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Awezome Zouth Africa

South Africa's majestic "Mother City" of Capetown has provided an amazing backdrop for my last few days of travel, with its stunning cliffs and beaches, quaint neighborhood cafes and bookstores and excellent food and wine.

The city has also been a great host as my friend and I have experienced generally excellent service and help whenever we've faced wrong turns, confusing maps, hungry stomachs or the occasional blown out tire.

South Africa, like most nations in this continent, also carries a legacy of brutal European colonial roots and a glaring economic and racial divide (immediately noticeable when you leave Capetown's cosmopolitan downtown area) that lingers despite South Africa's peaceful transition of power in 1994. Despite these challenges, its sights, food, people and prices are all impressive in their own way, and Capetown's crown jewel, the Cape of Good Hope is indeed, breathtaking.

We've been amazed at the prices that we've encountered at hotels and restaurants here (7 rand = $1), where our new, clean, friendly and trendy hotel cost less than 350 rand per person, per night and a 5-6 course meal with wine pairings was roughly the same. Renting a car was also sufficiently affordable and easy with a U.S. driver's license.

The reasons behind all this visitor value are of course tied to the relatively low cost of labor in South Africa despite higher levels of education than in comparative low cost countries and the still significant political risk premium associated with the country and its currency, giving the dollar a significant advantage inspite of  its recent weakness globally.

But all this value only adds another reason why tourists should make it to this far away but vibrant and miraculous country.

Whether you call it South Africa, Zouth Afrika, or IRiphabliki yaseMzantsi Afrika, this part of the world is an awesome place to be.

I Like to Spend a Week in Moçambique

As the Bob Dylan song goes, it's nice to 'stay a week in Mozambique' (spelled "Moçambique" and pronounced "Mo-Sam-Bi-Kee") in the national tongue, Portuguese.

I have been absent from blogging as, outside of the capital, Maputo, internet access is scarce in this expansive and sparsely-administered country, and broadband is almost unheard of.

My drive north on the one road leading out from the southern and remotely-located capital took me past cashew stalls and corn stalks which soon gave way to endless palm trees, pristine beaches and dark blue bays and lagoons. Mozambique may have had a troubled past with its painful colonial story and a 16 year Civil War heavily financed by its neighbors, but it is still beautiful, people are still friendly and life here is quiet and easy.

My trip has taken me from the country's biggest city to its small towns and through its tiny villages. While subsistence farming remains most peoples' primary means of survival, there are some large banks and cell phone companies operating here with widespread appeal and I was surprised to see that most people in the small towns had bank accounts and ATM cards.

In fact, the biggest shock I've experienced (besides the ocean-side beauty and absolute slow-pace of life) has been the lines that form each morning and remain until afternoon at each of the town's local bank ATMs. The Peace Corps friend I'm staying with tells me this phenomenon is partially due to the date. People get paid at the end of each month and right now their paychecks are hitting their bank accounts. Apparently many here also have direct deposit - at least the government employees - and that's a lot of the non-farming population.

It's fascinating but sad to watch the strange routine in front of the banks. A government soldier stands guard with a shotgun while dozens and dozens of people wait in line for a chance to get cash. When I waited once, the ATM ran out by the time I got there. I don't know if it's a testament to a shortness of ATM supply or an inability to be able to plan out four weeks of expenditures, but apparently everyone here goes broke at the end of the month.

But "De Nada," (no worries), "Esta' Bom" (it's all good). Sit down in this place time forgot and have another 2M (the local beer) while you forget about the world outside 'Mossaaambeekee' for a week.

Off to Africa & William's Windmill

Had a nice blogging exchange with William Kamkwamba yesterday, an aspiring 19 year old engineer in a village in Malawi. William has his own blog, and was quick in responding to my comment.

His inventions, windmills linked to electrical power applications in his family's home, garnered the attention of a Malawi newspaper which triggered his invitation to the African TED conference in Tanzania last month, where William was introduced to the Internet. He crossed 10,000 page views on his blog within two months of starting to write.

I wrote him a suggestion that he submit some designs to the Cooper Hewitt Museum, whose exhibit on inventions to help consumers in developing countries I wrote about back in June.

I'm headed off to Africa today for a two week vacation.

I won't be making it to William's home country of Malawi, but I will be close by in Mozambique and South Africa.

I plan on blogging as much as time and connectivity allow. Looking forward to some new stories, new landscapes and new people.

See you in Africa,

Compartamos: Subsidies, Profits and Controversy

Before I head off to Africa for the next two weeks on my first trip out of India since I arrived here nine months ago I wanted to re-address the Compartamos discussion.

Note: Compartamos is a Mexican MFI which recently went public and is now registered as a full-fledged bank with the Mexican government.

