April 2008

Tinda-ma! (Let’s eat!) is my favorite thing to say around here. The entire office (Eleven of us) gets together in the conference room for lunch every day without fail.  Everyone brings food from home and takes a little from others without question.  It is family style at its best. (Today, Vipin specially brought me Puri that his wife made - Ah Mazing).  I never leave the room without learning something new about India.  Like why the communist party is so successful in West Bengal, or how silk worms make silk or how Tata decided to made the Nano…  It’s a massive gift for someone new in these here parts.

But back to the family: We have ear-splitting debate and wide-open criticisms, people getting help with personal problems and more than our fair share of hysterical laughter.  It’s one of the great benefits of only being eleven people; You have no choice but to invest in each other because there is nowhere to hide.  As my friend Charles Warren used to say, “innovation needs intimacy”.  IMHO, this kind of homestyle environment is what’s missing from a lot of big companies.

Dharavi—reputedly Asia’s biggest slum, housing about one million people in a very small area, and located right in the middle of Mumbai.  I pass through it everyday on my way to work and have always found the intense activity along the road fascinating.  But I had not gone by foot into the slum until today.  Wanting to learn more about Dharavi, and at least get more than a glimpse of how it operates, I signed up for a “reality tour” of the area.  I had a local guide, and most of the profits from the tour company go to a non-profit that provides training classes for Dharavi residents. 

Dharavi is far too complex to master in an afternoon, and what I saw in a couple of hours is far too interesting to summarize in one blog entry, so I’ll just describe a couple of the highlights.  Dharavi has an annual business turnover north of $600 million and is filled with small businesses and industries.  Our tour began with one of them–the recycling section of the slum.  Plastic, cardboard, and metal containers are all either recycled or reconditioned by a variety of small workshops.  Plastic containers are gathered by rag-pickers throughout the city and sold to middlemen in Dharavi, who sort the plastic by color and grind it down into small pieces.  The machines that do the grinding are themselves manufactured in Dharavi—we visited one workshop that made grinders and sold them to recycling businesses just across the narrow alleyway.  Talk about a great way to get immediate customer feedback!  The small pieces of ground plastic are then sold to other businesses that melt them down.  We visited one where bits of blue plastic were poured into a machine that melted them, extruding small streams of blue that looked like wires which then ran through a tub of water that cooled them down.  The plastic strings then entered a machine that chopped them into uniform pellets.  These pellets are sold to manufacturing plants outside of Dharavi that turn them into new plastic goods. 

Other recycling processes are much simpler:  cardboard boxes are sliced open, turned inside-out, and stapled back together to be sold to local businesses.  What looks like a plain brown box on the outside reveals bottled water labels on the inside when opened up.  Used metal cans that held cooking oil are cleaned, pounded back into shape with wooden mallets, and returned to the cooking oil manufacturers for reuse.  All of this takes place in a series of small workshops along narrow lanes, with the employees often living above their workspace.

We then passed through more residential areas of the slum, checking out small garment factories, leather makers, shops, and homes.  We concluded the tour in the clay pot-making area, where generations of the same families have been producing pots out of their homes and workshops, burning cotton to fire their kilns.  There we met a former guide from the tour company in his family’s home.  He had recently graduated from college with a degree in commerce and had just begun a new job with JP Morgan.  When we asked what he would be doing there, he replied that he was in training to be an investment banker.  He wasn’t sure yet what exactly he would be working on—maybe foreign exchange, maybe derivatives. 

Here was another interesting example of the changing face of modern India, and a great illustration that the complexity of Dharavi defies many stereotypes of slums.  The term “slum” doesn’t come close to capturing all the fascinating individual stories, community ties, and business relationships in a neighborhood that’s been contributing to the life of India’s commercial capital for decades.

By the way, the tour company’s policies prohibit clients from taking photos while on the tour, so I don’t have any pictures to post here.  However, you can see some interesting photos from a 2007 National Geographic article on Dharavi here (the very first photo shows my route to and from work). 

This past Tuesday in New York, Acumen Fund hosted a breakfast featuring Aun Rahman, our Pakistan Country Director and longtime Acumen Fund employee. The event began with Omer Imtiazuddin – Acumen’s health portfolio manager – introducing Aun. Before joining Acumen Fund, Aun worked for five years in economic and strategy consulting at Charles River Associates in Boston, specializing in financial modeling and quantitative analysis. Aun joined Acumen in 2003 as a Fellow, working for 18 months our investee, Saiban, to structure and incubate an affordable commercial housing project in Lahore and to develop the organization’s management information systems.

