iinnovate 8: Alex Counts, Founder of the Grameen Foundation

Hi.  Welcome to iinnovate, a podcast about innovation and entrepreneurship with Julio Vasconcellos and Matt Wyndowe.   

Hello and welcome to another episode of iinnovate.  We mentioned last week that this week we would have Philip Rosedale from Linden Lab, the makers of Second Life, in this episode, but unfortunately we’re going to have to push that back a week due to some technical difficulties.  But as a special bonus, we’re going to be featuring a question to Philip from former Intel chairman and CEO, Andy Grove.  So I hope you enjoy that.   

We also wanted to make a quick announcement that this episode marks also the launch of video for iinnovate.  So, check out or blog iinnovatecast.com for the latest updates as well as all the video content, including some additional parts of the interview that aren’t featured in this podcast. 

I also wanted to take this opportunity to welcome our newest member of iinnovate, Min Li Chan.  Min Li is a great addition to the team, and Matt and I are really excited to welcome her on board.  We’re looking to include leaders and innovators on the podcast from a wider variety of fields, and Min Li has helped us with launching that with this episode.   

In today’s episode we are happy to bring you a true leader and innovator in the field of microfinance, Alex Counts, the president of the Grameen Foundation.  Alex was trained under Dr. Muhammad Yunus, who is the founder of the Grameen Bank and this year’s recipient of the Nobel Peace Prize.  Today the Grameen Foundation impacts an estimated 11 million people worldwide and continues to grow in its global reach of impact.  It was truly a pleasure to welcome Alex to the podcast.  We hope you enjoy the interview and thanks for listening. 

Min LI: We’re here in Palo Alto with Alex Counts, who is the president and CEO of the Grameen Foundation.  Welcome to the podcast Alex. 

Alex:  Thank you.  It’s great to be here. 

Min Li: Alex, what is microfinance and what is the relationship between the Grameen Foundation and the Grameen Bank? 

Alex:  Microfinance is an industry, or we think of it more as a movement, to try to bring financial services that we take for granted, loans, deposit services, insurance, that are actually so critical to us living our lives, even in the wealthy countries, and bringing those financial services to the poor.  A much higher percentage of them work for themselves than in the case of our country.  And for them, financial services are even more important, but right now they’re only available in most cases through loan sharks, who charge very high interest rates.  What we’re trying to do is create a movement or an industry to serve them efficiently, and so they can have the financial services that they want and need, at a reasonable cost, and that, the surplus they generate through having these services gives them the liquidity they need and financial management in pools they need – becomes a pathway out of poverty.  Grameen Foundation is focused on taking microfinance models that have been very successful in Bangladesh and bring them here in the National Grameen Bank that won the Nobel Peace Prize; model this in Bangladesh to a huge extent with six million clients.   

Min Li:  The Grameen Bank has been credited with sparking the microfinance movement about 30 years ago.  So what has changed in those 30 years and what sorts of innovations has Grameen actually perpetrated in that 30 years? 

Alex:  First of all, the term microfinance and microcredit didn’t exist back then.  Back then, the expectations were that you might be able to get some portion of your loans back; and so as a result, you could use whatever came back to lend a second time.  Because the performance has been better than expected, both in terms of recovering the principal, and also recovering the costs of providing the service through interest, we now talk about microfinance not only in terms of preserving a loan capital but meeting all of the costs of providing the credit to the poor.  That achievement, it’s really developed from a development project focus to developing a new business model serving the poor, rather than a development project focus.  The other innovations that you’ve seen and that we’ve been involved in relate to bringing other financial services, such as insurance and savings, that compliment credit, which was the original focus, and also bringing non-financial services, piggybacking on microfinance infrastructure providing health, nutrition, education, empowerment approaches that can benefit women and children.  These can be done much more efficiently through the microfinance infrastructure and we only had a dim awareness of this 30 years ago, but now there’s a whole innovation about how to use this infrastructure serving close to 100 million families to provide things more than just credit and maybe more than just financial services. 

Min Li:  I think you’ve said before that you’d like for microfinance to be more than just a financial product and more of a platform and this is what you mean. 

