“We can remain the world's leading importer of oil, or we can become the world's leading exporter of clean energy. We can allow climate change to wreak unnatural havoc, or we can create jobs utilizing low-carbon technologies to prevent its worst effects. We can cede the race for the 21st century, or we can embrace the reality that our competitors already have: The nation that leads the world in creating a new clean energy economy will be the nation that leads the 21st century global economy.

That's our choice: between a slow decline and renewed prosperity; between the past and the future. “
(President Obama, June 30, 2009)


I would add, we can't wait until everyone understands the peril, we need to move forward now.  We have one thing to fear and that is inaction. 

As I read a recent set of local environmental priorities published by an environmental coalition,  I was struck by the fact that it would - in theory - allow a climate doubter to be elected. I think we need to be done with that, and I would want to know whether the candidates actually believe in climate science based facts or not.  Its not enough to be in favor of clean energy and energy efficiency and energy independence, we need elected officials at all levels who "get it".  Basically, I'm a single issue voter and I'm going to start communicating that to my elected officials. 

This brings me to my larger point, that we need a new voter block for this.  One that is so solid and uncompromising that no elected official ever seriously considers crossing us.  "Climate first" might have the right ring, although I'm still looking for the three letter acronym.  I know there are lots of groups out there trying to be this thing, CAN (Climate Action Network) is one, 1-SKY campaign is another.  What these campaigns lack is a unifying "ownership thing".   Its "my climate" !!  Its "my planet", at least as much as it is anyone else's.   These campaigns also are very "enviro-centric"; the choir singing to the choir trying to get marginally larger.   Of course I support them, but well, I'm looking for something more... some group that says, ok, we are going to be seriously tough on any politician at any level that ignores the reality of climate change science. i.e. That we don't care what their stance is on any other issue, but on climate, they are either with us or they are against us.

Could it really be as simple as that?

Today I was excited to find a site dedicated to the gap between rich and poor and done in a way that is approachable and compelling. I recommend catching one of the videos such as:  http://www.gapminder.org/videos/poor-beats-rich/  . 

Hans is on a mission to explain that developing world vs developed world is not the right frame - as outdated as 1950's TV product commercials.

I see this as a first step in communicating the importance of measuring and effectively communicating human progress.  That is, if we can talk about up and down of the DOWJONES with the avidness of watching a race, with multiple channels around the world, couldn't we all get equally jazzed about the idea that progress is being made on the MDGs? 

Now, how do we communicate climate change and progress toward reducing the long term emission trends, making near term adaptations possible, and the development of new technologies and new market-approaches to reducing the human-civilization impact on eco-system services? 

Yesterday in Seattle the EPA took testimony on their Endangerment finding for greenhouse gases.  Under the Bush Administration, the EPA was instructed to essentially ignore the science.  Obama has wasted no time in reversing that. 

Coverage has been tremendous: 

Grist online:   http://www.grist.org/article/2009-05-21-seattle-epa-climate-rally/

Local NBC affiliate, King5 TV:  http://www.king5.com/video/index.html?nvid=364163

Climate Solutions' KC Golden testifies about the breach of the "Intergenerational Contract"  http://www.youtube.com/watch?v=gYULvkK5CNU

I also testified...

You know, I guess I get a little tired of hearing about what is wrong with international development.  There are some great and accurate negative commentaries, don't get me wrong.  Soon after my own Peace Corps experience in Africa I read a damning book about Somalia and USAID, something about the path of good intentions leading to no-good places. 

In the 1980's and '90's we had a backlash to an initial set of aid projects that often failed as soon as they were done - and a renewed focus on "Appropriate Technology", and technology transfer.  This is illustrative of an overall theme in the delivery of aid, whenever something is done "to" someone, rather than "with" someone, you get predictably bad results.  Setting aside humanitarian/disaster relief, the challenge has always been to fit into the local context in a way that is long-term beneficial.  I'd say that the elusive win-win is only elusive if you don't pay attention to it.  So, it was never about the appropriateness of the technology per se, but how the technology is introduced as part of an overall effort.

So, what actually works.  In the context of aid and development projects I think these three are important:

#1.  From my experience, you ask a lot of questions and listen.  Its a bit like software requirements gathering - most users don't really know how to express what they want or need, what's really important and what they would actually used if you delivered it.  You have to tease it out of them in small iterations.   You also cannot rely solely on one person to define the type of approach you take with an aid project. 

#2.  Develop a local understanding.  Having friendships with people around the world is immensely rewarding.  It also helps you gain new perspectives.  The corollary is that conversations with people from your own culture can become  strange.

#3.  Emphasize business models.  It was pretty obvious to me as a young business grad that the effect of one importer bringing a cheap bicycle was having a much bigger impact than all of the aid projects put together.  There are some areas where the gov't has to take a role, and private approaches are not appropriate, but if you don't consider how to create a long term demand (with associated revenues) then its a drop in the bucket and not effective. 

