December 31, 2009

A Time to Reflect

2009 served as the first full year of this blog and I want to thank all of you for taking the time visit. I appreciate your comments, whether they are made publicly and privately, and your suggestions for future blog topics. Starting with the first entry posted on August 10, 2008 about creating sustainable solutions in resolving the crisis in Sudan, this blog continues to serve a resource for understanding the problems people and companies face, both manmade or naturally occurring, and formulating solutions through innovative products and services. (Photo of the Space Needle in Seattle courtesy of Jim Bates/The Seattle Times)

Over the past year, we have witnessed great advancements in information and communications technology, renewable energy, and clean technology. Mobile phones and inexpensive portable computers are bridging the digital divide in industrialized and developing nations alike. We are seeing great advancements in mobile applications in education, telemedicine, and agriculture, and the improvement of renewable energy technologies that will provide the energy needs for millions, or perhaps billions, of people.

Several events will take place in 2010 that will focus on the intrinsic value of the individual and highlight the power of collaboration. Sports often bring together individuals with start physical or ideological differences to focus on a common element. Vancouver, Canada will host the Winter Olympic Games from February 12-28, 2010 and South Africa will host the 2010 FIFA World Cup, which I hope the latter will highlight the positive attributes of the host country and the entire African continent. Furthermore, Shanghai, China will host Expo 2010 from May 1 through October 31, focusing on the theme “Better City, Better Life.”

Lastly, according to a United Nations press release dated December 21, 2009, Secretary-General Ban Ki-moon "called on world leaders to attend a summit next September to boost efforts to achieve the Millennium Development Goals (MDGs), which seek to slash a host of social ills, ranging from extreme poverty and hunger to maternal and infant mortality to lack of access to education and health care, all by 2015." The MDG summit will take place at the UN headquarters in New York. And the world will look for tangible results at the next annual climate conference to be held in Mexico City in November 2010.

Lest we forget the ongoing conflicts in Afghanistan, Democratic Republic of Congo, Guinea, Haiti, Honduras, Iraq, Myanmar, Pakistan, Somalia, Sudan, Venezuela, and Yemen. As you read this entry, millions of innocent people continue to suffer as the result of armed conflict or environmental strife. We should remain optimistic, however, that as technology has enabled people to connect in ways unimaginable just a few years ago, we can continue to develop innovative ways to educate and empower the most vulnerable populations.

May 2010 bring peace and prosperity to all people worldwide.

December 28, 2009

Solar Cookers: An Essential Tool for Better Health and Economic Benefits

During my travels to developing nations such as Haiti, Peru and Uganda, I witness the challenges and negative impact of cooking with fires fueled by wood or dung. The impact also applies to people who walk long distances to collect wood or spend their limited income on fuel. A solution to satisfying the need for cooking without breathing toxins or wasting time searching for cooking fuel lies within solar cookers. This entry provides a summary of this amazing tool.

"Solar cooking is the simplest, safest, most convenient way to cook food without consuming fuels or heating up the kitchen," according to Solar Cookers International, a nonprofit organization based in Sacramento, California and with an office in Nairobi, Kenya. "For millions of people who lack access to safe drinking water and become sick or die each year from preventable waterborne illnesses, solar water pasteurization is a life-saving skill. There are numerous reasons to cook the natural way — with the sun."

Solar Cooker International explains, "The three most common types of solar cookers are heat-trap boxes, curved concentrators (parabolics) and panel cookers. Hundreds — if not thousands — of variations on these basic types exist. Additionally, several large-scale solar cooking systems have been developed to meet the needs of institutions worldwide."

Box cookers, the most common solar cooker used worldwide, are made of cardboard, metal or plastic, with glass lids and aluminum foil or metal reflectors that trap heat from sunlight inside a sealed, insulated box and cook food in 2-3 hours at 250-350 F. Some box cookers can accommodate multiple pots. There are several thousand box cookers used in India and all solar cookers work with varying degrees of efficiency in hot or cool weather as long as the sun is shining. (Photos courtesy of Solar Cooker International)

Panel cookers incorporate elements of box and curved concentrator cookers. They are small, lightweight, foldable, portable and relatively inexpensive to purchase or manufacture by hand. They work like a crock-pot, with temperatures ranging between 225 and 275 F. Most panel cookers are made from cardboard and aluminum foil and they require a lightweight cooking pot painted black with non-toxic paint. Raw food is placed in the pot, which is put inside a heat resistant plastic bag and placed in the cooker. Panel cookers can cook food in 2-3 hours.

