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Kiva: New Gateway of Loans for the Poor

By David SouthDevelopment Challenges, South-South Solutions

SOUTH-SOUTH CASE STUDY

The rise of social networking websites has created new opportunities for the poor to gain access to much needed credit. Kiva.org is pioneering a new way for entrepreneurs in the South to obtain for their businesses unsecured, no-interest financing from lenders worldwide. By just a click of the mouse a person anywhere in the world can lend as little as US $25 or more to aspiring entrepreneurs in developing countries.

Kiva, which means “agreement” or “unity” in Swahili, was founded by Matthew and Jessica Flannery after time spent in East Africa. They built upon the idea of Nobel Peace Prize Winner, Mohammud Yunus’ Grameen Bank but took it a step further by tapping into the resources of the web. It works by allowing potential lenders to search for an entrepreneur via the website. Each entrepreneur’s business idea is explained, a photo of the entrepreneur is posted and the amount of the loan they require and how much they have raised so far are clearly displayed. It is then a simple matter of the lenders using their credit cards to make a loan online. Kiva then transfers all the funds to their local partners (microfinance institutions) which, in turn, disburse the loans to each business. All entrepreneurs are screened for their trustworthiness and the viability of their business. Loans are usually between 6 to 12 months and lenders receive regular email journal updates from the business they sponsor. Gradually, the loan is paid back and the lender is returned the full value of the loan.

The process is so simple that one may ask, “Does this really work?” Take the story of Nicholas Kristof, columnist for the New York Times who recently accounted his experience with Kiva.org in his New York Times Op-Ed piece, “You, Too, Can Be a Banker to the Poor”. Through Kiva.org he chose two entrepreneurs, a baker and an owner of a TV repair shop in Afghanistan and lent them US $25 each instantly making himself a business partner with total strangers. He recently visited Afghanistan to see their progress and found two thriving businesses. Mr. Abdul Satar, the baker, borrowed a total of US $425 from a variety of lenders, Nicholas being one of them, and was able to open a second bakery with four employees. Mr. Abdul Saboor who runs a small TV repair shop now has a second shop with two new employees.

By harnessing a user friendly website to make instant cash loans, Kiva has come up with one of the simplest and most direct ways to help poor entrepreneurs who need start up capital. It was first tried out in Uganda about a year ago where partnerships were forged with local microfinance institutions that examined and evaluated each business before they were posted on the website. It has now attracted close to 18,000 lenders contributing an average of US $82.

“I believe the real solutions to poverty alleviation hinge on bringing capitalism and business to areas where there wasn’t business or where it wasn’t efficient,” co-founder Matthew Flannery told the New York Times. “This doesn’t have to be charity. You can partner with someone who’s halfway around the world.”

Published: April 2007

Development Challenges, South-South Solutions was launched as an e-newsletter in 2006 by UNDP’s South-South Cooperation Unit (now the United Nations Office for South-South Cooperation) based in New York, USA. It led on profiling the rise of the global South as an economic powerhouse and was one of the first regular publications to champion the global South’s innovators, entrepreneurs, and pioneers. It tracked the key trends that are now so profoundly reshaping how development is seen and done. This includes the rapid take-up of mobile phones and information technology in the global South (as profiled in the first issue of magazine Southern Innovator), the move to becoming a majority urban world, a growing global innovator culture, and the plethora of solutions being developed in the global South to tackle its problems and improve living conditions and boost human development. The success of the e-newsletter led to the launch of the magazine Southern Innovator.

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This work is licensed under a
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ORCID iD: https://orcid.org/0000-0001-5311-1052.

© David South Consulting 2022

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Web 2.0: Networking to Eradicate Poverty

By David SouthDevelopment Challenges, South-South Solutions

SOUTH-SOUTH CASE STUDY

The internet phenomenon of Web 2.0 (http://en.wikipedia.org/wiki/Web_2.0) – the name given to the wave of internet businesses and websites such as YouTube (www.youtube.com), Facebook and MySpace transforming the way people interact with the ‘Net – has also given birth to two new development-themed social networking websites.