On line blogs, chat rooms and email list serves are still breathing fire at the IFC, CGAP and Accion for their alleged malfeasance in allowing a microfinance company charging its borrowers an APR equivalent of more than 90% with returns on equity of 50% to undergo a completely secondary IPO (sale of existing shares with no new funds infusion) without achieving any direct benefit for the microfinance borrowers themselves.

I have been tempted to come to Compartamos' defense as I understand and support the commercialization of microfinance so long as these organizations maintain transparency (which Compartamos has done) and abide by some basic customer codes of conduct (i.e. educating your customers about credit, explaining you product's features and responsibilities, not intimidating borrowers into repayment, verbally abusing them or physically threatening them in anyway) which I do not know if Compartamos has done.

Note: Many of these basic standards of conduct were codified in an MFI Code of Conduct that Indian microfinance industry association SA-DHAN put together following the political unrest and closing of many MFI branches in Andhra Pradesh's (South Indian state) Krishna district last year.

However, non-binding codes from a single country's industry association are not enough to ensure that microfinance organizations the world over act responsibly. Only the Boards and management of those organizations can do that.

As I learn more about Compartamos my biggest concern isn't the fact that they were charging their borrowers what amounted to very high rates (the short-term 3 month loan product meets customers' needs and they were willing to borrow and able to repay very consistently) but instead that they were seeded heavily with development capital that remained seemingly tacit in the decision making of the company even while additional tax payer funded and donated dollars continued to be used to fuel the investment returns of other shareholders just months before the IPO.

As was mentioned on one of the DevFinance email list serves last week, $10 million from the IFC was given to Compartamos as a guarantee for a low cost local currency loan in September of 2006, just seven months before Compartamos first offered its equity shares up on the public market to overwhelming commercial demand.

My concern is that this was a company which certainly as late as 2006 no longer needed the support of the IFC for any fresh "development" capital. As such, given the IFC and Accion's roles on the Board of the MFI, were they still truly involved in the decision making and financing of the Company that late in the game, they could have acted more in line with their own social mandates to serve the poor rather than simply serve the fiduciary interests of exiting shareholders. To do this they might have moved to reduce interest rates or solicit further funds for investment into the company, rather than simply using more of their own tax payer dollars to juice the returns of selling shareholders.

I take no issue with profit-oriented financial investors taking actions to maximize valuation and returns on investment, that is their purpose and their expertise, but that is not the mandate of the IFC or Accion.

If, in fact, Accion and the IFC were not able to influence the decision making of the Board (together they held 28% of the Company prior to IPO and combined were the second largest shareholder), they should not have continued to use their assets to fuel Compartamos. Instead they might have simply sold their shares in the IPO and committed publicly to plowing the equivalent amount of profits back into development projects in the communities where Compartamos had worked. This would at least have ensured that the windfall monies from the IPO, generated by the past and expected future credit discipline of local shopkeepers, at least stayed in Mexico, the country of origin, and did not travel back across the border into the bursars of Washington D.C. and New York.

I've spoken my peace for now on Compartamos.

I hope that other MFIs are also able to generate such overwhelming interest in future microfinance IPOs, particularly in India, but I think these events need to be approached with a little more caution and thoughtfulness now that we've been able to see all the angles of the Compartamos transaction.

Bombay Rocks

Weekend in Bombay again.

Fantastic city. Just a crazy, electric mix of investors, entrepreneurs, international travelers, politicians, bollywood stars, barflies, gangsters, slum dwellers, paan wallas, cricket players, taxi drivers and young cosmopolitan Indians all vying for the same strip of rubble-filled, sign-covered earth.

The palm trees line the streets by day, out shined by the streetlights at night, which illuminate the "Queen's Necklace" that is Marine Drive and expose amorous couples sneaking off to Nariman Point for a moment of metropolitan solitude and romance.

Bombay stays up late and wakes up early and its rules (as well as its laws) seem unwritten...that is except for those that have been disclosed by the great authors and books of Bombay fame: Salman Rushdie and Midnight's Children, Suketu Mehta's Maximum City, Vikram Chandra's Sacred Games, and the infamous Shantaram, which, incidentally, is being made into a movie starring Johnny Depp and Amitabh Bhachchan next year.

Walks along either side of the southern end of the peninsula on Embassy Road or near the Fort area give a taste of both Bombay's British-influenced past as well as Mumbai's foreign investment-driven future. Skyscrapers housing mutual funds and private equity giants look down upon the old Taj Hotel and the Gateway of India.

A treasure hunt through the shops and tourist stalls in Colaba near 136-year old bar Leopold's can lead  you to a rich array of items from unique Indian jewelry to old iron nautical compasses and sextants raided from European ships that landed here generations ago.

