayPal (not) in Africa via PSD Blog - World Bank Group July 3rd, 2008 at 14:27

image Collins Mbalo, resident blogger at A Nairobian's Perspective, complains about the lack of access to PayPal services in Kenya and Africa generally. While anyone can set up a PayPal account, Africans have no way to transfer this money into a bank account. PayPal has a list of the services it provides in countries around the world here. It looks like there's not a single country in Africa under the "Send. Receive. Withdraw" heading. At best, residents in Africa only have access to the 'send' function. Africans don't even have access to a functionality that allows users in some countries to withdraw funds to a debit card. I'm not sure why this is the case, but at least in South Africa it looks like the tax authorities are afraid they're going to miss out on tax revenues. You can...
In Africa, Business environment, Web sites, Access to finance

PayPal (not) in Africa via PSD Blog - World Bank Group July 2nd, 2008 at 22:12

image Collins Mbalo, resident blogger at A Nairobian's Perspective, complains about the lack of access to PayPal services in Kenya and Africa generally. While anyone can set up a PayPal account, Africans have no way to transfer this money into a bank account. PayPal has a list of the services it provides in countries around the world here. It looks like there's not a single country in Africa under the "Send. Receive. Withdraw" heading. At best, residents in Africa only have access to the 'send' function. Africans don't even have access to a functionality that allows users in some countries to withdraw funds to a debit card. I'm not sure why this is the case, but at least in South Africa it looks like the tax authorities are afraid they're going to miss out on tax revenues. You can...
In Africa, Web sites, Access to finance

UNDP discovers the private sector via PSD Blog - World Bank Group July 2nd, 2008 at 18:03

image The United Nations Development Programme (UNDP) just launched its growing inclusive markets initiative, part of its work to help achieve the Millennium Development Goals (Hat tip: NextBillion.net). I have to say that this is a welcome, although perhaps overdue, development. The UNDP has released a report called Creating Value for All along with a series of case studies and (although not yet up on their website) heat maps that provide data on basic infrastructure and services among the poor. (One of the heat maps from the report is pictured below. It shows the share of poor households in South Africa with access to a cell phone.) While the main thrust of the Creating Value for All report is the need to extend the benefits of markets to the poor, the report also sounded some cautionary...
In Corporate responsibility, Business environment, Access to finance

Corruption in the water sector via PSD Blog - World Bank Group June 25th, 2008 at 19:59

image Transparency International has just released its annual corruption report, and this year's focus is on corruption in the water sector. Undoubtedly, the 398-page tome will draw a lot of attention to what Transparency International makes clear is a crisis:In developing countries, about 80 per cent of health problems can be linked back to inadequate water and sanitation, claiming the lives of nearly 1.8 million children every year and leading to the loss of an estimated 443 million school days for the children who suffer from water-related ailments.The report takes a relatively agnostic view on public versus private provision of water (at least the parts I managed to read - did I mention it's almost 400 pages?). Much of it is devoted to looking at how corruption in the water sector, whether...
In Water and sanitation, Corruption, Property rights, Informality, Access to finance

Making Finance Work for Africa - Part II via PSD Blog - World Bank Group June 20th, 2008 at 17:35

image The following item is the conclusion of an earlier post discussing the goings-on at the Partnership Forum on Making Finance Work for Africa, held in Ghana on the 17th and  18th of June. Susie’s got a client to find, and I continue the rounds. I’m approaching a flamboyant, curly-haired Irishman whom I met earlier in the day, when he urgently needed a room to deliver a presentation he’d only just decided to make. Garrett Wyse, from Microventure Support, based in Washington, D.C. “How did it go? I heard you were the most captivating discussion this afternoon!” That’s surely a good conversation-starter. “Really, well I’m flattered…” He’s stumbling, I press on. “You were right to point to a gap in the market we’ve been talking about—we’re a gathering of...
In Events, Africa, Access to finance

Microfinance is the new subprime via PSD Blog - World Bank Group June 19th, 2008 at 21:58

image I don't usually look to Time Magazine for insightful reporting on development issues, so I was a bit surprised when I ran across this recent article on microfinance. Titled "The Big Trouble in Small Loans," the article takes a look at the increasing commercialization of the microfinance industry. According to the article:Microfinance, once a relative cottage industry championed by antipoverty activists and development wonks, is on the verge of a revoluation, with billions of dollars from big banks, private-equity shops and pension funds pouring in, driving growth of 30% to 40% a year. Financiers are convinced that there's huge money to be made in microfinance.If a topic makes it into Time Magazine, you know it must be part of the mainstream, no longer a "cottage...
In Corporate responsibility, Access to finance