This powerful tool to bring people together is galvanizing the resources of entrepreneurs and those who want to help the poor like never before. The sites are becoming a new weapon in the fight to eradicate poverty.

Social networking websites use various tools and applications (or ‘apps’ for short) to enhance the ability of users to connect and get things done. By bringing together a community of like-minded people, they are able to shorten the time it takes to organize and kick-start events. Web 2.0 can be used to build communities and social and business networks. By being able to store vast quantities of information online, it becomes faster to work and reduces the painful delays brought on by slow connections.

All these new tools are making it easier and easier for entrepreneurs to work from home, in internet centres, or anywhere there is a wireless connection – and it is slashing the costs of managing a business. All the applications are online so there is no need to be hidebound by one operating system or hardware capability.

Two newly launched social networking sites are targetting the poverty-eradication community.

One is named after the Bottom of the Pyramid (BOP) concept as conceived by C.K. Prahalad. The BOP is the 4 billion people at the base of the global economic pyramid. As Prahalad sees it, they represent a vast market of unmet needs for entrepreneurs to tackle.

New social networking website BOP Source hopes to make the money meet the market. Started by Jenara Nerenberg, BOP Source wants to put social networking tools into the hands of the world’s poor. It is a place to post business ideas and collaborate with others to make them happen. It is also a tool to educate businesses about the BOP and what the poor need done. And it hopes to help NGOs broaden their relationships with their constituencies and companies.

While marketers can learn about the needs of the BOP, individuals can directly express their needs on the website and seek out the right people to solve problems.

Another social networking website is Business Fights Poverty. Already at 1,000 members, it is a multimedia offering, with podcasts, videos, interviews and discussions about the role of business in addressing development goals.

Published: November 2008

Resources

  • BOP Source is a platform for companies and individuals at the BOP to directly communicate, ultimately fostering close working relationships, and for NGOs and companies to dialogue and form mutually valuable public-private partnerships that serve the BOP. Website: http://bopsource.ning.com/
  • Business Fights Poverty: Business Fights Poverty is the free-to-join, fast-growing, international network for professionals passionate about fighting world poverty through good business. Website: http://businessfightspoverty.ning.com/
  • Afriville is a Web 2.0 service and an African Caribbean social network. Afriville is a community website along the lines of the famous MySpace. Users are free to message and post profiles. The difference is that the user is able to choose how closed or open the networks are. The site features a state of the art music management system which allows African and Caribbean artists to get straight in touch with their fans.
  • Both Yahoo! And Google offer extensive free online tools for entrepreneurs and businesses that integrate seamlessly with their email services.
  • Kabissa: Space for Change in Africa: An online African web community promoting and supporting the transition to Web 2.0 services in Africa. Offers lots of opportunities to meet people throughout Africa and learn more.
  • Global Voices: An initiative from the Reuters news agency to aggregate the global conversation online from countries outside the US and Western Europe.
  • Information, Knowledge and Communication: Web 2.0 in Development Cooperation Bonn, Germany, 27-28 November 2008, Gustav Heinemann Haus. Website: http://www.eadi.org/index.php?id=994
  • 3rd IEEE/ACM International Conference on Information and Communication Technologies and Development (ICTD2009). Website: http://www.ictd2009.org

Development Challenges, South-South Solutions was launched as an e-newsletter in 2006 by UNDP’s South-South Cooperation Unit (now the United Nations Office for South-South Cooperation) based in New York, USA. It led on profiling the rise of the global South as an economic powerhouse and was one of the first regular publications to champion the global South’s innovators, entrepreneurs, and pioneers. It tracked the key trends that are now so profoundly reshaping how development is seen and done. This includes the rapid take-up of mobile phones and information technology in the global South (as profiled in the first issue of magazine Southern Innovator), the move to becoming a majority urban world, a growing global innovator culture, and the plethora of solutions being developed in the global South to tackle its problems and improve living conditions and boost human development. The success of the e-newsletter led to the launch of the magazine Southern Innovator. 

