Promoting High Growth Entrepreneurship in India

The centrality of entrepreneurship in the economic growth of nations is increasingly coming into focus in these troubled times. As pointed out in a recent article in The Economist, even as governments are busy trying to save their economies, policy makers are demonstrating a renewed interest in entrepreneurship and innovation.

Wall Street Journal

By: K. Kumar

Published: December 8, 2009

In modern open economies, entrepreneurship is argued to be far more important than it ever was. There is a general consensus that almost all the new jobs in the U.S. in the last couple of decades have been created by startups spearheaded by energetic entrepreneurs. The large companies, if anything, have been steadily losing jobs.

The question that follows then is what type of entrepreneurship is important. Entrepreneurial ventures vary widely in their characteristics – from self-employment or necessity based entrepreneurship at one end of the spectrum to opportunity based entrepreneurship at the other, that seeks to revolutionize the world by leveraging new technology and creating new markets, Opportunity based entrepreneurship is usually based on significant innovation in the realm of technology, business process or the like and is set up to grow, right from inception. A significant share of new employment, particularly in the US, is created by the latter kind -- a small bunch of fast growing firms referred to as 'gazelles".

While India has a long history of entrepreneurship, as evidenced by centuries of business and commercial activity and the existence of generations old business groups and families, recent Global Entrepreneurship Monitor studies found that entrepreneurship in India has predominantly been necessity based rather than opportunity based. There have been very few 'gazelles' to create the desired impact on the economy through job creation. Thus the challenge of entrepreneurship in India is: - How to increase the incidence of potentially high growth entrepreneurial ventures?

To say that formidable barriers exist for high growth entrepreneurship in India is an understatement. Our research into the barriers and facilitators of entrepreneurship in the Indian context has revealed many facets of this problem. The catch up nature of technological opportunities, together with a strong focus on indigenization, has driven technological innovation away from commercial viability and state of the art knowledge. Indirect tax regimes favoring the small enterprise have suppressed scale and encouraged firms to remain small. Labor laws that limited the mobility of labor forced entrepreneurs to fear growth in employee strength. Poor infrastructure has led entrepreneurs to create their own and in the process, lock up precious capital which should have been deployed to grow the business. Inadequate availability of land with clear titles, and owner-occupant friendly policies have led to the diversion of scarce capital towards unproductive investments in land and buildings. Poor judicial enforcement of property rights and private contracts has led to sub-optimal business practices, such as make instead of buy and own instead of rent. Perhaps the most damaging impact of our deeply entrenched policy regime of the past has been the effect it had on the entrepreneurs' own beliefs concerning economy of scale, diversification and efficiency wages that limit their propensity to grow.

The accent on liberalization and globalization in the last two decades has brought about some mitigating effects in many of the areas cited above. A cursory look at some of the high growth ventures that have established themselves during this period points to a positive role played by the new economic policies in opening up areas with huge pent up demand for private investment and providing unrestricted access to the state of the art technology available in the world. Sectors such as telecommunication, power, transportation, logistics, media etc have seen significant entrepreneurial activity both from traditional business houses and first generation entrepreneurs. However, high growth entrepreneurship has not yet reached a proportion in India that commands attention.

Given the ambitious economic growth targets that India has set for itself, high growth businesses have a crucial role to play. While high growth businesses have to use their entrepreneurial ingenuity to overcome the environmental constraints or render them irrelevant, public policy has a significant and decisive role to play in minimizing, and preferably, completely removing the constraints that tend to be hostile to high growth entrepreneurship.

The challenge for policy makers in India can thus be articulated as one of creating the right framework conditions to enable the establishment of fast growing innovative new businesses by entrepreneurs. There are many avenues open to policy makers to address the issue, but the challenge would be in prioritization -- picking the right set of issues and sequencing them to achieve significant and quick pay-off.

Firstly, at the macro level, the government has to focus on upgrading and making available on demand quality physical infrastructure like power, roads, and transportation. Other than the quantum of the investments, what is required is also efficient project management and effective coordination among all stakeholders to ensure speedy implementation of projects. This will enable entrepreneurs to conserve capital and direct it to their core competence -- innovation.

Secondly, significant attention has to be paid to create and upgrade the knowledge infrastructure. This is where India has to reverse certain strongly entrenched trends in the economy that have proved to be counterproductive. Two thirds of the R&D expenditure in India is happening in the government and public sector, which is exactly the opposite of the trends in U.S . Technologies developed in the confines of government laboratories often find it difficult to face the test of viable commercial application. Also, effective mechanisms for efficient technologies to move from the government owned laboratories into the realm of commercial exploitation continue to remain weak despite years of trying. The combined impact has been a poor pipeline of innovative technologies that could be economically deployed by the commercial organizations in the form of products and services. On the other hand, the private sector, now increasingly open to global competition, should progressively increase its focus on R&D to develop a competitive edge through technological innovation. Any policy support to incentivize the private sector to increase its engagement with R&D would go a long way in promoting innovation with a sense of urgency and commercial viability. In addition, the processes and systems governing the public-private partnerships in commercializing technological innovations need to be overhauled to maximize their impact.

Thirdly, policies have to gear up to channelize the early stage risk capital towards sustaining vibrant innovative activity. There has been a significant increase in the number of government innovation funding programs to support new ideas falling into various domains. This directional shift in focus from controlling economic activity to promoting innovation is welcome, particularly because private venture capital in India has tended to be growth capital rather than risk capital. But, at the operating level, the rules, regulations and processes have not evolved with this change in focus. This, together with the near total absence of expertise on the part of the government machinery to assess and respond to risks associated with innovation, renders such resources inaccessible to those who need and deserve them. This has to change.

http://online.wsj.com/article/SB126026382560881597.html?mod=googlenews_wsj

Why Global Entrepreneurship Week Matters

Making the case for why it pays to encourage entrepreneurship among young people around the globe during Global Entrepreneurship Week, November 16-22. 2009.

BusinessWeek
By Jonathon Ortmans and Vivek Wadhwa
November 13, 2009

Farrell and Musk are emblematic of a new generation of young entrepreneurs. Fueled by easy access to information on the Internet, lower barriers to entry in many industries, and burning curiosity, these young go-getters are starting earlier and going further faster than in any previous generation.

Startup Culture Goes Global

And while society might have glorified them in the past—inventors have always been heroes around the world—today young people feel that the achievements of people like Farrell and Musk are not entirely out of reach. In fact, it's now accepted and even considered a beneficial trait to have this sort of entrepreneurial stardust and drive. What's more, this shift has clearly gone global.

Even in the poorest, most remote parts of the globe, aspiring young entrepreneurs are more informed about startup culture and have more affinity with their foreign peers than at any time in the past. They are not waiting for their governments to remove the barriers to starting business—they are leading such change. Take telecom infrastructure, for example. Young entrepreneurs are bringing technologies like mobile banking and cellular phones to rural areas on every continent, enabling others to start and grow their own ideas. In Ghana, a nation that the World Bank ranks 135 out of 183 economies in the ease of starting a business, Hermann Chinery-Hesse at age 26 founded SOFTtribe, one of Ghana's first, and now largest, software companies. Chinery-Hesse also started a venture that will effectively move Ghana's mostly cash economy to a new level of financial sophistication by offering consumers the ability to pay for a variety of goods and services via text messages on mobile devices.

Entrepreneurs like these, driven by a dual motivation to do well and do good, offer hope amid a world somewhat overwhelmed by so many problems ahead. And with a world population of 6.5 billion and growing, we will continue to face new challenges of increasing complexity. More than half of the companies on the 2009 U.S. Fortune 500 were launched during a recession or bear market offering comfort that our next generation of entrepreneurs will likely lead the way to economic recovery. But it is our young entrepreneurs' ability to create solutions that could be our leaders' greatest tool to achieve much needed, global-scale innovation as they address poverty, increasing energy demands, disease, and climate change.

Global Entrepreneurship Week

That's why this year's Global Entrepreneurship Week, taking place Nov. 16-22, in 85 nations, is so important. It's not just a collection of concurrent networking, ideas competitions, and mentoring events designed to spur young people to consider entrepreneurship. It's also affirmation that upstream there is a larger pool of innovative entrepreneurs about to enter the world stage just when they're needed most.

Last year's Global Entrepreneurship Week sparked a wave of entrepreneurship in countries from all parts of the world. In Somalia, young people explored ways to fabricate useful materials from plastic waste collected on the streets, turning it into mats, ropes, bags, and furniture. In Nepal, youth from around the country presented creative, entrepreneurial ideas ranging from caring for prisoners' children to preserving antique arts to energy efficiency. By the end of the event, organizers and mentors had backed these ideas with commitments to help turn them into realities. In its inaugural year, the Week appealed to some 3 million people in 77 countries who participated in just over 25,000 events and activities. The lament of international economic development experts that poorer nations do not understand basic business concepts is out of date.

The creative genius among the young is perhaps one of the least-tapped resources in the world. Given the opportunity to explore entrepreneurship as a career path, proper guidance, access to credit, and a cultural climate that makes risk far less intimidating and failure far less damaging, young people can unleash their potential and turn the marketplace into a generator of economic and social value.