Making Finance Work for Africa via PSD Blog - World Bank Group June 19th, 2008 at 20:00

image “When have you ever seen something this big come from a book?” Moses Thompson, our facilitator, is taking a friendly jab at Thorsten Beck, the co-author (with Patrick Honohan) of the now well-known research report, Making Finance Work for Africa (pictured). Looking down and waving his hands as if to push back all the fanfare, Thorsten can’t hide from the 300-some central bankers, regulators, donors, financiers and press who rise to give him a standing ovation. We gathered at the Partnership Forum on Making Finance Work for Africa in its second day in Accra. We’re amazed, too, that a research report grew into regional dialogues last spring, and then donor negotiations, and then a donor partnership, and a pool of funds, and a movement across the continent to expand access to...
In Events, Africa, Access to finance

The business of small deposit accounts via PSD Blog - World Bank Group June 17th, 2008 at 19:04

image In a dispute reminiscent of the Compartamos controversy, the Sahara India Financial Corporation has been has been ordered by the Indian Central Bank to stop taking deposits. Sahara provides a range of financial services, most prominent among them deposit accounts for the poor. If savers get behind on their deposits, Sahara penalizes them by reducing the interest they receive. According to a report in the Wall Street Journal (subscription required), more than 70 percent of Sahara ???s customers are currently being penalized.The Indian Central Bank has taken a dim view of Sahara's operations. In a filing with the Indian Supreme Court, it has aruged that "[s]mall depositors in the lower strata of society are being exploited." Subrata Roy (pictured), the founder of Sahara, had this to say in...
In Risk management, Informality, Access to finance, South Asia

A regional investment agreement for Latin America via PSD Blog - World Bank Group June 16th, 2008 at 22:02

Nancy Lee, a visiting fellow at the Center for Global Development, calls for a regional investment agreement for Latin America in an online Q&A posted today. She argues that a regional investment agreement would work much like free trade agreements, with member countries setting common standards to reduce barriers to investment. How could you measure whether members are complying with these standards? Lee argues that comparable data on things like the costs of starting a business and the strength of creditor rights would do the trick. ......
In Latin America, Informality, Access to finance

Trimming Red Tape via PSD Blog - World Bank Group June 16th, 2008 at 15:31

image How difficult is it get a decent haircut in Tegucigalpa? Not nearly as difficult as it used to be, at least according to an article last month in the FT. Over the past year, the capital of Honduras has seen a drop in the number of procedures required to obtain an operating license for a business from 180 to 25 - in other words, from absurd to manageable. This reform has allowed Carlos Va??egas, a former army sergeant, to open up his own barbershop and obtain a loan to equip his establishment. In his own words:It took a few hours to do all the paperwork...I don't think we would have opened had it been like it was.And Mr. Va??egas is not the only one benefitting from such reforms. According to the article, the number of registered businesses has leaped from 22,000 to 34,000 between 2005...
In Latin America, Business environment, Access to finance

Teach a Man to Fish via PSD Blog - World Bank Group June 10th, 2008 at 20:55

image You probably have not yet heard of Fundaci??n Paraguaya, but I have a hunch you'll be hearing a lot about them in the next few years. They are an impressive organization focused on alleviating poverty through the promotion of entrepreneurship. Fundaci??n Paraguaya combines an impressive number of functions under one roof. It consists of a self-sufficient agricultural high school that is combined with a microfinance facility. Students at the school are taught basic business skills, and they apply these skills by working on farms, which in turn provide the income that funds the school. And the students don???t simply work on the farm for the sake of their labor???they have to make decisions about how best to make a profit from their labor, e.g. how many eggs must these chickens produce...
In Creative approaches, Youth, Agriculture, Food and Nutrition, Latin America, Education, Access to finance

Small Business Finance - What Works, What Doesn’t? via PSD Blog - World Bank Group May 14th, 2008 at 03:07

image May 5 and 6 saw an interesting research conference here in DC on Small Business Finance, looking at which banking practices and government interventions help foster small businesses' access to external finance. Twelve interesting papers and a stimulating panel discussion addressed an array of issues, ranging from banks' lending techniques over competition, government policies to informal and trade credit. Many papers and speakers questioned conventional wisdom on what we know and what policies are helpful.Bank-level surveys show that banks engage more with SMEs than commonly thought, and beyond just offering credit services. Interestingly, differences in banking practices, such as collateral requirements, appraisal techniques and interest rates are more pronounced between developed and...
In International finance, Events, Access to finance

Credit crunch: Wall Street only, not Queens via PSD Blog - World Bank Group May 2nd, 2008 at 04:03

