Francisco Noguera

Social Capital Markets: Roxanne Miller on “Beyond Microfinance”

Roxanne MillerGuest blogger Roxanne Miller is a 2nd-year MBA student at the Haas School of Business at UC Berkeley, focusing her studies on the intersection of international development, social enterprise and technology.? She spent this past summer interning at Unitus and working on an ICTD health care project in Uganda.? Prior to Haas, Roxanne was a Kiva Fellow in Tanzania and spent several years in marketing roles at Yahoo! and American Express.? She is a graduate of the University of Pennsylvania with a degree in Communications.

By Roxanne Miller

I was very excited?to listen?to the speakers as I walked into the “Beyond Microfinance” panel at the Social Capital Markets Conference. I?had read about the Clinton Global?Initiative commitments that both Root Capital and Leapfrog Investments made last month; it was also an?opportunity to hear about the work I had?seen unfold while working for Unitus this past summer.

The panelists, led by moderator Betsy Zeidman of the Milken Institute, discussed new services and financial structures being designed to help the people at the base of the pyramid. Jim Roth of Leapfrog Investments spoke about the emerging area of microinsurance,? Derek Streat of Unitus discussed how insights from the microfinance industry could be leveraged to other sectors and?William Foote of Root Capital talked about the innovative ways he is working to bring capital to small and growing businesses.

Microinsurance – adding a new product to the offerings of MFIs

Jim Roth laid out a compelling business case for microinsurance, in an understated manner that aligned with his British accent. According to the 100 Country Landscape Report, the estimated size of the market is 1 billion people.? Roth claims that the market is still significantly underserved, with less than 3% penetration and an estimated higher demand than that of microcredit.?These numbers are energizing – an open market with so much opportunity – Jim could have easily grabbed the mic and paraded on stage like Steve Jobs did when he launched the iPhone!

The need to collaborate with microfinance institutions to reach this market was also clear.? “Working off the backs of microfinance institutions” will be necessary to develop the large volume of customers that are critical to the business model of insurance products.?

But Leapfrog isn’t going to limit themselves to MFIs. They are interested in working with religious institutions, retailers, agriculture buyers and NGOs. Jim is the first to admit that this can only be done if the distribution network is correctly rewarded.? In fact, Roth was bold enough to say that creating a proven process to leverage existing distribution channels may be the game-changing innovation in the field of microinsurance.? Just as group-lending was one of the key innovations for microfinance.

Leveraging the insights of microfinance

Although the bread and butter business for Unitus is helping their MFI partners achieve scale, the organization wants to help the industry move forward and find other “scalable, replicable models” beyond microfinance to address global poverty.?

Derek Streat discussed the work being done to package the best practices from microfinance and share them with other sectors addressing the same challenges or trying to reach the same customer segment.? This open R&D approach could be a great resource for anyone researching new business ideas in these areas.

He?also commented that customers of MFI institutions are demanding more from their banks, whether that is different credit and savings products or various types of insurance. ?At the same time MFIs are trying to find the right mix of service and product offerings that will not only appropriately meet the needs of their clients but also increase the lifetime value of the overall relationship.? The clear message from Unitus is that all of this is not easy to do but they are in a position to help.

Small and Growing Businesses – Taking credit to a whole new level

Here on nextbillion a lot has been written about the work of Root Capital, and the need to bring finance to small and medium businesses (SMEs, also referred to as Small and Growing Businesses). But this was the first time I’d seen William Foote speak and it was fantastic.

Root Capital is trying to prove the business case for different financing strategies in the SME sector, realizing that different strategies are needed for heterogeneous industries.?

One innovative financing method they are using now in the agriculture industry is value-chain finance, which is essentially lending against forward contracts that their customers have negotiated with top retailers like Whole Foods or Marks & Spencers.

Foote also gave a great example of how is thinking about the need for different types of financing to come into play as the businesses grow, a concept that has worked well in helping microfinance banks achieve scale.?

“We need to have businesses that graduate from trade finance” to financing that invests in assets and processing mills. By adding value to goods further down the supply chain and closer to the high-income markets these business can lift lots of household incomes, Foote believes.?

Willy wanted to be clear that in order for there to be large gains in this space, Root Capital and others need to collaborate with a “mosaic of institutions” to mobilize capital, improve access to markets and support talented entrepreneurs.? He coined the term “pathological collaboration” which was subsequently used throughout the day and you can read more about in Mark Beckford’s blog post.

I could write more, but just check out the posted webcast of the session to hear a great story of collaboration between Root Capital and Technoserve in Tanzania and Willy’s caution about the dangers of bringing subsidized capital into markets if local, commercial banks are already trying to serve the same businesses.