Southern Innovator’s online archive portal was launched in New York City, U.S.A. (home to the UN’s headquarters) in 2011 (southerninnovator.org).
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This work is licensed under a
Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 License.

ORCID iD: https://orcid.org/0000-0001-5311-1052.

© David South Consulting 2022

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Kenyan Bank Helps the Poor and Gets Rich

By David SouthDevelopment Challenges, South-South Solutions

SOUTH-SOUTH CASE STUDY

Good quality banking services are a basic building block to rising incomes. Yet the poor across the South are often overlooked and denied access to savings accounts and loans.Many low-income people are openly discriminated against as ‘bad risks’ by banks, and denied the sort of banking services middle and higher income people take for granted. Yet it is a myth that the poor do not have money or do not wish to save and invest for their future or for business.

The so-called Bottom of the Pyramid (BOP) – the 4 billion people around the world who live on less than US $2 a day – are being targeted by a wide range of businesses. Indian business consultant and professor CK Prahalad (http://en.wikipedia.org/wiki/C.K._Prahalad) , the man who coined the term BOP, has gone so far as to claim this is a market potentially worth US $13 trillion, while the World Resources Institute puts it at US $5 trillion in its report, “The Next 4 Billion” (http://www.nextbillion.net/thenext4billion).

A Kenyan commercial bank has proven it is possible to target the BOP and become successful doing it; so successful that they have seen off foreign rivals and were voted Kenya’s third most respected company.

By offering Kenya’s poor people savings accounts and microloans, Equity Bank (http://www.equitybank.co.ke/) has captured 50 percent of the Kenyan bank market. It now has more than 3 million customers and 2.8 million account holders and opens 4,000 new accounts a day.

Its chief executive officer, James Mwangi, said Equity Bank built its success by doing the opposite of what other banks have done – it doesn’t target the middle and upper classes, but the “the watchmen, tomato sellers and small-scale farmers”.

The Kenyan banking sector in the past was dominated by foreign banks. But by investing in the 46 percent of the population who still live below the food poverty line, Equity has become the third most profitable bank in the country. Its approach was once considered odd. Most of the bank’s borrowers work in the informal sector and have few assets to use as collateral for the loans. So Equity uses what it calls ‘social collateral’. This includes a mix of measures: in some cases, account holders join together to guarantee a person’s debt. Even more unusually, women offer their matrimonial beds as security – it would be shameful for a woman to admit her bed has been taken to pay for the debt.

“For us it’s psychological security. Nobody wants to be excommunicated and lose their inheritance,” said Mwangi.

“By focusing on the previously excluded, Equity has revolutionized the banking sector,” James Shikwati, a director of Kenyan think tank the Inter Region Economic Network (http://www.irenkenya.com/), told The Guardian newspaper. “It has forced the multinational banks to change their business strategies.”

Started in 1984, the bank was still insolvent by 1994, when Mwangi joined as an accountant. Things were looking grim as Kenya’s economy was in a slump and foreign banks like Barclays were closing branches outside big centres.

Mwangi and other Equity Bank managers realized there were millions of low-paid poor in Kenya – all BOP – but who wanted to save and borrow but had nowhere to go.

“Banking was the only industry in Kenya led by supply rather than demand,” said Mwangi. “There was no ‘bottom of the pyramid bank’.”

While absolute poverty in Kenya has declined in recent years, inequality remains high. The population of 37 million people make on average a per capita income of US $580.

By 2003, as the economy picked up, Equity Bank gained 256,000 account holders. It now has 100 branches across the country and 500 automatic teller machines (ATMs). It uses armoured trucks to go into rural areas so that the people can receive banking services. While traditional banks require pay slips and utility bills as proof of a person’s address before letting them open an account, and charge high monthly fees, Equity only requires an identity card.

Within just one year, the bank saw the number of account holders jump to 600,000. Mwangi likes to say that the bank’s competition is the bed mattress, since most people have never had a bank account before. Most savers have around US $148 in their savings account.