Just a few months after opening for business, Grameen Bank America has loaned anything between $500 and $3000 to about 175 borrowers.  About a month ago The New York Times published an article asking weather Muhummad Yunus's  scheme would work in the United States as well as it worked in countries like Bangladesh. The paper may have answered its own question recently on its City Room blog. The answer seems to be yes it may work, thanks to low income immigrants. To reach the immigrant market Grameen America just opened its new headquarters to Jackson Heights, a neighborhood flourishing with new......
In Access to finance

Small Business Finance - What Works, What Doesn’t? via PSD Blog - World Bank Group April 30th, 2008 at 13:50

May 5 and 6 will see an interesting conference on small business finance here in Washington DC, covering topics from lending techniques, innovations, the impact of market structure, government interventions and alternatives to bank finance....
In International finance, Events, Access to finance

Sustainable banking awards: who’s winning what? via PSD Blog - World Bank Group April 21st, 2008 at 19:53

The Financial Times and IFC announced shortlists of potential winners for the 2008 Sustainable Banking Awards. The awards recognize financial institutions that have led the way in integating their policies with social, environmental, and corporate governance objectives. Below is a sample the categories and the shortlisted candidates, the full list is available here. Sustainable Bank of the Year Banco Real, Brazil Citi, US HSBC, UK Rabobank, Netherlands Standard Chartered, UK Sustainable Deal of the Year BlueOrchard Finance, Switzerland/Morgan Stanley, US (microfinance loans) Calyon, France (solar thermal power plants) Citi, US (financing for rural housing) Glitnir Bank, Iceland (geothermal power generation) Merrill Lynch, US (carbon finance to reduce...
In Middle East and North Africa, Corporate governance, Environment, Creative approaches, Latin America, Africa, Access to finance

Online microfinance: Kiva vs. MicroPlace via PSD Blog - World Bank Group April 11th, 2008 at 20:32

The Microfinance Gateway has just released a good and quick comparison between two major players in microfinance: Kiva and MicroPlace. The Microfinance Gateway piece is a good synopsis of the work these two organizations are doing; it talks about the differences between the two as well as their roots and how to invest in microfinance projects through them. ...
In Creative approaches, Access to finance

Ethanol production and access to finance via PSD Blog - World Bank Group April 8th, 2008 at 23:32

image What does the U.S. Energy Policy Act of 2005 and its mandatory doubling of renewable fuel additives by 2012 have to do with access to finance? A recent paper uses the sudden increase in demand for U.S. corn, the primary input for ethanol production, as an external shock to see how access to finance affected corn producers in the U.S. It shows that productivity increased after 2005 in corn production as opposed to soybean production and more in counties with better access to finance. Now, just imagine the effect in developing......
In Energy, Environment, Access to finance

More mobile banking, this time in the US. So what? via PSD Blog - World Bank Group April 1st, 2008 at 17:47

Word today that Western Union, the global money transfer service, is increasing its profile in the United States when it comes to selling new ways to send and receive money. This is just the latest in a series of steps Western Union has taken to get more involved in mobile services, which have grown exponentially in places like the Philippines and Kenya but have been less quick to catch on in markets where banking services are well-developed, such as the United States. The service will initially seek to reach Latino immigrants who are among the 40 million people in the US who lack access to basic banking services. How will it work? The Wall Street Journal explains:To use the service, people go to one of RadioShack's more than 4,000 stores and sign up for a Trumpet prepaid phone, which is...
In Telecommunications, Latin America, Access to finance

The subprime mess - what’s the cost? via PSD Blog - World Bank Group March 28th, 2008 at 22:29

image Accurate estimates of the fall-out are certainly a moving target , but a recent paper estimates the financial and economic cost of the crisis, predicting total loan losses of $400 billion and a 1.3 percent lower GDP growth this year. This paper also contains a nice explanation of how the subprime crisis infected other financial markets and the channels through which it affects overall lending standards and economic activity....
In Access to finance

Does tax registration increase profits? via PSD Blog - World Bank Group March 24th, 2008 at 15:16

image A large number of firms in developing countries operate in the informal sector. It is often argued that informality lowers profits and growth, but is this true? A recent paper on Bolivia finds that formality leads indeed to higher profit - on average. However, distinguishing between firms of different sizes shows that it is only mid-sized firms that stand to benefit from formality, whereas both smaller and larger firms suffer....
In Latin America, Access to finance