So, let's start with: I'm a huge fan of Kiva.org.  When I was working at Grameen Foundation, I had several conversations with folks at Kiva as they were getting started and felt a real connection to their success.  This is a powerful way of connecting people around a financial model of empowerment. 

Recently co-founder Matt Flannery has come to Seattle WA (my hometown) on two separate occasions, and in both cases, there was a huge turnout.  Larger than any turnout I'd seen for a Seattle event for Grameen Foundation, Unitus, Global Partnerships, or Accion - all of which have offices or are headquartered in Seattle. 

The obvious thing is that the peer-to-peer concept is very powerful.  But it isn't new as a concept: Alex Counts, fouder of Grameen Foundation, suggested in his book "Give Us Credit" that if each American could give just $1 to a specific Bangladesh familiy, that could translate into a huge amount of money for lending - and this money would be recirculated and help millions get out of poverty.  Peer to peer is also very similar to the "Adopt a Child" programs promoted by UNICEF and others starting in the 1980s.

So, the less obvious thing is that the disruptive approach to crowd based intelligence (or collective popularity contests depending on your view) is creating entirely new dynamics - Kiva is a beneficiary of this. 


The rest of the Microfinance sector, the Networks of MFIs that have been around for a decade or longer have not yet gotten into this model successfully.  This is despite the fact that they do have most elements of the equation - they have relationships with MFIs (and vetting processes), they have technology teams or innovation groups, there is a demand for promoting the MFIs who are their "customers", and there is the obvious need to gather new donors and supporters?

Why is this?  Are there not enough Millenials/digital natives hired by these organizations? (maybe)  Is there room for only one "kiva" in the market ? (that doesn't seem likely)  Are the transaction costs just too high and the ROI too low?  Are there reputational issues that Kiva can take on that these organizations cannot?  Is it just too disruptive to their existing relationships with MFIs and how they do financing and support? 

These institutions do play an important role in the industry - setting terms of reference, promoting the sector, developing capacity at MFIs, creating new product innovations, generating public policy support, etc.  All of these things might be of interest to the same people who attend these meetings in Seattle or participate in Kiva lending. It seems that there should be a way to have these models to work more closely together.  

Over the past two years, I've traveled frequently to Pakistan.  I don't pretend to be an expert, but what I know is that for politicians there, dealing with the "troubles" in the tribal areas is a third rail.  In the past, the public has blamed the Politicians for caving to American Gov't pressure, and blamed the ISI (the feared security agency) for games within games within conspiracies.  What I would add is that there seems to be a very strong and persistent mythology that someone or some group at the top is always in charge, that nothing happens without the ISI or some other gov't official condoning it.  During every bombing, every twist and turn of the Political scene, the explanations became more and more convoluted to conform to this one underlying assumption:  someone is in charge.  One Pakistani I met when I described this just rolled her eyes, saying yes, there's a conspiracy for every Pakistani. It apparently is a frequent saying. 

It seems to me that the Taliban have exploited this to their advantage.  It will take a cohesive societal decision on the part of the Pakistanis, not external pressure, to deal with the cancer of extremism. 

Today, the weather in Seattle is snowing and cold.   The rest of those living at this latitude may be surprised to know that with only 2"-4" of the snow on the ground, the city sort of grounds to a halt as mayhem on roads causes traffic tie ups and over-stuffed buses get stuck and people staying home hit the internet only to find their ISP capacity inadequate to the surge.  Hysterical, really, unless you have to be out in it. 

For my part, I'm staying at home and sweeping snow off the steps in between copious amounts of Peet's coffee. 

I suspect that a lot more commentary is coming to the seemingly endless commentary we've already seen on the Financial Crisis (which has the feeling now of a slow moving train than an immediate impact], but since I feel like I have a few slightly novel takes on the crisis, I'll put this entry out there, warts and all.

About six months ago I had just returned from a Microfinance conference in Tunisia at which I had some conversations with analysts from various institutions, as well as entrepreneurs from around the region, and came away even more pessimistic about the Global outlook than previously.   So,I sat down and sent an email to friends and family in which I tried a hand at economic predictions.   I warned then that I thought that the sub-prime mess was bigger than the industry captains were letting on, and far more out of control than even the Fed or Treasury were aware.  I based this partly on rumors and side stories in various economic papers, and partly on the theory that information was not flowing well in the system, that the concept of "perfect information" allowing markets to self-correct was severely hampered for all sorts of reasons.  I also felt that there was a possibility that the long-expected de-leveraging of the US consumer would converge with the oil price shock and a number of other downward economic pressures.  At the time, I was reflecting on some of the more pessimistic views out there, but still only gave the likelihood of a "financial crisis" at about 20%. 