Alex:  That’s right.  Whenever we do economic analysis or even demographic analysis, the most marginalized parts of the population are kind of a rounding error.  We look at the wealthiest 20% or 40% or 60% and we say the poorest must be some fraction above that.  What microfinance has done, because no one else had done it, is actually go to the poor, go to their doorsteps, and ask them what financial services they want, and if they want them, to provide them; to get data on what they’d borrow, what they’d pay back.  What we see is once you have that relationship with them, then it’s more than a product, it’s the world’s largest aggregation of institutions with a direct relationship with the poor, not as a rounding error, but as people with financial needs and non-financial needs.  When you think about that infrastructure, and you realize most MFI’s meet face-to-face with their clients every seven days.  So in terms of educating them about products, providing them with services, there are 52 opportunities a year, direct contact opportunities.  You already have that because of the credit and the financial services, but you can do so many things with that on that platform.  Just to give one simple example: in Bangladesh and in poor countries, just like in rich countries, there are a lot of health myths.  People assume certain things about nutrition, and in this country it’s the Atkin’s diet or something that is out there, but there are health and nutrition myths in this country that are mostly harmless.  People gain a few pounds, lose a few pounds, were sick…  When there are health myths in a third world country and someone has a health crisis, it can be a life or death situation.  So because of these contact points between the educated people who work for microfinance institutions and the poor, you have 50 opportunities a year in most cases, to shatter myths, to provide accurate information on health, on nutrition, on political participation.  Grameen can let six million families know on seven days notice if there’s a new government program that they should be benefiting from but don’t know about; and that can change the whole dynamic if there’s a disease that’s striking livestock, that is true or just rumored to be true.  For us, information like that is a convenience; for the poor it can be a matter of life or death.  And there’s really no other platform that exists, except for perhaps governments, which are not terribly efficient in most cases, in which they have that direct relationship seeing more than 50 times a year, having contact with, doing business with, half-a-billion of the world’s poor. 

Julio: I’d like to turn a little bit in terms of what your vision is for Grameen in the future.  One of the things we did before this podcast was reach out to some of our audience that is really interested in microfinance and ask them for some questions.  Jessica Flannery, who is one of the people who started Kivo.org, she asked, “What is Grameen’s expansion strategy for the future?”  And as a followup, “What role does Africa play in that expansion strategy?” 

Alex:  I think our vision at a conceptual level and that Dr. Yunus has articulated very well is the idea of achieving a real breakthrough, a historic breakthrough in the question of not poverty, because there’ll always be people that are relatively poor and relatively less poor, but abject poverty, absolute poverty.  We want to put that in museums, and to break through the cynicism that the poor, the absolute poor will always be with us.  The high level, that’s our vision.  The way that you do that through microfinance and complimentary approaches, is you really need to measure what’s happening to the poor when they borrow, because some borrowers in some programs in some regions of some countries achieve a very rapid progress, two to three years in the matter of poverty.  Others, it’s a very long time, or even people stagnate before they get to the poverty line or fall backwards.  So being able to rigorously, but in a time-sensitive way get data, about what’s happening to the borrowers, we as an industry have a long way to go and we’ve tried to develop a tool, Grameen Foundation, for our partners that we’re making freely available and in an open-source kind of way, and we’re going to be developing it in more and more countries.  Once we have that data, we’ll also be able to counter the argument that we’re just doing; we’re making money off of the poor.  We’re making money off them, but the poor are making money off of us.  But we can’t prove that now like we should be able to do.  And in Africa, I’m very excited to say, that where we’ve only been active really in two to three countries in sub-Saharan Africa, Northern Africa, we’ve had a bigger role, we are bringing into our board, literally in about ten days, a very bold Africa strategy.  And I’m in fact here in the Bay area raising money to launch it and had some early successes.  To go into a significant way into eight other African countries and then after that into another four from the two we’re in now.  One of the things I’m very excited about is working with other social movements.  There are other movements: there’s the Women’s Movement, there’s the Movement against AIDS, there’s the Environmental Movement, that all sorts of synergies are not yet explored and that one of the most exciting ones is the movement, the one campaign and the work that Bono’s been doing, and that’s been one of the inspirations is to join forces with the one campaign and everyone associated with that to really have a much more aggressive attack on poverty in Africa, which is arguably the only region of the world that’s moving backwards in terms of poverty. 

