Innovations In Emerging Markets

Social Capitalists Gain Recognition

The terms being coined to describe the growing phenomena of entrepreneurs combining revenue-generation with non-profit work within their communities and societies are multiplying. A week ago, Philanthropreneur was the "mot du jour'. The New York Times used it in a huge supplement on Giving (see our earlier posting on Philanthropreneurs).

This week, Social Capitalists are the focus of a nextbillion.net blog posting. Social Capitalists are "non-profits that are generating both financial profit and social benefit". Accion International, an NGO that specializes in training banks on how to offer microfinance services, is the winner this year.

New terms for evolving practices are exciting on several counts. A- they confer legitimacy. B- they evoke constancy (as in: not a whim or a passing fad). So where there's a term, there's a way -- one that is potentially here to stay, one that is so part of a trend, it's gone beyond and established itself as a phenom that requires a term to describe it. Social Capitalists and Philanthropreneurs are here to stay!

Philanthropreneurs and Companies Doing Good while Doing Well

The line between philanthropy and business is blurring, says a New York Times supplement on Giving this week. A new generation of philanthropists has stepped forward, for the most part young billionaires who have reaped the benefits of capitalism and believe that it can be applied in the service of charity. They are “philanthropreneurs,” driven to do good and have their profit, too.

Meanwhile, in emerging markets, companies are also applying the "part philanthropy/part corporate strategy" business model. The result: they are developing markets AND contributing to bettering the lives of millions of people. Intel's World Ahead program in China is one example. The tech company has announced plans to spend $1 billion over five years to improve Internet access in developing countries and train teachers on how to use technology.

The long-term pay-off for companies such as Intel is pretty clear. For the governments of countries like India and China, where programs by Microsoft, Intel, and other hi-tech companies are underway, "the technology projects offer ways to close gaps with wealthier cities -- providing more-remote and less-educated residents access to information they wouldn't have otherwise to improve their own and their children's fortunes. Both countries have ambitious plans to use technology to maintain their rapid economic development."

For those of us at IFC -- an international financial institution with a development mission-- the convergence of emerging market development goals with 'philanthropreneurshipism' means at least a triple pay-off, where everyone can win.

A Business Perspective on Microfinance

A recent comment on our "Pushing the Boundaries of Microcredit" blog posting launched us on a bit of a mission to tap into the debate on microfinance as a business model.

Reacting to musings about the pros and cons of extending global legitimacy to microfinance through the mechanism of a Nobel Peace Prize, our commentator wrote: "I think there is a huge danger that microcredit will now become even more than before the pet of philantropists. While grants are needed to start a microcredit institution, these institutions should be profitable soon thereafter."

Full disclosure: the comment came from IFC's former Chief Economist Guy Pfeffermann. It turns out though, he is not alone, within the circles of development economics, to have raised the issue. The Center for Global Development posted a Q&A with one of the authors of its paper "Microfinance as Business", who said: "

In studying microfinance from a business perspective, my co-author Uzma Qureshi and I are asking questions that most overlook. How do Grameen and other large microfinance institutions cover their costs, scale up, attract private capital?"

Clearly a debate to be followed, amid the excitement and hope of a world-class Prize for what is a world-class innovation.

Popularity Of Islamic Finance Market On The Rise

Although Western and Asian firms are heading to the Middle East to raise cash, the region’s own investors are getting funding from overseas – a move that has speeded the globalization and popularity of the Islamic finance market, a recent Wall Street Journal article reports (closed access). The UK-based Islamic Finance Information Service says that $16.9 billion in bonds were issued in the first 10 months of 2006 – 43 percent more than all Islamic bonds issued in 2005. Also expected to boost the market is the new Islamic International Ratings Agency, which will soon finalize its first four ratings.

Islamic bonds, or sukuk, replace coupons with payouts backed by tangible assets. The first Islamic bond was sold by Shell Malaysia in 1990. Since then, the demand for sukuk have skyrocketed.

Not surprisingly, the jump in popularity of sukuks has drawn the interest of institutions outside the Middle East.Two years ago, the German state of Saxony Anhalt sold the first sukuk from the West. IFC is the first supranational to issue Islamic securities in the Malaysian market, and the first supranational to issue domestic Islamic bonds in any market. To find out more, click here

India’s ICICI Bank Targets 25 Million New Rural Customers

India’s ICICI Bank is gearing up for a major expansion of its rural lending and plans to ramp up the program’s customer base by eightfold over the next five years, Bloomberg News reports. ICICI will approve loans as small as $100 at places such as bank branches and ATMs located every six miles across India. This is big news, given that in the countryside, 58 percent of farming households and 78 percent of nonfarming families lack access to essential banking services.

ICICI says that it earns a healthy profit from village lending, and says the default rate on those loans is less than a half percent. An ICICI spokesman said, “We expect rural lending to be as important as our other businesses,'' including urban consumer and corporate lending. The bank’s rural loans also include agriculture, mortgage lending, farm equipment, and education. ICICI has already loaned out 25 billion rupees to its 3.2 million rural clients, most of whom are under the umbrella of microfinance.

Analysts say potential revenues in microlending are huge, and that money will be made on volume, since India does not have a formal credit mechanism in rural areas. Still, the sector is not without risk. Some of the challenges banks face include the weather and changes in credit cycles.

East Asia's Firms: Starved for Financing and Nowhere to Go

Local investment in East Asia’s financial markets is being stunted – by the region’s own inadequate banking sectors and uneven growth of its securities markets, Oxford Analytica argues in a recent analysis (restricted access). As long as that remains the operative characteristic in East Asia, cross-border investments will remain weak and capital flows will go to bolster reserves instead of funding development projects.

Starved for financing, East Asian firms should look to equity and bond markets, says OA, rather than banks. In turn, the region's banks must focus on private sector financing, particularly small and medium companies, which are responsible for most of the production and jobs in regional economies.