Wednesday, February 25, 2009
Virgin Money facilitates loans through family and friends which is different than Lending Club's model. While loans between people who know each other can be made through Lending Club most of Lending Club's loans are made between people who do not know each other.
In addition to social loans, Virgin Money just entered the traditional mortgage loan market. Virgin Money is approved in 35 US states for both conventional and FHA loans and they expect to be fully licensed by the end of 2009. More than 150 mortgage brokers have joined their network.
Here are the three options presented to visitors at Uncrunch America:
Personal loans - If you have good credit you can now get a personal loan of up to $25,000 funded by fellow members at a fair interest rate through Lending Club. Free membership and easy online application.
Small business loans - If you are a small business and need more than $25,000, On Deck Capital has been actively lending to small, healthy, store front businesses throughout the credit crunch.
Home loans - Traditional Mortgages or Social Mortgages, Virgin Money has creditworthy borrowers covered. Check out our traditional mortgage for fair rates and a fast closing or consider our social mortgage for a great deal if you're borrowing from family.
Monday, February 23, 2009
Microlending, which has been available for many years, is responding. Microlending organizations are now offering interest-bearing products. Microplace, a division of Ebay (NASDAQ: EBAY) has been offering interest-bearing microloan investment opportunities for some time, however they’ve just recently partnered with MicroCredit Enterprises to begin offering a 5% yield “Global Investment Note,” which benefits the working poor in more than 20 countries on four continents.
Jonathan C. Lewis, CEO of MicroCredit Enterprises, said in a company press release “investors realize that the greatest return in the world is the chance to lift someone out of poverty. Earning a fair financial return is just a bonus.” MicroCredit Enterprises is a private sector, anti-poverty program that leverages the private capital of high net worth individuals to provide small business loans to impoverished entrepreneurs in developing countries. This partnership with MicroPlace will make their investment opportunities available to investors who have as little as $20 to invest.
The term on these notes is 24 months (two years) and the fund focuses on women entrepreneurs, with women making up 89% of borrowers. The MicroCredit Enterprises portfolio reaches 505,000 poor worldwide. The global average interest rate charged to borrowers is about 31%. But this is much lower than predatory lenders and loan sharks who are often the only options for the working poor. Also, the repayment rates on microloans historically average 97%.
Like John F. Kennedy said, “A rising tide, raises all boats.” Most of our 401Ks and investments are sinking like Titanic. In the meantime, non-profit organizations are folding like card-houses, and Americans are cutting back their charitable contributions. Some may want to consider an alternative investment and charitable contribution combo (without the tax advantages of course). Why not consider raising some boats anyway?
Some things to remember with this kind of investment. While registered with the Securities Exchange Commission, it is not FDIC or SIPC-insured.
For more information about the 5% note, you can see the prospectus online here.
Here's some additional info from a Q&A session with MicroPlace:
How is Microplace able to offer such a high interest rate? what kind of interest rates are the Okicredit borrowers paying?
MicroCredit Enterprises is the security issuer of the 5% investment, which is called the Global Poverty Alleviation Note. MicroPlace does not determine the interest rate because MicroPlace is not the security issuer - MicroCredit Enterprises is.
The interest rates that borrowers pay is determined by the microfinance institutions (MFIs) in each country, so they vary depending on the institution and the borrowers. Oikocredit and other security issuers do not determine that rate.
The global average interest rate charged to borrowers is about 31%. But this is much lower than predatory lenders and loan sharks who are often the only options for the working poor. Also, the repayment rates on microloans historically average 97%.
Is Microplace at all afraid that the 5% note will cannabalize the other, lower-interest, investment opportunities?
Not at all. There is a very wide range of investment opportunities on MicroPlace, each offering different features, e.g.: interest rates, locations, issue-focused like women and fair trade, level of poverty, etc.
These are tough economic times, and many would be investors are looking for a little more liquidity in their assets. Would MicroPlace consider offering something like Pertuity Direct's mutal funds, only invested in microloans? This would give investors the security that they could get their money if they needed it, without waiting for a maturity date.
Funny you should ask! MicroPlace just started offering a liquid investment, which you can review here.
Are Okiocredit and MicroCredit Enterprises the same?
No, they are different security issuers. Here's how it works:
MicroPlace is the platform that allows investment transactions to take place, they are not actually the security issuers (where people purchase their investments). MicroPlace partners with issuers, like MicroCredit Enterprises, Okiocredit and Calvert Foundation who do the issuing. MicroPlace has partnered with them because they have decades of experience in the socially responsible investing space and deep roots across the globe in these communities.
Jessica Ward is a freelance writer based in Seattle. You can follow her musing on Twitter @jessc098.
Friday, February 20, 2009
First, SmartyPig is not a bank. It’s an “independent online transaction solution.” A fancy name for an automatic withdrawal system that works with your bank and an FDIC-insured Savings Bank. Their banking partner is the 115-year-old publicly traded West Bank (NASDAQ: WTBA).