The bank’s micro credit operation makes loans of less than US $7 and gives borrowers a few months to repay them.

The bank claims loan defaults are less than 3 percent on 600,000 outstanding loans – the banking industry average is 15 percent.

It keeps its transaction costs down by using the latest in information technology. These efficiencies enabled the bank to earn pre-tax profits of more than US $40 million in 2007.

Equity does face competition, as its success attracts mainstream banks into the BOP market.

In Africa these days, banking is hot: a South African research and analysis company BMI-TechKnowledge (http://www.bmi-t.co.za/) in a report identifies a boom in banking services across Africa. In particular, South Africa, Botswana, Namibia, Angola, Mauritius, Tanzania, Kenya, Ghana, Nigeria, Egypt and Morocco – all have seen surges in profit and services as a result of improving banking regulations and political conditions.

Mwangi isn’t worried, however, since the number of people still without bank accounts is huge. Equity Bank is expanding its operations into Uganda, Rwanda and Sudan.

Elsewhere, mobile phone banking in Kenya is proving highly successful. Equity has a service, but so does Safaricom with M-PESA (http://www.safaricom.co.ke/index.php?id=745). Customers can deposit, transfer and withdraw money using their phones. Over 4 million are now using the service.

Published: January 2009

Resources

1) NextBillion.net: Hosted by the World Resources Institute, it identifies sustainable business models that address the needs of the world’s poorest citizens.
Websites: http://www.nextbillion.net/ and World Resources Institute

Development Challenges, South-South Solutions was launched as an e-newsletter in 2006 by UNDP’s South-South Cooperation Unit (now the United Nations Office for South-South Cooperation) based in New York, USA. It led on profiling the rise of the global South as an economic powerhouse and was one of the first regular publications to champion the global South’s innovators, entrepreneurs, and pioneers. It tracked the key trends that are now so profoundly reshaping how development is seen and done. This includes the rapid take-up of mobile phones and information technology in the global South (as profiled in the first issue of magazine Southern Innovator), the move to becoming a majority urban world, a growing global innovator culture, and the plethora of solutions being developed in the global South to tackle its problems and improve living conditions and boost human development. The success of the e-newsletter led to the launch of the magazine Southern Innovator. 

Creative Commons License

This work is licensed under a
Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 License.

ORCID iD: https://orcid.org/0000-0001-5311-1052.

© David South Consulting 2022

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Creative and Inventive Ways to Aid the Global Poor

By David SouthDevelopment Challenges, South-South Solutions

SOUTH-SOUTH CASE STUDY

As the saying goes, “necessity is the mother of invention”. Poverty can be a major spur to invention, and invention a route out of poverty – but only if the poor in the developing world can get the recognition, capital and support for navigating the legal and bureaucratic hurdles that will inevitably stand in their way. Thankfully many new initiatives acknowledge this.

Contrary to popular perception, the poor do have buying power, as has been documented by Massachusetts Institute of Technology (MIT) professors Abhijit Banerjee and Esther Duflo in their paper “The Economic Lives of the Poor”. Surveying 13 countries, they found those living on less than a dollar a day, the very poor, actually spent 1/3 of their household income on things other than food, including tobacco, alcohol, weddings, funerals, religious festivals, radios and TVs. The researchers also found that the poor increasingly used their spending power to seek out private sector options when the public sector failed to provide adequate services. As awareness of global poverty has grown in the past decade, a new wave of scientists, inventors and entrepreneurs has started to apply their considerable brain power to tackling the everyday problems of the poor.

Afrigadget, a website celebrating African ingenuity and inventions, serves as a goldmine for small-scale entrepreneurs looking for inspiration. All the inventions on the website share something in common: they are grassroots, homemade and handmade solutions to everyday problems of the poor. Examples of inventions profiled on the website include multi-machines, basically a 3-in-1 machine used as a metal lathe, mill and drill press, all built by hand from old car engine parts; a US $100 bicycle motor that gets 50 kilometres per liter made in Kisumu, Kenya; hand-made African wire toys; do-it-yourself telephone handsets which are then used to run roadside phone booths as a small business; and Malawian homemade windmills used to generate electricity for both home use and as a business to recharge mobile phone and radio batteries.