Nonetheless, I kept remembering George Soros' theory of historical discontinuities in economic systems.  In hindsight, that does appear to be what we have experienced or are currently experiencing.   Only recently did I come across a concept that I think I had been trying to articulate.  That is the Ludic Fallacy, which relates to the decision by people in the financial services industry to trust statistical models for valuation of assets without fully understanding that the model is based on the wrong level of analysis. 

In Sept, I sketched out a theory that is more conjecture than fact, nonetheless, here it is. 

To XXXX:

The lack of faith in the financial markets working is a fundamental issue and it is at least partially spurred by underlying complexities of derivatives that "cannot be priced", and are "carried at book value".   Why can't they be priced? 

Many reasons are given, but one that is overlooked is the difference between modeling and transactions.  Modeling takes starting data and feeds it into algorithms and comes out with a result.  Transactional data reports on what has occurred.  In the Mortgage industry, the mortgage payment transaction data is poorly tied to the original mortgage-financed house transaction.  In the 1990's large lenders established MISMO (mortgage data standard) that helped create better transparency into the mortgage transaction and this helped to accelerate an eco-system of buyers and sellers of mortgages.  The mortgages were sold one by one and then bunched, and then the financiers got involved and started to split up the risk.  [The situation at Freddie Mac and Fannie Mae is even more confused, but to keep the story simple, we'll leave that out.] 

This is where things got entangled. 

Financiers were essentially modeling the risk and creating derivatives on the risk, and then more derivatives on ever finer models of risk.  Slicing and dicing the mortgages on the original transaction made sense from a certain perspective.  After all, you can establish correlations between house prices, demographics, macro-economic effects, etc.   This means that you can assign probabilistic values to each flow within a revenue stream. [NB This gives the illusion of operating at the correct level of statistical analysis. ]

Aren't these assets backed by a specific flow of revenue? 
 
In theory, the derivatives can be fairly accurately priced based on better economic data, better and more accurate and finer grain models, but what the bean counters want are the actual flow of revenues from the underlying securities.  This was never enabled, partly because the system and data standards work was never done.   Lots of effort went into MISMO, [Fannie and Freddie standards, etc] and then into SEC backed XBRL, but very little into such things as XBRL-GL, the transaction layer that would allow the many software systems to talk to each other about payments made into specific accounts by specific individuals.  I came across this bizarre fact when I wrote a paper about data standards for Microfinance and securitization - I was trying to base the approach on existing data standards and found that there were only preliminary thinking done on this from the formal financial sector, not a rich set of solutions as I would have expected.   So, without this essential commonality, [allowing data about financial risk to be traded as a commodity], complex derivatives have had to stay predominantly in the world of the model, rather than the world of actual transactions.   Assets are thus assets in theory, and one can always argue with valuations, but fundamentally, the lack of full transparency into underlying transactions makes such theoretical valuations less robust.  Simply put, financiers and bankers don't actually talk the same language and neither do their underlying systems. 

Admittedly, this overstates the issue, however it is probably important enough to look into how these modeling vs transactional tensions are resolved over time and especially in time for the next bubble.  My fundamental message, I suppose is that there is no substitute for completely granular transparency.  While it may not have saved us from the greed and dishonesty, it could have helped holders of these securities to know the current actual value instead of an imaginary "book value".   [NB.  This definitely overstates my case.  Transparency doesn't actually do anything unless there is a market mechanism to price effectively, and it seems like that was also missing as everyone was making money on the way up.  The other thing missing of course was the regulator to ensure that Transparency actually meant something to the financial markets. ]

I'm terribly saddened by the terrorist attacks this week, and I cannot imagine what the families of these innocent victims are going through.  Like many other frequent travelers to Mumbai, the attacks felt personal - places that I enjoy (esp Leopolds) suddenly and uncharacteristically in the headlines as a war zone.  Unlike other countries that I visit, the openness of Mumbai, the lack of heavy security, made it more appealing.  Author Suketu Mehta in an article today about "What the terrorists hate about mumbai", calls it Mumbai's "indiscrimate openness".  

For my part, I also visit Pakistan frequently and hope that this event brings these two nations together on a common cause, rather than dividing them.  I'm concerned about this story that mentions the possibility of increased tensions between India and Pakistan.   I believe Mehta is right - there is no "safe ground", that is an illusion.  We must find a way to respond to the terrorist that is the antithesis of their thinking: 
"But the best answer to the terrorists is to dream bigger, make even more money, and visit Mumbai more than ever." 

So, I'm not particularly well qualified to comment on the current meltdown on the financial markets, so take my comments with a grain of salt. 

