A Billion Bootstraps


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  • Baron Munchhausen was a German eccentric who served the Russian military in two campaigns against the Ottoman Empire in the 1740s. Upon his return he began to gain a reputation for telling outrageous stories, including one tale of his escape from a swamp in which he lifted himself by his own bootstraps – forever giving rise to the phrase “picking yourself up by your own bootstraps.”
  • Pierre Omidyar (Ebay) and Bill Gates (Microsoft)
  • “There is absolutely no access to capital in poor countries, and without capital the people and their societies have no chance to grow their businesses.”Poor countries also lack the nationwide safety net that the United States has access to – you can get some sort of job, and if you lose it the government will take care of you
  • More than half of the world’s wealth lies in the hands of 10% of the population40% of the world lives on less than $2 a dayMore than 1 billion have no access to clean drinking waterMore than 800 million suffer from severe hunger & malnutrition1200 children die every hour of preventable diseaseMany don’t feel compelled to give because they think it’s a government issue - 1% of US funds go to humanitarian aidPoverty is personal. It can be addressed on an individual level. Statistics only give us a general idea and don’t engage the real human issues.
  • <$1: perpetual state of near starvation; any existing work is seasonal or undependable$1-2: usually economically active & self-employed; hunger is not constant, but if a disruption occurs (sickness, famine, disaster, war, etc) the family is in utter destitutionBusiness development works so well with poverty culture because it’s significantly easier to double a $1 income than a $10 or $20 income.
  • The quality of life of the mother determines the child’s future
  • The global nonprofit sector is massive, yet there are few reliable statistics about it. There are certainly benefits to the system, it continues to suck in more resources, while it remains unclear which parts are working well and which are failing. Charities rarely provide meaningful and transparent financial analysis or clear accountability for results. An extensive study funded by the David and Lucile Packard Foundation examined media coverage of philanthropy between 1990 & 2004. Out of 38,000 stories reviewed, only 1% mentioned results from the donations. Common occurrences in Africa: warfare or natural disaster > famine > sympathetic organization or country provides free food > struggling farmers lose any money they would make off small crop > unable to sustain crop > prolongation of famine/food insecurity
  • Poverty is about money. Who knows how to handle money? Business people.The nonprofit sector is dominated by businesses run by people who know little about business.Business-minded people will be more likely to heed the details of a transaction as much as they do the price. Should we be giving our money to organizations that desperately need support or ones that have proven to be successful?Alternatives: Farming: Smith & Thurman suggest that it would be more advantageous for a humanitarian organization to purchase all the food local farmers produce, but are not able to sell, and assist them in producing more food. Then, if a gap still exists between local supply and local need, ship in additional food.Orphans & vulnerable children (OVCs): instead of funneling money into more institutions – orphanages – focus should be shifted to programs that enable local families to take in orphans, which is not only better for the child, but significantly cheaper.
  • Intelligent givers always have an outcome they expect from their giving, either general or specificQuestions: Who specifically do you want to help? If you are successful with your giving how will their lives be different?
  • Take the Gates Foundation for example. On the website the foundation is described in this way: “Bill ad Melinda Gates believe every life has equal value. In 2000, they created the Bill & Melinda Gates Foundation to help reduce inequities in the United States & around the world.” You can tell a lot about what they’re doing by this description. First, they aim to reuce inequities for people living in the poorest communities compared to the wealthiest. Second, they value every life equally, which is in stark contrast with most giving that stays within a single nation or cultural group. Now we know how the company will direct resources.Now that you’ve answered questions about the foundation, ask yourself some questions: What principles drive your giving? Do you have indicators in mind to assess whether you are getting results that harmonize with your principles?
  • Governments give money to governments. But when wealthy countries put money into the hands of poor countries that don’t know how to handle money, the money is lost in corruption, bureaucracy, campaigns, and free aid. More than $2.5 trillion has been given in foreign aid since WWII, yet little progress has been made. World Bank economist William Easterly recommends taking the searcher approach to finding what works. “A Searcher hopes to find answers to individual problems only by trial and error experimentation. A planner believes outsiders know enough to impose solutions. A searcher believes only insiders have enough knowledge to find solutions, and that most solutions must be homegrown.”