A mix of steaming street food and high-end five star restaurants that can rival New York and San Francisco keeps gourmands happy and the city's night club scene presents a picture of India quite different from the conservative and reserved sub-continent culture. This is the city where Bollywood stars flaunt their fame and the world's emerging market investors dig for gold.

Bombay is truly unlike any other place in India: A crumbling metropolis where new life and energy seem waiting at every moment to spring from the rubble and refuse.

A Wrap Up on the JM, Lok and Spandana News

Got home late tonight on a flight from a South Indian city. I am increasingly becoming convinced that South India's urban centers are 10 years ahead of North India's (excluding Bombay), at least when it comes to the quality of companies and economic activity.

Circled over Delhi for an hour as the Captain told us we were waiting for an 8 plane traffic jam to disperse. They even have traffic jams in the sky...

Here's a wrap up of the links to news clips on the JM Financial and Lok Capital investments in Spandana: From most comprehensive writeup to least, and the one on the right from Navbhara Times in Hindi.

Microfinance Gateway

VC Circle

Hindu Business Line

Economic Times

The Business Standard

The Free Press Journal

Field Trips So Cool You'll Quit Your Desk Job

One of my favorite things about this job is going to the field: meeting with MFI managers, touring microfinance branches and seeing women borrowers taking loans and making payments.

I don't head out there everyday, but when I do go, I'm reminded why I left investment banking.

It feels good to be in the field.

Irrespective of the complex legal structuring, high-profile personalities and intense deal-making that seem to accompany investments in Indian microfinance today, this is still where the real action happens - in the hands and heads of these women borrowers and the loan officers that serve them.

Today I visited a typical "Grameen-style Microfinance" center meeting, which involves several groups of 5 or more women borrowers who have self-selected each other in joint-liability groups (meaning each person has agreed to guarantee the others' loans, thus creating a joint incentive for all to repay).

The agenda for one of these center meetings often looks like this:

- The field officer arrives at the meeting site.
- 5 minutes before the meeting starts the women each give their individual loan repayments to their selected group leaders who count the money and give it to the field officer.
- Attendance is taken.
- The women recite an oath, promising that they will follow the rules of the organization and repay their loans.
- The field officer gives an oath, that he/she will not cheat or steal from them.
- The field officer counts the money collected from the group leaders.
- After physically tallying the money and verbally confirming it, the field officer signs the borrowers' passbooks or loan cards acknowledging that they were present and have indeed paid.

An experienced field officer can run an efficient meeting like this in 15-20 minutes.

I was with someone today who had been reading about microfinance for years but had never before been to one of these center meetings.

As we walked down the road after the meeting, he seemed in a pleasant state of shock, so excited to finally witness this simple but profound act: credit discipline superior to that of the world's rich, manifested by the world's poor.

"I know," I said, "It's pretty cool, enough to make you quit your desk job."

Lok Capital and JM Financial Invest in Spandana

Mauritius' Lok Capital and Bombay-based JM Financial have announced dual investments in leading Indian MFI Spandana for a combined $12.1 million (Rs. 491 million).

Below is a copy of Lok Capital's press release as well as a news clip based on JM's Press Release from Indian financial news source the Business Standard.   

(full disclosure: this blogger works for Lok's investment advisory arm...)

Enjoy, and Congrats to Padmaja Reddy and the Spandana team!

FOR IMMEDIATE RELEASE

LOK CAPITAL INVESTS $2.25 MILLION IN SPANDANA

July 9, 2007 NEW DELHI -- Lok Capital, a Mauritius-based microfinance venture capital fund, announces an investment of $2.25 million in Spandana Sphoorty Innovative Financial Services, one of the largest and most efficient microfinance institutions in  South Asia.

Lok Capital LLC has announced it will invest more than INR 90 million for a minority interest in Spandana. Lok’s commitment comes alongside an INR 400 million investment from the JM Financial India Fund.

Lok’s investment will help the company continue providing diversified financial services to lower income clients as well as expand its product portfolio and geographical reach across India.

Spandana is one of India's leading microfinance institutions, “MFIs,” with over a million clients and more than $100 million of outstanding loan portfolio. The organization operates in five Indian states and is the sole microfinance partner for Western Union remittances in the states of Andhra Pradesh, Karnataka and Tamil Nadu.

Spandana Founder and Managing Director Padmaja Reddy welcomed Lok Capital to the Spandana team:

“We are very pleased to be working with Lok. We see a strategic fit between our philosophies, and a shared commitment to the welfare of those previously overlooked by financial service providers, while also generating more tangible returns. Together we are poised to identify untapped opportunities and take the necessary measures to successfully meet them. We believe the partnership with Lok will help Spandana reach the next level of scale and professionalism.”