If we have learned anything this past week, it is that there is - in fact - a break point for being over leveraged.  The miracle of the American economy, what has made it the envy of so many other peoples, is that based on a salary and a slim history of making payments, (or simply based on raising housing prices), Americans have been able to finance houses, cars, the newest Tivo, school fees, etc.   People around the world looked to this model, it was emulated and copied whenever possible.   In effect, this was leverage on a scale and to a degree never before seen (and never before permitted by regulators) and it will not come again.  An ignoble end for sure.  Literally, we never actually had it so good - we didn't actually deserve to be able to leverage our meager salaries and non-existent savings for the kind of lifestyles we had.  We were addicts on a binge. 

The ink on tomorrow's paper headlines about sinking stock markets hasn't even dried (what is the electronic equivalent) and we are seeing from Japan's market even more drops anticipated.  So, the unthinkable, the unimaginable, may just occur in the next few days... a complete and utter meltdown (which I will arbitrarily define as the Dow losing 40% of its value in 30 days and the credit markets seizing up well and good and gov't out of options to act).  If it does NOT come to pass, it will be because more people believed in the strength of the underlying economic paradigm of companies making money over the long term than in the panic. 

That much seems clear. 

What is less clear is what frame should we use for the days and weeks and months that lie ahead.  We who are alive in these uncertain and anxious times, what should we think about our economic theories?, our fact based mythologies?, our market and system orthodoxy?  


Where to start?  Well, we're all Keynesians now I suppose - not just private markets, but government spending playing a vital role in trying to maintain global economic stability.  So, we are having to redefine our relationship with government. 

I agree with those that say we're seeing a potentially massive discontinuity, meaning all bets are off.  There are no safe harbors in a storm this big.  Moreover, by looking and not finding a harbor we thought was always there, we shake the foundation of economic identity:  Hmmm... Maybe we should be communitarians - that sounds nice and community like.  Maybe we should socialize the gains as well as the risks, and play both sides of the market all of the time.   Maybe we should allot jobs and houses according to a popularity contest on HD TV?   The ideas are all out there, but they simply sound too nutty to get any consideration - they sound nutty because in our current economic paradigm, they are.  Ok, some really are nutty, but the point is that we may soon have a kind of economic identity discussion we haven't had, maybe ever.  

Article I wrote for Microfinance Insights, Sept 2008 Edition.  

http://www.microfinanceinsights.com/articles_new.asp?member=nonmembers&id=141

Technology can be an instrumental tool in the scalability of a microfinance institution.  Most organizations realize early on that they need a strong management information system (MIS), but many struggle to find one that can be properly implemented and operated by staff in challenging work environments.  James Dailey, creator of the open-source microfinance technology Mifos, looks at where we have been, and asks where we are headed. 

Have we Made Progress?

When I started working in the microfinance sector in 2001, I was surprised to learn that there was no “gold standard” for back office software.  If microfinance was a simple and easily replicable process of giving a loan and getting it back, why wasn't there one leading microfinance software provider?  Indeed, there were many organizations that claimed to have solved back office and front end issues, but upon closer inspection I found that more often than not, initiatives started with good intentions but fell short of the hype.

Over several years, I looked at dozens of information systems, and fielded calls from technology providers from all corners of the globe with new platforms.  Over time, I saw many examples of poorly designed systems, but the main problems came in two categories unrelated to technology: one, seemingly effective sales and service models designed on a global scale and localized for dozens of languages; and two, platforms customized to the organization's unique operational methodologies.  The third issue pertained to infrastructure: technologies designed for office buildings in developed countries can rarely be applied to connectivity-challenged, energy-starved, dusty, hot, miles-from-any-technical-person-locations where most MFIs operate.  The technology providers were not even close to approximating the needs of the sector.

Today, the market is changing.  We see a number of new efforts underway, from Mercy Corps starting afresh with new software via a US$19 million grant from the Bill and Melinda Gates Foundation to Crane Software selling Banker's Realm across East Africa; from open source programs like Mifos and Octopus to several mainstream companies launching software as a service model on a global, regional or country-wide basis, e.g., IBM and Salesforce.   Fern Software and Southern Horizon, who each had a small but meaningful part of the market, recently combined their product lines.   

As an MFI manager, what would I make of these developments?  What should we, as a sector, make of this?  Are we making progress?  

Technology is a Tool

The chief question I am asked by microfinance leaders is not, “Should I use technology?”, but rather, “What is the best technology to use?”  Or, “Why is my technology project stuck?”   Often, by the time I meet with an MFI, the question has become, “How can I replace this drag on my organization's efficiency?” 

It may sound cynical, but my response is often, “Welcome to the club.”  It is not merely in microfinance that we find general unhappiness with information technology, for there are many studies that show that technology projects have, on average, quite a poor record of perceived success.  As a technologist, I admit that we have ourselves to blame, at least in part, for over-hyping the technology and under-emphasizing change-management issues. 

