Over the past 30 years, microfinance has grown to be a powerful global phenomenon. It can be even more powerful when combined with a nascent trend--the rise of microfranchising. The idea is for socially-oriented companies to do the spade work of discovering successful business models for poor people and provisioning them with the equipment they need to do business. I was turned on to this concept by Elnor Rosenrot, venture director at Innosight Ventures, whom I met at the Aspen Network of Development Entrepreneurs conference on Long Island a couple of weeks ago. Innosight Ventures is an offshoot of Clayton Christensen's Innosight LLC business strategy consulting firm. It focuses on investing in business ideas that can create jobs for poor people.

The microfranchising outfit that Rosenrot told me about is Village Laundry Services, in Bangalore and Mumbai, India, which helps poor people set up street-side laundry services. VLS has developed an all-in-one laundry kiosk complete with washer, dryer, and ironing set up. The kiosks, with the brand name Chamak, are mounted on rollers so they can be moved around fairly easily. They have self-contained water supplies and plug into the grid via extension cords. Customers who drop their clothes off at the kiosks get them back, folded, within 24 hours. That's a far cry from the normal laundry service in India--where your clothes are washed manually and air dried, and can take days to come back to you. (Too often with missing buttons.)

Rosenrot says VLS has about 15 rigs in service now, hopes to have 110 on the streets by the end of next year and 8500 operating within five years. As of now, VLS owns the rigs, but the plan is to have the entrepreneurs own them--with financing from local microfinance organizations.

In addition to providing ready-made businesses for thousands of poor people, Innosight sees VLS as proving basic business training that will help prepare people to run all sorts of businesses. "We give the local entrepreneurs an opportunity learn from within how a business is run," Rozenrot told me.

It's business ownership on training wheels. This is a new form of capacity building that shows tremendous promise for promoting economic development and self-determination in poor countries.

Not-so-poor countries, too. Rozenrot tells me that Innosight Ventures now has an office in Baltimore as has begun setting up ventures here. "There are some strong parallels between Mumbai and inner-city Baltimore," he says.

Sad, but, I'm sure, true.

Early in the process of reporting for BusinessWeek's High-Tech Sweatshops story, I spent some time in New Jersey talking to software programmers, outsourcers, and members of the Indian business community. In fact, to get the Indian-American point of view, I attended a meeting of the Asian Indian Chamber of Commerce one afternoon at the invitation of Seema Singh, a lawyer who is the organization's president. The Indian business people I met there are in an uncomfortable spot. Many of them have been living in the United States for years, and many are American citizens. So they want the United States to succeed; they want their children to have abundant job prospects; they want India to succeed, and for Indians to get full access to the benefits of globalization.

The chamber confab was held at Royal Albert's Hotel, a large white stucco building architected to look like a maharaja's palace. It's on the outskirts of Edison, a town in central New Jersey that's the epicenter of Indian culture in the state. Royal Albert's Hotel is set on a bluff overlooking a handful of warehouses. There's a 20-foot-tall status of Indian freedom fighter Sardar Patel out front, and, down in the basement, where the chamber meeting was held, there are elaborately decorated rooms that are typically used for weddings and coming-of-age "thread" ceremonies for Indian and Indian-American boys.
I got a friendly welcome from 30-or-so participants. They were happy to give me their reactions to the controversy over outsourcing and guest worker visas.

Ashok Nagrath, the owner of World Wide Connections Inc., told me that the company had once had 60 employees, but business had dwindled so much that he now that he stopped operating. "There's very little work today, so we're dormant," he said. For him and his company, the Internet changed everything: "It was the death to distance." He doesn't fault India Inc. for the demise of his business, however. And he thinks the US Congress is making a mistake by trying to curtail the offshoring of labor and the use of H-1B visas. "I'm affected by offshoring, but I think it's still the best thing for America," he said. "The US should encourage it, to get the best minds and make them American customers." Concerning guest workers, he said: "They bring in the new thoughts and energy. They pay taxes and contribute to the country."

Ravi Bhangley left a job at Dun & Bradstreet late last year and planned to start his own software company. He told me he understood the backlash against offshoring and visa workers. "If you're losing your job and it's going to somebody else at a low wage, it's natural to be angry," he said. He also said it's natural for American programmers to resent Indians and blame them for their problems. "If people are racist, it's misdirected anger," he said. "I'm a US citizen. If there are job losses here, I can experience them, too."
Kumar Balani, publisher of the magazine Biz India, told me that native Americans should take the holistic view. Products they want to buy can cost less if American companies cut costs and become more competitive by using offshore labor. The challenge for Americans is to acquire more skills and be more creative. "Everybody in the world is under pressure to make themselves more valuable," he said.

