So it was with some consternation and perplexity that I read this headline.

Grameen defies order to dismiss Yunus

The bank founded by Muhammad Yunus, the Nobel Prize winning microfinance pioneer, has defied an order by Bangladesh’s financial regulator to remove him from office.  Setting the stage for a battle for control of the lender, Grameen Bank said Mr Yunus, 70, remained at the helm after Bangladesh Bank, the central bank that regulates the financial sector, said he had been “relieved of his responsibilities as managing director”.

It turns out there is some dispute between the Bangladeshi government and Grameen.

The roots of the antipathy between the two date back to the aftermath of a 2007 military coup, when Mr Yunus, basking in the glory of his 2006 Nobel Peace Prize, expressed contempt for politicians and proposed setting up his own political party to clean up his native country’s notoriously corrupt public life.

So even though he has stayed true to his vision and has something like 8 million customers that he has helped many severely poor people in Bangladesh, clearly he has not been greasing the right palms.  This could become a big story as time goes by.  The Bangladesh government is following the same kind of approach that we expect from Russia when they conjure up contexts to get rid of people.

Banks have generally sufferred a great loss of trust and respect following the credit and banking crisis that centres on financial products and activities that feel to people as they are all for the benefits of banks and little for the benefit of people.

This is part of a larger thread that predates the crisis and really became highlighted following the advent of internet and the ready availability of information on almost anything.  Edelman have been keen followers of this thread by publishing the annual report on trust – Edelman Trust Barometer.  The trend was generally negative for western business in advanced economies. 

Business response over the last few years has been to focus on ‘social responsibility’ and to devote a section of the annual report to highlight those efforts.   Edelman confirms that has failed.

This is where Umair’s book comes in.  The theme of the The New Capitalist Manifesto can be summarised this way:

• companies have been focussed on a very narrow definition of profit and value creation.
• this narrow focus understates real costs, and maximises short term profits – he defines this as ‘thin value’
• the costs that are understated include costs associated with current society, future generations, and environmental impact
• he proposes a framework for aligning corporations with activities and thinking that builds a broader definition of value into everything they do – he calls this thick value.

Examples are needed to bring these concepts to life.  He notes that none of his examples are anywhere near perfect but that the positive examples are at least trying and there is evidence that they are trying to rebuild their business around a different set of principles that are focussed on thick value.  In simple terms thick value is more likely to have happier and more satisfied customers because the corporation is reflecting their beliefs and values.

A selection of examples from the book:

Insurgents (good)                                    Incumbents (bad)

Google                                                                  Yahoo

Apple                                                                    Sony

Lego                                                                      Mattel

Starbucks                                                              McDonalds

Grameen                                                               Vodaphone, HSBC

Nike                                                                      Adidas

The first thing that struck me is that many of those on the insurgent category were companies that had been crucified before for anti-societal or environmental activities.  The other and more important point is that the insurgents are all doing better on the stock exchange relative to the incumbents. 

This goes to the core of Haque’s book;  that thick value is genuine value for all both financially and otherwise. 

The other thing that rang true for me is that incumbent thin value companies are more focussed on marketing campaigns to highlight their value in the world.  Whereas the insurgent approach has little to do with manufacturing fake value in a campaign.  Those on the right are more likely to be seen in Super Bowl or similar ads.  Insurgents are more likely to have created entire new industries or completely redefined an industry.

I will quote one paragraph from the final chapter entitled ‘Constructive Capitalism’.

Most businesses still conceive of superiority as being better than a cohort of immediate familiar competitors.  But thick value says that just being better than the next guy, the next ten guys … isn’t good enough for competitive superiority in the twenty first century.  Constructive capitalists aren’t merely seeking to be better than rivals in yesterday’s terms.  They are fundamentally redefining what success means to encompass the well being of people, communities, society, and future generations; to return what you might call profit “plus”; profit plus social, environmental, human, and as yet unknown – unexplored kinds of – returns.

It is a thought provoking and worthwhile read.  Every bank needs to be thinking how they can redefine the industry.

That simple equation spells trouble for Banks.  How long will banks’ watch the likes of PayPal (with Bill Me Later) and Grameen (bankabillion with Obopay) taking away fundamental parts of banking.  The former being small loans (think credit cards), and the latter being payments. 

The PayPal acquisition just makes so much sense.  They are shifting from a pure auction model to that of a buy now model.  As part of that buy now, Bill Me Later will finance the purchase.  The dollar value is forecast $1Bn in 2008.  Further commentary here at Netbanker.