To export or not to export? via PSD Blog - World Bank Group March 18th, 2008 at 17:40

image A recent paper looks at possible reasons why farmers in parts of the developing world insist in growing crops for local markets when crops for export markets are considered to be more profitable. The authors suggest that this could be explained by: "[M]issing information about the profitability of these crops, lack of access to the necessary capital to make the switch possible, lack of infrastructure necessary to bring the crops to export outlets, high risk of the export markets, lack of human capital necessary to adopt successfully a new agricultural technology, and misperception by researchers and policymakers about the true profit opportunities and risk of crops grown for export markets." The paper also takes a look at the work of DrumNet, a social enterprise in Africa, to analyze...
In Trade, Africa, Business environment, Access to finance

More on the microfinance dialogue via PSD Blog - World Bank Group March 17th, 2008 at 20:27

image James Surowiecki's wrote a piece in March 17 issue of the The New Yorker on how the hype around microfinance is fogging the way to development. "What poor countries need most[...]is not more microbusinesses. They need more small-to-medium-sized enterprises," writes Surowiecki. He explained further that focusing on SMEs, rather than on microbusinesses, could generate higher rates of employment. Jacqueline Novogratz from the Acumen Fund, wrote a piece in response where she gives some practitioner's insights: "In my own experience corroborated James' findings that only a small percentage of borrowers went onto create larger businesses that employed significant numbers of people. But we've learned how to deliver at least one product to the poor, and we have an unprecedented opportunity not...
In Aid Effectiveness, Foreign direct investment, Access to finance

Credit Guarantee Schemes - all over the globe - and here in DC via PSD Blog - World Bank Group March 14th, 2008 at 12:30

image From this week's Partial Credit Guarantee Conference, we learned that credit guarantees have become the direct intervention mechanism of choice of SME credit activists. Almost all of the OECD countries have them, as well as many developing countries. Multilateral and bilateral donors support them throughout the developing world. While government is heavily involved in funding and management of these schemes, loan assessment and recovery are mostly undertaken by the private sector, mostly by the lenders - and perhaps for the better, as schemes where the government is in charge of choosing borrowers and recovering loans have typically higher loan losses....
In Events, Access to finance

Partial Credit Guarantees - is there an additionality effect? via PSD Blog - World Bank Group March 13th, 2008 at 21:09

image The ultimate success criterion for credit guarantees (as for other government interventions) is whether they increase access and/or reduce costs for constrained enterprises. Methodologically, that is a difficult question, as proper identification of the causality is a challenge. Several papers at the World Bank's Partial Credit Guarantee Schemes conference are addressing the issues. One paper finds that participants in mutual guarantee schemes in Italy pay lower interest rates than non-participants, but are also less likely to default. Peer evaluation and monitoring seems to play a role, similar as in the microfinance group lending schemes....
In Events, Access to finance

Partial Credit Guarantees Conference via PSD Blog - World Bank Group March 12th, 2008 at 13:24

image The World Bank will host a conference on Partial Credit Guarantee Schemes this week (March 13-14, 2008) here in Washington DC . Credit guarantee schemes play an important rol in the distribution of credit risk, can improve access to finance and stimulate private sector development. All the conference papers are now available. Presentations and discussions as well as the two panels promise to turn this into an interesting and informative event. Co-organizer and blogger Thorsten Beck will keep you updated....
In Events, Access to finance

Tsunami insurance for the poor via PSD Blog - World Bank Group March 11th, 2008 at 14:51

image A new health insurance plan will enable the poor in India to buy health insurance for less than 10 cents a month, and it will cover natural disasters including Tsunamis. The new program is a partnership between and aid group, CARE International, and a private insurer, Allianz. It is expected that over 200,000 customers will buy insurance within a year. According to Allianz, the communities have been involved in designing the new policies, which will cover death, medical treatment for injuries in accidents, help with funeral and hospital expenses, as well as paying wages during illness. "Microinsurance provides a comprehensive measure of social security in an area which desperately needs this sort of protection against accidents and shocks that can push poor communities right to the...
In Disaster recovery, Aid Effectiveness, Healthcare, Access to finance, South Asia

From growing cassava to funding a university via PSD Blog - World Bank Group March 10th, 2008 at 20:22

image Beatrice Ayuru introduces herself as a teacher and businesswoman. She is from northern Uganda, a war-ravaged area with much poverty and few schools. A few years ago, with no business training and no money, Beatrice decided that she would build her own school. "No girl should endure what I had to go through myself," says Beatrice. "Education is the best way to help reduce poverty in my region […] and giving girl children education empowers them. In my village, women are over-dependent on men." Beatrice started with a small garden of cassava. That earned her a little money which she used to buy wheelbarrows that she subsequently rented out. With that income, she managed to open a canteen. Soon, she had enough savings to start a school. Getting the land was a struggle. Traditionally, land...
In Gender, Creative approaches, Africa, Education, Access to finance
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