Direct Link: http://www.businessweek.com/smallbiz/content/nov2009/sb20091112_601533.htm

Chile as an Example in Matters of Entrepreneurship

The state of entrepreneurship in Colombia is discussed, as well as CreaMe, a business incubator hoping to create and strengthen business in the country.

Oct 30, 2009

Diego Sánchez, the director of the “Centro Integral de Servicios Empresariales”

(Comprehensive Center for Business Services) CreaMe, located in Medellín, Colombia, visited the International Institute for Innovation and Entrepreneurship 3IE of the Universidad Técnica Federico Santa María for one week. The objective of the internship was to internalize the processes, incubation model, team, the Institute´s portfolio of projects, and sources of financing. On top of that, he participated in an entrepreneurship workshop, met with entrepreneurs and shared his experiences in Colombia.

CreaMe is a business incubator that started in 1996. Their objective is to generate an entrepreneurial culture, create and strengthen businesses in Colombia. Diego Sánchez is the director of business development. With respect to their methodology he added that, “we work using a system called nodes that are specialized units of business accompaniment to cover any type of services. The special feature is that this is done in alliance with a third party that has identified market or technological needs. Together we work on the entrepreneurial processes and give more potential to the entrepreneurs.”

As far as the state of entrepreneurship and innovation in his country, Diego said that, “the entrepreneurial culture in Colombia has advanced, and a lot of work has been done in high schools and universities. The government and the state have taken the reigns in this process. Law no. 1014 of entrepreneurship is coming. The objective for this law is to give direction to managing entrepreneurship. Today, entrepreneurship is alive in Colombia, and it has generated very important accompaniment mechanisms, financing and commercialization” .

With respect to his vision for Chile, he stated that he felt very grateful. “We use Chile as an example in matters of entrepreneurship, with some of their programs for example” said Diego. Also, he added that the work done by the Universidad Técnica Federico Santa María and the 3IE Institute “seems like a very good connection as far as how to bring out the potential of the students. Something very interesting is that they can come out of this opportunity with a prototype to validate whether or not the idea works.”

At the end of his visit, while marveling at the infrastructure and colors of Valparaíso, the representative from CreaMe emphasized the importance of the people in the organizations. “In the end, the institutions are people who work, the ethics they have, the values of responsibility, love, and passion for what they do. In the end they are the people that cause an organization to grow or to fail.” His advice to the entrepreneurs was to develop a good profile of their clients, look for allies in each country, seek accompaniment in different programs and see which of them is the best at what they do at the international level because “you are not competing with other Chileans, but rather with the world, so always look to have the best of the best and be different.” During his internship in Valparaíso, Sánchez met with Víctor Aguilera, director of the 3IE institute, and René Villegas, manager of new businesses, to come up with a proposal to create a collaborative network between CreaMe and the 3IE Institute.

Diego Sánchez has a degree in Industrial Economy from the Universidad de Medellín. He is specialized in CEIPA management. He has an executive MBA from the Escuela de Administració n de Empresas (School of Business Administration) in Barcelona, España. He is the director of the Colombian business incubator CreaMe. He participated in the creation of incubator Virtual.com. He participated in the content of the first virtual department for the creation of technology based companies MINCOMEX and IEBTA.

Internships
The visit from the representative from Colombia was done in the framework of the internship program funded by Banco Mundial´s InfoDev and the National Association of Technological Parks and Business Incubators of Brazil, Anprotec. The objective was to encourage the development of a collaborative network between incubators and other institutions that provide business development services in Latin America and the Caribbean.

This program is oriented to staff members from incubators to facilitate exchanges, experiences and networks between incubators and businesses that are members of the Latin-American Network of Business Incubators and Technological Parks (RedLAC), promoted by InfoDev and REDLAPI (Latin-American Technological Park and Incubator Associations Network).

About CreaMe
CreaMe was started in Colombia in 1996 with the name “Incubadora de Empresas de Base Tecnológica de Antioquia” (Technology Based Business Incubator of Antioquia) accompanied by different players in the society: private companies, associations, the government and more than 16 universities.

In 2006 it was transformed into CreaMe Centro Integral de Servicios Empresariales, a tool to execute and achieve the objectives of the entrepreneurs, the institutions and the territorial entities.

About 3IE
The International Institute for Innovation and Entrepreneurship (3IE) is looking for opportunities to convert the knowledge and ideas into prototypes, products, and new companies with bases in technology. The activities of 3IE are oriented to support businesses, organisms, and institutions, both national and international, in order to promote the productive economic development nationally and across Latin America.

The International Institute for Innovation and Entrepreneurship (3IE) is looking for opportunities to convert the knowledge and ideas into prototypes, products, and new companies with bases in technology. The activities of 3IE are oriented to support businesses, organisms, and institutions, both national and international, in order to promote the productive economic development nationally and across Latin America.

http://www.prlog.org/10395237-chile-as-an-example-in-matters-of-entrepreneurship.html

Beyond Voice (A Special Report on Telecoms in Emerging Markets)

New uses for mobile phones could launch another wave of development.

The Economist Special Edition

September 24, 2009

IN A field just outside the village of Bumwambu in eastern Uganda, surrounded by banana trees and cassava, with chickens running between the mud-brick houses, Frederick Makawa is thinking about tomatoes. It is late June and the rainy season is coming to an end. Tomatoes are a valuable cash crop during the coming dry season and Mr Makawa wants to plant his seedlings as soon as possible. But Uganda’s traditional growing seasons are shifting, so he is worried about droughts or flash floods that could destroy his crop. Michael Gizamba, a local village-phone operator, offers to help using Farmer’s Friend, an agricultural-information service. He sends a text message to ask for a seasonal weather forecast for the region. Before long a reply arrives to say that normal, moderate rainfall is expected during July. Mr Makawa decides to plant his tomatoes.

A few miles away in the village of Musita, Michael Malime, another village-phone operator, explains how his customers have been using the same service to get farming tips. Rice farmers who had trouble with aphids texted for advice and received a message telling them how to make a pesticide using soap and paraffin. A farmer with blighted tomato plants learned how to control the problem by spraying the plants with a milk-based mixture.

The Farmer’s Friend service accepts text-message queries such as “rice aphids”, “tomato blight” or “how to plant bananas” and dispenses relevant advice from a database compiled by local partners. More complicated questions (“my chicken’s eyes are bulging”) are relayed to human experts, who either call back within 15 minutes or, with particularly difficult problems, promise to provide an answer within four days. These answers are then used to improve the database.

Farmer’s Friend is one of a range of phone-based services launched in June by MTN, Google and the Grameen Foundation’s “Application Laboratory”, or AppLab. As well as disseminating advice in agriculture, provided by the Busoga Rural Open Source and Development Initiative, the new services also provide health and market information. The Clinic Finder service points people to nearby clinics, and the Health Tips service explains the symptoms of common diseases.

Lastly there is Google Trader, a text-based system that matches buyers and sellers of agricultural produce and commodities. Sellers send a message to say where they are and what they have to offer, which will be available to potential buyers within 30km for seven days. Mr Makawa says his father used the service to look for a buyer for some pigs, which he sold to pay school fees. These services cost 110 shillings ($0.05) a time, the same as a standard text message, except for Google Trader, which costs double that. In their first five weeks the services received a total of more than 1m queries.

A web of sorts

“There is a big shift from holding a phone to your ear to holding it in your hand,” says David Edelstein of the Grameen Foundation. “It opens the door to information services. It’s not the web, but it’s a web of services that can be offered on mobile devices.” As with the Village Phone project, Grameen is trying to establish a model that can be scaled up and replicated in other countries. Offering agricultural and health information is more difficult than offering a phone service, however, because such information must be localised and must take cultural differences into account. The answer is to work closely with local partners, says Mr Edelstein. Grameen is also experimenting with the idea of “community knowledge workers”—local people who can help others get access to mobile services, reading, translating and explaining text messages where necessary, just as village-phone operators provide access to basic communications.

Trading up

Grameen’s collaboration with MTN and Google in Uganda is just one of dozens of services across the developing world that offer agricultural, market and health information via mobile phones. In India, for example, farmers can sign up for Reuters Market Lite, a text-based service that is available in parts of India. Its 125,000 users pay 200 rupees ($4.20) for a three-month subscription, which provides them with local weather and price information four or five times a day. Many farmers say that their profits have gone up as a result.

Tata Consultancy Services, an Indian operator, offers a service called mKrishi which is similar to Farmer’s Friend, allowing farmers to send queries and receive personalised advice. “The rural population is willing to pay substantial subscription fees to get this information multiple times a day,” says Kunal Bajaj of BDA. There have been lots of pilot schemes in the past, he says, but commercial offerings are now beginning to gain ground.

Nokia, the world’s largest handset-maker, launched its own information service, Nokia Life Tools, in India in June. In addition to education and entertainment, it provides agricultural information, such as prices, weather data and farming tips, that can be called up from special menus on some Nokia handsets. The basic service costs 30 rupees a month, and a premium service which provides detailed local crop prices in ten states is available at twice that price. “It is in its early stages, but it has resonated extremely well with its target audience,” says Olli-Pekka Kallasvuo, Nokia’s chief executive.