Put simply, it’s an automatic savings solution. You can really “pay yourself first” and mean it. When you set up an account, it is for a specific savings goal, and a dollar value $2,000 for a flat screen TV or $8,000 for a honeymoon cruise for example. You’ll also have to say when you want to accomplish your savings goal. TV for Superbowl next year? SmartyPig will calculate how much to automatically withdraw from the account specified to make achieving your goal as painless as possible.
Additionally, SmartyPig has a major social media component. Once you log in you can share your savings goal with friends and family. This would be great for families saving for their new baby, or newlyweds saving for a house, or even your little one’s college savings accounts.
Grandma and Grandpa can easily make deposits to the Smarty Pig account via your Facebook page or blog.
SmartyPig offers high interest rates (right now at 3.25%) but with minimum balances of just $25. How so high? They say the overhead is low, and they so far they don’t need to run an advertising campaign, further suppressing costs.
Oh, and did I mention there’s more? Once you’ve met your savings goal, you cash out with a gift card, AHC deposit or check. But if you were saving up for a specific purchase, request your payment in the form gift card, and get a boost of up to 6% with one of their Best in Class Retailers. They have partnerships with Zales, Best Buy, Sandals Resort, Amazon.com and many other leading retailers. Talk about value!
Each SmartyPig customer can have as many savings goals as they want, and the SmartyPig service is free.
They don’t disclose how many accounts there are, but they do say that the average account goal is $8,500, four years in duration and that the most frequent goal is vacation savings.
SmartyPig launched in March of 2008 and is a privately held company. Just before Christmas of ‘08 they also launched in Australia and New Zeland with their partner Australia New Zealand Bank (ANZ).
In an email interview with Jon Gaskell, co-founder of SmartyPig, he told me that because of SmartyPig’s structure as a “transaction engine,” SmartyPig can be up and running in any country, any language and any currency in 60-90 days. Watch for growth from SmartyPig for sure. When I questioned about expanding to other savings accounts Gaskell responded “We want to continue trying to perfect the social side of saving all over the world.” Lookout world—SmartyPig is on the move! I can’t help but wonder if in pursuit of global savings domination if they’ll have to adjust their corporate image to enter some markets? I don’t see the SmartyPig brand being universally accepted in all cultures, but I’ll be watching their growth for sure. It should be very interesting.
I also pushed Gaskell on the issue of savings. How can you really “sell” savings in a country that culturally just isn’t used to it? Americans are charging literally Trillions of dollars every year on plastic. I questioned as to if this is Field of Dreams scenario where if they build it we will come, or if he foresees a savings trend. He notes that while American Savings rates have been in the negative for years, they are starting to swing into positive numbers. He notes that SmartyPig isn’t innovative other than bells and whistles. It’s simply implementing the age-old tradition of save first, buy later. Timeless and wise financial advice that transcends all cultures.
If you would like to know more about how my experience was in setting up my SmartyPig Account visit my blog at for my review from a customer's perspective.
Jessica Ward is a freelance writer based in Seattle and enjoys writing personal finance, corporate profiles and non-profit profiles. Disclosure: she also happens to be a very happy SmartyPig customer.
Tuesday, February 17, 2009
At a time when all the banks are leaving the mortgage market like rats from a sinking ship, Virgin Money USA is jumping in the water. Last year, the UK based Virgin Corporation acquired Lendia, a US mortgage originator and processor and is now offering wholesale mortgages to broker in the USA.
With sales slogans like “Kiss Me I’m Loan-y” and “Loan Brokers Do It Better,” it’s certainly the first mortgage wholesaler I’ve ever noticed. Further proof marketing works I guess, even Virgin’s shocking brand of marketing. Only Virgin can try to make a mortgage sexy.
That said, they shouldn’t need it at all. This is a company that on all levels is famed for customer service and for championing its customers. They’ve actually entered this market due to the lack of service-oriented wholesalers. Asheesh Adveri told the media in a company press release that “Virgin Money sees a growing service gap in the mortgage industry which we plan to close and own.”
They’re offering some innovative features including real time status updates, rate quotes, paperless underwriting, and the ability to import loan applications directly via the broker’s loan origination system—novel and efficient characteristics in this industry that is traditionally slow to innovate.
Virgin Money is already approved in 35 US states for both conventional and FHA loans and they expect to be fully licensed by the end of 2009. More than 150 mortgage brokers have joined their network. For more info see www.virginmoneyus.com.
Jessica Ward is a freelance writer based in Seattle who enjoys writing on business and finance topics as well as humanitarian topics.
Here is a look at their current stats:
|Total value of all loans made through Kiva:||$60,226,510|
|Number of Kiva Lenders:||446,097|
|Number of loans that have been funded through Kiva:||85,996|
|Percentage of Kiva loans which have been made to women entrepreneurs:||77.94%|
|Number of Kiva Field Partners (microfinance institutions Kiva partners with):||95|
|Number of countries Kiva Field Partners are located in:||44|
|Current repayment rate (all partners):||97.74%|
|Current default rate (all partners):||2.26%|
|Average loan size (This is the average amount loaned to an individual Kiva Entrepreneur. Some loans - group loans - are divided between a group of borrowers.):||$429.83|
|Average total amount loaned per Kiva Lender (includes reloaned funds):||$134.90|
|Average number of loans per Kiva Lender:||3.69|
Are you on Kiva? Join our Kiva team.