Curved concentrator cookers or "parabolic cookers," cook fast at high temperatures and are excellent for boiling and drying. Especially useful for large-scale institutional cooking, they require frequent adjustment and supervision for safe operation. Curved cookers may be used for indoor cooking by focusing sunlight through a hole in the wall.

Solar Cooker International provides a comprehensive list of health and nutritional benefits of using solar cookers:
  • Moderate cooking temperatures in simple solar cookers help preserve nutrients;
  • Those who otherwise could not afford the fuel to do so can cook nutritious foods — such as legumes and many whole grains — that require hours of cooking;
  • At times many families must trade scarce food for cooking fuel. Solar cooking helps them to keep more food and improve their nutrition;
  • Smoky cooking fires irritate lungs and eyes and can cause diseases. Solar cookers are smoke-free;
  • Cooking fires are dangerous, especially for children, and can readily get out of control — causing damage to buildings, gardens, etc. Solar cookers are fire-free;
  • Millions of women routinely walk for miles to collect fuel wood for cooking. Burdensome fuel-gathering trips can cause injuries, and expose women to danger from animals and criminals. Solar cooking reduces these risks and burdens, and frees time for other activities; and
  • With good sunlight, solar cookers can be used to cook food or pasteurize water during emergencies when other fuels and power sources may not be available.
In addition to the health and nutritional benefits, solar cookers provide a variety of economic benefits. Many poverty-stricken families worldwide spend 25 percent or more of their income on cooking fuel. Sunlight — solar cooker "fuel" — is free and abundant. Money saved from purchasing cooking fuel may be used for food, education, health care, etc. Furthermore, solar cooker businesses can provide extra income. Business opportunities include cooker manufacturing, sales and repair, as well as solar food businesses like restaurants and bakeries.

Benefits to developing governments include reducing imports of — and subsidies on — biomass and fossil fuels. Where forests are disappearing and many people suffer from fuel shortages, solar cookers reduce families' fuel wood needs by 30-50 percent. Electric companies that have trouble meeting peak hour demand because of heavy use of stoves and air conditioners can reduce that demand by promoting use of solar cookers.

I support funding by industrialized governments or nongovernmental organizations to programs that help deliver solar cookers to the world's most vulnerable populations. Not only is delivering solar cookers important, but providing the necessary training to manufacture, use, and repair the devices is essential.

Aaron Rose is an advisor to talented entrepreneurs and co-founder of great companies. He also serves as the editor of Solutions for a Sustainable World.

December 22, 2009

A Call for a New Microfinance Model

The blog entry dated December 7, 2009 provided a summary of microfinance and the entry posted on December 20, 2009 outlined microfinance's benefits and provided a few success stories. The focus of this post is to discuss microfinance's shortcomings and begin a discussion on how the service that offers poor people access to basic financial services may be improved. (Photo of an outdoor market was taken during my visit to Pisac, Peru in June 2009)

I appreciate the way microfinance provides an opportunity to individuals whom seek to improve their lives and become better providers for their family through entrepreneurship; however, I am concerned that microfinance fails to achieve its primary objective of eradicating poverty for millions, perhaps billions, of people worldwide. Additional problems I have observed of microfinance operations in the developing world include little or no access for goods or services produced by entrepreneurs to reach global markets, debt rather than equity financing, exorbitant interest rates for loans, and lack of scalability and sustainability.