In 2005, he became Acumen Fund’s Country Manager in Pakistan. Originally from Karachi, Aun came to the United States to attend the University of Chicago, where he earned a BA in Economics. At the conclusion of his introduction, Omer remarked how he and Aun actually went to school together (in grade six) but only realized their shared history upon joining Acumen Fund. It is indeed a small world.

Aun began his talk by giving a demographic overview of Pakistan. Seventy percent of Pakistanis earn less than $2/day; fifty percent of the urban population lives in slums; seventy percent of Pakistanis don’t have access to clean drinking water. Not only that, but recent commodity price increases have put a squeeze on the purchasing power of the poor, exacerbating some of these (older) figures.

After his overview, Aun began the heart of his presentation by talking about Saiban, an incremental housing model targeting the urban slum population. The poor aren’t offered housing options in the current economy – it’s too expensive, on the wrong time schedule, and scarce. To address these issues, Saiban has developed a model based on the informal housing sector. Specifically, Saiban works with people in low-income communities who build their homes over a four or five year period – not a traditional housing or real estate model.

Acumen became involved to help Saiban accelerate and scale up the incremental housing process. When we came in, Aun notes, it was already a holistic business – they weren’t just building homes, but also the infrastructure, and facilitating financing and land purchase as well. Acumen’s assistance came in the form of a $300,000 grant/loan in 2005, as well as the services of Aun (Fellow, 2004) and Jawad (Fellow, 2007) working directly with Saiban’s team.

As far as impact, Aun displayed a slide noting that there are 22,000 residents living in 2 communities built by Saiban. There are schools, mosques, stores as well as a range of utility services (water, electricity, sanitation, etc.). Finally, and perhaps most interestingly, there’s a formal mortgage financing scheme for the poor – a first in Pakistan.

Congratulations to Acumen Fund friend and ally Martin Fisher, who today was named the winner of the Lemelson-MIT Award for Sustainability.  Fisher - who co-founded KickStart - will be awarded $100,000 for his work developing a low-cost irrigation pump and the business ecosystem to design, produce, sell and repair them in base of the pyramid communities.

Media coverage of Fisher’s award is widespread; the Boston Globe has a good article on the announcement, and PopSci makes a mention as well.

To celebrate, be sure to watch “Don’t Wait for the Rain,” a social marketing rap video produced about KickStart’s signature MoneyMaker pump.

Editor’s note: Batool Hassan recently joined Acumen Fund’s Pakistan office as a Knowledge & Communications Consultant. She recently completed her Masters of International Affairs from SIPA, Columbia University, and moved to Karachi late last year. Batool has microfinance consulting experience and has worked in the US consumer banking sector.

A recent article published in the World Bank’s Development Outreach, “Microfinance: Climate Change Connections,” discusses the potential relationship between microfinance and climate change. It highlights an interesting link between innovations in environment-friendly products and how microfinance can facilitate access to these products for the base of the pyramid (BoP).

The article points out that many members of the microfinance community have often viewed environmental concerns as a ‘luxury’ their low-income clients can ill-afford to consider.

But recent partnerships between renewable energy companies and microfinance institutions point to possible collaborations that will allow low-income households to gain access to cleaner/renewable energy technologies.

I have had the privilege of interning with Helen Ng, Acumen Fund’s Housing Portfolio Manager, for the past couple of months, and I wanted to share some perspectives with you. I hail from the private sector and am currently a business school student at Columbia here in New York City. It’s been a fantastic ride here at Acumen Fund, and an eye-opening one at that.

One thing that I learned quickly was that Acumen Fund truly embraces the importance of addressing problems faced by the BoP with a business mentality. When we look at potential deals, the first litmus test is always: “is this an economically-viable business model?” With several ex-Wall Street-ers at Acumen, concepts such as cash flow and ROI invariably work their way into discussions about potential and current investments. And for the strategy buffs out there, frameworks such as Porters Five Forces are tools that are helpful in vetting triple-bottom line businesses as well!