Capital: Free money almost always comes with strings attached. But if you really need capital, here are some ways to get cash, for a limited time or a small fee:
- Peer-to-peer (P2P) lending is a way to find private lenders who will lend money in exchange for equity or some other security. Prosper.com is one source.
- Microlending groups offer business loans at very low rates. These are not exactly free, but they come close.
Although the article does not mention it, Prosper is actually closed right now while they register with the SEC.
Microlending typically refers to very small loans. With Grameen America, for example, the average loan size is $2,000. These are generally targeted to poor entrepreneurs, typically women, who do not have access to traditional credit markets. The upper limit on loans through most peer to peer lending site like Lending Club is $25,000.
While I'm pleased to see NuWire mention peer to peer lending, the information presented is a little inaccurate.
Thursday, February 12, 2009
Fynanz, the first peer to peer site to focus on student loans, recently suspended accepting new borrowers and lenders due to "market conditions."
People Capital, developer of an innovative peer-to-peer student loan platform, announced today that it had secured a second financing round from Radcliff Group Inc., a New York based private equity firm. The funding will be used to enhance People Capital's Human Capital Score™, a model that provides a true measure of the creditworthiness of a student, and to develop its next-generation peer-to-peer (p2p) lending platform to provide improved access to private student loans.
Warren Serenbetz, Jr., CEO and President of Radcliff Group, stated that, "People Capital offers a truly unique approach to education financing, combining traditional and innovative approaches that produce an attractive yet safe lending scenario for students and the individuals and institutions that invest in their educations." "Our peer-to-peer lending platform brings a unique solution for students to finance their college educations. It leverages our cutting-edge research into developing a credit risk assessment methodology based upon students' potential, rather than merely their credit payment history," said People Capital Founder and CEO Thomas Shelton.
"Our unique Human Capital Score means that we can underwrite students without credit history by being able to project individual income levels and ability to pay. Traditional methods ignore a student's potential. Based on research coming out of The Wharton School Insurance Department, we incorporate merit data such as GPA, standardized test scores, college and major to provide a true and unbiased, data-driven measure of the economic value of an education. Our credit assessments will allow lenders to make credit risk decisions based on the true potential of the borrower."
Poised for funding the 2009 academic year, People Capital has formed a world-class team of professionals including veterans of the student lending, consumer finance, credit ratings and new media industries. A more detailed business plan is available to qualified investors and institutional partners.
Compared to other investments, Javelin reported:
"If an individual had invested $10,000 in June 2007, a typical (median) loan portfolio through Lending Club would have grown to $11,594 by November 2008. That return would have outpaced other common investments or indexes such as the Standard & Poor’s 500 Index and the tech‐stock heavy Nasdaq Composite Index, which suffered staggering losses that would have left the investor with $6,289 and $6,604, respectively. Meanwhile, the same investment in government‐insured 1‐year CDs and rock‐solid 6‐month Treasury bills would have grown to $10,678 and $10,501, respectively. (This comparison factors in Lending Club’s 1% service charge but does not include fees and other transaction costs for the other investments.)"
Read the whitepaper. Open a Lending Club account.
Tuesday, February 10, 2009
Following my review of Pertuity Direct and Tom’s announcement of the official launch, PLR was contacted by the PR team at Pertuity Direct for an interview, and I was fortunate enough to talk with their management team including CEO Kim Muhota and Charlie Schliebs who is an independent board member for the National Retail Fund, which holds Pertuity’s funds. Also on the call was Lisa Lough, SVP of marketing for Pertuity, Inc.
As we mentioned before, this team has experience and credentials to spare, but their energy for their business model is also extraordinarily contagious. My prediction is that the combination of this energy, the security of their mutual fund-style of social lending and the precipitous failing of traditional lending is going to serve Pertuity well in the near future.
We’ve recently covered them, so I’ll keep this post short and focus on the new items that I’ve learned and a brief futuring discussion that I had with Kim and Charlie who indulged my interest in their version of what the future of social banking may hold.
For Lenders: Pertuity Direct is “social lending interval fund,” where lenders buy into a risk-classed pool of borrowers. Two pools are available now via the National Retail Fund for, but others are planned for the future. An advantage to the mutual fund approach is liquidity in your assets. You don’t have to wait a 3 year loan term to get your money back. One disadvantage is slightly higher maintenance fees, right now at about 3.17%. (I’m not sure how this offsets with the default rates in traditional P2P loans, so if anyone has thoughts on this, I’d love to hear them). Pertuity Direct requires a minimum investment of $250 USD, and you’ll experience a small fee if you withdraw before one year in the fund.
For borrowers there are several advantages. First, you don’t have to spill your financial guts or upload a glamour shot to get funded. Nobody will take your spelling into account in funding your loan (I’m guilty of this with my Lending Club account). Borrowing on Pertuity Direct doesn’t feel like running for Prom Queen in high school. You will know what interest rate and terms you’ll be offered and you can take it or leave it. Your loan will be approved or not, and funded within three days, just like a bank. The process is simple, familiar and respectful of your privacy.