Microfinance institutions (MFIs) should take a more proactive role in assisting borrowers (entrepreneurs) gain access to lucrative markets for their services or products. During my extensive travels to developing nations, I observed recipients of microloans manufacturing small crafts or clothing items. The consumer market for these entrepreneurs is limited to nearby villages or passing tourists and MFIs should help rural entrepreneurs gain access to large population centers. Furthermore, I recommend that MFIs take a more proactive role in assisting borrowers to gain access for their goods in lucrative industrialized markets in North America or Europe. To facilitate liberal access to the United States market, the U.S. government enacted legislation such as the African Growth and Opportunity Act (AGOA), Haiti Hemispheric Opportunity through Partnership Encouragement (HOPE) Act or the Central America-Dominican Republic-United States Free Trade Agreement (CAFTA-DR).

Microloans create a revolving door of debt by requiring entrepreneurs to take subsequent loans in order to grow their business operations. In the preceding blog entry, I use Bayamma Neerudi's experience to highlight the benefits of microfinance. Not to diminish the impact microcredit has made on Ms. Neerudi or individuals like her worldwide, but Ms. Neerudi has obtained three loans in order to grow her business. Where is the savings or reinvestment mechanism? While I recognize this information may be missing from Ms. Neerudi’s story, too many MFIs are not working with borrowers in implementing savings strategies. Technically, microfinance includes microsavings, but the latter is often missing when it comes to the operations of MFIs. I encourage MFIs to make a stronger effort to incorporate savings as a means to promote business scalability.

I propose a different type of microfinance model. As stated above, traditional microfinance models support debt rather than equity financing. I recommend that MFIs reevaluate their lending model by providing private equity financing to entrepreneurs. An equity "fund" should operate similarly to a traditional microlending operation with one of the objectives to provide initial or early development funding to a variety of private enterprises to stimulate social and economic development. The differences between my recommendation and traditional microcredit vehicles are: (1) Rather than immediately repay the principal and interest, entrepreneurs are required to save a portion or reinvest initial revenue to maximize sustainable growth opportunities, (2) entrepreneurs are required to implement a revenue-sharing plan for all employees, (3) entrepreneurs are required to operate with complete transparency including providing every employee a copy of the business plan and the opportunity to provide input regarding the business strategy and operations, (4) all recipients of the fund will receive support and technical expertise from MFIs and their contributors, and (5) the size of the loans should range from $5,000 to $500,000. $100 loans will not eradicate poverty.

When I taught my first seminar on entrepreneurship at the CFDE University in Port-au-Prince, Haiti in 2007, my students’ greatest need to become successful entrepreneurs was access to capital. I was astonished to learn that lending rates from the black market, MFIs, and government-owned banks were 15, 18, and 20 percent respectively. I have met with MFIs in Africa that charge borrowers up to 30 percent interest for loans. I understand that MFIs incur vast costs in administering small loans to several borrowers, but charging high interest rates is wrong. While I am not an expert in finance, I know from my experience as an entrepreneur in developing markets that through a different lending model, borrowers will no longer need to be punished with excessive interest rates.

With the current model, entrepreneurs find it difficult to scale or sustain their business operations. I see an immediate need to change to microfinance model. In principle, I support microfinance and the positive benefits realized by people striving to break the bonds of poverty. However, how does a MFI define success? Increased gross domestic product? Increased per capita income? Increased personal spending? Can we say that the results of microfinance are reflective of the hundreds of millions of dollars invested? Microfinance is mostly a good thing as it often helps keep borrowers from even greater catastrophes. However, microfinance fails if judged by the number of borrowers whom overcome the barriers of poverty.

As always, your comments are appreciated.

December 20, 2009

Benefits of Microfinance

The preceding post, "Microfinance 101," provided a brief overview of microfinance. In addition to discussing the componenets of microfinance during my presentation to the Japanese Students Business Association (JSBA) at Bellevue College in Bellevue, Washington on December 2, 2009, I outlined the benefits of the scheme that offers poor people access to basic financial services. The benefits include increasing access to capital for individuals, increasing personal income and reducing poverty, enabling people to build assets, reducing vulnerability to economic stress, and development of basic life skills (e.g., literacy, personal health care, and financial education).