Satish Bhalerao, owner of Network Solution, was unapologetic about using guest workers in the US and offshore labor in India. His customers want to reduce costs, and he offers them a lower-cost alternative. He said he pays guest workers in the United States the same as he does native American workers, but he prefers to hire Indians on visas. "They're easily trainable. They're motivated to work hard because they want to live here and to find a way to stay here," he said. But he also worried about America's future. America has already lost so much manufacturing, and now it's losing the lead in science. "Our research is gone. What are we going to offer the world?" he asked.

James Rajiv Bhasin has seen offshoring from both sides. As an employee of Chase in 2003, he lost his job when a lot of the company's work was outsourced to India. Now he's the general manager of business development at Upstream, a subsidiary of Intelenet Global Services, which performs finance and accounting work in India for US clients. "I was shocked when I lost my job at Chase, but I recovered," he said. "I had to reinvent myself. In six years I've done so much more than I ever would have done if I stayed at Chase." Bhasin started his job at Intelenet late last year. He was surprised to realize that it was the company to which he had lost his job six years ago. His new boss is the guy who managed the outsourcing project at Chase. "It amazes me. I've gone full circle," he said.

As I think back on the Indian-Americans I met that night, I can't help but contrast the kinds of things they said--and the unemotional way they said them--to many of the angry and even ugly comments we got on our High-Tech Sweatshops story after it was published online. It was disturbing to see workers from different nationalities verbally tearing at one another. The situation is reminiscent of earlier eras in American history, when employers played immigrants of different ethnicities against each other to defeat labor unions and keep wages low. Like them, today’s guest workers and American programmers are pawns in somebody else’s game.

It has taken 30 years, but microfinance has had a huge impact on the lives of tens of millions of people in the developing world. Still, while the microfinance phenomenon helps lift people out of poverty, it's not a powerful economy builder. Poor countries need a thriving commercial segment that creates jobs. So one of the new priorities for poverty fighters and economic development organizations is providing capital, advise, and technology assistance to help small businesses grow into bigger businesses. They call them small and growing businesses, or SGBs.

One of the organizations that's focused on this opportunity/challenge is the Aspen Network of Development Entrepreneurs. Last Friday, I spoke at a conference ANDE held on Long Island. About a hundred people were there--from dozens of organizations. These outfits have many challenges, and a bunch of them are related to the fact that they're focusing on helping business people rather than poor people. It's much easier to get foundations and individuals to give money to help poor people than it is to get them to help non-poor people--even if the poor benefit in the end. Trickle down economics just doesn't pack the same emotional punch as getting a loan to a poor person who they can buy a cow or a sewing machine.

One of the things this group will have to do is brand the concept of the small business as economic growth engine. Microfinance benefited greatly from having an iconic image at its disposal: A poor woman with her sewing machine. Anybody who saw this image got the concept immediately. Michael Chu, a Harvard Business School professor who was one of the pioneers of microfinance as the one-time CEO of ACCION International, told the ANDE members that he recently visited with one of the business people he made a small loan to many years ago. The guy had a tiny print shop. Now he has a thriving shop buzzing with employees and bristling with shiny new Apple computers.

The promoters of SGBs need to come up with an iconic image that captures that man's story. It will be hard to produce something as simple and easily readable as the lady with her sewing machine, but it's got to be done if the SGB movement is to take wing.

The global financial meltdown has put a damper on hopes that private capital would soon become a major factor in financing micro-credit and other economic development programs. But the idea of putting capital to work on behalf of social progress still has more than a faint heartbeat. The most recent example is a deal put together by VillageReach, a Seattle-based non-profit that improves the performance of public health systems in developing countries, and Oasis Fund, a Luxembourg-based private equity firm that invests in social enterprises.

VillageReach provides the logistics, energy, communications, and transportation infrastructure necessary for public health systems to deliver their services in rough places in Sub-Saharan Africa and India. In 2002 it created a for-profit business, VidaGas, to provide propane to power refrigerators and sterilize medical equipment at remote clinics in Mozambique. There are no commercial propane distributors in the region, so VillageReach had to do something to bridge the gap. Its innovation was creating a for-profit company to deal with the dilemma. "We're one of the few non-profits to develop for-profit businesses to help sustain the impact of our non-profit work," says John Beale, director of strategic development for VillageReach.

In northern Mozambique, as in much of Sub-Saharan Africa, most people and businesses rely on charcoal and wood for basic cooking and lighting. So the folks at VidaGas saw the opportunity to broaden their reach beyond hospitals and clinics. It's now selling to hotels, restaurants, and other small businesses. That move made it possible for the company to become profitable.

