Microfinance vs Subprime lending

Yep, I'm back. Yep, bin bizzy. Nuff sed. (Well, prob'ly I'll share some fun bits in future posts.)

Many topics have been churning through my head as really good blog topics. This topic broke through the threshold first, mostly because I wrote the core of it for another purpose and figured, hey, it's all about leverage.

A few weeks back I enrolled in an online certificate program with Colorado State. My first course was Microfinance and the Role of Women in Development. I read Muhammad Yunus' must-read book, "Banker to the Poor" as part of the assigned content. I just finished and submitted the last assignment, which was to define a microfinance program for a particular area. I chose Haiti as my target area. I have no connection to Haiti other than having read about it in both (also must-reads) "Mountains Beyond Mountains" (Tracy Kidder), and "Collapse" (Jared Diamond). It just seemed like a good target. Somewhere in the mental processing involved in my assignment, the connection to the subprime situation came to my mind, so I wrote an "afterword" to my assignment. Read on...if you dare!

I want to comment on the contrast between the micro-finance programs delivered in the developing world, and the "subprime mortgage" situation in the US (which has been all over the news in the US, and probably fairly prominent in the financial news elsewhere in the developing world, as repercussions from the subprime crisis echo through the various stock and bond markets).

My comment is that there is similarity in that in both cases there is the idea of lending to people who historically did not have access to credit. Also, interest rates are typically higher for subprime borrowers than for "prime" borrowers, just as they are higher for micro-borrowers. Similarities seem to end there. Differences are that, while microfinance focuses on increasing economic productivity, subprime lending was for housing (which at least in the US is not likely to boost productivity). Lending to subprime borrowers is not done in "groups". It is very difficult to restructure the subprime loans (often that is why subprime borrowers default, because they are unable to refinance). Lenders do not maintain relationships with the subprime borrowers. The way loans are typically handled in the US, the loans themselves are "sold" to a third party who has no direct connection to the borrowers. Other big differences are that the subprime loans are secured (which effectively makes it possible for banks to leave the door open for defaults), that the terms of the loans are long, and the payment period not so frequent (monthly instead of 2 or 4 times per month) so that trouble is not spotted as quickly.

I don't know if the subprime lending concept or movement was inspired by the success of micro-finance, but if so, it's clear that there is so wide a gap between the real world versions of these programs that it's not appropriate to predict success of one from the success of the other. Also, given the legal/political/cultural differences between the US and the developing world, it's not at all clear that micro-finance ideas are workable today in the US. Yunus seems to acknolwedge this in his book as well.

Okay, well it wasn't really that big a dare. I guess a bigger dare is to myself: dare ya to post again within a week!

Ooh! Now that's a dare!

[Afterword to this post:
After I wrote this post, I moseyed back through adding hyperlinks. Adding the hyperlink to the Wikipedia article on Microfinance was illuminating. Seems like I might have read that article as part of my class, but nope. The criticisms are informative, and yet my sense is that many microfinance programs are beneficial in the "do-more-good-than-harm" sense.]

Unintended consequences

Several events lately have gotten me thinking about Unintended Consequences. I'm thinking that the world needs a good popular book helping to elucidate the concepts behind unintended consequences. I'm thinking it should be written by either Bill Bryson or Jared Diamond. Maybe we could use two books, since these guys have really different styles.

We see examples of this all the time. The Wikipedia link above has several. The most striking examples are the ones where the unintended consequences are nearly the opposite of the intended consequences. Often what happens is that the intended consequence is a short term outcome, but the long term consequences are the reverse. These results frequently show up in situations where the factors involved are just a bit more complex than we give them credit for.

On example that keeps popping up in my consciousness is labor policies in some western European countries. They pass laws meant to protect the working class, essentially making it very hard to dump an employee, either fairly or unfairly. This probably reduces the anxiety of workers, but in the long haul investors quickly figure out that there's a lot more risk in building up a workforce in these countries, and so the investment dollars go elsewhere and fewer new companies are started in these "labor protecting" countries than might have occurred otherwise. Unemployment tends to rise. This does not seem to be good for the working class in the long term.