Muhota has had a long time to stew on this plan. He first formed his idea seven years ago and has followed the trends. Plans for launch went on hold as they decided how best to comply with SEC regulations to ensure a secure product and legal compliance on all sides, and they launched PertuityDirect.com on January 22, 2009.
When I asked Kim Muhota and Charlie Schliebs about the prospects for long-term social finance, their energy level became even higher. They agreed that many people are loosing faith in traditional banking, and expecting more from their money. When I asked what the near future may hold for Pertuity, Muhota explained that they’re looking into shorter and longer term products for borrowers. I pressed further and asked if that might include “social” mortgages and revolving lines like credit cards. He replied “absolutely” elaborating that consumers and lenders alike are going to be drawn increasingly to the low overhead, lack of what he called “legacy costs” and the growing uncertainty of traditional banking.
I’d have to agree. Why have your money buying some Bank MBA’s Bentley when you could have it working for you in a high yield, responsibly managed product that comes equipped with all of the institutional rigors of a traditional banking product?
Special thanks to Pertuity Direct’s team for spending some time with me this week.
Jessica Ward is a freelance writer based in the Seattle area.
Monday, February 9, 2009
I own a small notary signing service. I’m frequently called upon by out-of-state banks to be their witness to their clients signing loans or financial documents. Likewise, I witness signatures on powers of attorney, wills and other legal documents. In recent weeks, almost all of my work has been on loan modifications.
First things first: What is a loan modification? A loan modification is an agreement between lender and borrower to adjust the terms of a mortgage. This is generally only done on primary residences for borrowers who are considered to be at risk of foreclosure. A loan modification is not a refinance. It is a not a new loan—it is modified terms to the original loan—generally at a loss to the lender. The lender’s two opportunities are to cut you a deal, or to take the house and risk the already flooded market with the home.
Second: Who provides loan modification services? Practically anyone. This is the latest craze in the financial and real estate world, and a service called “loan modification assistance” is being provided by practically any kind of real estate or financial organization for a fee. However, in the purest and truest form of the matter, a loan modification is only performed between the borrower and lender.
Loan modifications can be performed by individuals, working direct with their lenders or a non profit debt relief agency or a government lending or housing agency (such as HUD, Fannie May or Freddy Mac or Indy Mac).
Several major mortgage providers including CitiGroup, JP Morgan Chase, Countrywide, Nationwide and Bank of America have launched “homeowner retention” programs on their Web sites.
Attorneys and firms calling themselves “legal services” or “real estate services” (which in my experience are sometimes neither) may offer to do this service for a fee ranging from $100 to $5000, and often the fee is collected up-front without a guarantee of services to be provided. Their only guarantee is that they will contact the lender on behalf of the borrower, and they will not guarantee the result.
Whether you choose to pursue a mortgage loan modification yourself, or use a fee-based service, you should know in advance that there are likely to be some requirements:
- You must be in arrears and unable to pay your debt but showing good faith effort to do so.
- You must be able to demonstrate a hardship. Owning a home in excess of your ability to pay isn’t a hardship. Sudden disability or loss of employment or a serious illness is a hardship.
- You’re going to have to show that you will be able to meet the financial obligation in the future.
- You’re going to have to show your cards. And your budget, the good the bad and the ugly. They’ll want to see your bank statements too. If you bought Superbowl tickets or just took a cruise—you don’t have a hardship—you’ve got a bad case of confused financial priorities.
If you feel like you need to use professionals, you should contact your state attorney general’s office to see if the provider you would like to use is licensed in your state or if any complaints have been made against them. Likewise, check with the Better Business Bureau at www.bbb.org. Licensing rules for these modification companies ranges wildly from state to state, so the Attorney General’s office will be able to tell you if there are actions pending on the issue and or what agency in your state regulates this practice.
Several states, including Washington and California have issued warnings about fraudulent practices in the loan modification business. The Federal Trade Commission has published a warning about foreclosure rescue scams. As with any other service, be a smart consumer and know your provider.
Yunus calls the current economic crisis "good" and "exciting" because it gives us an opportunity to create a "new normalcy." He says we should redesign the whole financial system so it is inclusive for all people. We should also create new types of business to change the world - social businesses. Through this, he believes, we can create a world without poverty, hunger and disease.
Saturday, February 7, 2009
In less than an hour I was able to link with my sixteen cash, investment and loan accounts to Mint. In just a couple of hours I had classified my previous 90 days of transactions into spending and budget categories.
After that initial investment of time, Mint.com has proved again and again to be well worth the effort. I spend about ten minutes a week classifying the receipts when I put them in the checkbook ledger, and I’ve been able to stick with it.
Once all of my spending was coded into categories, I was able to set up a budget. I could even compare to similar mint.com users (anonymously) with others in my geographic area. Now when I approach my budget cap I receive a (optional) text message to my mobile phone and an email warning.
Three months later, I’ve twice slashed my food budget in half without making a conscious effort to do so. Just knowing what we’re spending helps control costs. Thinking of ordering desert? If you’re an iPhone user, you can take a look at your ‘dining out’ budget on the spot and see if you’re in a place for that splurge.
