Happy New Year! 2005 is the UN Year of Microcredit

This seemed like a good time to write a quick overview post, providing some context for people who are new to the blog in the new year.

Here's an excerpt from my "New Year's Letter":

I joined the Reuters Digital Vision Program at Stanford in September, a one-year fellowship for mid-career tech professionals to tackle projects in the developing world. My own research has focused on microcredit, the practice of loaning small amounts (as little as $50) to women (better credit risks than men, larger impact on family) in the developing world to start income-generating microbusinesses (e.g., small retail, livestock or agriculture, handicraft or apparel). Microcredit is an effective way to move people out of poverty, with billions of dollars loaned (and repaid, at 97+% rate for well-run programs) to about 50 million people. Microcredit is not charity; interest rates often top 30% to enable the “banks” (microfinance institutions tend NOT to be real banks, though some real ones, especially in India, are getting into it) to run a sustainable program. While this may seem to be taking advantage of the poor, consider the overhead of sending a loan officer to a village 20 miles away to make a bi-weekly collection run for the 15 borrowers there. Also, these borrowers can’t get a cash advance on their credit card or tap their home equity line. Their alternative, if any, is a moneylender who might charge 20% per DAY.

The next challenge for microcredit is scaling up from 50 million borrowers to 500 million. One aspect of the challenge is operational: many programs run on paper and pencil. The most popular software package for those that have computerized is Excel, hardly the soundest system to maintain the far-flung transactions of tens or hundreds of thousands of borrowers. The second aspect of the challenge is related: ensuring there’s enough money to lend. Most programs are capitalized with donations or grants (USAID is doing good things here). Restrictions against accepting deposits for most of these non-banks cut off another common source. The capital markets will need to provide the money, but until the microfinance institutions are more transparent (providing detailed information about their loan portfolio) the major players won’t invest.

My plan is to address both issues by developing loan portfolio management software, and giving it away to any of the approximately 7,000 microfinance institutions that wants it. After about a month at Stanford identifying this solution, I discovered another group working toward the same end: the Grameen Foundation USA Technology Center. They’re about a dozen people, based in Seattle, an offshoot of the Grameen Bank in Bangladesh, the bank that grew out of the first microfinance loans made out of Prof. Muhammad Yunus’ pocket some 30 years ago. (Prof. Yunus is still the Executive Director of this 3+ million member co-op; I had dinner with him at Berkeley in November. He’s incredibly dedicated, down-to-earth, and inspirational.) I’ve enjoyed working with my talented colleagues both at Stanford and Grameen Foundation. We’re in the midst of defining the functional and technical specs, the data model and user experience of the software, with implementation planned to start in February, using a combination of volunteers in the US and contractors in places where microfinance is more common.

I’ll close the “soap box” portion of my letter with a link for people that want to learn more or are interested in ways that their talents or capital can help:

http://www.rdvp.org/~sketchpel/microfinance/

Happy New Year!

Dominican Republic (summary post)

Since I’ve been traveling and attending a conference, I really haven’t had time to update my blog. I realized there’s a vicious cycle: as more interesting things happen, you have less time to write about them, and then get farther and farther behind. So I’ll put together a quick “summary” entry, that I hope I’ll be able to replace later with a more detailed description of the events mentioned.

My recent (December 1st through December 10th) trip to the Dominic Republic was a serendipitous convergence of a project need (collaboration with Grameen Foundation Technology Center) and program opportunity (Reuters Fellows Mans Olof-Ors and Carlos Miranda Levy went for their projects as well). The trip was a great success, combining productive working sessions with the Grameen team and our local partner, Esperanza International, with a number of events that Carlos Miranda scheduled with educational, governmental, and NGO entities in the Dominican Republic. It left little time for sightseeing and none at all for the wonderful beaches that we heard about, but we did meet a number of the trip objectives.

The Grameen Contingent (James Dailey, Ericka Lock and I) worked with Andres Barreto of Esperanza International to understand the e-MMS system of loan portfolio management software that he had built and was offering to donate to the open source effort. We were able to spend a lot of time asking questions, drilling into the code and data model, and were pleased with what we found. Although there’s a lot to do to make it a fully-functioned, flexible, internationalized platform for managing the operations of microcredit institutions, it’s a good start and will provide a basis from which we can work. Moreover, Andres has already had to give a lot of thought to some of the implementation trade-offs involved, so we can work with him to understand the choices and alternatives.
It was also a great opportunity for James, Ericka, and I to spend time together, better understanding the customer demands and figuring out overall project parameters for budget requirements, schedule, and ways that we might organize the team. I really enjoyed getting to know all of them on a personal level, and look forward to the opportunity to work with them more closely.
Friday, December 3, we took the day to go on a field visit to the Esperanza branch at Hato Mayor, and picked up the loan officer for the 25 minute ride to the village where a loan repayment meeting was happening. We attended the 45 minute meeting (we’d arrived about 20 minutes late) and watched as 3 groups of 5 people each made their repayments. Then we spent a little time walking around the village, but mostly sitting at a successful “general store” that had been started with an Esperanza loan. We stayed for a “group training” meeting for a new group that was forming, and afterwards headed back to Hato Mayor.
Esperanza was also overseeing the opening of a new baseball park at Consuela, near Hato Mayor. This facility was built with funds donated by the US Major League Baseball Association. A number of players and officials attended. Since Esperanza was co-founded by Dave Valle (former catcher for the Seattle Mariners) we were invited to participate in some of the events.

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The Reuters Digital Vision Program events organized by Carlos kept us jumping from meeting to meeting, including:

• A session on Open Source technologies at INTEC
  
• A campus tour and meeting with officials at ITLA
  
• A presentation at Fundacion Global
  
• A meeting at INSTRAW
  
• A meeting at UNDP
  
• A meeting at Fundacion Global
  
• A meeting at (and tour of) the Presidential Palace
  
• A presentation at INTEC
  
• A meeting with OPTIC (government IT ministry)
  

And there were other meetings that I couldn’t attend because of my commitments with Esperanza! It was a great opportunity to meet important leaders of the Dominican Republic and spread the word about the Reuters Digital Vision Program and my project.