My advice to MFI managers is to treat information systems as a strategic strength or, in the absence of one, as a threat.  If you don't have at least a workable system, you have a problem; the earlier you recognize this, the better.  If you intend to grow, you will need to provide more and more data to funding agencies and generally become more capable of identifying operational and market risks than you were in the past.  This requires “all hands on deck,” as well as solid management thinking, and cannot be assigned to the guys that fix your PC hardware.

Unfortunately, even when they do all the right planning and analysis, MFIs often realize that either they cannot afford a system or that the systems available won't meet their requirements.  This shouldn’t be surprising.  This fundamental problem relates to a typical tension in software systems design: using “enterprise systems” versus commercial off-the-shelf systems (COTS).  Enterprise system design, which is a more expensive and tailored approach, requires a close alignment of system logic to the existing procedures of the MFI, while off-the-shelf systems generalize products and workflow, and utilize variable parameters.

Most of the systems available for microfinance try to split the difference, often resulting in costly complexity and unhappy users.  Put another way, users are generally happy with software that does what it claims to do—a spreadsheet program—and generally unhappy with code that attempts to match all areas of functionality.

While a few MFIs have managed to build their own systems internally, the history of information technology is against them, and eventually market pressures will push them out of the business of building their own.    

On the Horizon  

Mifos, the open-source project I helped dream up with input from several MFIs, attempted to solve several of these dynamics by giving some amount of flexibility to the MFI, while retaining a set of core operational and transactional aspects for a common platform.  Unfortunately, for many reasons, the Mifos value proposition has failed to materialize (as of yet) as a driving force for locally-driven software evolution.  Until a significant number of global vendors leverage a solid, open Mifos core that is profitable and provides a highly scalable system to MFIs, the critical mass necessary for an open source model cannot be developed.   It may be that such a model is not possible given the competitive nature of MFIs and vendors, but to date this has not been proven either way.  Perhaps Grameen Foundation is right in privatizing the ongoing development in a for-profit model, but without more transparency, I fear that the industry will lose an opportunity to explore a public-good approach to what is certainly a basic infrastructure need for microfinance operations: transaction tracking.

Filed under the category of “Didn't Expect to See That” is the news that MFIs are looking more seriously at big ticket banking software, and most significantly, banking software providers are looking back.  As MFIs grow and become more aligned with banking standards, and banking software providers look for new markets, there is more convergence in features available and relative affordability.  This is good news for those players large enough to pay US$1m (or more) for a system, although much less useful for many of the small and medium sized MFIs out there.

Shared Plaftorms, a type of “outsourcing,” has received attention lately, and takes a more streamlined approach, essentially providing a lower cost way for MFIs to handle a set of operations in a typical fashion, but without the in-depth level of business logic customization found in an enterprise solution.  These shared platforms, whether at a regional or country level, require stable online access and thus, at this time, fail the general filter for MFI managers, who see “always on” connectivity as unrealistic in their head offices, let alone the branch offices.  There are hybrid approaches with a certain amount of offline capabilities, but fundamentally computing moves off site.  Salesforce has an “on-demand” model that allows users to pay only for the number of users needed, and has a microfinance edition with some basic features for microfinance on top of their solid platform.  Microbanx tried this model several years ago and it didn't take off in a big way—but timing is everything, and perhaps now connectivity has reached an important inflection point. 

This brings us to mobile networks and the ubiquitous data connections they provide.   As we enter an age where the mobile phone is used by more than any other information communication technology that has come before, we should contemplate just how remarkable it is to see finance for the masses converge with ICT (Information and Communications Technology).  While we have seen plenty of hype around this as well, we are also seeing a growing set of players who are building single-purpose transaction models on the mobile phone.  These include a surprising market for ringtone purchases, top-off value transfers, and remittances.   These are models that actually work and earn good returns for investors today.

Can microfinance for the masses be executed on a largely impersonal basis via phone or is the loan officer an essential element?   Can MFIs forgo the branch model entirely?  Will we see a few large global MFIs serving most of the BOP with banking systems paired with mobile technologies?  Or a plethora of small players creating endless new models in new markets with new services?

Technology enables us to ask these questions.  These are exciting times.

Recently I posted a message to the developer-list on the Mifos project.  The full email and responses are available in the group-archive.  

In part, I argued for focus on four themes: 

1. Configurability,
2. Approachability,
3. Deployability,
4. Extensibility

These are not new, since we were looking at these issues with the first functionally complete code drops of Mifos in the summer of 2006.   What is promising is that the Mifos platform has made progress on these with the recent release. 

What is not clear is if enough progress has been made to enable an eco-system of providers, located near to the MFIs, that could use Mifos as a money making platform right now.  That is, instead of these vendors building something themselves for an MFI, they could leverage the core of Mifos and build their solution for MFIs based on a well architected core and componentized model.  Version 1.1 has just been released, so let's hope that some MFIs will now validate and provide feedback on that question publically on the listservs and elsewhere. 