Julio: Why do you think it is the case that Africa has been so underserved in microfinance today?   

Alex:  I don’t know.  You people have theories about dispersed populations and the fact that the transaction costs are much higher.  I think that’s probably part of it.  That’s why we’ve made a big investment in Grameen Foundation and in our Grameen Technology Centre, which is operating in Seattle, with which we’ve been able to track volunteers and staff who have a deep commitment to taking technology, which has transformed all of our lives, that are in the richest billion people in the world, and figuring out how that they can also transform microfinance institutions and microfinance clients.  And we’ve made some early small successes, but we think that the biggest things are in front of us, and those technology applications, breakthrough applications for the core and the MFI’s that serve them, that’s going to help most countries in Africa, or let’s say in Indonesia or Philippines where you have many, many islands and people dispersed among islands.  The transaction costs are very high there.  They can be brought down to some extent with respect to technology.  And then I think that in sub-Saharan Africa, I just don’t think that a leader of Dr. Yunus’ caliber has come forward yet, who is an entrepreneur, who has very high ethical standards, who has that total package who can become the kind of focal point for the movement and be the inspiration.  There are some great leaders, but no one has emerged yet, and I think when you have a leader, and then you can bring the power of technology, I think Africa may leap over the rest of the world. 

Julio:   Could you speak a little bit more about the role of technology in microfinance and how you think, more specifically web and mobile technologies are going to impact microfinance going into the future? 

Alex:  I think there are two broad categories.  One of which is, I think, that technologies have a potential to be what I call a business in a box for the poor.  We’ve experimented with two things so far, one is kind of a, we call a village computing centre, where we’d set up a borrower with about $1000 to have two computer terminals, a printer, and to basically be like a mini Kinkos.  That worked pretty well but the whole financial model, to scale it, we never could quite figure out in that form, so we’ve done a few pilots, modestly successful.  What has worked better is a mobile phone.  People want to make phone calls, figure out how to do their business more efficiently.  They want to know whether to sell their produce in Nairobi or some other town.  Well, in the past you needed to send someone there, now you call.  So this can bring new efficiencies to business and many other things, but the potential when you have the phone, technology business in a box, brings in all sorts of things related to telemedicine, distance learning, that are not fully explored, and where you have illiteracy you can get the voice recognition technology in many languages down.  This opens up all sorts of doors that distance and language may close.  And so we’re making an investment and trying to set up borrowers with mobile phones, which then on that platform, you can build many other things which still need to be developed.  The other big application of technology is to help the MFI’s track their loans and transfer money much more efficiently than is being done now.  Tracking the loans, the software that has been developed for the microfinance industry across the board is not very good.  Even if it is working, it’s not scalable.  So we’re developing an open source solution, which is really a platform of common data standards that we customize and will be a breakthrough in the market.  We call that project “Mifos.”  We’re now doing beta testing in Tunisia and in India.  The other area is about the technology developed in the Philippines to transfer money from cell phone to cell phone using the text messaging technology.  If you can do that, imagine where you could reduce the number of contacts between the bank and a woman on a remote island in the Philippines from once a week to twice a month.  But still, the money can be paid on time through her phone.  Also imagine that a loan officer doesn’t need to receive cash, and then carry that and potentially be mugged on the way home, but all he does is he observes a woman sending it from her mobile phone, or his mobile phone to an account in the bank, and so it becomes cashless and riskless.  And so these are a couple of the ways we see technology transforming microfinance like it transformed all of our lives in the last 10 or 15 years. 

Min Li:  Does microfinance always work? 