This type of analytical rigor is part and parcel of a disciplined portfolio evaluation process. I sat in on a portfolio review session recently, and was blown away by the team’s in-depth, holistic approach to evaluating portfolio investments. Not only were topics such as management quality and barriers to entry discussed (areas that any VC would lay awake at night thinking about), but an investment’s ability to generate knowledge for the BoP development space is valued highly as well. And that’s what I appreciate so much about my Acumen experience. The billions of poor who subsist on less than $4 a day are treated as partners and shareholders. All major decisions are made with the BoP in mind.

Outside of Acumen, I am busy finishing up my first year at Columbia Business School. Students are incredibly in tune with new development models, as pioneered by visionaries such as Acumen. In fact, students recently launched Microlumbia, the first microfinance fund of its type initiated by any business school program. The fund will make its first investment in the near future, so stay tuned for more.

Dorah’s Senye Clinic in Kibera has a new addition today: A small refrigerator that allows her to add immunizations to her list of services.

“I’ve always had to send customers to immunize their children elsewhere,” Dorah describes. “No smart business-person sends customers away.”

With limited resources, Dorah has to work extra hard to meet customer demands. But she continues to find innovative ways to meet her customers needs. And they respond … Dorah is one of the most successful franchisees in the network.

I arrive to Senye today just in time to see Grace bring her 2 month old son to the clinic. Grace could take Trevor down the road for free immunizations, but chooses to pay the small fee at Senye because: 1) Dorah met her demand and 2) Dorah provides unmatched customer service. Despite 12 hour days and a long commute, Dorah treats her customers with dignity, personal attention, and quality care.

Even in a resource-constrained environment, basic business principles remain true: Meeting customer demand and providing quality service means happier and more loyal customers. Grace & Trevor will be back in a month for their next check up.

(This post first appeared on the Acumen Fund Fellows’ blog, Immersion)

Dorah’s Senye Clinic in Kibera has a new addition today: A small refrigerator that allows her to add immunizations to her list of services.

“I’ve always had to send customers to immunize their children elsewhere,” Dorah describes. “No smart business-person sends customers away.”

With limited resources, Dorah has to work extra hard to meet customer demands. But she continues to find innovative ways to meet her customers needs. And they respond … Dorah is one of the most successful franchisees in the network.

I arrive to Senye today just in time to see Grace bring her 2 month old son to the clinic. Grace could take Trevor down the road for free immunizations, but chooses to pay the small fee at Senye because: 1) Dorah met her demand and 2) Dorah provides unmatched customer service. Despite 12 hour days and a long commute, Dorah treats her customers with dignity, personal attention, and quality care.

Even in a resource-constrained environment, basic business principles remain true: Meeting customer demand and providing quality service means happier and more loyal customers. Grace & Trevor will be back in a month for their next check up.

A man crosses the street in rain,
stepping gently, looking two times north and south,
because his son is asleep on his shoulder.

No car must splash him.
No car drive too near to his shadow.

This man carries the world’s most sensitive cargo
but he’s not marked.
Nowhere does his jacket say FRAGILE,
HANDLE WITH CARE.

His ear fills up with breathing.
He hears the hum of a boy’s dream
deep inside him.

We’re not going to be able
to live in this world
if we’re not willing to do what he’s doing
with one another.

The road will only be wide.
The rain will never stop falling.

-Naomi Shibab Nye

Siblings in Kibera

Yesterday in New York, I had the pleasure of attending a round table organized by the Council on Foreign Relations entitled The Commercialization of Microfinance: The Good, The Bad and The Ugly. Moderated by CFR Senior Fellow Isobel Coleman, the discussion featured comments from Mary Ellen Iskenderian (of Women’s World Banking) and Roshaneh Zafar (of the Kashf Foundation.)

I arrived early, set up my laptop and grabbed a bite to eat (if you’re curious, the CFR building is beautiful and they do a good lunch spread). Before I was through my sandwich, the room had filled to capacity and CFR staffers were scrambling to set up overflow seating – there’s clearly a lot of interest in the recent controversy surrounding microfinance. It was quickly apparent that women outnumbered men in the audience by a ratio of about 2:1 – interesting, though not completely unexpected given the importance of women in microfinance and the fact that the speakers and moderator are all women.

Coleman kicked off the session with brief introductions and quickly segued into the topic at hand – the good, bad and ugly of microfinance. She stated – without dissent – that microfinance now finds itself at an inflection point. On the one hand, there have been calls for microfinance not to profit off the backs of the poor, notably in the New York Times’ coverage of Compartamos’ IPO. On the other hand, those who know microfinance realize that it can’t scale – from 100 million clients today to its potential market of 4 billion – without the capital markets, and the formality capital markets require.