I am also arguing that the Mifos as a community-driven platform value should not be abandoned.  That is definitely an experiment.   If you build a big enough tent, though, I think you'd see sufficient participation to break through the critical mass issue.   The challenges are multiple:

• creating a business model for ongoing software development - subsidized? 
• creating an operational deployment and configuration model for Mifos at MFIs that a local vendor can take up relatively easily 
• choosing a software approach that maps to the need for multiple participants with widely different requirements

Finally, should Grameen Foundation consider a for-profit model for the Mifos effort?  Perhaps. Given the right market approach and cost-ratios this could work.   However, as an open source model, Mifos has a set of constituents that should be included in such deliberations, and it could be done in a way that encourages other vendors to be open about their plans.   This is an opportunity for the microfinance sector to consider different approaches and understand a bit about why vendors charge the fees that they do. 

Micro Energy Credits is an award winning social venture - a for-profit with a mission to bring clean energy access to the market of households at the bottom of the pyramid.   As covered by World Changing, we are using a novel financing mechanism involving the carbon markets, a channel involving Microfinance, and experience in developing information systems for Microfinance to lower the transaction costs associated with sourcing and aggregating carbon offsets. 

Since we began operations in May, we have been learning and growing the model.   More at http://www.microenergycredits.com  or if you are an MFI, http://tracker.microenergycredits.net.  

So, leaving Nepal today...

Nepal, like many other poor developing countries today, is going through significant public turmoil caused by higher fuel costs due to global oil prices, and higher food prices. I think you'd have to go back several decades to find the last time such inflationary pressures were felt in the pocketbooks of the poor to such an extent - and given that something like 50% of the world's poor are under 15 that means the vast majority of people have never experienced this type of thing. Its bound to be trouble. What is more, Nepal is going through the most important period in its political life in over a hundred years - the King was dethroned and finally quit the palace this past week. The Maoists (yes, comrades), have won the election but like a lot of parties that are used to being in opposition, getting to forming a government in coalition has been, shall we say "uncomfortable" for them. Friendly advice to the Comrades - get down to the business of governing or the proletariat will rise again.

As I said in my last blog, a hosted "on-demand" platform is a possibility for Microfinance operations but requires a lot of conceptual clarity. While it is easy to imagine a platform that serves the entrepreneurial aspirations and need for savings accounts of billions of people being economically feasible, it is less easy to imagine a platform that merely automates the processes of Microfinance organizations in one country, having the same level of success.

The challenges with hosted platforms are many, not the least of which is that much of rural developing Nepal remains only partially connected via internet. CDMA is theoretically available throughout the country, but with PC usage in the rural areas essentially confined to the development agencies and foreign funded groups, the telecom provider would appear to be having problems with a low-cost, high-availability strategy for the kind of broadband required by an always on hosted solution. Enter, offline modes and all of the issues attendant with building partially online systems.

In terms of market dynamics, Nepal is like a micro-cosm of the Microfinance industry worldwide, a few market leaders and lots and lots of little players. Nearly all of the players would theoretically like a software solution, since they've heard it can help manage the accounting issues they all face, but few can afford the cost of the PC or the connectivity, never mind the software. Then there is the issue of using a computer keyboard and mouse - a skill that once gained allows one to immediately be hired elsewhere. So, unless one can use a simple device like the mobile phone or Point of Sale (POS), it is unlikely to have a solid operational model that actually lowers costs. Note that some MFIs in Nepal have a 500:1 field officer to customer ratio - which is good in this sector, so you'd have to get to 1000:1 or earn more per customer served in order to justify a new back office system.

So, it has been an interesting time in Nepal and hopefully I will return to visit my new friends in Microfinance there. Vive la lutte!

I first visited Nepal a few months ago, to explore the idea of a shared platform for microfinance with the microfinance sector there.

There have been major initiatives aimed at this problem in recent years. Of these, the FINO effort in India has garnered the most publicity. But IBM is also entering the space with an effort labeled a financial grid. I have been working with Sevak Solutions over the past year on "extending the financial grid".

The two main problems, at a high level, facing all of the efforts are:
1) develop a universal banking application;
2) creating an enterprise system in a box;

Add to this that it all has to be done, on a per user fee basis, of less than $50 per month (as a rough number), and you see the problem.

Solutions from the Software as a Service model arena are really starting to make this a potential - Intaact and NetSuite for example.

To relate this back to other posts and my role in creating the Microfinance Open Source initiative, Mifos for me, is a stake in the ground along this path to taking the commoditization of software, as expressed by Ian Murdock, to the most extreme case: financial systems.

Frankly, this is what makes the space so interesting.

Just finished a great trip to Tunis, attending the Sanabel Conference and discussing the Mifos project at ENDA. ENDA is a Microfinance program serving the poor in Tunisia with financial services. They have been a "beta" customer of the Mifos initiative, the concept I created while at Grameen Foundation. As I noted in my remarks at the conference, where I spoke about the use of technology innovations in microfinance and tried to take on the subject of mobile-banking, the dream of Mifos is still alive, but that it still has a long way to go.