Another African invention tackles the urgent need for inexpensive or free common toilets that are self-financing. In the Kibera slum of Nairobi, Kenya, where 60 percent of the city’s inhabitants live, the lack of decent toilet facilities has led to the widespread use of so-called “flying toilets”, plastic bags filled with excrement and then flung as far away as possible. The resulting build-up turns the streets into a foul-smelling sludge in the rainy season and causes disease outbreaks like diarrhoea and typhoid fever. Up to now, conventional attempts to provide communal toilets have failed to resolve the problem, because they charge too much to use. But an innovative solution has been developed: bio-latrines that capture the methane gas produced by the toilets for sale as gas for cooking, heating and lighting, and the sludge for fertilizer. A joint initiative between a Kenyan company, Globology Limited, and the NGOs Umande Trustand Ushirika Roho Safi Laini Saba, it is partly funded by the Swedish International Development Agency (SIDA). The toilets are used by 500 people a day and are self-financing from the profits made by the sale of the gas and fertilizer.

In India, social entrepreneurs have stepped in to help the rural poor navigate the Indian government bureaucracy. Drishtee, an internet service provider – offers a fast-track to government services used by the poor in rural villages through its e-government services information kiosk. Using a franchise model, it has branches spread out through 160 locations in the country and serves 1.5 million people. Drishtee’s niche is that it saves the poor the exhausting and draining time and long travel normally required to access any government services. Drishtee’s “ask a government employee” service brings government to the poorest people.

Operating out of New Zealand and South Africa, Ecologics is an engineering company focused on developing appropriate technologies for sustainable livelihoods in developing countries. All their inventions are built around the principles of low maintenance and costs, and ease of use. Its African operations are based in South Africa and run under the Black Economic Empowerment (BEE) scheme. It builds step powered pumps, the Step Action Water Pump which works just like a gym step exercise machine and is a highly efficient way to power the pump – for small scale mining and agricultural irrigation. The pumps can deliver 5,000 to 6,000 litres of water per hour, weigh just 11 kilograms, and have been field tested in Fiji, Lesotho and South Africa.

Published: April 2007

Resources

  • NextBillion.net: Hosted by the World Resources Institute, it identifies sustainable business models that address the needs of the world’s poorest citizens.
  • A paper on social lending via the web: PDF version
  • African Inventors Museum: The International African Inventors Museum promotes positive images and self-esteem in children and adults and teaches people of all nationalities about the contributions that Africans throughout the world have given to society.
  • AU-WIPO Prize: The AU-WIPO is an initiative of the Africa Union Commission and the World Intellectual Property Organization. It is a leading continental award in Africa honoring the scientists and technologists whose efforts are towards addressing critical problems in Africa and the attainment of the Millennium Development Goals.
United Nations e-newsletter Development Challenges, South-South Solutions visited the Berlin, Germany headquarters of start-up betterplace.org in 2009. It was the dawn of the Berlin digital tech boom.

Development Challenges, South-South Solutions was launched as an e-newsletter in 2006 by UNDP’s South-South Cooperation Unit (now the United Nations Office for South-South Cooperation) based in New York, USA. It led on profiling the rise of the global South as an economic powerhouse and was one of the first regular publications to champion the global South’s innovators, entrepreneurs, and pioneers. It tracked the key trends that are now so profoundly reshaping how development is seen and done. This includes the rapid take-up of mobile phones and information technology in the global South (as profiled in the first issue of magazine Southern Innovator), the move to becoming a majority urban world, a growing global innovator culture, and the plethora of solutions being developed in the global South to tackle its problems and improve living conditions and boost human development. The success of the e-newsletter led to the launch of the magazine Southern Innovator. 

Creative Commons License

This work is licensed under a
Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 License.

ORCID iD: https://orcid.org/0000-0001-5311-1052.

© David South Consulting 2022