James Militzer

Weekly Roundup – 7/19/14: Can’t we all just get along?

In a week marked by conflict and tragedy on the global stage, the financial world experienced its share of both. And though this was balanced with a fair amount of good news, even the promising developments sparked discord. Let’s start with the (apparently) positive:

Man gives almost $3 billion to charity – critics “disappointed”

As part of his efforts to give away 99 percent of his fortune, the billionaire Warren Buffett donated $2.8 billion in his company Berkshire Hathaway’s stock to five charities, with $2.1 billion of that total going to the Bill and Melinda Gates Foundation. The total represents the most that Buffett has donated to charities since he started making yearly gifts in 2006 – but the fact that most of it went to the Gates Foundation raised some eyebrows.

Buffett has donated over $13 billion to the foundation since 2006, reflecting his hands-off approach to donating, and his trust in Gates’ ability to spend the funds more effectively than he could. But according to some critics, that’s a problem. “The Gates Foundation is already too large a charity and it is very hard to be careful and judicious enough when making investment decisions at such a large scale,” said Stanley N. Katz, director of the Princeton University Center for Arts and Cultural Policy Studies, in a Washington Post article on the donation. “No one knows exactly what Buffett’s personal philosophy of philanthropy is,” he continued. “It is admirable of him to decide giving away most of his fortune in his lifetime, but he should be more forthcoming and more articulate about his philanthropic philosophy and how he wants to have his money be put to good use.”

Personally, among all the things that the world’s billionaires are currently doing with their money, this strikes me as one of the least worthy of criticism.

Development finance, courtesy of the developing world

In another major development (one also motivated by conflict), the heads of state from Brazil, Russia, India, China, and South Africa (also known as the BRICS countries) agreed this week to establish a New Development Bank (NDB). The bank has been established with $50 billion in initial capital, with each of the five member countries contributing $10 billion. This capital will initially be used to finance infrastructure and sustainable development projects in the BRICS countries, but other low- and middle-income countries will also be allowed to buy in and apply for funding. The bank also includes a $100 billion Contingency Reserve Arrangement that would provide additional liquidity protection to members in times of need.

The NDB came about as a result of the BRICS countries’ dissatisfaction with their influence at the World Bank and the International Monetary Fund, which they believe hasn’t kept pace with their rising economic strength. (They comprise over one-fifth of the global economy, but only control about 11 percent of the votes at the IMF.) It also reflects increasing economic cooperation and foreign aid among low and middle-income countries, with the value of trade among countries in the global south now exceeding north-south trade by about $2.2 trillion, and unprecedented growth in foreign aid from China, Brazil and India.

The BRICS bank aims to prioritize electricity, transport, telecommunications, and water/sewage – important goals, with the estimated $1 trillion infrastructure investment gap in low and middle-income countries. If it succeeds, some predict that its loans could ultimately dwarf the World Bank’s, and it could challenge the World Bank and IMF’s dominance in issues related to global lending.

Unlike the two major conflicts in the news this week, this is a turf war that could yield actual benefits for those on the ground.

Mobile money wars turn dirty?

Everyone loves M-PESA – at least in the financial inclusion and BoP business worlds. But while we lavish praise upon it as proof of the promise of mobile money, and of business models that serve the poor, its competitors inside Kenya are engaged in a furious battle to knock it off its pedestal.

Their efforts got a boost this month, when the Competition Authority of Kenya (CAK) forced Safaricom, M-PESA’s parent company, to open up its mobile money agent network to rival operators. The move allows M-PESA agents to work for other operators, offering services for competitors like Airtel Money and Orange alongside Safaricom, and potentially fueling the growth of these services. (The CAK took up the case in response to a petition from Airtel Kenya, accusing Safaricom of unfair competition.)

Safaricom is also defending itself on a second front, as Kenya’s Equity Bank decisively enters the fray. In April, the bank obtained a license as a Mobile Virtual Network Operator, allowing it to provide mobile money services of its own (though the application is currently facing a legal challenge from a consumer group that some accuse of secretly working for Safaricom). It is also planning to roll out a technology called thin SIM, which could further challenge M-PESA’s dominance. Essentially a thin layer of plastic with a circuit printed on it, thin SIM cards stick to an existing SIM card, allowing users to continue accessing their original mobile network, but with the added functionality of a secondary provider. This would allow them to continue to use Safaricom’s network – by far the most dominant in the country – while sidestepping M-PESA in favor of Equity’s mobile banking products.

In response, Safaricom recently asked Kenya’s Communications Authority to prohibit Equity from issuing thin SIM cards, claiming the technology could expose subscribers to financial fraud and intercepted communication. “It would compromise the security of the M-Pesa system and consequently expose our 19 million M-PESA subscribers to irreparable harm,” said Safaricom CEO Bob Collymore. He wants the regulator to invite the global GSM Association to review the risk – a move that would delay and potentially derail Equity’s move into the market.

“A licensee like Safaricom should never be allowed to determine or dictate the technology that its potential competitors should or should not use,” shot back John Waweru, executive director of Equity subsidiary Finserve Africa. “We submit that Safaricom has clearly overstepped its bounds in this matter by urging the regulator to prohibit the use of a competitor’s technology without sufficient knowledge of the product.”

The results of these ongoing disputes will have a huge impact on the world’s premiere mobile money market – it will continue to be a fascinating battle to watch.

A legendary social innovator and entrepreneur passes

This week also marked the passing of one of the leading lights of social business. Priya Haji, who launched four different enterprises during her career, died Monday night at her home in San Francisco, after suffering an apparent pulmonary embolism (though autopsy results are still pending.) She had just turned 44 on July 4.

As reported in The NonProfit Times, Haji was CEO and co-founder of San Francisco-based SaveUp, a free, nationwide rewards program that helped Americans save money and pay down their debts. A 1993 graduate of Stanford University, she also co-founded Free at Last in her senior year, for which she received an Echoing Green Global Fellowship. The organization provided substance abuse treatment and HIV/AIDS intervention programs for Black and Latino communities in East Palo Alto. Previously, she had helped her father launch a free health clinic called Health for All at age 16, in her native Bryan, Texas. She was recognized by Do Something’s Brick Award as one of America’s most outstanding young leaders in 1998. She co-founded World of Good in 2004, an online retail marketplace and wholesaler of sustainable goods, and in 2007, she received the Social Innovation Award from Social Venture Network. In 2009 she was named a Young Global Leader by the World Economic Forum.

She is survived by her parents, a sister, and two young children.

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digital payments, financial inclusion, lending, poverty alleviation