I had two threads in early 2002 that interested me: 1) establishment of open data standards to enable better reporting, and transactional level flows between different systems for microfinance; and 2) creating an open source software as a reference implementation (like W3C process) and potentially as a community-based software solution.

I think both of these concepts are still valid, indeed, I am finally seeing some interest in them at the policy and technology vendor levels. I would point out that the MIX market, which is the closest thing to an industry clearinghouse, has - fairly quietly - adopted XBRL as the core technology, something I urged them to do a few years ago.

The Mifos team at Grameen Foundation decided in 2007 to release a new version by late 2007/early 2008, and call it version 1.1. This has turned out to be much more than a point release - it is a major effort and they have had to move the release date out a few times, now to July.

In July, I spent several weeks in Vanuatu as part of a small team and on behalf of Asian Development Bank looking at the means by which banking could be improved for the majority of people who don't have access to financial services in the 80+ islands. The contrast with India/Pakistan/Bangladesh could not be more stark - sparsely populated areas in a relatively large geographic spread - makes the economics of such approaches all different. Nonetheless, we found that the value proposition for financial services is so strong and new technology costs so much lower than in the past that there is a business case for approaching this problem with a new set of tools.

The report from the Pakistan work was also released via Shorebank and USAID. online that is found at ??

Originally posted at http://gristmill.grist.org/story/2007/6/15/8452/84417

If Gandhi were around today, I think he would be less reasonable and tractable about the climate crisis; instead, he would challenge the moral integrity of so-called western civilization. The galvanizing march to the salt flats (the famous "Salt March") would be a tour of threatened island nations: Inuit seeking redress for loss of habitat, mountain people facing bewildering change, deluges in Bangladesh, landslides in the Philippines, and masses of people in the Indus-Ganges-Yangtze river basins facing an uncertain future over water supplies. It would be a march to bear witness to the moral wrongness that pervades the fossil-fuel civilization. It would not, my fellow environmentalists, be the image of a stranded polar bear, regardless of how signatory a phenomena.

In May I was in Pakistan, and I have traveled in that region for several years working on microfinance strategies aimed at bringing people out of poverty and -- I would suggest -- building local financial institutions that can survive the coming climate onslaught. I learned that historically much of Pakistan's electrical power generation comes from hydroelectric and geothermal sources; but with 7-8 percent growth rates fueling more air conditioners and refrigeration, a drop in river flow from the Himalayan snowpack, and a 150-percent-plus growth rate in car sales, the carbon footprint for the (at least) 170 million Pakistanis is increasing rapidly. And unless it can get off this American-style sprawl-and-consume model, the problem will become exponentially larger over the next few years. As I wrote on nextbillion.net, energy is a key issue for this country and any developing country in this region.

This is not to say I agree with Mr. Bush, who has again linked U.S. action with concurrent action by China and India. To agree with the head-in-the-oil-sands neocons, I would need to believe in the rightness of the equivalent of the used-car salesman telling me to slash the tires of the car I just bought from him because he was tired of being stuck in traffic. Or, the moral equivalent of "let them eat cake."

[Note: this analogy apparently didn't work for anyone except me - so let me rephrase. The concept is that of the tragedy of commons: individual sacrifice won't mean anything unless the entire civilization makes a decision to properly manage the atmosphere as a global commons. Moreover, the West has been accused of telling the developing world, struggling to bring some measure or prosperity to millions, that they cannot pollute "like we have", because that would be disastrous. Such hypocrisy is well appreciated and scorned by such countries as China, which are building coal plants at an alarming rate, alarming that is, for world efforts to stabilize carbon emissions at anything like pre 1990 levels. ]

Because, as Bono has so rightly stated in the recent edition of Vanity Fair, there is a poverty crisis now with millions dying in Africa alone, never mind a future "environmental" calamity. Governments faced with such a situation, and expecting to stay in power, cannot deny the energy-consuming aspirations of their populations. Nor should they; the correlation between lack of electrical supplies and poverty is clear even if causation is not. There is a failure of leadership and imagination to find ways to link the local village- and city-level decisions about energy use and generation with the very urgent need for climate solutions -- people are buying generators to cope with totally inadequate electrical supplies because the generators are cheaper. It's absurd -- after all the warnings and discussions, there are currently no easy mechanisms for internalizing the externalities of so many millions of decisions.