According to today’s investors presentation the company will do more than $1 billion in transaction volume in 2008 and serves 4 million customers (see note 2).

I was initially surprised at the price ($945 million), but given that eBay is projecting $150 million in revenues and $50 million in profits, it makes some sense, especially if CIT is taking most/all of the credit risk. Hoped for synergies with PayPal, which already operates a similar program, is the stated upside for the deal.

Relevance to Bankwatch:

How long will banks’ stand by and watch their basic business model be chipped away by newcomers?  During this period of relative panic, is the ideal time to consider relatively small acquisitions with large forward potential.  They would also serve to mitigate against being disrupted, because that is happening anyway. 

Note the inclusion of payments as the focus.

Payments News: Obopay, Grameen Solutions for Mobile Banking, Payments – August 06, 2008

the Grameen-Obopay Bank A Billion Initiative will provide access to affordable financial services, including cross-border remittances, money transfer, payments, savings and credit accounts. By empowering life and work endeavors with mobile technology that is ubiquitous even in the most impoverished and remote corners of the world, Grameen-Obopay are bringing the full power of banking to those who need it most.

bankabillion.org

By 2018 the world’s poor will benefit
fully from mobile banking services because everyone with a mobile phone
will have access to affordable financial services that empower their
life and work. This includes access to

• Savings
• Money Transfer
• Payments
• Micro-Credit

Obopay have been featured on netbanker, and Grameen are well known as the micro-credit Bank featuring prominently in Bangladesh, and having reached billion dollar status. The founder, Mohamed Yunus is a Nobel Prize winner. I have covered here.

I recall something about Grameen extending internationally, however this announcement is now one to watch. Interesting to see this announcement just as we see CitiBank pull in its international plans.

The one thing this piece tells me is that social lending is becoming confused with Microcredit, so before I continue, here is my definition:

1. Social Lending:  an internet business that beings lenders and borrowers together eliminating the requirement for banks.  Borrowers are generally within three categories, (as nicely defined by James in a comment earlier) and mostly 1) & 2):

1. Borrowers who can’t get a loan from a bank for whatever reason, but are willing to pay a higher rate to get a loan from social lenders (probably less than the loansharks!)

2. Borrowers who, for whatever reason, are disenfranchised from banks, and want to strike back by buying products that don’t involve them.

3. Experienced borrowers, especially internet-savvy ones – who have good market information and are able to spot a good deal when they see one.

Back to the post.  Microcredit is highly commendable, and there are sincere lessons there that can be used in development of Social Lending, such as the power or peer pressure and groups.  But my interest in this blog lies with 1) Social Lending.

The McKinsey example is focussed on Microcredit, using the above definitions, and does highlight the very real risks, as well as some solutions.

Unfortunately, this happy dynamic is more the exception than the rule. Low-income consumers just can’t afford many products and services. A shaky infrastructure raises the costs of distribution. Incomplete information makes extending credit difficult, and collecting what’s owed poses enormous challenges. Some low-income consumers feel entitled to connect into water mains or electricity lines illegally. Low-income environments are also more susceptible to insurgent activities that raise security and infrastructure costs.

Source: The McKinsey Quarterly: The Online Journal of McKinsey & Co.

They highlight three models:

1. Collective accountability:  social insurance, where the sub groups are responsible for the larger group
2. Scalable, embedded distribution:  small groups that exert peer pressure to ensure accountability, and take on part of the loan delivery and associated processes (example of water meters required to monitor in one example)
3. Livelihood partnership:  groups and the lender work together on non-credit matters to enhance to overall value of the brand for both

Overall, the examples provided have some interesting lessons that can be levered with social lending applications, such as Zopa/ Prosper and others.

There are some real learning’s here that can be applied in the social lending arena. Grameen Bank has made $ 3.4 billion dollars in loans to 2.4 million people. Yes … that’s an average loan size of $1,400. This is an extraordinary figure, that normal banks would sneer at, as being unprofitable, and impossible to process at a profit. Well you would not be far off. But Grameen has always at least broken even, and in 2005 reached ROE of 13%. Not to bad, and a Nobel Peace prize along the way for good measure.

Back to the book, and some of Grameen’s concepts and the fascination is how these concepts are designed to eliminate costly bank processes. This is the epitome of customer centric, and customer advocacy.