A separate notion is the potential reduction in productivity caused by a work force that doesn't worry much about how well it is performing. BTW: I'm something of a liberal, but nevertheless respect that market-based economies, when they are working, do a better job of making use of peoples natural tendencies to respond to incentives. And, of course, conservative policies are not exempt from unintended consequences. Recent US foreign policy was intended to make Americans feel safer, but it has arguably achieved the opposite.

Another example is a story (this should have a reference, but I can't find it right now...anybody know it) about archaeologists paying a small "bounty" for fossil fragments brought in by locals. This seems like a really cool idea, right? The archaeologists get to enlist a bunch of help in their work, plus the locals get some extra money! What could be better?! Except that there was no distinction made about the size of the fragments, and so some clever locals realized that they could get more bounty by breaking the fossils in pieces. Youch. That seems pretty counter to the desired outcome.

A very simple example doesn't even involve people (well, mostly). On cold or rainy nights, we occasionally choose to contribute a bit to global climate change by using our fireplace. (Okay, even without using the fireplace, our natural-gas-burning furnace still contributes.) But while a lovely crackling blaze in the fireplace does a fair job warming the family room, it actually makes the rest of the house colder. Say what? You must be imagining it! How can a fire make something colder? It can do it by impacting other responsive elements in the larger system.

You see, the thermostat for the furnace is located in the family room. The fire warms the family room, and the thermostat does not signal the furnace to start up. But the fire really only warms the family room, while the furnace would warm the whole house. The other rooms truly do get colder. This simple demonstration of the problems that can arise when twiddling a small piece of a larger complex system (that is, a system that includes various responsive elements).

In the other cases as well, it's the unanticipated changes by responsive elements that lead to the unintended outcome. Investors change their behavior, locals game the system, etc.

Now, one potential unintended consequence of getting too caught up in unintended consequences is that policy decisions might get stuck in analysis paralysis. That can sometimes be worse than implementing a flawed policy. Instead, be alert to the ways in which the larger system might shift but have a slight bias toward action. Stir in a dollop of responsiveness on the policy side as well. But keep the deep analysis running in the background. Otherwise you may have a recipe for a series of incremental policy twiddles and responses, that give you a random walk through human behavior without achieving any desired outcomes.

Tell me your examples of unintended consequences. Good examples help us to understand how these things work, and so perhaps we can avoid bad outcomes a little more successfully in the future.

Richness: Good, Bad and Ugly

Long time. But worth the wait :-)

About 3 weeks back I read LeftVegDrunk's post, A disjointed feeling, wherein he describes the weird feeling of sitting fat, dumb and "way too rich" in Australia, on a break from aid work in Indonesia. His post prompted a comment from me (you can read it there), wherein I wonder out loud whether a nation or culture can achieve the "good kind of rich" without also falling into the "bad kind of rich".

The Good Kind of Rich is, basically, having the basic necessities for a good healthy life. Clean water, health care, education, things like that. Leading to good things like long lifespan, low infant mortality, safety and security, and so on. That is a kind of richness, and I deem it "good". This is mindfully using your wealth, in whatever form, to get things of value.

The Bad Kind of Rich is, simply, taking things for granted. Where this goes, of course, is that necessities invisible, and things that were luxuries soon become necessities. Part of this is human nature. Part of it is a real consequence of how our systems work. It's pretty hard to travel by plane without a credit card these days. Internet is becoming pretty indispensable, not to mention cars, cell phones, voicemail.

But this recasting of luxury into necessity is not so bad in itself. Indeed, there's some eco-benefit to getting your news online versus hand delivered, and telecommuting versus rush-hour traffic.

The bad part is wastefulness and/or mindlessness. The amount of energy and natural resources that we consume unconsciously is vast. Oops, left the light on, the sprinkler going. What say we just drive over to Bob's house and see if he's around. I love my black car, but it sure gets hot in there on a sunny day. Whenever I get in, I've got to power down the windows and crank the AC up full. Nothing like a nice, long, long hot shower after a tough day, uh, couch surfing. You know, I really prefer wild salmon to the farmed.... Yes, I'll have it blackened, please, with cajun sauce.

Who is the victim here? From any single act, it's hard to imagine. But us treehuggers are aware of the impact on the broader scale. IMHO, the impact is largely the result of mindless consumption. That is, if we only consumed mindfully, our environmental situation would be far better off. Most of us in the developed countries have lives that make unconscious consumption hard to avoid. Who's got the time to think about every element of consumption? And I'm as guilty as the next, despite my hybrid purchase, so rest assured that I'm not looking to throw stones. Solution? Mindfulness is a start. But more on that in some future post.