Mint also continues to get better all the time. Thanks Mint, for adding asset trackers this past week. For those of us whose assets are tied up in real estate equity, cars or concert posters, it’s nice to open Mint.com and see a positive number at the bottom of the sidebar under “net worth.”
Mint.com also offers a feature for those of us that may need to reevaluate our financial choices. The free software is free for a reason. There’s some sponsorship to Mint.com. It’s nicely confined to an extra tab and not forced on you via popups or offensive emails. It looks at your spending and savings habits and suggests products that may be a better fit. Some of these I’m even considering switching to.
Mint's interface is so easy to understand and easy to read that yesterday, when my fourth grader came home and said she'd learned about "good and bad kinds of interest" in math class we opened up Mint for clearer examples of interest at work for and against our family's budget.
If Mint.com is reading, I do have a few suggestions for improvement. However they are so minor that I hesitate to mention here for fear anyone may be discouraged from trying Mint.com for themselves.
In the “spend space” I would like to see an “all spending” category added. I want to see historically how I’ve reduced my spending month-to-month since joining Mint. I know I have, but the charts are psychologically rewarding.
I’d love to see an application that downloaded the value of the stack of savings bonds I have stashed in a safe deposit box. I know that the treasury offers an app online to valuate class EE bonds with the serial numbers. It would be great to be able to store my bond info there too. But don’t bother if I’m the only person who still has bonds.
Who wouldn't love to see an online bill paying option come to Mint one day? I go to mint to see when my credit card bill is due and how much I should pay towards it. It would be really nice to pay it from there.
I recommend Mint.com without reservation, especially for those like me who’ve struggled with maintaining their household budget or tracking their spending. We all know we should—-but it’s easier said than done. Give it a shot—you have nothing to loose. I’m feeling Minty. Are you?
Note: Mint isn't the only player in this business. Wesabe is similar. My review of Wesabe will be on its way to Prosper Lending Review shortly.
Jessica Ward is a freelance writer based in the Seattle area.
Thursday, February 5, 2009
Yunus spoke for about 30 minutes then took questions from the audience. The event was hosted by the university and Hooks Books. Yunus' newest book, Creating a World Without Poverty: Social Business and the Future of Capitalism, was just republished in paperback with new material and he stayed to sign copies.
The following are my notes from his speech and the question and answer period which followed. It is not an exact transcript. I paraphrased some and couldn't hear everything, but this should give you a pretty good idea of the tone and content of his message.
I didn’t think there would be such a big audience here.
I thought everyone in this town was busy doing the bailout package. (laughter)
They wouldn’t have time to come here.
I had a good day today. I spent the whole day today here starting out with a meeting with Fed Chairman Bernake. I did that to update him about the work we have been doing in this country.
This is my second visit with him. I met him in October 2007 and at that time I was trying to explain the importance of microcredit to him in the USA. He knew all about microcredit. I thought we should start a microcredit program in this country – a prototype which could be expanded later. And he gave all his support. Go right ahead. Any support you need from us we will give it to you. We talked about creating a legal home so that we can use that legal home to create an organization. It is important that we have the legal ability to take deposits. If we can take deposits then it becomes easy to raise money.
We created a program in Queens last January. [see Jessica's recent report about Grameen America] At the inauguration of the program there were lots of journalists. One journalist asked why we chose New York City instead of the villages like in Bangladesh. My answer was we deliberately choose New York City because it is the capital of world banking. New York City does not, however, bank with its neighbors. The people that live there do not have access to financial services. It is important to have a small example to break fear. We follow the same principles – five women forming a group, weekly meetings. The average loan size is $2200. Repayment is 99.3%. This provides an interesting contrast. The women in New York take loans, without collateral, without any lawyers and they pay back every week. For one year they have been doing it.
Then the big banks. (laughter)
I remember my first encounter in 1976 with the bank manager. He kept trying to convince me the bank couldn’t loan money to the poor because they were not credit worthy. Now I think it is a good time to ask the question – who is credit worthy? (applause)
And then I went to IMF [after visiting with Ben Bernake today]. I also recently went to [the World Economic Forum] at Davos…I took the same message to IMF. The deep [economic] crisis is also exciting. It is an exciting opportunity to create a new normalcy. When we get out of this crisis what kind of normalcy will we have – the old normalcy or something new? Please make sure, today, right now, that we create a new normalcy. People wonder what this new normalcy will be. The financial system will be built in such a way that in this country there will be no payday loans. (applause) People can go to the bank and borrow money without paying 500%, 700%, 1000% interest. It is such a disgrace to see payday loans all over the cities in the United States. What a gaping hole the banking system has left behind.
The new normalcy will be that everyone in this country will have the right to open a bank account. There are millions of people without a banking account. To get a check cashed you have to go to a checking company which takes a large percentage of the check…nobody should be denied service.
There will no longer be a financial apartheid where people are denied service. You cannot say anymore that it cannot be done. Why not create a financial system that works for everyone?