Services to help farmers have been most widely adopted in China, where China Mobile offers a service called Nong Xin Tong in conjunction with the agriculture ministry, as part of its push into rural areas. It has already signed up 50m users and is aiming for 100m within three years. The service provides news, weather information and details of farming-related government policies.

China Mobile also runs a website, 12582.com, that sends farmers information about planting techniques, pest management and market prices. The service, which costs two yuan ($0.30) a month, sends out 13m text messages a day and has over 40m users. There are dozens of other examples across the developing world. TradeNet, launched in Ghana in 2005, now links buyers and sellers of agricultural products in nine African countries; CellBazaar provides a text-based classified-ads service in Bangladesh.

Mobile phones are also being used in health care. One-way text alerts, sent to everyone in a particular area, can be used to raise awareness of HIV; sending daily text messages to patients can help them remember to take their drugs for tuberculosis or HIV. Mobile phones can be used to gather health information in the field faster and more accurately than paper records and help with the management of drug stocks. Camera-phones are used to send pictures to remote specialists for diagnosis.

Bright Simons, a Ghanaian social entrepreneur, has devised a phone-based system called mPedigree to tackle the problem of counterfeit drugs. Some 10-25% of all drugs sold are fakes, according to the World Health Organisation, and in some countries the proportion can be as high as 80%. Under Mr Simons’ scheme, which is being implemented in Nigeria and Ghana, a scratch-off panel on the packaging reveals a code which can be texted to a special number to verify that the drugs are genuine. Most mobile-health projects are still at the trial stage, but a report compiled in 2008 by the UN Foundation and the Vodafone Foundation documented around 50 such projects across the developing world. Studies are now under way to quantify their benefits.

These new services have become feasible because mobile phones are increasingly ubiquitous. “We are now in a new phase where we are seeing the network effects of so many people using mobile phones,” says Mr Simons. His system can, for example, safely assume that the pharmacist in any given village will have a mobile phone. These text-based services, though they fall short of full internet access, have the potential to unlock a range of social and economic benefits to users of even the most basic mobile phones. “There’s a lot of talk about what you can do with more sophisticated devices, but it’s much more compelling when you focus on the devices that people have in their hands today,” says Mr Edelstein.

Money talks

Quantifying the benefits of agricultural and health services is hard, and such services are still in their early days in much of the world. The mobile service that is delivering the most obvious economic benefits is money transfer, otherwise known as mobile banking (though for technical and regulatory reasons it is not, strictly speaking, banking). It has grown out of the widespread custom of using prepaid calling credit as an informal currency.

Suppose you want to send money from the city back to your family in the country. You could travel to the village and deliver the cash in person, but that takes time and money. Or you could ask an intermediary, such as a bus driver, to deliver the money, but that can be risky. More simply, you could buy a top-up voucher for the amount you want to transfer (say, $10) and then call the village-phone operator or shopkeeper in your family’s village and read out the code on the voucher. The credit will be applied to the phone of the shopkeeper, who will hand cash to your family, minus a commission of 10-20%. In some countries, where airtime can be transferred directly from one phone to another by text message, the process is even simpler: load credit onto your phone, then send it to someone on the spot who in return gives cash to your intended recipient.

These methods became so widespread that some companies decided to set up mobile-payment systems that allow real money, rather than just airtime, to be transferred from one user to another by phone. Once you have signed up, you pay money into the system by handing cash to an agent (usually a mobile operator’s airtime vendor), who credits the money to your mobile-money account. You can withdraw money by visiting another agent, who checks that you have sufficient funds before debiting your account and handing over the cash. You can also send money to other people, who will be sent a text message containing a special code that can be taken to an agent to withdraw cash. This allows cash to be sent from one place to another quickly and easily.

Some mobile-money schemes also allow international remittances; others issue participants with debit cards linked to their mobile-money accounts. Since there are many more mobile phones and sellers of mobile airtime than there are cash machines and bank branches, mobile money is well placed to bring financial services within reach of billions of “unbanked” people across the developing world.

The biggest successes in this field so far have been Gcash and Smart Money in the Philippines, Wizzit in South Africa, Celpay in Zambia and, above all, M-PESA in Kenya, which has become the most widely adopted mobile-money scheme in the world. Launched in 2007 by Safaricom, Kenya’s largest mobile operator, it now has nearly 7m users—not bad for a country of 38m people, 18.3m of whom have mobile phones. M-PESA’s early adopters were young, male urban migrants who used it to send money home to their families in the country. But it has since become wildly popular and is used to pay for everything from school fees to taxis (drivers like it because it means they are carrying less cash around). Roughly $2m is transferred through the system each day, with an average amount of $20. “In markets in Kenya, stallholders are happy to take M-PESA payments. It’s pretty dramatic,” says Bob Christen, head of the “Financial Services for the Poor” initiative at the Bill & Melinda Gates Foundation.

Making it easier, quicker and cheaper to transfer money has enormous social and economic benefits. Commissions are lower, and recipients no longer have to pay for transport to towns to make withdrawals. They can also take out funds more easily and frequently. In rural households that have adopted mobile money, incomes have increased by 5-30%, according to Olga Morawczynski, an ethnographer at the University of Edinburgh who has studied M-PESA in detail. It also saves men working in the city having to take time off to deliver the money to their families. The only drawback, say their wives, is that some men now visit home less frequently.

A safe place for savings

M-PESA is also used as a form of savings account, even though it does not pay interest. Having even a small cushion of savings to fall back on allows people to deal with the unexpected, such as suddenly having to pay for medical treatment. “An awful lot of people climb out of poverty every year, but a lot drop back in because they have no savings, no buffer, so when something bad happens they have to sell assets and lose a lot of ground,” says Mr Christen. Poor people tend to save by buying livestock, which can get sick or die, or buying gold, which can be stolen, or investing in community-based schemes that may be fraudulent, says Timothy Lyman of the Consultative Group to Assist the Poor (CGAP). Mobile banking offers a more reliable alternative, he says, and could have economic benefits comparable to those of mobile phones.

Given all these benefits, why has mobile banking taken off in Kenya and a few other places but not elsewhere? M-PESA did not do well in neighbouring Tanzania, for example. There were special factors that made M-PESA more likely to work in Kenya: the unusually high cost of sending money by other methods; the unusually large market share (80%) of Safaricom, the main mobile operator (an affiliate of Vodafone); the regulator’s decision to allow the scheme to proceed, even without formal regulatory approval; and, most intriguingly, the post-election violence in the country in early 2008. M-PESA was used to transfer money to people trapped in Nairobi’s slums at the time, and some people regarded M-PESA as a safer place to store their money than the banks, which were entangled in ethnic disputes. All this makes Ms Morawczynski think that Kenya’s success in mobile banking may not be matched elsewhere. “But I hope somebody can prove me wrong,” she says.

There are signs that her wish may soon come true. Banks and regulators, which have been sceptical towards mobile money in many countries, are coming around to the idea, in large part because of M-PESA’s success. “Many of the issues that seemed to be significant stumbling blocks last year seem less significant now, or at least more manageable,” says Mr Lyman. There has, he says, been a “change in the comfort level” about non-banks (ie, operators) providing financial services. “A year ago most banks were scared—they were seeing the mobile guys taking their lunch away,” says Dare Okoudjou, head of mobile money at MTN. But now, he says, some banks have realised that teaming up with a mobile operator to launch a mobile-money service will allow them to reach many more customers. After all, mobile operators have far more powerful brands and much greater reach than banks.

Regulators, meanwhile, are reassured by the banks’ involvement. Mobile-money schemes generally limit balances and transfers (typically to around $100), which helps allay fears about money-laundering. And when customers sign up, they have to produce some form of identification. That makes the process more formal than for buying a SIM, but less rigorous than for opening a bank account. “We can find a balance between those two,” says Mr Okoudjou.

MTN’s launch of a mobile-money service in Uganda in March 2009, in partnership with Stanbic Bank, provides further cause for optimism. MTN backed up its launch with a huge marketing campaign based around the simple idea of sending money home, as Safaricom had previously done in Kenya. After three months 60% of the population had heard of the service—a level of awareness that M-PESA took a year to achieve, according to MTN. After four months the service had signed up 82,000 users. Of the $5.1m transferred in that period, half was in the fourth month, indicating a rapid take-off. MTN plans to increase the number of outlets that can handle mobile money to 5,000 by early 2010.

Banking for the unbanked

MTN’s apparent success in Uganda seems to suggest that Kenya may not be a one-off after all. After fine-tuning its technology and procedures in Uganda, MTN plans to introduce the service in 20 other African and Middle Eastern countries; it has already launched in Ghana. Meanwhile Zain, which operates in several African markets, has started its own mobile-money service, called Zap. According to CGAP, there will be over 120 mobile-money schemes in developing countries by the end of 2009, more than double the number in 2008. By 2012, it predicts, some 1.7 billion people will have a mobile phone but no bank account, and 20% of them will be using mobile money.