Unitus, a Seattle, Washington-based international nonprofit organization dedicated to advancing innovative, market-based solutions to global poverty, highlights several individuals whom have benefited from microfinance. Susan Wangui, 30, is a single woman living in Nairobi, Kenya with her son and daughter who are 13 and 9 years old, respectively. Susan, who is HIV-positive, was working as a prostitute when her husband left her when he learned about his wife's medical condition. (Photo of Susan Wangui courtesy of Unitus)

Susan "learned about Jamii Bora, a Nairobi-based microfinance institution, from neighbors in her slum. She completed their business training, which improved her business skills and gave her the confidence to begin her clothes mending and sales business. Jamii Bora's microfinance services enabled her to quit prostitution and move her family from a shack in their crime-and disease-ridden slum into a safer house."

With each increasing loan, Susan, "buys more raw materials in bulk at lower costs, thus increasing her business's profitability. She is convinced she would not be alive without Jamii Bora’s medical insurance and access to HIV medication, and can't imagine what would become of her children, as there is no one else to care for them. Susan has savings for the first time and is striving to earn enough to ensure her children's educations so they can break free from the chains of poverty."

Another example Unitus provides is Bayamma Neerudi, 49, of Medak, India, a married woman with seven children. Bayamma worked "as a seasonal agricultural laborer, earning 32 cents per day for only 150 days each year. Her husband was a mechanic in the nearby town of Jogipet, earning only 50 cents per day. One of her sons also worked as an agricultural laborer, while her other son was sold into bonded labor, often working 13 hours or more each day. For much of the year, Bayamma’s family survived on starch as their only food source." (Photo of Bayamma Neerudi courtesy of Unitus)

Bayamma's first loan of $150 was used to purchase a buffalo. "By selling milk and other dairy products from the buffalo, she was able to save an average of $2.75 each week after paying her loan installment and buying feed for the buffalo. She used subsequent loans of $64 and $128 to pay for a buffalo and to have cart made, which she rented out to transport sugarcane and other produce from the fields to the factories. With this income, Bayamma was finally able to release her son from bonded labor, whose wages are now added to the family's income. She recently received her third loan of $150, with which she has leased six acres of land for growing rice."

Unitus' website explains that "Bayamma is happy now that she and her family have stable sources of income. Her family eats more nutritious food that includes milk, rice, vegetables and, occasionally, meat. With her future loans, Bayamma hopes to begin repairing houses and also plans to purchase irrigation equipment to increase her crop yield."

Seattle, Washington-based Global Partnerships, a nonprofit organization that expands opportunities for people living in poverty by supporting microfinance and other sustainable solutions in Latin America, provides another success story. Gregorio Francisco Perez of Ocotal, Nicaragua, a married man with two sons, is a street vendor selling enchiladas, taquitos and fresh fruit juice from his pushcart. "Gregorio's business is funded by microloans provided by Global Partnerships microfinance partner” FundaciĆ³n para el Desarrollo de Nueva Segovia (FUNDENUSE), "and the income from it supports his entire family. The business itself is a family affair. Gregorio staffs the cart selling the product, his wife of 14 years cooks the food and prepares the juice at home, and their older son brings fresh supplies to restock Gregorio when he runs out. Together they prepare and sell more than 350 enchiladas every day." With the earnings from his business, Gregorio and his wife are able to pay for their boys' school uniforms and books. (Photo of Gregorio Francisco Perez is courtesy of Global Partnerships)

The three examples above illustrate the benefits of microfinance and while I do not want to diminish the impact microfinance has made on the lives of Susan, Bayamma or Gregorio, there are significant problems within the microfinance mechanism that prevents maximizing the benefits for a greater number of people living in poverty worldwide. I will discuss these challenges in a December 22, 2009 blog entry.

December 7, 2009

Microfinance 101

On December 2, 2009, I had the pleasure of making a presentation about microfinance to the Japanese Students Business Association (JSBA) at Bellevue College in Bellevue, Washington. My presentation focused on providing an overview, and outlining the benefits and challenges of microfinance. Upon sharing the highlights of the presentation with friends and colleagues, I learned that while many of us have heard the term "microfinance," very few understand its components. This post will provide a summary of microfinance and the people it serves. In a subsequent posts, I will discuss microfinance's benefits and challenges. (Photo of me with members of the JSBA is courtesy of Mr. Takahara Tsuyoshi)

I find the Washington, DC-based Consultative Group to Assist the Poor, CGAP, an independent policy and research center dedicated to advancing financial access for the world's poor, a great resource by explaining microfinance as a mechanism that "offers poor people access to basic financial services such as loans, savings, money transfer services and microinsurance." Having traveled around the world, whether in industrialized or developing countries, I agree with CGAP's assertion that people living in poverty, like everyone else, need a diverse range of financial services to run their businesses, build assets, smooth consumption, and manage risks."