I thought Coleman did a good job setting the stage here. From my perspective as a quasi-insider, there wasn’t much new – but it is important to say nonetheless. Microfinance can and will go one of two directions, and it’s pretty clear that there are strong arguments being made by advocates on either side.

Mary Ellen Iskenderian was next to speak. She is President and CEO of Women’s World Banking (WWB), the world’s largest network of microfinance institutions and banks. Iskenderian leads the WWB global team, based in New York, providing hands-on technical services and strategic support to more than 50 top-performing microfinance institutions and banks around the world. Iskenderian told us that WWB’s network MFIs have a total portfolio value of $1.4 billion and an average loan size of just $500. Those MFIs serve roughly 9 million clients and there are another 14 million clients served through WWB affiliate banks. Of WWB’s 23 million clients, approximately 70 percent are women.

What’s big, red and innovative all over? No, it’s not Clifford’s supremely creative cousin – it’s Entrepreneurship@Cornell. A university-wide initiative, Entrepreneurship@Cornell is unique in bringing together students, faculty, alumni and outside experts across a range of sectors (hospitality, biotech, real estate, venture capital, law and more were all represented at the event I attended last week). Other universities could learn from Cornell’s approach – a truly multidisciplinary program is hard to find in academia, so kudos to the Big Red for getting this one right.

I went to Ithaca last Thursday and Friday to participate in Entrepreneurship@Cornell’s annual celebration. The 2 day event featured a gala dinner, entrepreneur expo and – of course – panel sessions. Thankfully, the panel session in which I participated was well organized and expertly moderated. (No coincidence here: the organizers – Steve Wang and Sara Standish – are Johnson School students and the moderator was Mark Milstein, a heavy hitter in the BoP space.)

I thought Sara and Steve did a particularly good job finding representatives from distinct stages of the BoP continuum. First to speak was Fernando Lima, founder of Florestas and a New Ventures entrepreneur. Fernando holds a Ph.D. in economics from the University of Barcelona and has worked for many years in finance – but his passion is personal care products. Specifically, Fernando is all about certified-organic products whose ingredients are sourced from Brazilian cooperatives. Florestas’ new line – Ikove – just attained nationwide distribution through Whole Foods, which is the holy grail for any start-up company in the organics sector.

Last week, Jacqueline and I attended the Global Philanthropy Forum, a three day conference convening donors, social entrepreneurs, political leaders, academics and activists to discuss problems and solutions in the areas of global security, human rights, violent conflict, resource scarcity and health.

Bishop Desmond Tutu gave an inspiring and wide-ranging talk at the opening plenary, notwithstanding a bad case of the flu. He spoke of the recent violence in Kenya and the vulnerability of any country to a similar situation when colonial structures persist, leaving one group as top dog. He spoke of his hope that Zimbabwe will come through its current difficult period and that Robert Mugabe will step down or otherwise leave office. Even so, Tutu warned, there is a long road for recovery ahead and one key element of that recovery will be a framework or platform for people to “say what happened” (as happened in South Africa with the Truth and Reconciliation Commission).

He also expressed a wish I heard several times throughout the Forum, a wish that more women should be at the table, as heads of government, the military and in major policymaking bodies. Tutu asserted that the “attributes of women” would bring more balance to the debate and to decisions like whether to go to war. As he put it, “I cannot imagine a woman who nurtures a child in her womb for nine months and then rears that child going on to let him be turned into cannon fodder.”

The Forum alternated between plenary sessions and smaller workshops and panels, some of which were very timely and relevant to Acumen’s work (Hunger, Agriculture and Inequality; Fragile Successes in Rwanda and Uganda; Predictable Surprises: Pakistan and Afghanistan; Maternal Health and Childcare). In the plenary session entitled “Entrepreneurship and Social Change,” we heard Fazle Abed (BRAC) and Larry Brilliant (Google.org) talked about the “missing middle” - the space between micro-finance and traditional investing - which is the next place (i.e., beyond microfinance) to move the needle on poverty alleviation through a business approach. Abed and Brilliant cited Acumen Fund as a good and established example of this approach. Mr. Abed hastened to add to that while the microfinance business model was mature, the need for more microfinance facilities was far from fully met. Both panelists said that women were often the “better bet” as entrepreneurs, social or otherwise.