I was on an IM chat with colleagues in Bangladesh a few days ago and was dismayed but not entirely surprised to hear that Chittagong, a city of nearly 4 million people (in a country of 130 million) was under four to six feet of water from a 30-year storm that dropped three inches of rain per hour, overwhelming the inadequate drainage systems, closing the airport, cutting communication, shutting down the TV station, and suspending microfinance operations across a wide swath of the area. Dozens of people had been killed, and since then the lack of pumping stations and clean water is creating the possibility for cholera and other disease outbreaks. These stories, remote to most of us, drive home that there are human costs to this uncontrolled experiment with our atmosphere.

The question posed by those in the carbon-tax vs. carbon-trading regime debate on this blog has real meaning for the majority of the world's population. We will need these two items as part of a new policy-regulatory-economic regime, but we need more. It is high time for unreasonable people to propose ways to tax, penalize, and overthrow the status quo.

Posted originally on http://www.nextbillion.net/blogs/2007/05/10/guest-blogger-power-politics-and-money-in-pakistan

Pakistan is home to at least 160 million souls, many of them at the "base of the pyramid" and altogether a more complex and interesting place than that painted by the international media, which focusses on the threat of Terrorism. These are some impressions: A ferris wheel a short distance from the centuries old fort in Lahore; a ski lift outside of Islamabad that is a way to see pretty views where middle class families go; traffic clogged streets with elaborately decorated hauling trucks and an exuberiance of local trading; women dressed in colorful materials and women in head-to-toe black; men in western slacks and those in more traditional garb with longish beards; dry-dry mountains and fields; and fertile Punjab (five rivers) lands. It is not a major tourist destination, but it is a fascinating land and people, with eons of culture rubbing up against cosmopolitan sophistication.

The politics are also more complex. In the few weeks I have been here, a growing controversy has been brewing over the - shall we say effective - dismissal of the Supreme Court Chief Justice, with the largest anti-government demonstrations in many years. Initially a constitutional issue, it has taken on more ominous political implications.

Also, euphemistic "power management" or "load shedding" are scheduled power blackouts to deal with a 500MW electrical capacity shortfall, and this headed into the hottest period of the year when temperatures regularly exceed 105F (41C). Here in Karachi, riots are expected, maybe even today, if the outages last more than a few hours, as power management is, again, a highly politicized issue.

Microfinance reaches over 1 million people in Pakistan, more than a drop in the bucket but far less than the need for financial services for the tens of millions who live below or slighly above the official poverty line. My work here is directed at scaling up these microfinance providers utilizing the convergence of banking services and mobile phone carriers. This is the exciting future, ubiquitous communications via mobile phones enabling entirely new service models, via banking agents, for a variety of financial services to...well, everyone not currently reached by banks. The work, funded by USAID and executed by ShoreBank International, is also aimed at helping the earthquake victims of October 2005; massive devastation of lives and livelihoods, which is still strongly felt today.

A March 2007 report by the World Bank notes that Microfinance lending is highly concentrated in densely populated urban and peri-urban areas. True, but the picture that emerges is more complex, with rural community development agencies (called Rural Development Support Programs), providing the lions' share of service to households beyond the population centers, and a few organizations, namely KASH Foundation and First Microfinance Bank providing the vast majority of sustainable microfinance in the urban and peri-urban environment. Still, despite all of this excellent work, microfinance providers meet less than 5% of the total market need I would estimate. Thus the need for new models.

To reach the tens of millions of people with financial services via traditional brick and mortar branches and outreach techniques will take too long, and most compelling, misses the opportunity for microfinance to take advantage of what is clearly achieving scale - namely the mobile phone network. Highly competitive, the telecoms are beginning to look at new value-added services, such as micropayments, international remittances, and other transactions. Thus the opportunity for "branchless banking" a concept gaining (sic) currency in a number of countries. The State Bank of Pakistan recognizes this, asking CGAP (World Bank) to advise them on what regulatory barriers exist and how to change them.

Ironically, such barriers to expanding financial services, which should build more prosperity and help prevent Terrorism, are the long arm of US-originated "know your customer (KYC)" and "combatting financing of terrorism (CFT)" laws. This is not a Hobson's choice - we can find good policies to serve both interests.

Tied up with the power situation is the demand side - 7-8% annualized economic growth over the past few years is really the culprit with a huge surge in demand for air conditioners and refrigerators the proximate cause. It is not all that surprising to see a power shortage, and augers ill for the planet, which cannot afford the kind of wasteful use of electricity that one sees in America. (Motor vehicle sales are also growing, at least nine fold over the last few years.) So, for now, economic prosperity means more CO2 emissions, more demand for fossil fuel supplies. This is where sustainable development could be pioneered (for export back to the more wasteful northern countries I hope), with products and services aimed at improving quality of life with fewer negative externalities, but only if such externalities get into the economic equations.

Poverty, political turmoil, a rich history, air and water pollution, an emerging middle class, cell phones, energy ... lots of competing and often contradictory impressions. Probably the only thing I know for certain is that I have barely scratched the surface. I'll be back, In-sha'allah (god willing).