One billion new entrepreneurs?

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Microfinance brings impact opportunities and new markets for corporations

By Meghna Tare and R. Paul Herman

If you look at the science about what is happening on earth and aren’t pessimistic, you don’t understand data,” Paul Hawken wrote in his book Ecology of Commerce. “But if you meet people who are working to restore this earth and the lives of the poor and you aren’t optimistic, you haven’t got a pulse.”

According to the World Bank, 500 million people living in poverty could benefit from a small business loan and only 1/3 of the world’s population has access to any kind of bank account. Microfinance – which provides access to capital, including loans and insurance – brings a tangible path out of poverty to global citizens worldwide, especially women. More than 90% of loans go to women entrepreneurs, whose businesses relate to food, clothing, telecom and more. Microfinance loans generally have a payback rate of up to 98%, a much higher repayment rate than US credit card borrowers.

At the same time, microfinance solutions improve well-being for women, children and families. Small profits from small businesses make big improvements in health, wealth and equality. Thus, microfinance can fit with corporates seeking opportunities to create positive impact through their products, technology, foundations—and seek out the next wave of talent.

Microfinance: Small Loans in Small Entrepreneurs

Microfinance reached global recognition when Dr. Muhammad Yunus, a native of Bangladesh and a graduate of Vanderbilt University, was awarded the Nobel Peace Prize in 2006 for building the Grameen Bank (a non-profit bank serving low-income) and “creating the conditions under which peace can exist.” Microfinance provides banking tools that deliver positive human impact. The elementary principle of microfinance is that successful entrepreneurs can scale with access to capital. When businesses among low-income expand, their well-being improves, and they become more active economically too.

The process of globalization has given corporate business an expanded vision and challenge on value addition for the benefit of society. Micro-finance is gaining momentum in part because of the growing interest of socially responsible investments. Microfinance as a tool of corporate social responsibility provides several avenue for impact – and potential business value.

New Products and Services: ICICI Bank

ICICI Bank is an Indian multinational banking and financial services company headquartered in Mumbai, Maharashtra, India and offers a wide range of banking products and financial services for corporate and retail customers in the areas of investment banking, life, non- life insurance, venture capital and asset management. The Bank has a network of 4,050 branches and 12,642 ATMs in India, and has a presence in 17 countries including India.

ICICI bank’s products and services benefit primary or elementary education, health at birth and microfinance. The Social Initiatives Group (SI) of the ICICI bank helps to break the inter-generational cycle of poor health and nutrition, to ensure early childhood education and schooling as well as access to basic financial services. ICICI has introduced innovative farmer finance schemes propelling agribusiness and contributing indirectly to the Indian GDP. To support their mission of inclusive growth, ICICI created the Foundation for Inclusive Growth, to underwrite nonprofit groups so they can provide microloans, insurance, and other banking and business services to an estimated 600 million Indians. This provides opportunities for new products – and customers today and in the future.

Increasing IPOs for Microfinance

Microfinance’s journey from nonprofit into the heart of capitalism is an inspiring one. Over the last few decades microfinance has grown when nonprofits began to evolve into regulated sustainable microfinance banks fueled by access to the capital markets. In 2007, the largest microfinance institution (MFI) in Mexico, Compartamos, went public. In 2010, SKS, India’s largest microfinance institution (MFI) IPO’d with 5.8 million clients. Yetu Microfinance (Yetu), an unlicensed microfinance institution (MFI) in Tanzania, recently announced that it will launch an initial public offering (IPO) with the aim of raising TZS 12.5 billion (approximately USD 5.63 million).

Technology Backbone: SAP and PlaNet Finance

SAP AG has teamed up with PlaNet Finance to play a role in assisting microfinance organizations with technology software. SAP has made a commitment to provide financial, software, and expert assistance to PlaNet Finance, a leading international NGO that supports MFI across nearly 80 countries to benefit more than 8 million people. By leveraging new technology, SAP and PlaNet Finance plan to improve the existing microfinance offering through better access to education and skills training for more people in need worldwide.

Improving Well-Being of Global Citizens: UPS Foundation

United Parcel Service (UPS), via its foundation’s focus on helping underserved communities through economic literacy programming, supports emerging entrepreneurs through grants to innovative microenterprise organizations, like Opportunity International. Opportunity International provides microfinance loans, savings, insurance and training to over 5 million people working their way out of poverty in the developing world. Over the past five years, UPS has contributed $945,000 to support microfinance work in India, funding 1,600 new clients with loans, benefiting nearly 7,000 people. India is home to at least 1/3 of the world’s poor, and education is the most rational step towards alleviating poverty.

The Next Generation of Talent: Yunus Social Business Centres

Yunus pioneered the concept of social business, utilizing micro-finance to help the world’s poor develop self- sustainable businesses. Students are value creators. They solve problems with an entrepreneurial mindset. As an example, Becker College in Massachusetts, is the first U.S. higher-learning institution to establish an officially sanctioned Yunus Social Business Centre, to focus on identifying real-world social problems, and creating innovative, self-sustaining solutions to transform lives and communities. Their goal is to provide students with the skills to take real-world problems and create self- sustaining businesses that have social impact, create jobs, and spur economic development.

Today, corporations can find new opportunities in products and services, technology, talent and their foundations to improve well-being, generate revenue, bring resilience and build a better world. How can your corporation drive more human impact as well as profit? The creative and entrepreneurial capacity of low-income citizens globally can provide “win-win” opportunities.

Co-author Meghna Tare, MBA, (@MeghnaTare) is Executive Director of the Institute for Sustainability and Global Impact at the University of Texas at Arlington. R. Paul Herman is CEO of HIP Investor (@ HIPinvestor), rating 13,500 investments on future risk, return potential and impact. For full disclosures, see www.HIPinvestor.com.

Posted September 25, 2015 in Vol. 6 No 6 - September/October 2015