Microfinance facilitates the accessibility of financial services to economically underserved populations. CGAP explains, "Poor people usually address their need for financial services through a variety of financial relationships, mostly informal. Credit is available from informal moneylenders, but usually at a very high cost to borrowers. Savings services are available through a variety of informal relationships like savings clubs, rotating savings and credit associations, and other mutual savings societies. But these tend to be erratic and somewhat insecure. Traditionally, banks have not considered poor people to be a viable market."

Many microfinance schemes are administered through a microfinance institution (MFI), an organization that provides financial services to the poor. MFIs include small nonprofit organizations that provide small loans, to commercial banks that, according to CGAP, "have large existing branch networks, vast distribution outlets like automatic teller machines, and the ability to make significant investments in technology that could bring financial services closer to poor clients." CGAP adds, "While this is a very broad definition that includes a wide range of providers that vary in their legal structure, mission, and methodology...all share the common characteristic of providing financial services to clients who are poorer and more vulnerable than traditional bank clients."

Ownership structures of MFIs vary from government-owned entities to member-owned credit unions or socially minded shareholders to profit-maximizing shareholders. In its summary about MFIs, CGAP says the types of services offered by MFIs "are limited by what is allowed by the legal structure of the provider: non-regulated institutions are not generally allowed to provide savings or insurance."

Who are the clients of microfinance? Most surveys report two-thirds of microfinance clients are women, which is very important considering women often have difficulty in accessing basic services. Microfinance clients, men and women alike, seek loans across for a variety of reasons including working capital for small provide businesses, larger loans for durable goods, student loans, and to cover emergencies. Microfinance clients work on farms or work for themselves in fishing, carpentry, vegetable selling, small shops, transportation, etc.

Microfinance offers a great opportunity for people to overcome the challenges of living in poverty. There are some benefits that are worth exploring, which include increasing personal income, enabling individuals to build assets, and reducing the vulnerability to economic stress. There are significant problems, however, with the application of microfinance such as little or no access for goods or services produced by borrowers to reach global (and more profitable) markets, extraordinarily high interest rates, and creating a cycle of debt as the entrepreneur attempts to manage (micro)enterprise growth. I will provide details and examples of the benefits of microfinance in a blog post on December 20, 2009 and I will discuss the challenges of microfinance on a posting dated December 22, 2009.

December 2, 2009

The Expected Benefits of the Korea-U.S. Free Trade Agreement

After eight rounds of negotiations over a ten month period, the Republic of Korea and the United States signed the Korea-U.S. Free Trade Agreement (KORUS FTA) on June 30, 2007. Sponsored by The National Bureau of Asian Research, a Seattle-based nonprofit organization that conducts advanced independent research on strategic, political, economic, globalization, health, and energy issues affecting U.S. relations with Asia, Jong-hyun Choi, Minister for Economic Affairs at the Embassy of the Republic of Korea in the United States, gave a presentation, "KORUS FTA: Action or Inaction?" in Seattle about the benefits of the free trade agreement with Asia's 4th largest economy. (Photo of Korea President Lee Myung-bak and U.S. President Barack Obama courtesy of the Korean Ministry of Foreign Affairs and Trade)

Mr. Choi addressed the strong trade relationship between Korea and the United States. "Korea is already America's 7th largest trading partner and 6th largest importer of U.S. agriculture goods. Moreover, every U.S. state has a stake in the Korea-U.S. trade and investment relationship. A Free Trade Agreement with Korea will be America’s largest and commercially most significant FTA in more than a decade," explained Mr. Choi.