We deliberately created a system that is focused on the beggars. [More on the Grameen beggar program.] We have 100,000 beggars in the program. It is not complicated. All we do is go to the beggars, talk to them, and see how they make their livelihood. We suggest to them –as you go from house to house will you carry some merchandise with you? Some food, candy or toys for the kids. Give people options – let them buy from you. We make it sound very easy – you are going there anyway. They immediately see the point. And we started giving money to them. We started four years ago. In those 4 years more than 11,000 have stopped begging. (applause) They are now successful door-to-door salesman. Some are personal shoppers…the other 90,000 are part-time beggars mixing begging and sales. They are very smart. When you talk to them they explain which houses are good for selling and which are good for begging. They never went to business school but they understand market segmentation. (laughter and applause)
Everyone has an ability. It doesn’t matter if you are a beggar or a big businessman – everyone has an ability. The one who starts at the bottom struggles and cannot move up. Some do not even know they have ability. Everyone carries such wonderful gifts inside of them – gift of creativity, gift of innovation, gift of entrepreneurship…
I talk about this when I see the differences in the families of Grameen members. We give them loans to continue with higher education. We have students in medical and engineering schools. Students whose parents never went to school…
Who creates poverty? The poor do not create poverty. Poverty is created by the system. The system we designed. The system we work with. That’s what creates poverty. It is not nature. It is the exact opposite. It is artificial. People have unlimited potential but we don’t go that way. All these policies and concepts that we promote [create poverty].
Why should financial institutions make up their mind they cannot do business with you? It doesn’t make sense. Let us now decide who is creditworthy.
One concept I try to explain in the book is the concept of business. One interpretation of business is profit maximization. We interpret human beings in such a narrow way, as if human beings are money making robots. Human beings are so much more than that. There is selfishness in us but we also have selflessness.
…Why cannot we create another kind of business? A social business. A business where our goal is to change the world, not to make money. If we give money to charity the money goes and never comes back. With a social business the money recycles and with each iteration produces more benefit at every turn.
We have created several social businesses. We created a plan to create yogurt – a social business. We put the nutrients children need in the yogurt and make it very cheap so everyone can buy it. Experts say if a child eats two cups of yogurt each week for 8-9 months a malnourished child will become a healthy child. In a profit making yogurt company, the CEO would ask how much money we made this year and how we can make more money next year. In a social business the CEO will ask how many children got out of malnutrition this year and how many more children can get out of malnutrition next year.
Another social business [we created is] a water company. Bangladesh has a serious water problem. Almost half the water is poison. We created a company to create safe bottled water. It costs one penny for four liters so everyone can afford it and everyone has safe water. The social objective is to bring safe water to the people.
We recently had a discussion with a major shoe company about how to create a social business. You create a motto. And you believe in it. That motto is that nobody in the world should go without shoes. And make it happen. Yes, you can make shoes for the poorest at a low price. Keep the cost under a dollar with your brand name. That would send a big message. And continue to go down [in price] and never come up again. And make it a green shoe so that no material in the shoe will make any kind of pollution problem.
And another company [that came to us] is a car company. They want to do a social business. We gave them a challenge – why don’t you make a very cheap car. And not only that – base it on a green engine. It will be a multi-purpose engine. You can take it off and use it for irrigation or to generate electricity or to use for a boat. They are working with designers and engineers to see if they can do that.
Health is a big problem – not only in this country but in every country. The bottom half do not have access to health care – private or public. Medical science can be applied to help people have good health. A health care social business could be created to give everyone access to health care.
So, if you change your concepts there is no reason people should be poor. If we block that road it cannot come. Then, no poor.
Poverty does not belong in human society. Poverty belongs in a museum. And that is where we should put it and it will stay there. (applause)
Is it harder to implement microcredit in the United States than in Bangladesh?
It is harder in the United States due to the legal structure. Welfare laws require the poor to report each dollar they earn so it can be deducted from their check. It does not make sense. If you make a dollar the government should match you with a dollar.
How do you approach poor women who are reluctant to become involved in microcredit because they do not believe they have the skills or potential to become entrepreneurs?
The real trick is to create an example. You cannot change their mind right away. If you can create one example to break the fear then the others see that. Then everyone becomes curious – how did she do it? I can do better than her.
What advice would you give to a group of George Washington students here who are trying to create a social business?
Young people like you can start a business. If you cannot start one, then design one. Look at the problems and decide which one you want to solve. For example, set a goal to bring 100 people out of welfare. And design a solution to the problem. At first it may seem impossible but you can do it. Microcredit seemed impossible but now it looks easy. If you can get 100 people out of poverty then you can get millions out of poverty by planting that seed.
What abuses do you see in the microfinance system?
You can say microfinance and not do microfinance. Some require collateral. Some due not target the poor. Some microfinance organizations charge exorbitant interest rates – rates similar to loan sharks. Loans should be for income generating activity. Some give loans for consumer goods such as refrigerators and televisions. This is not microfinance.
In your book you propose a rating system to determine which ones help the poor and which ones don’t. In the year since you wrote the book has anyone come up with such a system? [note: this is my question]
Oh yes. A big organization is coming up with that very system. It will tell you exactly what interest rate is charged, conditional fees and so on. Yes, we will start seeing the results of that from this organization.