What about the Ugly Kind of Rich? To me, this is about consciously using your wealth or power or position to exploit others in a weaker situation. It happens all over. Another word for Ugly Richness is corruption. I just came across an enlightening example in a post by LeftVegDrunk's close (really close!) friend, Vasco Pyjama.

We in the developed world have vast amounts of Good Richness, much Bad Richness, and a moderate bit of Ugly Richness. I'm not well versed in the developing world, but I imagine that there's a shortage of Good Richness, not that much Bad, but a relative surplus of Ugly.

Why mention it? Hmm. I'd like things to be different, in both the developed and developing worlds.

And mindfulness is a start.

Blogs, Wonderful Blogs!

I missed an opportunity to post...but never late than never! Right? Right!

I recently listed several of my favorite international blogs in a seriously-overdue Feeds Favorites list here at Resolution. I read most of them frequently. Since posting those, I've gone on and found several more blogs --I happened to be in a Kenya mood... Once I've had a chance to find some more favorites, I'm sure I'll add to my list.

I encourage you to check them out. You can gain great exposure to what the world is like in some third world countries. Here are a couple of favorite posts as examples, from Togo, Kenya, Togo and Indonesia:

How are white folks perceived?
How are black folks perceived?
What kind of education is available in developing worlds?
What, er, sort of facilities are there in these places?

Now, keep in mind that these are NOT all typical, which is why I remember them. But they are nevertheless enlightening, and actually very fun to read. I'm seriously amazed at how good some of the writers are. (Maybe I shouldn't be so amazed, because of how the magic of technology and networking works... You never hear about the zillions of crummy blogs. Even searches will tend to find popular blogs, which tend to be popular because they're better written than other blogs.)

For my less blog savvy friends, here are some suggestions to make blog reading simpler and more enjoyable.

1) Subscribe to the blogs you like. There are many many ways to do that. What I think is simplest and most effective is to have the "feeds" delivered to your home page.
2) If you haven't already created a home page, well then I would suggest that this is yet another good reason to have a home page. I've chosen Google, but I used to use Yahoo, and they're both pretty flexible. In either case, you can have your computer remember all the right stuff and easily view new blog entries with little effort.
3) An advantage of Google is that subscribing to new blog feeds is made very easy if you have installed the Google toolbar. Somehow, the toolbar knows what sites have "feeds" and turns on a subscribe button. Clicking that button adds the "feed" to your Google home page. (Sometimes, there are multiple feeds to choose from. I pick one at random and can't tell the difference.)
4) Read. Read the new posts that pop up on the feeds. For the more interesting posts, you'll probably enjoy comments that others have left. Click on them. You don't have to read ALL posts or ALL blogs or ALL comments.
5) Leave comments. Bloggers love them and you get a chance to join the conversation.
6) Follow links from one blog to another
7) Check blogger profiles for blogs that you find interesting. Amazing what you learn about people and perspectives. You think a blog is written by a resident of Nairobi, but, nope, turns out they live in London. Or similar. You thought they were Christian, but turns out they're Buddhist.
8) Share! Email your favorite blog posts to your friends. There are some wrinkles here... Blogs have their own URL (i.e. web address), but what appears at that address may change quickly. If you want to share the whole blog, then use the blog address (usually that's the shortest address). On the other hand, if you want to share a specific post, then you will want the "permalink". How do you find that? Sigh. Well it depends... If you see the name of the post under "recent posts", you can click on that and you'll usually get the "permalink" in the navigation bar of your blogger. In "blogspot" blogs (like this one), the permalink is available, rather cryptically, in my opinion, by clicking on the time marking just following the post. In my browser, hovering the cursor over the time causes a little message to pop up, saying "permanent link".
9) Want a different perspective on something? Anything? Search for the topic using a blog search tool. True to my Google bias, I use Google Blog Search. Pick a tool (or two or three) and bookmark them for easy reach.

So now you know everything you need to know! But maybe not. I've probably lied a bunch without knowing it. If I have, and you know it, then please leave a comment for the benefit of me and others. If you think I told the truth, but aren't sure, read the comments! Wiser folks than me will tell the real story!