Enter Oasis Fund. VidaGas needed capital so it could expand its business more rapidly, so it sought money from unusual sources. Oasis Fund's founder, Jean-Philippe de Schrevel, was a major investor in micro-credit through his BlueOrchard Finance, and his now branching out to invest in other economy-building projects. VidaGas has raised $30 million in two years, mostly from wealthy Europeans, and has invested $1.375 million in VidaGas. "We invest globally in enterprises like VidaGas that have a direct impact on low-income markets," says Keely Stevenson, an investment executive at Bamboo Finance, the advisory firm for Oasis Fund. "We look for exciting social enterprise models that can create great value for their clients, and can also help us grow more philanthropic capital. We're a partner in social innovation."

This is a great win, win, win, win situation. VidaGas helps support VillageReach's work. It improves the public health system. Shifting from burning wood to burning propane is better for the environment. And, if the VidaGas investment pays off for Oasis, it will have more capital to invest in other social ventures.

For VillageReach, this could be the beginning of a major new strategy. It plans on establishing for-profit companies in other counties to fill in gaps in the economic fabric of communities and make real progress possible.

Who knew propane tanks could be so sexy?

Back in 1939, GM sponsored a display at the New York World's Fair called Futurama, which depicted a world 20 years in the future where millions of automobiles would roam the North American landscape on a vast network of multi-lane highways and people would live by the tens of millions in far-flung suburbs. At the 1964 World's Fair, GM updated its vision with Futurama II: More lanes of highway and more automobiles coursing along them. Unfortunate, this vision of the future came true. Now we're living with the consequences.

Temperatures are rising and, if they continue to increase as projected, we're looking at rising sea levels that threaten coastal cities and weather changes that threaten agriculture.

At the same time, because of our over-dependency on cars, the average American spends more than a week in traffic per year, which costs the GDP over $200 billion a year and wastes 2.5 billion gallons of fuel. I'm not even counting the waste from those long commutes.

Then there's the dependency on foreign oil suppliers.
It's incredible that in spite of it being abundantly clear a decade ago that this way of living was unsustainable, the US government did nothing to alter the nation's path. Indeed, the credit bubble encouraged people to move ever-further from their workplaces. All of a sudden, Pennsylvania's Pocono Mountains began to be seen as a suburb of New York City, in spite of being 100 miles away!!

Are we nuts?

The answer is inarguably "Yes."

So, now, what do we do about it? There are a lot of things that can be done, and many of them are underway. But the one thing that seems absolutely essential--and could accomplish a lot--isn't even being seriously contemplated. That's raising fuel taxes.
Right now, the average fuel tax for an American driver is about 45 cents per gallon. (That's 18.4 cents federal tax and an average of 27.2 cents for state taxes.) Studies have shown that for each cent per gallon increase in gas and diesel tax reduces consumption by 0.2%. So if you increased fuel taxes by, say $1, perhaps you could reduce consumption by 20%. Also, even with that reduction in consumption, you'd raise up to $125 billion a year in additional tax receipts. This money could be plowed into improving the nation's transportation infrastructure--hopefully, mainly, in alternatives to cars and roads.

Here's another factoid that should give you pause. The United States is spending less than 1 percent of its gross domestic product on our transportation infrastructure, compared to 9% by China and 5% by India. To upgrade the transportation infrastructure to world-class status, we'd have to spend about $200 billion each year for 20 years. That $125 billion a year from increased fuel taxes could help a lot.

Unfortunately, the idea of a fuel tax increase is a non-starter in Washington, D.C. Apparently, Americans have two inalienable rights: The right to carry automatic weapons at anti-Obama rallies and the right to burn up incredible amounts of fuel and create incredible amounts of pollution with impunity.

Are we nuts?

The answer is inarguably "Yes."

What got me thinking about these weighty matters was a "Smarter Cities" conference that IBM put on in NYC last week. I attended a breakout session on transportation, the highlight of which was a presentation by Quentin Kopp, the former chairman of the California High Speed Rail Authority. He was one of the main movers behind a proposal, now partly funded, to build an 800-mile high-speed rail network linking California's major cities. Kopp has been advocating for high-speed rail for more than a decade, and was one of the people who pushed for the extension of the BART line to San Francisco International Airport.

If and when it's completed, the high-speed rail line will make it possible for people to travel from LA to San Francisco in just 2 1/2 hours, and at just 20% of the energy cost of an automobile taking the same trip. "How do you get it done? Necessity," Kopp said.

Kopp had slides mapping out the route and showing artists' renderings of snazzy new transportation hubs linking rail and other modes. Now, that's a Futurama I can get into.

What we need is brave leaders willing to paint a picture of the benefits of a less-car-dependent future that's as compelling as the vision GM and its allies conjured up in 1939 and 1964. If the voters see the necessity, maybe they'll support it.