What is the best way right now to determine the best organizations to contribute money? [my follow-up question]
One way would be to contact that organization to choose which one you want and they will give you the results and then you decide which ones you want to give your money to.
I run a microfinance organization here in DC. It seems the lack of transparency is one of the biggest challenges in our financial industry and particularity in microfinance. I understand Grameen has a very high repayment rate. How does Grameen calculate repayment rate?
If you do not pay back your loan in the period in which it is due then you are overdue. This is all explained on our website. The definition which we use to define overdue is explained there.
What are the edges between commerce and the ecosystem?
We need to figure out how much of our resources are for our generation and how much is for future generations. We need to spread our resources over as many generations as possible.
The real objective is to make the world safer than we found it. And the next generation will make it safer.
Grameen Dannon is a small company. The total investment is less than $500,000. We designed it as a social business. When we started I asked what kind of container we would be using. They showed me. It was plastic. I told them we did not want plastic in a social business. They were surprised. They told me they use plastic all over the world. I told them we want a biodegradable material. They said they did not have a biodegradable material. I told them they better find it. (laughter and applause)
So, about three months later they came back. They were very happy they found a biodegradable material to use in the cups. I asked what it was. They said it was cornstarch and they found it in China. It looks beautiful. I asked if I could eat it. They said why would you want to eat it? I said because poor people are spending money on it. They don’t want to waste money. Why can’t you make edible cups? And put nutrition in it? People will eat the yogurt and then eat the cup. And they could not figure out how that could be. I told them when I get ice cream I get an ice cream cone. I eat the cone. They said this is not ice cream. I told them the scientists need to work on it. They told me it will take a year. I told them they have six months. So, they are working on it.
You have to raise the question. The scientists in Paris are very happy to have the challenge.
Additional coverage: The GW Hatchet
Wednesday, February 4, 2009
Here is an excerpt from the book where he describes the problem:
Microcredit is supposed to describe loans offered with no collateral to support income-generating businesses aimed at lifting the poor out of poverty. Yet today there are many organizations that call themselves “microcredit” programs that offer loans to people who are not poor, that require collateral, and that are used primarily for consumption rather than income generation. There are even “microcredit” programs that are generating enormous profits for investors by charging interest rates as high as 100 percent or even higher!
Under the circumstances, we really don’t know what we are talking about when we talk about microcredit. I think it is time we classify microcredit programs according to clear, consistent categories. Here are the categories I would propose:
Type 1: Poverty-Focused Microcredit Programs
These are poverty-focused, collateral-free, low-interest microcredit programs. Grameen Bank was created to provide this type of microcredit. Type 1 programs charge interest rates that fit into one of two zones: the Green Zone, which equals the cost of funds at the market rate plus up to 10 percent, and the Yellow Zone, which equals the cost of funds at the market rate plus 10 to 15 percent.
Type 2: Profit-Maximizing Microcredit Programs
These are programs that charge an interest rate higher than the Yellow Zone. They operate in the Red Zone, which is moneylenders’ territory. Because of the high interest they charge, these programs cannot be viewed as poverty-focused but rather are commercial enterprises whose main objective appears to be earning large profits for shareholders or other investors.
This classification may be adjusted for special situations, such as when high salary costs make operating expenses unusually heavy. And these principles will not apply where the microcredit organization is owned by the borrowers.
However, I think the secretariat for the Microcredit Summit Campaign, which maintains the database of all microcredit programs, should classify programs according to a system like the one I propose. What’s more, I believe that the Microcredit Summit Campaign should include only Type 1 programs, since only these contribute to the campaign’s goal of using microcredit to help eliminate global poverty.
Yunus' book was published more than one year ago. I have not been able to find a rating system such as the one proposed for microcredit organizations. If the Microcredit Summit Campaign has made such information available, I cannot find it. Another organization, mftransparency.org, claims to be the "venue for the Microfinance industry to publicly demonstrate its commitment to pricing transparency, integrity and poverty alleviation." They launched in the summer of 2008 but it does not appear they have any publicly available data.
Does anyone know if the rating information requested by Muhammed Yunus is available on the web in a transparent manner yet? If I get the chance, I'll ask him tonight when he speaks at George Washington University.
We’re brimming over with excitement here at Kiva Headquarters because today we get to introduce you to the Kiva API. We’ve been working hard over the past 4 months, crafting this interface so that anyone with a bit of software savvy can help us create new applications, tools, and features for the Kiva lending community. All you need to get started is a bit of instruction – the Kiva API is completely open and no developer registration is required to use it.
The Kiva API begins as a set of RESTful web services, focused primarily on the tasks of fetching public data from Kiva. For example, here’s are some of the things you can request through the API:
- all of the loans at Kiva currently raising funds
- all of the entrepreneurs from Uganda and Peru which have fully repaid their loans
- the latest lending activity on Kiva
- financial nitty-gritty for any of our loans
- the list of loans made by any one of Kiva’s lenders with a public lender page
All of this data is delivered with well-formed computer-friendly markup (e.g. JSON or XML) making it easy to integrate into applications. And, this list is just a start. Keep up with us here at build.kiva.org as we post news about new API methods and tools for development. Eventually, we intend to make it possible to recreate the entire lending experience on top of the API!