Operators do not expect to make much money from mobile banking, says Mr Okoudjou, but it can help keep customers from defecting to rivals and cut costs by allowing people to top up their airtime directly on their phones, as well as providing wider social and economic benefits that reflect well on operators. Most importantly, he says, mobile banking can help the industry repeat the huge impact made when mobile phones were first introduced. “This is a second wave that can unleash the potential of mobile phones again,” he says. “So we need to do this, and we need to do it properly, and we need to do it all over.”

Direct Link: http://www.economist.com/specialreports/displaystory.cfm?story_id=14483848

African Entrepreneurs

An interesting profile of three entrepreneurs who have taken on the challenge of Africa's most difficult problems.

New York Times

September 8, 2009

By: Dwyer Gunn

The problems facing developing countries, in Africa and elsewhere, are overwhelming in their magnitude and complexity. From HIV/AIDS to widespread corruption and poverty, obstacles to economic development are occupying some of the world’s brightest minds. The three individuals profiled below are tackling Africa’s most trenchant problems in vastly different ways but with a common goal: to create a new development paradigm for the continent.

The Entrepreneur

Few development experts would deny that, at some point, developing countries need to transition away from a reliance on foreign aid toward an economy supported by a sustainable business sector. People start to disagree, however, on how to make that happen.

Magatte Wade, a Senegalese entrepreneur and founder of beverage company Adina for Life, has jumped into the debate with a focused vision for Africa’s future. Disdainful of foreign aid, skeptical of the viability of the technology industry in Africa in the near term, and placing no faith in the ability of microfinance to transform lives on a large scale, Wade is focused on good, old-fashioned manufacturing with a pro-environment, pro-human-rights twist.

Born in Senegal and educated in France, Wade decamped to the United States after school and ended up in Silicon Valley, the ultimate destination for the motivated entrepreneur. On a 2003 trip home, she was disappointed to find that the traditional hibiscus drink of her childhood had been usurped by Western soft drinks. Determined to “criticize by creating,” Wade returned home, lined up a prestigious mentor and co-founder, Odwalla founder Greg Steltenpohl, and set to work.

The company she founded, Adina for Life, relied on hibiscus from women’s co-ops in Senegal for the company’s first beverage products. Six years later, Adina for Life sells its beverages in Whole Foods and other stores around the country. Those hibiscus-growing co-ops in Senegal now take orders years in advance.

Wade acknowledges that African manufacturers will be unable to compete with countries like China and India on cost, but she believes the continent can transform itself into the producer of the world’s high-end, organic, socially responsible brands. In a recent op-ed for The Huffington Post, Wade described her target market as the, “cultural creative demographic in the U.S.”

Wade, meanwhile, is founding a new company, a lifestyle brand which will premiere with a line of fashion accessories and personal care products. She wants the company to grow into Africa’s first truly global brand and serve as an example to both the West and other African entrepreneurs.

The company is just one part of Wade’s “comprehensive plan for Africa,” an anti-aid alternative to the Jeffrey Sachs vision. Her plan centers around advocating for business-friendly legal systems, mentoring and encouraging young entrepreneurs, and spreading her vision for green manufacturing. “If we’re going to be building factories, let’s not build ones that are going to be harmful to the environment,” she says. “If we have to use wood, let’s use bamboo because it’s more sustainable. If we’re going to be cutting trees, let’s plant new ones in their place.”

One thing that definitely doesn’t figure into her plan is foreign aid. She believes Africans can do it on their own. “At the end of the day, we’re not going to build anything on aid,” she says fiercely. “Aid has never built anything.”

The Venture Capitalist

Jon Gosier

When Jon Gosier told me that his roots lay in the music industry, I had to laugh. It’s an unlikely background for the founder of a technology incubator based in Kampala, Uganda.

Yet Gosier says that his transition from the music industry to the tech industry was a long time coming. He worked for Tyler Perry, the Atlanta-based mogul whose plays, musicals, films, and television shows targeted at African-Americans have launched him onto Forbes’s list of the 15 highest-paid men in Hollywood. While Gosier’s colleagues were struggling to protect the industry from tech upstarts like Napster, he was cultivating a secret passion for innovative technology.

Eventually, he says, he sided with the enemy and decided to leave the industry.

When Gosier’s girlfriend was offered a job in Kampala, he left the U.S. with her, eager for a change. His early efforts to educate himself about the tech industry in Uganda revealed a striking trend. While Kampala’s Makerere University produces 900 computer science graduates every year, only 5 to 10 perecent of them manage to find jobs in the field. The young people Gosier spoke to told him that lack of capital and support hindered the development of a tech industry in the country.

Gosier devised a bold plan to address the gap. Using his personal savings as startup capital, he launched a sort of technology incubator called Appfrica Labs, which provides budding entrepreneurs with investment capital, a stable salary, a structured workplace, and the kind of training and mentorship that western entrepreneurs take for granted. Gosier hopes the innovators currently sitting down the hall from him will all have departed within a year to run their own tech startups. Less than six months into the venture, Gosier secured his first round of funding from a venture capital firm seeking exposure to Africa.

Appfrica’s Kampala office is a little outside the clattering, clanging city center within a quiet walled compound. When I visited in June, Appfrica’s engineers — universally young and Ugandan — were hard at work on a number of projects.

At the front of the room, two phone operators busily answered ringing phones for QuestionBox, a pilot project with The Grameen Foundation. The service acts as a Google for rural Africans, providing information to those without Internet access. People can call in with questions or relay them to the staffers QuestionBox dispatches to rural villages.

Each operator currently handles 100 to 200 questions per day. I watched the operators answer the phones, jot notes while listening, and politely respond, “Unfortunately I don’t have an answer for you right now but let me call you back within 15 minutes.”

Across the room, Felix Kitaka, a 19-year-old Kampala native, was working on status.ug, an application which allows Ugandans to interact with social networks (i.e. Facebook) by mobile phone, a real boon in connectivity-challenged East Africa. The application has already attracted the interest of UNICEF, who hopes to use it to involve youth in its programs. Kitaka recently secured Series A venture capital funding, a promising start to Gosier’s venture.

Elsewhere in the room, engineers worked on a volunteer software translation project, Appfrica’s blog, a texting service which notifies users when their power has gone off, and a database of African tech companies.

The engineers of Appfrica all commented on the low expectations which have discouraged Ugandan tech entrepreneurs in the past. Jerry Opolot, an engineer who has been at the company for only a few months, told me, “Clients in Uganda don’t trust Ugandan companies.”

When I asked Gosier about the prejudices Appfrica faces, he agreed that most local companies use foreign-owned tech companies for their needs, but he believes that Appfrica can change the status quo. “Once a company does it well, it will change.”

Appfrica is young, but Gosier isn’t the only one who believes in its future. In addition to The Grameen Foundation, Appfrica has been contracted by a Ugandan shipping company, an African investor network, and a news portal developed by a New York Times reporter, among others.

The HIV Warrior

The walls of the bedraggled, recently-flooded headquarters of Meeting Point in Kitgum Province, Northern Uganda, are adorned with the kinds of posters you see in the offices of social workers and high-school guidance counselors, but with a distinct twist. One poster shows a handsome, dashing man on a motorbike with his wife or girlfriend and reads, “Responsible men go together with their partners for HIV tests.” Another encourages HIV patients to use bed nets and take their antiretroviral (ARV) drug regimens.

Ketty Opoka at Meeting Point.

In 1990, when Meeting Point was founded as Kitgum’s first HIV/AIDS organization, there were no such posters. The disease was still poorly understood and carried a heavy stigma. Many of Meeting Point’s early clients were either dumped on members’ doorsteps by frightened families or found through whispered rumors. Meeting Point would admonish family members: “This is still your daughter — your daughter that you have lived with.”

Ketty Opoka, who co-founded and now runs Meeting Point, was a teacher and mother of six when HIV/AIDS began claiming families in Uganda. She spent the early years of the epidemic taking patients into her home and adopting the disease’s orphans.

Meeting Point was established primarily as a hospice organization. Posters on the wall list the organization’s most important statistics — clients enrolled, clients deceased, and clients alive. In 1990, Meeting Point had 4 male and 12 female clients, all of whom died.

The numbers in recent years are much rosier and reflect both the organization’s evolving mission and the vast improvements in HIV/AIDS treatments. Meeting Point now works on ARV regime compliance, runs community dialogues and classes on prevention, distributes HIV/AIDS health kits, and provides funding to the family members of HIV orphans, allowing children to stay with relatives without sapping scarce resources.

The organization’s philosophy has also evolved along with science. “In the past, if you had HIV/AIDS, you thought you had to die,” Opoka told me. “Now you can help other people. It’s gone from a philosophy of ‘give me; help me’ to helping others.” Former clients now provide counseling to new patients on their ARV regimes, encouraging people to stick out the difficult early phase.

When floods struck Meeting Point’s headquarters in 2007, the organization’s new philosophy, as well as its home-grown community roots, was on full display. Told that it needed to move to higher ground or risk further flooding, Meeting Point secured a plot of land from the local Catholic Church. Opoka asked her clients to help clear the land.

So many volunteers showed up that Meeting Point’s staff had to implement a rotating shift schedule for the land clearing. The local hospital’s doctors told Opoka that while the land was being cleared, Meeting Point clients showed up early for their ARV regimes, toting hoes and shovels and begging doctors to wait on them first so they could head to Meeting Point for their shifts.