Mr. Vishal Mehta, General Manager of Delhi-based Lok Advisory Services, which advised the Lok Capital Fund on the transaction, expressed his enthusiasm for Padmaja Reddy and Spandana:

“Under Padmaja’s leadership, Spandana has demonstrated world class growth and efficiency in microfinance. What is most attractive for us in this transaction is the relationship and trust we have been able to build with the promoter. We believe in Spandana’s products and values and are confident that this investment represents one of the best opportunities for supporting the growth of the commercial microfinance sector in India."

###

 
ABOUT SPANDANA

Spandana provides financial services tailored towards lower income customers, primarily women, through its network of 339 branches in 5 states. The organization was founded in 1998 by Padmaja Reddy in Guntur, Andhra Pradesh. It is currently headquartered in Hyderabad, Andhra Pradesh. 

Spandana has a history of surpassing growth, profitability and client outreach expectations with its cost-consciousness and focus on productivity. Spandana broke-even within its first year of operations. It was among the first to demonstrate that an MFI can be not only socially uplifting, but also commercially viable for all its stakeholders, thus paving the way for entities that are balancing social objectives with financial returns to enter the MFI space as lenders.

The company is consistently ranked among the best microfinance organizations in India by rating agencies such as CRISIL and M-Cril. It also has the distinction of being among the top ten most productive MFIs in  South Asia.

www.spandanaindia.com

  
ABOUT LOK CAPITAL

Lok Capital LLC is a $12 million Mauritius-based venture capital fund investing in commercially-oriented microfinance institutions in India.The Lok Capital fund is advised in India by Lok Advisory Services Pvt Ltd, a New Delhi-based team of management and finance professionals.

www.lokcapital.com

______________________________________________

Business Standard's News Clip on JM...

JM India Fund to Invest Rs. 40 Cr in MFI
BS Reporter / Mumbai July 09, 2007

JM Financial India Fund, a $225 million private equity fund sponsored by JM Financial and Old Lane Partners LP, will invest Rs 40 crore in Spandana, a leading microfinance institution (MFI).

Spandana caters primarily to the lower income borrowers located in rural and urban areas. The company operates through its 300-plus branch network in Andhra Pradesh, Karnataka, Maharashtra, Orissa and Tamil Nadu with a client base in excess of 1 million.

The company will use the funds to expand its branch network and pursue growth opportunities - both organically and through acquisitions.

Dilip Kothari, managing director, JM Financial India Fund said: "We believe the company is well placed to benefit from its unique positioning in the niche microfinance sector and the multitude of untapped opportunities that can be customised to meet the needs of the semi-urban and rural masses."

The 4th on the 35th Parallel

The 4th of July comes and goes here with little fanfare. There are no fireworks showers like the ones that crackle across the city sky endlessly on Diwali. There are no backyard barbeques with beef cooking up on the grill and Budweiser chilling out in the cooler. And there are no cover bands playing Lee Greenwood to give you your annual dose of saccharine, but ultimately satisfying, patriotic candy bar ballads.

But if you play your cards right you can leave work in time to catch an auto rickshaw back home, beating the traffic and the cows, find an American friend, and head to one of the posh South Delhi restaurants where they now serve steaks (albeit very likely Oxen and not cow), but red meat, tenderloin steaks nonetheless.

Add this to a pitcher of margaritas, some chocolate cake, a CD player blasting 'Born in the USA' and a pair of sparklers, and you've got your very own 4th, here at home in the heartland, on the rooftops of Delhi, set up high above the Deccan Plateau of the South Asian Sub-continent.

Please pass the coleslaw...

After the Rains, the Cows Come Home

Its been several days since I last posted....

Several things have been on my mind recently other than work,

The host of life logistics that can plague foreigners (as well as locals) in India doesn't necessarily seem to get better even as the days go by...the power fuse blows when you turn on our A/C...your phone periodically stops working...the checks you deposit in the bank don't appeared in your account, you fight for weeks to get your Visa renewed...the list goes on...

I will report on and respond to the ACCION Call on Compartamos that I mentioned last Thursday, but before I do that here's a brief note on a change that's taken place in Delhi in the last 1-2 weeks since the rains began.

The temperature has dropped back to a more reasonable 92 degrees Fahrenheit from highs of 130 earlier this summer, and following the cooling down, the cows have come home.

Out from behind shed doors and shady trees, Delhi's bovines are back in the streets, wandering through intersections, munching on roadside grass, causing traffic jams and changing the overall city dynamic to something a bit more suited to the 20th, rather than 21st Century.

I saw one car rear-end another tonight breaking his tail lights, when the first guy slammed on his breaks to avoid driving through a line of cattle loping across the road.

The whole thing is quaint, funny, and reminds me (on this 4th of July eve) of one of the reasons why I came to India, to see, and appreciate some of the little differences in life that when aggregated, make this such a unique place.