Noble Peace Prize winner Muhammad Yunus was his level-headed
provocative self this morning when my colleague, Jay Greene, and I met
him at the Sheraton Hotel around the corner from our office. We asked
him: How can the advocates for the poor capitalize on the downturn? His
answer was that the financial system should be reformed in ways to make
it more inclusive. "If the institutions have failed. let's not go back
to the same thing. Let's fix it. Let's build the bank as an inclusive
institution. Let's extend their services to people who don't have them
now." He says government regulators and policy makers should make some
of their help to banks contingent on their willingness to extend
services to the poor so they don't have to relay on the loan sharks
who operate pay-day loan operations and pawn shops. "The government
should say, 'If you expand we'll help you. If you don't, we won't,'" Yunus says.

Unfortunately, most of the help that the US government is going to
give banks has already been doled out, so the opportunity to do
something constructive may be lost. And, also, unfortunately, banks
making sub-prime loans to people who shouldn't haven gotten them was
one of the things that got us in this big mess. But, still, Yunus is
right that now is the time for the government and the banks to consider
new approaches that would extend banking services to the poor without
causing unmanageable risk to the banking system.

I don't hear anybody else talking about that. It's a shame about wise men.
They're often honored but not heeded.

I attended BusinessWeek's Captains of Industry event at the 92nd Street Y last evening. BW editor in chief Steve Adler interviewed Citigroup's Vikram Pandit, the guy who didn't screw up Citi but has to fix it. Pandit is a boring interview. Very careful. Must have thrilled the Citi PR woman who was sitting next to me. He said one interesting thing, though. When asked where he sees the biggest growth opportunities for Citi, he said it's going to be the emerging markets like India and China. They're not the emerging markets, really, any more. They have emerged. Then he made an interesting prediction: Africa will follow Asia on the path to economic development. He named South Africa, northern Africa, and West Africa as interesting spots to Citi. Memo to the enterprising: Get in now.

Here's what Kagame wrote in Huffington Post: http://tinyurl.com/l4egt7

Over the past few months, I’ve learned a bit about the agricultural economy of Africa—enough to know that these countries need to find ways to improve farming productivity and open new markets in wealthier nations.  It’s not as if agricultural experts have been ignoring the topic.  These problems are not easily solved.  So, in the spirit of open innovation, the new hot concept, why not solicit ideas from a wider spectrum of people—say, everybody? The National Peace Corps Association has done just that, with its Africa Rural Connect (ARC)-www.AfricaRuralConnect.org, a Web site for discussing issues, identifying problems, and coming up with potential solutions for some of Sub-Saharan Africa's most entrenched problems.  Funded by the Bill & Melinda Gates Foundation, ARC is a collaboration tool that not only collects ideas but enables people to work on ideas together. To add a bit of extra incentive to the deal, ARC is running a contest for the most creative, yet  practical solutions on Africa. This contest will run from August through November, with cash prizes awarded every month in addition to one grand prize of $20,000 for the best plan.

Paul Kagame, in many ways, represents the hopes of Africa. He’s a strong but soft-spoken leader who has a radical approach to reconciling the people of his country. He’s willing to take help from richer nations, but insists on independence (“Nobody owns us,” he says) and hopes for a day when Rwanda will no longer be dependent on foreign aid. Hooked to the 15-year anniversary of the Rwandan genocide, Kagame appeared on Fareed Zakaria’s public affairs show on CNN yesterday (http://tinyurl.com/ney6mn).>

 

Zakaria is one of the few TV news commentators who isn’t primarily an entertainer. He gave Kagame credit where it is due but also pressured him on the issues of criminal justice in Sudan and political and press freedoms in Rwanda.

 

Kagame has done a great job of reconciling his people, of stabilizing the country, and of improving the economic lot of Rwandas--though there’s still much to do. He’s not so convincing when he defends his position on Sudan: He criticized the International Criminal Court for its indictment earlier this year of Sudan President Hassan Ahmad Al Bashir for war crimes and crimes against humanity. Kagame argues that the court is out of bounds--meting out justice selectively. When Zakaria pressed him on critiques of his government for repression of political dissent and press freedoms, Kagame insisted that he’s building institutions, such as an independent judiciary, and that international news organizations are free to come into his country and tell stories like they see them. He says the Rwandan press has a capability problem: It’s not yet up to the task of producing good journalism.

 

I have scant knowledge of Rwanda (one short visit and some reading of books and articles), but I get an uneasy feeling when it comes to freedom of expression there. Some authoritative journalists who know the country well say people do not free to speak their minds. I can understand why the government might be concerned about the role of the media: During the genocide, hate-mongers used the radio to whip up crowds to do unspeakable things to their neighbors. Still, 15 years have passed. The country is stable. It’s time for Kagame to loosen up the reigns on free speech. Until he does, there will always be suspicions that in him lurks another, not-so-enlightened leader that will someday show his face.

 

If you’re interested in learning more about Kagame and his leadership, check out his essay in the book, In the River They Swim, a book of essays about business solutions to poverty and/or read a few pieces of an interview I did with Kagame late last year, in Kagame: The Hope of Africa? Part II.