  • The fundamental premise of microcredit is that people can improve their incomes through hard work if given small loans to strengthen their businesses. Smith claims microcredit is just as vital as human rights, healthcare, education, & good governmentNearly 800 million families could benefit from microcredit opportunities, yet less than 1% of World Bank funding goes to microcreditTake the Mikhayloyna family of Ukraine for example. Though government pension covered the cost of bare food necessities, the Mikhayloylonas were living in an unheated, half-built house while trying to sell anything they could in the market to make ends meet. After receiving a $400 microloan that enabled the Mikhaloylonas to diversify their stock, the Mikhayloylonas were quickly turning a profit and becoming the most popular selling place in the market. They now has many consistent customers and a consistent income. That will enable them to pay back the loan and in turn get a larger one. Poor people don’t need outsiders to tell them about business opportunities. They know best about what will work best in their area and how to contextualize any business that they come across.
  • This is modeled after Mao Zedong’s concept of barefoot doctors. Soon after gaining power in China he provided basic medical training for a farmer from each commune that brought at least some level of healthcare to all parts of society
  • The loan is initiated by bankers – they’re not looking for reasons to refuse a loan, but rather figuring out how to make the loan workGroup borrowingSaying, “I trust you,” is often incentive enough to pay back a loan
  • Microcredit programs sometimes charge up to 50% interest annually. Though this seems high, in regards to interest, most programs err by going too low instead of considering the real cost of delivering their services. However, most programs are usually around 10-15%. High interest rates weed out weak business: programs applying artificially low rates for the sake of the poor usually fail because interest discounts are used to prop up weak busineses that should be allowed to close
  • Microcredit doesn’t have to stand alone as a solely business or financial venture. Education, healthcare, literacy programs, legal information, social service initiatives, and many other enterprises can come alongside successfully.Lagniappe: Creole for “a little bit extra for the same price;” may require alliance with other groupsExperts: Only the people know their own people. Muslim communities/Sharia lawPreserving the Environment: training in modern farming techniques, assistance in digging wells and constructing low-tech irrigation systems, and legal help in clearing property deeds can significantly decrease ecological damage
  • Factors including distance, language, & unforeseen business problems tend to take their tollPoorest of the poor: those in immense chaos, nomadic peoples, near death, extremely ill, severely handicapped, young abandoned children, and the elderly
  • Grassroots: Connect with small effective local organizations. This is where your donation will have greatest impact. However, this is also one of the more difficult options due to cultural, language, and geographic barriers. Corruption, money transferring laws, and trafficking must be taken into consideration. MicroCredit: middle man between donors and grassroots organizations; MaloGaKujilanaInternational: Most popular option; check out the organization’s mission and what they’re really doing with their money; look at partnerships as wellSkills: Using your skills or personal network to provide or raise support for microloans, or contributing to the development with borrowers could be just as effective, if not more effective, than just giving the money yourselfTime: work or volunteer for a microcredit organizationStart: You could certainly start your own program, but the learning curve can be steep, and unexpected challenges such as civil war and hyperinflation can add exotic complications rarely faced in ordinary business; administration can get pricy – but when you find an unmet need you’ve found an untapped opportunity
  • Investment: chart on p. 145Joy: Peter Greer, Alex Counts, Louise MakauVelle, Pierre Omidyar, Warren Buffett, & Bill Gates are all extraordinarily talented & wealthy, but they’re cashing in on microcredit because it works and because it brings joy to them to know that it’s really changing lives in a tangible way.
  • ACCION: works in Latin America, the Caribbean, the US, & parts of Africa; first to develop formal microcredit banksASA: provides loans for impoverished and landless Bangladeshi farmersCARE: directed toward womenEsperanza: holistic, Dominican RepublicFreedom from Hunger: integrated microloan and nutrition serviesGrameen: earliest microloan organizationsHOPE: Christian organization; offers short term trips to microloan locationsOpportunity: trust banks(group lending); very large & very progressiveWorld Concern: Christian emergency relief & community developmentWorld Vision: Christian humanitarian; child sponsorship; conducts microloans in 47 countries and made nearly $169 million in microloans in 2005
  • Cesielyn: 28 year old mother of 3 school age children; married to a farmer/has helped manage the farm for 15 years; needed a $250 loan to buy farm supplies, corn seed, & fertilizer; with her increased income she has been able to make her house safer and sustain the education of her childrenMaria Juana: 39 year old mother of 6 ranging from 6 months to 20; Maria received a $1000 loan to purchase corn seed and fertilizers and eventually start a mini market that will sustain her in the harsh winters; her income has increased significantly and she hopes to have enough to open her market soonShanaz’s Group: Shahnaz is a sewing expert and is looking into a new business venture: animal sales. She will be working primarily with goats and sheep. So far 9% of her loan has been repaid. This loan is also special because it is partnered with a local agency that is in agreement with Sharia law, which has various specifications on charging interest and receiving a fatwa.