Opoka showed me the site for the new building. It’s better-positioned, right in the middle of Kitgum and within sight of the church. Meeting Point is still searching for the funds for the project but, in a hopeful gesture, the foundation has been laid. As she explained the role her clients and the community will play in the construction process, Opoka gestured toward the new foundation and reassured me, “It’s solid.”

http://freakonomics.blogs.nytimes.com/2009/09/08/african-entrepreneurs/

Reforms Needed to Promote Entrepreneurship

The Governor, State Bank of Pakistan, Syed Salim Raza has stressed the need for reforms to foster an entrepreneurial culture.

Addressing a conference on Entrepreneurship 2009 organised by Memon Professional Forum he said there was ample research available globally, which links entrepreneurship, innovation and growth to encourage policy makers to favour policies fostering reforms. He said the World Bank 2009 survey of cost-of-doing-business in 181 countries clearly stresses the need for continued reforms in these areas in Pakistan.Mr Raza dwelt upon meaning of entrepreneurship and said that it has a range of meanings. On the one hand it encompasses innovative ideas and implementations that change the way business is conducted in a market. On the other extreme, the term applies equally well to the lowly street vendor, who seeks to set up a small stall of his own to provide a living to his family, funded perhaps by micro-savings or micro credit, and hoping to succeed by dint of sheer hard work and the ability to satisfy a small market niche.

http://www.dailytimes.com.pk/default.asp?page=2009\08\13\story_13-8-2009_pg5_8

Walk, Don't Run

In a guest article Justin Lin, the chief economist at the World Bank, argues that low-income countries need to make small, local banks the mainstay of their financial systems.

July 9, 2009
The Economist

FIXING finance is easier if you have a clear idea what it is for. What matters most is setting up a financial sector that can serve the competitive sectors of an economy. In many poorer countries, that means focusing on activities dominated by small-scale manufacturing, farming and services firms. The size and sophistication of financial institutions and markets in the developed world are not appropriate in low-income markets. Small local banks are the best entities for providing financial services to the enterprises and households that are most important in terms of comparative advantage—be they asparagus farmers in Peru, cut-flower companies in Kenya or garment factories in Bangladesh.

The experiences of countries such as Japan, South Korea and China are telling. Those countries managed to avoid financial crises for long stretches of their development as they evolved from low-income to middle- and high-income countries. It helped greatly that they adhered to simple banking systems (rather than rushing to develop their stockmarkets and integrate into international financial networks) and did not liberalise their capital accounts until they became more advanced. The experience of the United States is also instructive. Hulking national banks and equity markets become important only when a country becomes more advanced and when large capital-intensive firms dominate the economy. The rise of the New York Stock Exchange occurred only after the creation of large-scale industrial firms at the close of the 19th century. For the early labour-intensive phase of America’s economic development, local banks were dominant.

Governments and the international financial institutions that help them should resist the temptation to strive for “modern” stockmarkets in the early stages of a country’s development. Efforts to create African stockmarkets, for example, have not yet borne much fruit. There are relatively few listed shares in the stockmarkets of sub-Saharan countries. Excluding South Africa, the annual value of traded shares relative to GDP in Africa is below 5% (see chart). In Latin America and the Caribbean the figure is less than 10%; in the former communist countries of Europe and Central Asia it is less than 15%. The comparable figure in 2007 was 79% in Denmark, 207% in Spain and 378% in Britain.

Stockmarkets are unlikely to be a major force in poor countries in the near future. Microfinance companies and other non-bank financial institutions will play a more important role in financing poor households. And stockmarkets are not the best conduit for providing finance to the small- and medium-sized businesses that characterise the early stages of countries’ economic development. Instead, the banks will be much more critical when it comes to financing companies.

But gigantic banks are not the way to go. In Africa and other parts of the developing world, relatively large foreign banks that were set up in the colonial era have long played a role. But these institutions tend to serve relatively wealthy customers. Smaller domestic banks are much better suited to providing finance to the small businesses that dominate the manufacturing, farming and services sectors in developing countries. There is evidence to suggest that growth is faster in countries where these kinds of banks have larger market shares, in part because of improved financing for just these kind of enterprises.

It is true that bigger banks can exploit economies of scope and scale that make them more diversified, thus enhancing systemic stability. But local banks are stable in a different way. In America the country’s 7,630 community banks have so far been only mildly affected by the financial crisis as they have continued to deal with the same small, local clients that they have had for years.

Governments in low-income countries should recognise the strategic importance of small, private domestic banks. They should also carry out some fundamental reforms. On the demand side of the equation, entrepreneurs in developing economies need to be able to signal more easily that they are creditworthy. Sustained efforts to improve credit and collateral registries offer large pay-offs. Credit registries enable first-time entrepreneurs to document their personal credit histories and share them with lenders. Collateral registries enable lenders to verify that assets such as property and vehicles have not already been pledged by the borrower to secure past loans. Transparent and efficient court procedures allow lenders to seize collateral in the event of loan defaults.

Step changes

On the supply side, underachieving banks, be they large or small, should be rooted out through merger or liquidation. In many developing countries, supervisory authorities find it difficult to intervene and dispose of troubled banks’ assets quickly. Supervisors in some countries face legal challenges from the owners of such banks, sometimes long after they have left office. All this impedes the efficient exit and entry of institutions that make for a vibrant local banking sector. Failing local banks should be acquired by stronger local banks or liquidated if no such purchaser can be found. After liquidations well-capitalised new banks should be allowed to enter the sector.

Facilitating the creation of new local banks and improving the methods for intervening to deal with troubled banks will encourage competition and provide healthier incentives. That will help banks promote the private-sector-led growth that will be crucial to recovery from the current financial crisis. Leave the developed markets to worry about how to reform their highly evolved financial systems. To make sustained progress in lifting the weight of the extreme poverty that will remain after the crisis has subsided, low-income countries need to make their financial institutions small and simple.

http://www.economist.com/businessfinance/displaystory.cfm?story_id=13986299

U.S. urged to aid African SMEs

U.S. government encouraged to provide additional support for African small businesses, given their importance in driving Africa's development.

By Evelyn Njoroge
Date: August 3, 2009

NAIROBI, Kenya - The United States government has been urged to do more to facilitate African traders to fully take advantage of the opportunities presented by the African Growth and Opportunity Act (AGOA).

Congressman Jim McDermott pointed out that while the US administration has done more to remove the barriers to African imports; more support is needed to facilitate the growth of Africa’s Small and Medium Enterprises.

“The engines of every economy are small businesses and they too will drive Africa’s development,” he stated.

He said one way to do this is to establish the ‘Small Business Development Centres’ which can provide the technical assistance and training that such entrepreneurs require to grow their business and thrive.

This model, he explained, had been very successful in Latin America and Eastern Europe and he hoped that the US could partner with African stakeholders to launch such an initiative in the continent.

“These centres work with financial institutions to find ways to collaborate and lower the cost of obtaining capital and expertise to enable the small businesses move to larger levels.

The lawmaker also proposed the formation of a ‘permanent’ US-African Private Sector Council, which would provide policy makers in the Africa and America with recommendations to reduce the cost of doing business in African and barriers that exist in joint ventures.

“If we can empower such entrepreneurs, we can power the engine that will drive economic growth for decades to come. Africa’s future is in your hands and we extend our hands to help you realise Africa’s destiny,” he enthused.

Mr McDermott spoke during the official launch of the AGOA Exhibition which was also attended by Finance Minister Uhuru Kenyatta who hailed the role played by the four regional hubs supported by the USAID in creating the necessary competitive capacity to enable the private sector take advantage of the trade opportunities by tapping into new pockets.

For instance, these hubs have seen Kenyan flowers gain the momentum to compete with South American flowers in the North American market.

“It is my hope that this initiative will not only be sustained but enhanced for the benefits of the private sector and in deed of the economy as a whole,” he said adding that the government would strive to complement these efforts and ensure the creation of a conducive environment for doing business.

Mr Kenyatta also called on the developed world to maintain an open trade policy to enable African countries penetrate their markets.

“Protectionism and trade reductions should not be part of the global response to the (global economic) crisis. We urge the international community to have an open trade and finance system including the successful completion of the Doha Development Agenda,” he said.

His remarks came after revelations that the Sub-Saharan African is the only region that under AGOA has experienced a serious decline in apparel market share in the United States which has resulted in the closure of dozens of factories and the loss of an estimated 100,000 jobs.

This has largely been blamed on the elimination of Multi-Fiber Arrangement quotas in 2005 and the expiry of safeguard measures for China’s exports last year.

http://www.capitalfm.co.ke/business/Local/US-urged-to-aid-African-SMEs-2798.html

Angola: Entrepreneurship is Highest in Africa

Surveys to link economic growth and entrepreneurial activity find a high level of activity in Angola; officials hope to boost the private sector.

MacauHub
Published: July 27, 2009

Luanda, Angola – Entrepreneurship amongst Angolans is one of the highest in the world and is the highest on the African continent, yet they consider the financial support available to be insufficient, according to the Global Entrepreneurship Monitor (GEM).