So what will you build? If you’re at a loss for ideas we’ve started a running list of many of the great ideas we’ve heard about so far. Here are a few:
- an application for iPhone or Blackberry that let’s you keep up with Kiva on the go
- a service where lenders can register for alerts on new entrepreneurs they want to fund
- integration into a social network where friends can engage around each others’ activity and loan updates on Kiva
- a map that simulates the realtime transfer of funds across the globe
Prosper has an API that developers have used to create a variety of applications.
More than 100 Million of World’s Poorest Benefit from Microcredit (Microcredit Summit Campaign) - "More than 106 million of the world’s poorest families received a microloan in 2007, surpassing a goal set ten years earlier, according to a report released today by the Microcredit Summit Campaign. Microloans are used to help people living in extreme poverty start or expand a range of tiny businesses such as husking rice, selling tortillas, and delivering cell phone services to remote villages. 'This is a tremendous achievement that many people thought was far too difficult to reach,' said Nobel Peace Prize laureate and Grameen Bank founder Muhammad Yunus who was present for the announcement. 'What makes it even more remarkable is that loans to more than 100 million very poor families now touch the lives of more than half a billion family members around the world. That is half of the world’s poorest people.'”
Dr. Yunus' lone voice at Davos reverberates (The Daily Star, Bangladesh) -"His remarks, made against the backdrop of the on-going global recession, drive the point home that for all the bailouts that governments have been planning for global corporate business not much can be expected if the plight of the poor is ignored."
Philanthrocapitalism: Yes We Can (Huffington Post) - "What cause, what movement brings together Tony Blair and Jet Li, Bill Clinton and Bill Gates, Muhammad Yunus and Sir Richard Branson? In a word (albeit a hard-to-pronounce word), it is philanthrocapitalism....philanthrocapitalism is about doing well by doing good. Both Yunus and Branson enthused about how businesses should embrace social causes as a profit-making strategy, because the money earned by harnessing the profit motive can help achieve change faster, and more sustainably than old-fashioned charity alone."
The rich can save the world: we should let them (Times Online) - "Social entrepreneurs such as Dr Yunus tend to find that their bright ideas get nowhere inside state bureaucracies, whereas they can flourish with the support of business and philanthropy."
Microlending: Macro solution? (Cincinnati.com) - "...investment remains healthy in at least one area, a place where you might least expect it - microcredit banks making small, short-term loans to very poor people to help them start small, money-making enterprises and lift themselves out of poverty. It also might be a part of the solution for middle-class America. ...in a conference call Monday with journalists, Yunus and other officials of the Microcredit Summit Campaign announced that they have reached 106 million poor families worldwide. About 97 percent of loans have been to women."
Grameen Bank: Giving Credit Where Credit Is Due (CNBC) - "The problem with capitalism, Yunus tells Fast Money, is its distinction between companies pursuing profit and charities pursuing good. His bank model operates with corporate efficiency, but pumps profits back into social objectives."
World Economic Forum concludes on a sombre note (SwissInfo) - "'It's not just disappointment and frustrations,' said Nobel Peace Prize winner Muhammad Yunus said of the meeting's atmosphere. 'This is the greatest moment we have because things need to be changed, it's as simple as that. We don't want to go back to the same normalcy that we're coming from. We will create a new normalcy which will stay and keep on moving and change the world.'"
Monday, February 2, 2009
Hooks Book Events presents Dr. Muhammad Yunus
2006 Nobel Peace Prize Winner
The winner of the Nobel Peace Prize outlines his vision for a new business model that combines the power of free markets with the quest for a more humane world—and tells the inspiring stories of companies that are doing this work today.
In the last two decades, free markets have swept the globe, bringing with them enormous potential for positive change. But traditional capitalism cannot solve problems like inequality and poverty, because it is hampered by a narrow view of human nature in which people are one-dimensional beings concerned only with profit.
In fact, human beings have many other drives and passions, including the spiritual, the social, and the altruistic. Welcome to the world of social business, where the creative vision of the entrepreneur is applied to today's most serious problems: feeding the poor, housing the homeless, healing the sick, and protecting the planet.
Creating a World Without Poverty tells the stories of some of the earliest examples of social businesses, including Yunus's own Grameen Bank. It reveals the next phase in a hopeful economic and social revolution that is already under way—and in the worldwide effort to eliminate poverty by unleashing the productive energy of every human being.
Muhammad Yunus, a native of Bangladesh, was educated at Dhaka University and was awarded a Fulbright scholarship to study economics at Vanderbilt University. In 1972 he became head of the economics department at Chittagong University. He is the founder and managing director of Grameen Bank, a pioneer of microcredit, an economic movement that has helped lift millions of families around the world out of poverty. Yunus and Grameen Bank are winners of the 2006 Nobel Peace Prize.
Update: Transcipt of speech