Alex:  It sometimes breaks down or at least stagnates for a time in the wake of major natural disasters, civil unrest; also where there are major pandemic health crises that affect every family or most of them in a society.  And I think in general, not every person that borrows from an MFI is going to thrive, and maybe they need additional products or bridging products that take them from destitution to microfinance readiness.  And that’s a whole area of innovation in the field right now, saying subsidized programs, that maybe you subsidize from the profits of lending to people who are doing relatively better, to get people prepared and Grameen Bank has a very well-known program, called the Beggars Program, or Struggling Borrowers Program, where they provide interest-free loans and a mosquito net and an umbrella, and very basic things that will just allow you to stabilize your life.  You don’t make money on it, although it is a loan, interest-free loan, you lose money on it, but they generate a lot of excitement because people never thought you could do anything for beggars, and it generates new customers because within two or three years they give up begging, they don’t need the interest-free loans anymore – they can join it in a regular way and succeed.  We’re trying from Grameen Foundation to take a version of that program to Haiti, which is the poorest country in our hemisphere, and again say that not everyone is ready for microfinance, but for those who aren’t, we should be able to find ways relatively cost-effectively to help make them ready. 

Julio:  I’d like to hear a little bit more about your own personal leadership experience.  What specific challenges leading a great innovative organization have posed to you in terms of being able to set that organization up in a way that it can continue to innovate beyond picking some of the lower-hanging fruits and really making the big impact and note what your vision includes. 

Alex: If I look at all the points in my career, having been in microfinance for 18 years, I think the biggest single factor working in my favor was my naivety.  As a Cornell student I had this idea that this professor in Bangladesh was doing something good and I should get involved in making it a global success story, and I really wasn’t smart enough to know that that was a very naive simplistic way of looking at world poverty.  But because I didn’t, I launched into it and made all sorts of mistakes, but met enough people who mentored me and pointed me, and ultimately the vision was kind of realized.  Same thing of starting Grameen Foundation, where if I had any more, any sophistication at all, I would have realized that starting a non-profit with $6000 in seed capital was ridiculous.  I should have held out for people associated with it to raise more and they might not have done that, but, not knowing better, I launched, we raised money, columned it together.  Now that we’ve stabilized as an organization and are raising about $10 million a year and on course to raising $20 million a year by 2007, and also raising volunteers and loan guarantees and other things that aren’t cash, but that make an impact.  At this point, the key thing that we’re trying to do on all levels, at the board, at the staff level, at volunteers and partners, is to just attract, is to set our sights very high to attract and to keep top talent.  I mean the best people, you know, which takes a certain amount of humility on my part because I’m constantly attracting people that are more talented than I am, in one way or often in many ways.  And so that’s the key management challenge and personally is to be aggressive in bringing those people in, again whether financial supporters, volunteers or colleagues, and then to keep raising the bar and keep them interested in what they’re doing so they stick around and make a long-term commitment. 

Julio:  For our listeners out there that want to get involved, what can they do to make a difference? 

Alex: I think the first thing is to educate yourself; our website, GrameenFoundation.org has a lot of information about figuring out if this is a movement, an industry that appeals to you.  You need to make an informed decision, either as a volunteer, as a financial supporter, or as a profession.  There are many other excellent organizations, Axion International, Opportunity International, for people that come from a faith perspective and across the board, check them all out, different ones fit for different people.  There’s something called the microfinance gateway, which is a kind of information platform for microfinance.  There’s also something else very important, this global campaign called the ‘Microcredit Summit Campaign’ which has set a bold goal, that we’re going to come very close to reaching for 2005 in microfinance and has now set other goals for 2015.  So that’s the kind of global rallying point for all people.  Once you’ve connected with the players, educated yourself, I think people, whether again they want to do so in a volunteer capacity, in a capacity as a financial supporter, or as an employee, people will find their niche if they just have their own naïve idea that this is something that appeals to me, and this is a movement that needs me, and I just need to spend some time finding what it is, because as an industry, we’re making great progress but we’re still very immature, we’re very fragmented and have reached a small percentage of the efficiency and the scale that we need to, to have the impact that we will.  So there are many ways that plug in and again the simplest way is to volunteer your time, to volunteer your money, and to volunteer to educate yourself, to just know what this movement is about and where it’s going. 

Julio:  Thank you so much for coming on; it’s been a pleasure. 

Alex:  Thank you very much. 

Thanks for listening.  A transcript of this interview as well as bios and comments are available at iinnovatecast.com.