The study, carried out by the North American university of Babson and by the London Business School, is considered the biggest of its kind and aims to establish a link between economic growth and entrepreneurial activity.

In the latest edition (2008), published in July, Angola is included for the first time in the group of 43 countries, in the analysis made in partnership with the Sociedade Portuguesa de Inovação (the Portuguese Association for Innovation) and the Angolan Universidade Católica, and surprised by coming out first, beating the big countries like Egypt and South Africa, and appearing alongside European and Asian economies.

The level of entrepreneurship is considered “very high," with close to 23 percent of people involved in entrepreneurial activity, although “reforms are necessary to improve entrepreneurs’ access to funding and their capacity to set up new companies.”

The data, mainly originating from a poll, indicate that, in 2008, 23 adults in every 100 were involved in start-up companies, the fourth highest rate of the 43 countries in the study and over twice the average for these countries (10.5 percent).

“Angola has around 4.7 times more entrepreneurs in upcoming businesses than owners of new businesses. This data makes Angola the country (included in the study) with the biggest relative difference between the two types of entrepreneurial activity,” says the Monitor.

“In Angola, around a quarter (25.2 percent) of the female adult population is involved in early-stage entrepreneurial activity. For men, this proportion is down to one fifth (20.3 percent). No other country in the GEM 2008 has a greater proportion of female entrepreneurs than male ones,” it says.

Over half of the adult men and women in Angola believe in accumulating the knowledge and skills necessary to set up a business and this “necessity” is the main motivating factor.

Those specialists contacted by the authors of the study “consider that the financial support offered to entrepreneurs is partially insufficient,” such as the government programs for supporting entrepreneurship, education and the transfer of Research and Development.

Other low points are bureaucracy, regulations requiring licences being “excessively difficult in Angola,” as well as infrastructures which are still considered insufficient.

“On a more positive note” is the improvement in social and cultural factors, subsidies and government policy, “particularly with regard to the extent to which they favour new businesses and the nature of the priority the government gives to entrepreneurship."

“When one compares Angola with economies driven by efficiency and innovation, this trend can also be seen across nearly all aspects," said the study.

At a time when reforms are being introduced at every level throughout the country, with the aim of improving existing conditions and boosting the private sector, “entrepreneurship in particular, is recognized as a critical factor in Angola’s continuing development.”

“Stimulating entrepreneurial activity among the Angolan population,” it adds, would “enable a growth in new and innovative businesses, thus contributing to reducing the country’s relative dependence on oil and maintaining the world’s highest rates of growth.

http://www.macauhub.com.mo/en/news.php?ID=7811

Teaching Business in the Developing World

Training programs for entrepreneurs in developing countries can be successful in increasing business longevity and promoting wealth creation.

By: Kate Murphy

Published: June 24, 2009; New York Times

Government agencies and international aid groups have long supported programs that train the world’s poor in how to start and run their own businesses. The training is seen as a way to end hunger and stabilize societies.

But interest in these programs has grown lately with the wider availability of microloans, or very small enterprise loans made to the poor. As with any start-up, these businesses are more likely to survive, advocates say, if the owners have basic operational skills.

“There’s been a realization in the microfinance community that loan recipients are more likely to succeed if they also receive business education,” said Bobbi L. Gray, research and evaluation specialist with Freedom From Hunger, a nonprofit organization in Davis, Calif., that provides financial education in developing countries.

Indeed, the nonprofit research group Innovations for Poverty Action in New Haven, Conn., published a paper in May that found that Peruvian villagers who had received microloans and had been randomly selected to receive business and entrepreneurship training performed significantly better than peers who had received loans and no financial education.

“Even those who reported having the least interest before getting the training had higher revenues,” said Dean Karlan, a professor of economics at Yale, a founder of Innovations and lead author of the study. He said the findings indicated that the positive effect of entrepreneurial education was not because of a self-selecting bias, whereby only the most motivated, and therefore more likely to succeed anyway, chose to participate.

From Botswana to Bolivia, entrepreneurship training has resulted in thriving microenterprises — like soap makers, cocoa processors and handicraft exporters — that would not have existed otherwise. Some programs may gather villagers in huts and use various baskets to demonstrate how to allocate capital. Other programs may focus on established but struggling businesses, giving owners DVDs that cover topics like pricing and distribution channels.

“A good intervention doesn’t treat everyone the same,” said Bruce McNamer, chief executive of TechnoServe, a nonprofit group in Washington that has worked with entrepreneurs in developing countries since 1968 to expand their businesses and foster economic growth in their communities. “How you help depends on the circumstance.”

Mr. McNamer’s group, which works with the United States Agency for International Development and the State Department, provides free business consulting services and also sponsors business plan competitions to identify aspiring entrepreneurs in developing countries. “These are usually people who have started a business but they just don’t know how to get from point A to point B,” he said.

An example is a cooperative of 50 farmers in northern Nicaragua that four years ago was just getting by while cultivating coffee, he said. But the cooperative, with assistance from TechnoServe, turned to other crops, like the starchy staple malanga, that increased their profits. The cooperative now has 250 farmers and has opened its own packaging plant, which employs 80 people. The plant’s products are exported as far as Miami.

Teaching financial literacy and entrepreneurial skills is seen as particularly important to the reconstruction of war-torn regions like Afghanistan and Iraq. “It doesn’t matter if you build roads if one in four kids dies by age 5” because of illness or malnutrition, said Ross Paterson, a self-described business coach and retired Army officer in Keller, Tex.

He has been to Afghanistan 10 times in the last seven years to teach entrepreneurship. It is more important, he said, to give Afghans the ability to build businesses that will provide the income to sustain them.

Occasionally fearing for his safety because of the continued Afghan fighting, Mr. Paterson says he primarily teaches leadership skills by helping the local residents to recognize and successfully work with different personality types, whether colleagues or customers.

While Mr. Paterson’s courses last only a few weeks and are limited to those who speak fluent English, other organizations emphasize the importance of finding and training local people to teach the fundamentals of running a business.

“You need people who are going to be there for the long term and who know what really works on the ground,” said Fiona Macaulay, founder and president of Making Cents International, a 10-year-old nonprofit organization in Washington that creates entrepreneurship courses for the disadvantaged and trains the people who teach them.

Continuing mentorship and support are crucial to helping entrepreneurs succeed, Ms. Macaulay said. Her organization also offers networking opportunities for its students. “At a business fair in Jordan, for example, we were able to connect a woman who made cakes with a woman who made boxes to transport the cakes,” Ms. Macaulay said.

Many of those who teach entrepreneurship in remote and impoverished areas say the biggest hurdle is persuading students to believe that there are opportunities beyond, say, selling fruits or trinkets in an open-air market.

“I’d say getting them to identify new approaches and opportunities is the hardest part,” said Harsh Bhargava, a business consultant in McLean, Va., who with his wife, Aruna Bhargava, a sociology professor at Rutgers, started the nonprofit group I Create in 1997 to teach entrepreneurship in India, their native country.

He says many of the people his organization works with are so downtrodden they cannot envision another way of life. He gave the example of an Indian woman who was so abused by her husband and in-laws that she lacked the confidence even to look anyone in the face. After a local I Create trainer persuaded her to take an entrepreneurship course, she left her husband and started her own grocery store.

Moreover, she successfully sued her husband and in-laws for the return of her dowry and for child support for her son. “She’s now studying to become a lawyer and hopes to work to protect women against dowry-related crimes,” Mr. Bhargava said. “It’s these kinds of stories that make what we do so gratifying.”

http://www.nytimes.com/2009/06/25/business/smallbusiness/25sbiz.html

The Power of Microfinance

As number of applicants for loans decreases, some researchers point to the increasing amount of red tape involved in starting a business.

AlJazeera

By: John Terrett

Published: May 31, 2009

There seems to me to be something almost spiritual about microfinance - as if the idea was handed down by a higher power for the greater good of mankind.

Can you think of another simple idea that satisfies so many human needs in one go?

A micro-loan helps poor people who wish to help themselves and allows the staff of a micro-bank to feel they are giving something back to society.

Meanwhile, a strong microfinance organisation can extend loans to people who go on to develop businesses that frequently increase the output of national economies.

Bangladesh success

Muhammad Yunus, the founder of Grameen Bank, said he first realised microfinancing could help poor people get on their feet when he met a group of desperately poor Bangladeshi merchants in the mid-1970s.

Yunus said these people lived in fear of money lenders who took nearly all their profits.

Collectively the outstanding loans came to just $27.

Yunus gave them the cash from his own pocket and set them free from the tyranny of the debt collector's thugs.

Today there are thousands of microfinance companies all over the world.

The basic idea behind microfinance is simple and tends to follow the Grameen example.

A small amount of credit, at a reasonable interest rate, is offered to people who are considered too risky by traditional financing sources.

Often the amount borrowed is around $100 - sometimes more, sometimes less - which is used to buy tools, or to decorate a shop, or to buy stationery or to take on a new member of staff.

Grameen also pioneered a unique model of providing micro-loans through peer lending.

This is where individuals who wish to take out a micro-loan recruit other potential borrowers to form a peer group.