  • A Billion Bootstraps

    1. 1. • Sweat equity• Almost impossible without a loan
    2. 2. • The majority world has little access to capital or collateral• There is little security for any capital that does exist • Loan sharks are the only option
    3. 3. http://www.youtube.com/watch?v=FZblPaIXiTs
    4. 4. Levels of Poverty• Living on less than $1/day: 1.2 billion • Living on $1-2/day: 1.6 billion
    5. 5. Women & Children • The majority of those in poverty • Have a more difficult time making money • Exploitation of Children• More than 100 million children are at risk of being stunted physically & mentally due to malnutrition
    6. 6. • Most people are donors• The hugeness of the nonprofit sector – 2 million registered in the U.S. alone! • The $900 billion black hole • Cycle of aid-driven poverty
    7. 7. • Intelligent giving• Alternatives to harmful aid • Giving cautiously
    8. 8. • Have a bottom line • Measure success• Support what works
    9. 9. • Have expectations • Ask questions
    10. 10. • Define success • Ask more questions • Figure out your objectives• Figure out indicators of results • Investigate
    11. 11. • Proactive rather than reactive • What about foreign aid?• Appropriate technology over advanced techniques • Take the “searcher” approach • “Development pornography”
    12. 12. Microcredit • Cash only • Microenterprise• Both physical & abstract benefits
    13. 13. Barefoot Banking • The Mao Zedong model• Much more relaxed than the typical image of a bank • Called community or village banks
    14. 14. How It Works • Central bank with branches • Travelling bankers • Weekly meeting & finance lessons• Establishing trust is establishing dignity
    15. 15. Best Community Banks • Small loans • Small groups • Short terms • Frequent payments • Potential future, larger loans
    16. 16. Interest• Interest is critical to the sustainability of the microcredit organization• Microcredit organizations are far safer, more honest, and cheaper than commonplace loan sharks• Decapitalizing the system will lead to failure
    17. 17. Savings• Savings may be the only safety net for the poor • Not always capital• Revolutionary idea of getting paid to save
    18. 18. Microcredit Plus • Lagniappe• More than just the experts – it’s the people • Hunger & Nutrition • Business Training • Medical Care • Preserving the Environment • Women
    19. 19. How to Put Your Money to Work • Put it in an underdeveloped country • Use for short terms – faster turnover rates, more people have access to the same money • Give with caution
    20. 20. The Downside • Clients don’t always pay back• Local corrupt governments, organizations & loan officers• The poorest of the poor are not eligible for loans • Donors must know their own personal and financial resources
    21. 21. Donor Options • Give to grassroots organizations • The MicroCredit Solutions Fund • Give to an International Organization • Give your Skills & Money• Give Your Time Along with Everything Else • Start a Microcredit Program
    22. 22. What’s in it for you? • Investment return• Power to change countless lives with a small amount of money • Joy!
    23. 23. Where do I start? • MicroCredit Solutions Fund (www.genevalglobal.com)• Microcredit Clearinghouse (www.microcreditclearinghouse.org) • ACCION International (www.accion.org) • ASA (www.asabd.org) • CARE (www.care.org) • Esperanza (www.esperanza.org) • FINCA International (www.villagebanking.org) • Fonkoze (www.fonkoze.org) • Freedom from Hunger (www.freefromhunger.org) • Grammen Bank (www.grameen-info.org) • HOPE International (www.hopeinternational.org) • MEDA (www.meda.org) • Opportunity International (www.opportunity.org) • SKS Microfinance (www.sksindia.com) • Unitus (www.unitus.com) • Women’s World Banking (www.swwb.org) • World Concern (www.worldconcern.org) • World Relief (www.wr.org) • World Vision (www.worldvision.org)
    24. 24. Meet Some Borrowers Cesielyn Maria Juana Farming AgriculturePhilippines Ecuador Shanaz’s Group Agriculture/Animal Sales Pakistan