Welcome to the Borg

Been away. I'll spare you the excuses. The good news is that I've got great news, and that has compelled me to return and post! Be patient, the "Borg" thing comes toward the end...

From September through December, my favorite pastime has been working at Appropedia. During that time, the site has grown, and I can see my own impact in helping that happen. The three core activists at Appropedia finally managed to have an actual phone call, with all three participating, late in December, and at some point I was celebrating the progress and the traffic at Appropedia and casually projected 10x growth over the coming year. Lonny, the actual founder of Appropedia (Chris and I both founded our own wikis before deciding to jump on board Lonny's), countered that he believed we need to be at 100x by the end of 2007.

Yipes!

Well, after the call, I decided to do some math (that's what you do if you have a BS in physics). I had already captured some Appropedia statistics for a few months, so I had some numbers to work with. It turned out that, as long as we continued to grow as we had been growing, Appropedia would very likely hit the 100x traffic target Lonny had suggested. Well, that was very encouraging on one hand, but really just changed the question around. Okay, so how the hell are we going to keep on growing like we did before? The way a little bitty site grows 50% is not the same way that a bigger site grows 50%. Great. How do we achieve the NEXT level? I started wondering what the New York Times charges for ads.

A day or two later, Chris shoots an email thread with notes he had swapped with Eric, cofounder of WikiGreen, a larger but much less active (essentially hibernating) wiki with nearly identical goals and motivation. (The reduced activity at WikiGreen seemed to be a result of very limited "marketing" activities on their part compared to Appropedia.) The discussion was, basically, what might we do together? Eric mentioned that he had been in extended discussions with another semi-aligned group about the possibility of them hosting or joining WikiGreen. Or something. Seemed like the other group was finally interested. At the same time, Eric made several inviting comments with respect to WikiGreen and Appropedia joining forces. At the end of the thread, Chris suggests that we try to engage with the third party since that would be the best outcome.

Boy did I squirm!

Here we had two parties very much aligned and ready to rock & roll, plus a third party who had demonstrated extended reluctance. I could see where Chris was coming from, but I figured, hey, if those other guys are truly interested, it won't matter which partnership comes first, right? But I carefully checked in with Chris first, and he asked for my patience. So I was extremely patient and basically waited an entire day. Maybe it was two. At some point, Eric sent a reply to the thread. I couldn't help it. I blurted out a reply suggesting what a great opportunity there was, since Appropedia had good marketing, but WikiGreen had more content. Wouldn't it be great to get both at one site? How about partnering first and checking in with the other group later? I proposed Appropedia as the destination, but left open the WikiGreen option.

Well, it turns out that Eric was online when I replied, and felt quite the same way, mentioned that he felt Appropedia made more sense as it was better known, and things got busy quick. Several ensuing emails were all about how to do it. By the time Chris checked his email, the migration was nearly complete. (Okay, I exaggerate, but the plan for migration was pretty baked at that point; I think that was late Thursday, January 4th. By late Friday all the images had been transferred and about half the article text. It finished on Saturday, except for the large number of loose ends.) Chris very kindly forgave me before I even got a chance to ask forgiveness, and he even expressed his joy that I had been so bold. Anyway....the point is, we had decided that Appropedia was the Borg, and WikiGreen would be assimilated.

Voila! Bingo! Bob's your uncle!

Suddenly, Appropedia has 5 times the number of articles!

It didn't occur to me to do a few before-and-after statistics captures, so I don't know precisely when and how much changed as a direct result of the merger, but thanks to some help from Lonny and his Google Analytics, we can say that overall page views at the site are up about 150% (so about 2.5 times what they were), and distinct visits are up 200% (3x what they were).

This is stunning!! The totals are a lot more than the sum of the independent wikis. I had suggested as much in my promotional email, but I figured it would take a lot longer. So, at this point we are well ahead of schedule toward the 100x (that was assuming a nice steady monthly growth rate, roughly 42% month-over-month...turn your textbooks to page...zzzzz). But now I seriously AM thinking of NY Times ad rates, or who to acquire or something. And gee, there sure is a lot of work to do, too!

Wanna join the party? We can use you! Come visit the site, or leave a comment, or send me an email. See ya there!