The group provides its members with support and holds them accountable to one another, creating a powerful form of social collateral and a good reason to pay back the loan on time.

Here in the US rules and regulations make microfinance a little more complicated than it is in Bangladesh, Africa or parts of Latin America.

New York initiative

I have just visited the oldest microfinance company in New York.

Project Enterprise was founded in 1997 by a husband and wife team who wanted to do something for the one-in-four New Yorkers who live in poverty through unemployment, under-employment, very low paying jobs or ill health.

In the 12 years since, it has provided loans and business training to more than two thousand entrepreneurs who would otherwise have been denied access to start-up capital, or could only receive it at very high cost.

Project Enterprise currently has 450 members. Some are borrowers and many more joined to take advantage of the business training programmes on offer.

Seven years ago, Mustaqueem Abdul Azeem was behind bars at New York's infamous Rikers Island prison.

On his release day he felt the urge to use his personality to try his luck as a salesman.

As an ex-con, his chances of landing a full time position or a traditional bank loan to start his own business were zero.

But now he sells health and beauty products from a street vendor cart outside a coffee shop on 125th Street in New York's Harlem district.

"I started out literally with a little fold-up card table," he said, "and two products, a little bit of Shea Butter and a little bit of raw black soap."

Today, Mustaqueem employs five other people. He has a website, a van and a six figure balance sheet.

He's pulled this off in one of the city's poorest districts by working with Project Enterprise.

Catherine Barnett, the Project Enterprise interim executive director, said anyone with a flair for business is welcome.

"We title our programme small loans, big connections, so some people come for the small loans and some people come for the big connections which include the training and the networking," Barnett said.

Red tape

But in a country where 40 million people have no access to a bank account, the number of applicants for microfinancing is growing at a smaller pace than in developing countries.

One reason may be the red tape involved in starting any kind of business.
Lisa Servon, professor of Urban Policy at the New School in Manhattan, said: "In the US if you want to sell empanadas you have to have your kitchen inspected.

"You have to have a licence, there's a lot of things that go along with it and what the result of that is for the micro-enterprise development movement here is that there's a lot more training."

In the US microfinance organisations tend to be NGOs or non-profits relying on generous benefactors while the Grameen Bank of Bangladesh turns a profit each year from which it can lend to new borrowers.

Lisa told me that the recession and credit crunch has made raising funds for micro-loans in the US far more challenging.

"Given that they do survive though philanthropic dollars often times they are less of those dollars available now every foundation every corporate donor is cutting their grants," Servon said.

The fact that sub-prime housing loans given to poor people have been blamed for sparking the recession, the credit crunch might also make raising funds for microfinance in the US more difficult in the future.

There are also severe doubts about whether the microfinance business model can be sustained in America because a strong small business culture means microbusinesses are often overlooked on every level.

But don't tell that to Mustaqueem Abdul Azeem - he admits to feeling the recessionary pinch like everyone else - but he has just asked for another $6,000 to expand his health and beauty products business with a stall in a shopping mall in a rich town to the north of the city.

http://english.aljazeera.net/news/americas/2009/05/200953014457810800.html

1 Million Acres Wasting Away: Entrepreneurship in Malaysia

Malaysian government entrepreneurship seminars provide education, useful tips for entrepreneurs limited by government policies.

Published: May 10, 2009

Daily Express

Kota Kinabalu: The future of Sabah's economy depends on its land assets, former Chief Minister Datuk Harris Salleh said, Saturday.

He said there were more than one million acres in the State that were developed but hardly productive or even completely unused.

"If one happens to travel along Papar, Beaufort or Penampang, one can see plenty of land but not many are put to use for agriculture," he said.

In his address at the opening of a seminar on micro-credit and opportunities for Bumiputera and non-Bumiputera entrepreneurs here, he said government policies, both at Federal and State-level were to be blame for shortcomings in the agriculture sector.

The most obvious was the subsidies given by the Government on various items.

He recalled that in the old days, people produced their own sugar from sugarcane, salt as well as planted crops such as rice and many were self-sufficient.

However, these subsidies, he said, "had made the people lazy", pointing out that because of subsidies for rice, cooking oil and sugar, among others, not many people were too keen to toil their land as it was cheaper to buy than grow.

He said it was high time for the Government to stop subsidising and instead use the funds (from the subsidies) to "jumpstart" the people, particular for the people in rural areas, with each adult given RM300 per month for a certain period of time, adding that this was already practised in Thailand and the United States.

On another matter, Harris said while entrepreneurship seminars were important to disseminate information as well provide the know-how, it was not a guarantee that one would be successful.

He pointed out that many businessmen, although without formal education or the opportunity to attend seminars, have gone on to create business empires worth billions of ringgit.

It goes to show that while education is important, it must be complemented by hard work, thriftiness and discipline, he said.

The seminar aimed at providing information on the micro-credit schemes offered by banks to entrepreneurs, said Haji Faisal Haji Mohamad, chief executive officer of Crystal Knowledge Sdn Bhd, the seminar's organiser.

It also serves to disseminate information regarding entrepreneurship with the aim of encouraging more people to venture into the field, he added.

http://www.dailyexpress.com.my/news.cfm?NewsID=64903

Global Heroes (The Economist - Special Edition on Entrepeneurship)

Published: March 12, 2009

IN DECEMBER last year, three weeks after the terrorist attacks in Mumbai and in the midst of the worst global recession since the 1930s, 1,700 bright-eyed Indians gathered in a hotel in Bangalore for a conference on entrepreneurship. They mobbed business heroes such as Azim Premji, who transformed Wipro from a vegetable-oil company into a software giant, and Nandan Nilekani, one of the founders of Infosys, another software giant. They also engaged in a frenzy of networking. The conference was so popular that the organisers had to erect a huge tent to take the overflow. The aspiring entrepreneurs did not just want to strike it rich; they wanted to play their part in forging a new India. Speaker after speaker praised entrepreneurship as a powerful force for doing good as well as doing well.

Back in 1942 Joseph Schumpeter gave warning that the bureaucratisation of capitalism was killing the spirit of entrepreneurship. Instead of risking the turmoil of “creative destruction”, Keynesian economists, working hand in glove with big business and big government, claimed to be able to provide orderly prosperity. But perspectives have changed in the intervening decades, and Schumpeter’s entrepreneurs are once again roaming the globe.

Since the Reagan-Thatcher revolution of the 1980s, governments of almost every ideological stripe have embraced entrepreneurship. The European Union, the United Nations and the World Bank have also become evangelists. Indeed, the trend is now so well established that it has become the object of satire. Listen to me, says the leading character in one of the best novels of 2008, Aravind Adiga’s “The White Tiger”, and “you will know everything there is to know about how entrepreneurship is born, nurtured, and developed in this, the glorious 21st century of man.”

This special report will argue that the entrepreneurial idea has gone mainstream, supported by political leaders on the left as well as on the right, championed by powerful pressure groups, reinforced by a growing infrastructure of universities and venture capitalists and embodied by wildly popular business heroes such as Oprah Winfrey, Richard Branson and India’s software kings. The report will also contend that entrepreneurialism needs to be rethought: in almost all instances it involves not creative destruction but creative creation.

The world’s greatest producer of entrepreneurs continues to be America. The lights may have gone out on Wall Street, but Silicon Valley continues to burn bright. High-flyers from around the world still flock to America’s universities and clamour to work for Google and Microsoft. And many of them then return home and spread the gospel.

The company that arranged the oversubscribed conference in Bangalore, The Indus Entrepreneurs (TiE), is an example of America’s pervasive influence abroad. TiE was founded in Silicon Valley in 1992 by a group of Indian transplants who wanted to promote entrepreneurship through mentoring, networking and education. Today the network has 12,000 members and operates in 53 cities in 12 countries, but it continues to be anchored in the Valley. Two of the leading lights at the meeting, Gururaj Deshpande and Suren Dutia, live, respectively, in Massachusetts and California. The star speaker, Wipro’s Mr Premji, was educated at Stanford; one of the most popular gurus, Raj Jaswa, is the president of TiE’s Silicon Valley chapter.

The globalisation of entrepreneurship is raising the competitive stakes for everyone, particularly in the rich world. Entrepreneurs can now come from almost anywhere, including once-closed economies such as India and China. And many of them can reach global markets from the day they open their doors, thanks to the falling cost of communications.

For most people the term “entrepreneur” simply means anybody who starts a business, be it a corner shop or a high-tech start up. This special report will use the word in a narrower sense to mean somebody who offers an innovative solution to a (frequently unrecognised) problem. The defining characteristic of entrepreneurship, then, is not the size of the company but the act of innovation.

A disproportionate number of entrepreneurial companies are, indeed, small start-ups. The best way to break into a business is to offer new products or processes. But by no means all start-ups are innovative: most new corner shops do much the same as old corner shops. And not all entrepreneurial companies are either new or small. Google is constantly innovating despite being, in Silicon Valley terms, something of a long-beard.