With respect to real economic benefits to both the United States and Korea, the United Sates International Trade Commission (USITC) issued a 2007 report, "U.S.-Korea Free Trade Agreement: Potential Economy-wide and Selected Sectoral Effects," saying if fully implemented, the KORUS FTA "is expected to affect the U.S.-Korea trade and investment relationship substantially, including bilateral trade in goods and services, procedures governing trade and investment, and the regulatory environment." Estimated benefits of the KORUS FTA include:
  • U.S. GDP would likely increase by $10.1–11.9 billion as a result of tariff and tariff-rate quota (TRQ) provisions related to goods market access;
  • Merchandise exports to Korea would likely increase by an estimated $9.7–10.9 billion as a result of tariff and TRQ provisions;
  • Merchandise imports from Korea would likely increase by an estimated $6.4–6.9 billion as a result of tariff and TRQ provisions;
  • U.S. services exports would likely increase as a result of the FTA, given the increase in levels of market access, national treatment, and regulatory transparency that would be afforded by the FTA in excess of the current General Agreement on Trade in Services (GATS) regime; and
  • Aggregate U.S. output and employment changes would likely be negligible, primarily because of the size of the U.S. economy relative to that of the Korean economy.

Realizing many Americans are concerned the FTA with Korea will result in a negative impact on the U.S. automotive sector, Mr. Choi says the agreement will actually "eliminate Korea's eight percent automotive tariff, the United States will immediately eliminate its 2.5 percent passenger tariff for vehicles with engines up to 3,000 cc and over three years for larger vehicles, and U.S. pick-up truck tariffs, currently at 25 percent, will be phased out over ten years."

Furthermore, explained Mr. Choi, "Korea will provide special treatment of U.S. automakers with regard to emission standards and Korea will grant U.S. automakers a two-year grace period to apply new safety standards." Mr. Choi added that the agreement provides a special expedited dispute process with 'snap-back' reinstatement of the pre-FTA tariff mechanism and the formation of an Auto Working Group to address future regulatory issues.

Addressing the U.S. auto trade deficit, Mr. Choi notes that Korea is not the main source of this deficit. "According to the U.S. Department of Commerce 2006 statistics," said Mr. Choi, "the United States recorded an automotive trade deficit of $43.2 billion with Japan, $25.1 billion with Canada, and $22.9 billion with the European Union, compared to $8.5 billion with Korea. Korean manufacturers are opening state-of-the-art automobile manufacturing plants in the United States. The Hyundai plant in Alabama is a $1.1 billion investment and has created 3,000 new jobs. The Kia plan in Georgia is a $1.2 billion investment that will generate around 2,500 new jobs."

Regarding the Pacific Northwest, Mr. Choi said the KORUS FTA will eliminate tariffs on Washington state wine currently imposed by the Korean government. (Chile and Australia have significantly increased their exports of wine to Korea.) He also explained that in 2006, Korean companies invested over $615 million in Washington enterprises and Washington agriculture exports to Korea in 2007 were valued at $2.6 billion, which supported 27,710 jobs.

The United States Congress and South Korean National Assembly have to separately ratify the KORUS FTA before it can be enter into force. Neither legislative body has yet to execute this action. Given the crowded U.S. domestic agenda on health care and stimulating the economy, and mid-term elections coming in November 2010, it is highly unlikely Congress will make any progress in approving the KORUS FTA in 2010. When I asked Mr. Choi about his strategy for the coming year, he responded that he will continue to talk with business and civic leaders around the United States, work with the Korean-American community to promote the KORUS FTA's benefits, and continue building relationships with Congressional leaders. "I have already received equal bipartisan support from several members of Congress," said Mr. Choi.

"The Proposed U.S.-South Korea Free Trade Agreement (KORUS FTA): Provisions and Implications," a report prepared by the Congressional Research Service, says, "The United States and South Korea entered into the KORUS FTA as a means to further solidify an already strong economic relationship by reducing barriers to trade and investment between them and to resolve long festering economic issues." For this and the reasons outlined above, I support the KORUS FTA and despite the pressing issues such as health care reform and international issues the U.S. faces in Afghanistan and Iraq, I encourage Congress to ratify this legislation, which will increase access of American goods and strengthen U.S.-Korean relations.

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.