Here are some of the concepts:

• clear vision of higher purpose – laser like focus on the obective and ensure alignment with the higher purpose
• people want to succeed;
• credit is a fundamental human right
• there is an economic equation with microlending that flies below the radar of traditional economic theory
• collateral is required as a motivation to repay loans
• survival (as in staying alive, and supporting family) is a strong motivation to repay
• self managed ‘groups’ of like minded people provide a viral motivation to pay; peer pressure is a powerful force, not wanting to let the group down
• ‘Like’ groups work together in larger federations,
• Federated groups meet regularly with the bank for review purposes
• payment terms should be aligned with the borrowers motivation. Grameen has daily loan payments where appropriate
• the bank cares about the customers
• the mindset, and position of the customers is paramount; the loans and the lending processes are 100% designed around customers – thats not 95%, but 100%
• modern financial planning techniques, such as putting away money for a rainy day, have well understood metaphors with customers, such as in the Grameen situation, the Bengali customer of mushti chal (putting away a handful of rice a day, to build up a stockpile)
• the bank and bankers must take a proactive helpful approach to the communities they serve, including social, business and palnning assistance

Its a fascinating study, and impossible not to take something away from it. I have not touched on the applicability to other countries and the new challenges Grameen faces. I recommend buying the book.

Technorati tags: social+lending customer+advocacy

It all began when in 1976, he lent $27 from his own pocket to 42 stool makers in a poor village.  The results were astounding, and for a small amount (to him) it was an enormous leg up (pardon the pun) to them. 

Thanks to Ryan for the tip on the book, Banker to the Poor, that tells the story.

Yunus’s theories work. Grameen Bank has provided 3.8 billion dollars to 2.4 million families in rural Bangladesh. Today, more than 250 institutions in nearly 100 countries operate micro-credit programs based on the Grameen methodology, placing Grameen at the forefront of a burgeoning world movement toward eradicating poverty through micro-lending.

Source: Banker to the Poor: Micro-Lending and the Battle Against World Poverty

There are millions of households who are considered “unbanked”, a metaphor that in plain English means the group that don’t trust banks, never knew western style banks, don’t trust them, or western banks just don’t deal with their needs.  A simple reality is that banks don’t look seriously at loans less that $5,000 …. and they won’t look at any loan if there is no established quality credit history, including credit cards, paid on time.  So the vicious cycle begins.

Well, Yunus’s vision in Bangladesh helped to break that model.

Customer World: Only for women Bank

Austria’s first bank for women was recently opened by Raiffeisen in the ski resort town of Gastein. The concept was developed in association with Emotion Banking, which conducted extensive studies about women and finances, and how they interact with banks.

Emotion Banking came to the conclusion that women approach finances differently than men do, and that a dedicated bank for women would better serve Raiffeisen’s female customers. The current set-up includes an inviting lounge-like interior, that includes a play area to keep children occupied. Female employees assist customers, taking extra time to explain products thoroughly, and to build a strong relationship with their customers.

The original post over at Sprinwise, points out that the concept isn’t entirely new, although I would argue, a bank dedicated to women is.  The market is big.

The concept might be a first in Austria, but isn’t altogether new on an international scale. From Citigroup’s Women & Co, which we covered a few years ago, to the Royal Bank of Canada,
many financial institutions are recognizing that women often have their
own needs and goals when it comes to money and finances. And this
segemented market is continuously evolving; according to a recent
report by research firm Aite Group,
“Highly-educated women leaving the U.S. workforce to raise children are
creating a new, highly lucrative consumer segment for financial firms.”
The market, which the group dubbed ‘Ivy League Moms’, is sized at
roughly USD 10 million U.S. households with investable assets of USD
6.5 trillion.

And interestingly, the concept grew out of islamic banking.

Leading the way are banks for women in Islamic countries. Microcredit providers like Grameen Bank have long placed special emphasis on providing loans to women. In Pakistan, First Women Bank
was founded in 1989 and strives for the economic empowerment of women.
Saudi Arabian women, although not allowed to vote or drive, have the
right to control their own finances, and Saudi banks have been devoting
extensive resources to ‘ladies banking’ over the past few years, with
separate entrances, distinct product offerings and a staff consisting
entirely of women.

Relevance to Bankwatch:
There are many new ideas and approaches to banking, depsite the relative conservatism of banks, and unwillingnesss to try something new.

Technorati Tags: islamic+banking, women+banking, banking+strategy

Technorati Tags: islamic+banking, women+banking, banking+strategy