This narrower definition of entrepreneurship has an impressive intellectual pedigree going right back to Schumpeter. Peter Drucker, a distinguished management guru, defined the entrepreneur as somebody who “upsets and disorganises”. “Entrepreneurs innovate,” he said. “Innovation is the specific instrument of entrepreneurship.” William Baumol, one of the leading economists in this field, describes the entrepreneur as “the bold and imaginative deviator from established business patterns and practices”. Howard Stevenson, the man who did more than anybody else to champion the study of entrepreneurship at the Harvard Business School, defined entrepreneurship as “the pursuit of opportunity beyond the resources you currently control”. The Ewing Marion Kauffman Foundation, arguably the world’s leading think-tank on entrepreneurship, makes a fundamental distinction between “replicative” and “innovative” entrepreneurship.

Five myths

Innovative entrepreneurs are not only more interesting than the replicative sort, they also carry more economic weight because they generate many more jobs. A small number of innovative start-ups account for a disproportionately large number of new jobs. But entrepreneurs can be found anywhere, not just in small businesses. There are plenty of misconceptions about entrepreneurship, five of which are particularly persistent. The first is that entrepreneurs are “orphans and outcasts”, to borrow the phrase of George Gilder, an American intellectual: lonely Atlases battling a hostile world or anti-social geeks inventing world-changing gizmos in their garrets. In fact, entrepreneurship, like all business, is a social activity. Entrepreneurs may be more independent than the usual suits who merely follow the rules, but they almost always need business partners and social networks to succeed.

The history of high-tech start-ups reads like a roll-call of business partnerships: Steve Jobs and Steve Wozniak (Apple), Bill Gates and Paul Allen (Microsoft), Sergey Brin and Larry Page (Google), Mark Zuckerberg, Dustin Moskovitz and Chris Hughes (Facebook). Ben and Jerry’s was formed when two childhood friends, Ben Cohen and Jerry Greenfield, got together to start an ice-cream business (they wanted to go into the bagel business but could not raise the cash). Richard Branson (Virgin) relied heavily on his cousin, Simon Draper, as well as other partners. Ramana Nanda, of Harvard Business School (HBS), and Jesper Sorensen, of Stanford Business School, have demonstrated that rates of entrepreneurship are significantly higher in organisations where a large number of employees are former entrepreneurs.

Entrepreneurship also flourishes in clusters. A third of American venture capital flows into two places, Silicon Valley and Boston, and two-thirds into just six places, New York, Los Angeles, San Diego and Austin as well as the Valley and Boston. This is partly because entrepreneurship in such places is a way of life—coffee houses in Silicon Valley are full of young people loudly talking about their business plans—and partly because the infrastructure is already in place, which radically reduces the cost of starting a business.

The second myth is that most entrepreneurs are just out of short trousers. Some of today’s most celebrated figures were indeed astonishingly young when they got going: Bill Gates, Steve Jobs and Michael Dell all dropped out of college to start their businesses, and the founders of Google and Facebook were still students when they launched theirs. Ben Casnocha started his first company when he was 12, was named entrepreneur of the year by Inc magazine at 17 and published a guide to running start-ups at 19.

But not all successful entrepreneurs are kids. Harland Sanders started franchising Kentucky Fried Chicken when he was 65. Gary Burrell was 52 when he left Allied Signal to help start Garmin, a GPS giant. Herb Kelleher was 40 when he founded Southwest Airlines, a business that pioneered no-frills discount flying in America. The Kauffman Foundation examined 652 American-born bosses of technology companies set up in 1995-2005 and found that the average boss was 39 when he or she started. The number of founders over 50 was twice as large as that under 25.

The third myth is that entrepreneurship is driven mainly by venture capital. This certainly matters in capital-intensive industries such as high-tech and biotechnology; it can also help start-ups to grow very rapidly. And venture capitalists provide entrepreneurs with advice, contacts and management skills as well as money.

But most venture capital goes into just a narrow sliver of business: computer hardware and software, semiconductors, telecommunications and biotechnology. Venture capitalists fund only a small fraction of start-ups. The money for the vast majority comes from personal debt or from the “three fs”—friends, fools and families. Google is often quoted as a triumph of the venture-capital industry, but Messrs Brin and Page founded the company without any money at all and launched it with about $1m raised from friends and connections.

Monitor, a management consultancy that has recently conducted an extensive survey of entrepreneurs, emphasises the importance of “angel” investors, who operate somewhere in the middle ground between venture capitalists and family and friends. They usually have some personal connection with their chosen entrepreneur and are more likely than venture capitalists to invest in a business when it is little more than a budding idea.

The fourth myth is that to succeed, entrepreneurs must produce some world-changing new product. Sir Ronald Cohen, the founder of Apax Partners, one of Europe’s most successful venture-capital companies, points out that some of the most successful entrepreneurs concentrate on processes rather than products. Richard Branson made flying less tedious by providing his customers with entertainment. Fred Smith built a billion-dollar business by improving the delivery of packages. Oprah Winfrey has become America’s richest self-made woman through successful brand management.

The fifth myth is that entrepreneurship cannot flourish in big companies. Many entrepreneurs are sworn enemies of large corporations, and many policymakers measure entrepreneurship by the number of small-business start-ups. This makes some sense. Start-ups are often more innovative than established companies because their incentives are sharper: they need to break into the market, and owner-entrepreneurs can do much better than even the most innovative company man.

Big can be beautiful too

But many big companies work hard to keep their people on their entrepreneurial toes. Johnson & Johnson operates like a holding company that provides financial muscle and marketing skills to internal entrepreneurs. Jack Welch tried to transform General Electric from a Goliath into a collection of entrepreneurial Davids. Jorma Ollila transformed Nokia, a long-established Finnish firm, from a maker of rubber boots and cables into a mobile-phone giant; his successor as boss of the company, Olli-Pekka Kallasvuo, is now talking about turning it into an internet company. Such men belong firmly in the pantheon of entrepreneurs.

Just as importantly, big firms often provide start-ups with their bread and butter. In many industries, especially pharmaceuticals and telecoms, the giants contract out innovation to smaller companies. Procter & Gamble tries to get half of its innovations from outside its own labs. Microsoft works closely with a network of 750,000 small companies around the world. Some 3,500 companies have grown up in Nokia’s shadow.

But how is the new enthusiasm for entrepreneurship standing up to the worldwide economic downturn? Entrepreneurs are being presented with huge practical problems. Customers are harder to find. Suppliers are becoming less accommodating. Capital is harder to raise. In America venture-capital investment in the fourth quarter of 2008 was down to $5.4 billion, 33% lower than a year earlier. Risk, the lifeblood of the entrepreneurial economy, is becoming something to be avoided.

Misfortune and fortune

The downturn is also confronting supporters of entrepreneurial capitalism with some awkward questions. Why have so many once-celebrated entrepreneurs turned out to be crooks? And why has the free-wheeling culture of Wall Street produced such disastrous results?

For many the change in public mood is equally worrying. Back in 2002, in the wake of the scandal over Enron, a dubious energy-trading company, Congress made life more difficult for start-ups with the Sarbanes-Oxley legislation on corporate governance. Now it is busy propping up failed companies such as General Motors and throwing huge sums of money at the public sector. Newt Gingrich, a Republican former speaker of America’s House of Representatives, worries that potential entrepreneurs may now be asking themselves: “Why not get a nice, safe government job instead?”

Yet the threat to entrepreneurship, both practical and ideological, can be exaggerated. The downturn has advantages as well as drawbacks. Talented staff are easier to find and office space is cheaper to rent. Harder times will eliminate the also-rans and, in the long run, could make it easier for the survivors to grow. As Schumpeter pointed out, downturns can act as a “good cold shower for the economic system”, releasing capital and labour from dying sectors and allowing newcomers to recombine in imaginative new ways.

Schumpeter also said that all established businesses are “standing on ground that is crumbling beneath their feet”. Today the ground is far less solid than it was in his day, so the opportunities for entrepreneurs are correspondingly more numerous. The information age is making it ever easier for ordinary people to start businesses and harder for incumbents to defend their territory. Back in 1960 the composition of the Fortune 500 was so stable that it took 20 years for a third of the constitutent companies to change. Now it takes only four years.

There are many reasons for this. First, the information revolution has helped to unbundle existing companies. In 1937 Ronald Coase argued, in his path-breaking article on “The Nature of the Firm”, that companies make economic sense when the bureaucratic cost of performing transactions under one roof is less than the cost of doing the same thing through the market. Second, economic growth is being driven by industries such as computing and telecommunications where innovation is particularly important. Third, advanced economies are characterised by a shift from manufacturing to services. Service firms are usually smaller than manufacturing firms and there are fewer barriers to entry.

Microsoft, Genentech, Gap and The Limited were all founded during recessions. Hewlett-Packard, Geophysical Service (now Texas Instruments), United Technologies, Polaroid and Revlon started in the Depression. Opinion polls suggest that entrepreneurs see a good as well as a bad side to the recession. In a survey carried out in eight emerging markets last November for Endeavor, a pressure group, 85% of the entrepreneurs questioned said they had already felt the impact of the crisis and 88% thought that worse was yet to come. But they also predicted, on average, that their businesses would grow by 31% and their workforces by 12% this year. Half of them thought they would be able to hire better people and 39% said there would be less competition.

http://www.economist.com/specialreports/displayStory.cfm?story_id=13216025